Health Care in Retirement – Options for Obtaining Health Insurance

by | Health Care, Planning for Retirement

In Part 1 of our Health Care in Retirement Series, we are going to complete a high-level overview of the ways that healthcare coverage can be obtained in retirement.  In future parts of this series, we will focus specifically on Medicare.  To jump to any of the other parts of this series now, use the links below:

The Costs of Health Care in Retirement 

Not surprisingly, the cost of health care can be significant in retirement.  A major cause of this is the natural consequence of aging that leads to a greater need for care, but there are other factors at play as well.

According to Fidelity, the average couple will spend $315,000 on health care costs after age 65.  This excludes any expenses related to long-term care, which according to the Department of Health & Human Services, is a need that arises in the lives of 7 out of 10 people during their retirement years.  Without proper insurance coverages and an understanding of how the various coverages work and interact with one another, out-of-pocket expenses can absorb a large percentage of your retirement income and assets.

Before retirement, many people receive health care coverage from their employers.  This coverage is usually subsidized, which substantially reduces monthly premiums.  Additionally, many employers make contributions to FSA, HRA, and HSA accounts on behalf of their employees to help defray the out-of-pocket expenses of receiving care.  Once these benefits end, the insurance cost falls solely on the individual.

For this reason, saving, investing, and understanding how to limit your costs through proper insurance planning should be prioritized leading up to and approaching retirement.

The Parts of Medicare

The primary way most people obtain health care coverage in retirement is through Medicare.  You become eligible for benefits once you turn age 65 and have earned a sufficient number of credits based on your work history.  Generally, the premiums charged for Medicare vary based on a number of factors, including, but not limited to your eligibility, the coverages you enroll in, your income, and your tax filing status.  Medicare consists of the following four (4) parts:

  • Part A – Hospitalization
  • Part B – Physician Services
  • Part C – Medicare Advantage
  • Part D – Prescription Drugs

In addition to these parts, Medigap plans are supplemental insurance policies that fill in the coverage gaps present in Parts A and B.  These plans are sold by private insurance companies and help pay for some of the remaining costs that you would otherwise be obligated to cover yourself.  These policies are also known as Medicare Supplement Insurance and can be purchased when you become Medicare eligible.

What Medicare Covers

Coverage under Medicare is delivered via one of two paths that you select when you first sign up: Original Medicare or Medicare Advantage.

Original Medicare combines Parts A and B, which together provide coverage for hospitalization and physician services.  Part A includes the costs of inpatient care charged by hospitals, but it also covers charges received at skilled nursing facilities too.  Part B covers cost assessed to you by doctors and other health care professionals, as well as expenses related to durable medical equipment and outpatient care.

Part D is an optional coverage offered by private insurance companies that can help manage the costs of prescription drugs.  If you add Part D and a Medigap Plan to Original Medicare, you’ll have comprehensive coverage that will limit the out-of-pocket expenses that could arise should you become sick or injured.

Medicare Advantage is Part C and is offered by private insurance companies.  It combines elements of Parts A, B, D, and Medigap plans to form a comprehensive alternative service to Original Medicare.  Most Part C plans include prescription drug benefits and they also place limits on out-of-pocket expenses.

Other Options for Obtaining Health Care Coverage in Retirement

Besides Medicare, another way that health care coverage can be obtained in retirement is with retiree insurance.  This is a broad term, but generally refers to any health care coverage provided by a former employer for a retired employee.  Such coverage is rare but is more common among unions, civil servants, and veterans.

The Federal Employees Health Benefits program (FEHB) is a form of retiree insurance, and some states offer their own forms of retiree insurance to retired employees as well.  TRICARE is health insurance for those who served in the armed forces, and is offered to active-duty service members and also those in retirement.  Retiree insurance is not always comprehensive and some plans may require individuals to sign up for Medicare or parts of Medicare after turning age 65.  When this occurs, the coordination of benefits rules decides who pays first.

A second option, which is only available to former military service members, is to obtain health care coverage through the Veterans Administration.  Coverage through the VA is comprehensive but services can only be received through the VA system and are dependent on congressional funding.  These points may make Medicare a better option after reaching age 65.

Options for those retiring before age 65 include COBRA and individual policies purchased through private insurance companies.  Retirees of companies with more than 20 employees, who are not offered retiree insurance and do not have access to the VA system, can obtain COBRA and maintain their current coverage for up to 18-months.  COBRA allows former employees to continue their existing health care coverage when a separation of service occurs, including retirement.  The choice to obtain this coverage usually expires 60-days after your employer coverage ends, and once it expires it cannot be offered again.  Although COBRA is an option, it can be an expensive one, because employers are not required to subsidize the premium for any former employees opting into the coverage.

As such, a better alternative for early retirees may be to obtain individual coverage through a private insurer or through a government health care exchange.  Health insurance policies sold through exchanges are comprehensive and premiums will vary based on the plan you select.  Moreover, the premiums for plans purchased through exchanges may be subsidized by the state if your income is below certain thresholds.  Like COBRA, you must obtain coverage within 60-days of losing your employer coverage.  Unlike COBRA, if you don’t sign up initially, you can obtain coverage later during the open enrollment period, which typically begins in November each year.


Want more information about your health care options in retirement?  Continue to Part 2 of our Health Care in Retirement Series to learn about Medicare Part A. If you need help planning and evaluating your retirement health care costs, please contact us today.

Chris Yeagle

Chris Yeagle

Principal & Financial Advisor - Honeygo Financial

Chris began his career as a financial advisor with Merrill Lynch where he developed retirement plans for hundreds of clients and helped those he served to simplify their strategies and manage their investments.  He is a graduate of the University of Baltimore’s Merrick School of Business and he holds a Master of Finance from Loyola University.  Chris and his family are life-long Marylanders, who enjoy traveling the country visiting new places and old friends.

Honeygo Financial is a registered investment advisory firm offering services in Maryland and in other jurisdictions where exempted.  All written content is for informational purposes only and should not be considered tax, legal, insurance or investment advice. Opinions expressed herein are solely those of the firm, unless otherwise specifically cited.  Material presented is believed to be from reliable sources and no representations are made as to its accuracy or completeness.