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Health Insurance in Retirement: How to Save

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Health insurance is indispensable in today’s world, with medical care becoming very expensive, especially in the private sector. In the case of hospitalization, an insurance policy acts like a savior, as it covers expenses related to doctor consultation fees, medical tests, surgery costs and even post-hospitalization recovery costs to a certain extent.

Dealing With Healthcare Costs Can Be Stressful

Most people without health insurance feel helpless at the time of medical emergencies. Further, these costs become a huge burden for retirees.

These huge and sometimes unaffordable healthcare expenses can be tackled by paying a small and affordable annual premium for health insurance.

According to Fidelity data, approximately $285,000 is required to be saved after taxes to cover health care expenses for an average retired couple aged 65 in 2019. Also, it is expected that health expenses, including insurance premiums and out-of-pocket expenses, will account for almost 15% of a retiree’s annual expenditure.

Per a report from HealthView Services, the same aged couple retiring this year needs to keep $387,644 in order to pay premiums for Medicare Part B (medical insurance) and D (prescription drug coverage), dental insurance and sudden medical costs.

Further, the report indicates that a healthy retiree would pay $424,875 for healthcare over time, but a retiree with lower life expectancy or a diabetic retiree would pay approximately $266,163.

Planning for Health Insurance Important

By seeing the abovementioned estimated figures, we believe Medicare as well as an appropriate health insurance plan is necessary for retirement years. Moreover, some factors, like how healthy a person is, life expectancy, and time and place of retirement, should be also considered.

Further, one’s planning should depend on the amount of after-retirement tax payments and annual income.

Additionally, if one is taking early retirement (before 65 years of age), then the person should think of ways to handle the coverage gaps since traditional health insurance policies cover health costs from the age of 65.

So, an early retiree should always check whether their employer-sponsored plan offers continuation of coverage. Further, these retirees could opt for COBRA Insurance, which enables extension of their current employer coverage for 18 months.

Also, the type of accounts that are used to paying Medicare premiums like IRA, HSA, 401(k), FSA or taxable accounts are important.

FSA Might Aid in Mitigating Risk of High Costs

Although a Flexible Savings Account (FSA) cannot be used to pay health insurance premiums, this account can be utilized to pay all qualified medical expenses not covered by health insurance.

Most importantly, funding FSAs help in paying for certain out-of-pocket health care costs; qualified expenses like medical and dental treatments can also be handled by these accounts.

Further, one can withdraw from an FSA to pay for over-the-counter medication.

Funding HSA a Must

A Health Savings Account (HSA) enables triple tax savings by letting people contribute pre-tax dollars into the account and withdraw funds without paying any taxes before or after retirement for eligible medical expenses.

Apart from this, an HSA can be used to pay premiums for prescription-drug coverage under Medicare Part B and Part D. Further, these accounts are quite helpful for early retirees as they can pay for health insurance purchased via employer-sponsored plan under COBRA.

Additionally, retirees over 65 years can pay their share in employer-sponsored health coverage with the help of an HSA. These accounts can be used to partly cover the cost of tax-qualified long-term care insurance policy as well.

HSAs are believed to be an important resource to grow savings during one’s working years due to its significant tax benefits.

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