Funding strategies to help you plan to meet medical expenses.
A topic of major concern to all Americans is the cost of health care. Federally funded programs like Medicare and Medicaid seem complex and uncertain to many people. It’s important to understand the role of these government–sponsored programs as you investigate other funding strategies that are available to help you meet your future medical expenses.
Medicare
Medicare was founded in 1965 to serve as a safety net to help cover some of the costs associated with health care for older Americans and those with certain disabilities.
It’s an insurance program administered by the Centers for Medicare and Medicaid Services, an agency of the federal government.
You are typically eligible for Medicare after 10 or more years of working and paying Social Security taxes.To begin receiving Medicare benefits, you must be age 65 and a U.S. citizen or permanent resident. If younger than 65, you can qualify for Medicare if you have end-stage renal disease or certain disabilities.
Medicare has two parts: Part A covers hospital benefits and Part B covers all other medical care.
Part A:
You can get Part A at age 65 without having to pay premiums if:
- You are already receiving retirement benefits from Social Security or the Railroad Retirement Board.
- You are eligible to receive Social Security or Railroad benefits but have not yet filed for them.
- You or your spouse had Medicare-covered government employment.
If you are under 65, you can get Part A without having to pay premiums if:
- You have received Social Security or Railroad Retirement Board disability benefit for 24 months.
- You are a kidney dialysis or kidney transplant patient (after 28 months).
Part B:
Even if you qualify for Part A without paying a premium, you must pay for Part
B if you want it.There is a monthly premium associated with Part B coverage. Part B covers care outside of hospitalization such as physician/surgeon services, outpatient services, ambulances, physical therapy, mental health, and some medical supplies and equipment. Part B does not cover routine checkups, hearing aids, or other “extras.”
As baby boomers reach their golden years, programs like Medicare may not be able to bear the strain of the sheer number of people requiring all types of medical care.
Long-term care
Long-term care can include a stay in a skilled nursing, intermediate care or residential care facility. It also might include home health care, hospice care, and around-the-clock nursing home care. Today, a one-year stay in a nursing home averages $55,000. By 2030, the same stay will cost an estimated $190,000.And illnesses like Alzheimer’s, Parkinson’s or multiple sclerosis can require years of nursing home care, not to mention the tremendous stress imposed on the family and caregivers.
It’s not surprising, then, that health-care costs are the biggest retirement expense for some Americans. Medicare offers only limited benefits to pay for long-term care. Individuals with limited retirement savings could become financially crippled if long-term care becomes necessary.
Beyond Medicare – other options for funding medical expenses
Depending upon where you live, you may have access to a Medicare managed care plan or a Private Fee-for-Service plan. Options include the following:
Medicare managed care plans
These “Medicare + Choice” plans are like HMOs. In most cases, you can only go to doctors or hospitals that are part of the plan and you need a referral to see a specialist.These plans must cover all Part A and Part B benefits, and some cover
extras like prescription drugs, dental services and eye exams.
Private Fee-for-Service plans
These “Medicare + Choice” plans are only available in some areas of the country. The plans are offered by private insurance companies instead of the federal government. Medicare pays a set amount of money every month to the insurance company to provide the coverage. The insurance company, in turn, collects payments and deductibles. Under Fee-for-Service plans, you can go to any doctor or specialist you want without a referral (as long as they agree to accept your plan’s fees).These plans must cover all Part A and Part B benefits and may offer additional benefits.
Medigap
You may also be able to purchase supplemental coverage called Medigap insurance. Medigap is only available to people enrolled in Medicare. Medigap coverage may help you lower your out-of-pocket expenses by covering copayments and deductibles, and by offering enhanced benefits.You don’t need Medigap—and generally it’s illegal for a company to sell it to you—if you already have coverage under a Medicare managed care plan, Private Fee-for-Service plan, Medicare Medical Savings Account, Religious Fraternal Benefits plan or Medicaid.
Medicaid
Medicaid provides health and long-term care for elderly and disabled people whose income is below poverty level and for low-income families with children. Eligibility for Medicaid varies by state and is only for those in the direst of financial circumstances.
Source: American Council of Life Insurers, 2003; Center for Medicare and Medicaid Services, 2003.
What you can do
Factor increased medical expenses and the possible need for long-term care into your retirement planning. Don’t focus solely on saving for your living expenses.
Discuss with your family what you would like to happen in case you are unable to take care of yourself. Also keep them informed of which hospital and doctors you would prefer if you had a choice.When you have an idea of what you want, you can look at potential medical funding sources.
Realize that government insurance alone (like Medicare or Medicaid) will probably not fund your health-care expenses. Private health insurance can help fill the gaps in Medicare coverage. Just be sure not to duplicate coverages.
Investigate long-term care insurance, which covers all or some at-home, community or nursing home care.
The role of careful financial planning
Typically, your own assets and retirement income will pay for your Medicare premiums, health insurance premiums, copayments and deductibles. It’s important to look at all possible sources of income to fund your medical care.
Income sources could include savings accounts, income from real estate property, and dividends from incomeproducing mutual funds. You should seek to generate enough income from your assets that you avoid having to sell them to pay for your medical costs.
Another optional source of income that offers the opportunity for tax-deferred growth for individuals and regular income is an annuity. An annuity is a contract that provides a series of income payouts over time, usually over the individual’s lifetime.There are many different types of annuities and options available.
| Additional Resources |
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Centers for Medicare and Medicaid Services (CMS)
(800) 633-4227
(877) 486-2048 (TTY-TDD for the hearing and speech impaired)
Web sites: www.medicare.gov, www.cms.hhs.gov |
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National Social Security Administration
(800) 772-1213
(800) 325-0778 (TTY-TDD for the hearing and speech impaired)
Web site: www.ssa.gov |
Pacific Life does not provide Medicare supplemental insurance or long-term care insurance. Ask your registered representative or call Pacific Life at (800) 722-2333 for prospectuses with more complete information about Pacific Life variable annuities, including charges, limitations and expenses. Read them carefully before investing or sending money. Variable annuities are long-term investments designed for retirement.The value of the variable investment options will fluctuate and when redeemed, may be worth more or less than the original cost.Withdrawals and other distributions of taxable amounts will be subject to ordinary income tax, and if taken prior to age 591/2, a 10% federal tax penalty may apply. A withdrawal charge may also apply.Withdrawals will reduce the value of the death benefit and any optional benefits. Past performance does not guarantee future results. Pacific Life Insurance Company is licensed to solicit individual life insurance and annuity products in all states except New York. Product availability and features may vary by state.
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