Medicare Parts A and B (known as “Original Medicare”) in fact don’t cover all healthcare-related expenses. In fact, the program has significant gaps: many of which you must plan for to ensure healthcare expenses don’t derail your retirement plans. Let’s take a closer look…

Original Medicare, defined

Our country’s Medicare program consists of four parts (A, B, C, and D), each covering specific services. With respect to Parts A and B, the government pays providers directly for patient services spanning the following: care in a hospital or skilled nursing facility, in-home hospice, limited home healthcare services (Part A), and medical services and supplies necessary to treat health conditions (Part B).

While almost all doctors and hospitals in the United States accept Original Medicare, supplemental coverage is still needed to ensure most health-related expenses are accounted for. Here’s why…

Medicare doesn’t cover long-term care

According to the U.S. Department of Health and Human Services, there is an almost-70% chance someone celebrating a 65th birthday today will need some type of long-term care (LTC) services in the years to come (with an estimated 20% requiring care for more than five years). Unfortunately, many people incorrectly assume that Medicare covers long-term care, but the truth is that it doesn’t—except in very limited circumstances.

Long-term care is also very expensive. Recent Genworth data estimates median annual home health aide costs are $68,526 (and rising!) in the state of New Jersey. Even if you plan on retiring in a warmer locale such as Florida, know that median costs are not much lower in other states ($57,200 in the Sunshine State, for example). Fortunately, you can rely on a few options to ensure your long-term care needs are covered.

Medicare doesn’t cover deductibles and copays

Did you know there is a $1,632 Medicare Part A deductible for in-hospital stays per occurrence? Moreover, if you remain in the hospital for more than 60 days, you must pay a portion of daily expenses ($408) up until the 90th day—and are on the hook for $816 per day thereafter.

The annual Medicare Part B deductible is currently $240; once this is met, you are typically required to pay 20% of the Medicare-approved amount for most physician services, outpatient therapy, and durable medical equipment. Consequently, your out-of-pocket expenses can add up rather quickly.

Medicare doesn’t cover overseas expenses

Original Medicare doesn’t cover medical care needs beyond U.S. borders, although exceptions do exist such as medical emergencies, the close proximity of a foreign hospital, or receiving medically necessary services from a qualified physician on a cruise ship docked at or near a U.S. port.

Medicare doesn’t cover vision/dental services or hearing aids

Medicare also doesn’t provide coverage for routine dental visits, teeth cleanings, fillings, dentures, or most tooth extractions. Likewise, routine eye exams and eyeglasses aren’t covered either. Need to get your hearing checked or the help of a hearing aid? Unfortunately, you’re out of luck with Original Medicare.

Medicare doesn’t cover prescription drugs

Original Medicare doesn’t provide coverage for outpatient prescription drugs, but you can buy a separate prescription drug policy through either Medicare Part D or a Medicare Advantage plan.

Medicare-approved private insurance companies administer Medicare Part D, which helps pay for both brand-name and generic drugs. You must have Medicare Part A and/or Part B to qualify for this optional plan.

Note that the average Medicare Part D premium is around $55 a month, but you might need to pay more depending on your location, income, and tax-filing status.

What’s more, upon reaching the 2024 spending limit of $5,030—the combined total of what you and your plan have paid for—you’ll enter what’s known as the “coverage gap” (formerly known as the “donut hole”) whereby you’re responsible for 25% of prescription drug costs.

You’ll leave the “coverage gap” and enter “catastrophic coverage” territory after paying $8,000 for out-of-pocket covered drug costs in 2024. Despite the scary-sounding name, this simply means you’ll pay significantly lower copays or coinsurance for covered drugs for the remainder of the year.

It’s also important to note that 2024 is the last year for this approach; a $2,000 out-of-pocket cap takes effect for Medicare Part D starting in 2025.

Other items and services Original Medicare doesn’t cover

Unfortunately, the list of non-covered services goes on. For example, routine podiatry services (e.g., callus and dead skin removal) or elective cosmetic surgery are generally not covered—though the latter sometimes is if due to an accidental injury or necessary after another treatment, such as breast reconstruction following a mastectomy.

Furthermore, Original Medicare doesn’t cover most chiropractic services or tests a chiropractor may order (e.g., x-rays). The same goes for massage therapy, weight-loss medications, adult diapers, and orthopedic shoes and inserts (unless you’re a diabetic diagnosed with severe diabetic foot disease by a Medicare-participating physician or podiatrist and use a Medicare-approved supplier).

Acupuncture is also generally not covered, though Medicare Part B extends to acupuncture treatment for chronic low-back pain unrelated to cancer or an inflammatory condition—with the number of sessions covered often limited.

How to fill in the coverage gaps

Most Medicare beneficiaries often turn to Medigap (also known as Medicare Supplement Insurance) or Medicare Advantage (also known as Medicare Part C) plans to ensure they have coverage for essential services not covered by Original Medicare. 

Medigap policies are standardized as required by the federal government, regardless of which insurance company sells them—meaning companies can only offer policies from a list of about ten standardized plans, each denoted by a letter: A, B, C, D, F, G, K, L, M, and N. It also means a Medigap plan with a given letter will offer the exact same benefits (though priced differently) no matter where you buy the policy—with the exception of Massachusetts, Minnesota, and Wisconsin, which standardize their plans in a different way.

Plan G is currently one of the more popular (based on enrollment data) and comprehensive plans available. According to the Medicare website, a non-smoking 65-year-old male in Ridgewood, New Jersey will pay anywhere from $154 to $484 monthly for Medigap Plan G. A non-smoking female with a similar profile would pay a little less, with monthly premiums ranging from $138 to $422.

Similar to private health insurance, most Medicare Advantage plans operate akin to a health maintenance organization (HMO) or preferred provider organization (PPO). While HMOs require patients to see physicians and providers in the plan’s network and service area for the lowest costs, PPOs allow members to see out-of-network practitioners but also often require higher payments for such care.

If you join a Medicare Advantage plan, you’ll still have Medicare but receive most of your Part A and Part B coverage from your Medicare Advantage plan rather than Original Medicare.

According to KFF—an independent health policy organization—premiums typically range anywhere from $0 to about $200 a month, with only about 13% of enrollees paying more than $50 monthly. The average premium is $18.50 a month across all Medicare Advantage plans.

While these plans certainly have their benefits, it’s important to note that neither cover long-term care expenses—although some Medicare Advantage plans may cover extended time at a skilled nursing facility.

Check out this article to help determine whether Medigap or Medicare Advantage is right for you.

In sum: what Medicare doesn’t cover

As you can see, healthcare isn’t cheap. In fact, Fidelity estimates that the average couple will need to cough up $315,000 for medical expenses during retirement—and that excludes long-term care! Coupled with the fact that Medicare isn’t the simplest of programs to navigate, it’s easy to see how speaking with an expert (i.e., a financial planner) can help you better plan for your future in this respect.

Still have questions about Medicare coverage? Schedule a FREE Discovery call with one of our CFP® professionals.

———

Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.