Weaving Your Health Care Safety Net

Being diagnosed with illness in retirement can bring up a slew of questions. Will I need surgery or nursing care? Will my spouse be able to care for me? How much will treatment cost?

The Employee Benefit Research Institute reports that Medicare generally covers only about 60 percent of the cost of health care services (not including long-term care) for beneficiaries ages 65 and older.1 Because of gaps in Medicare coverage, retirees often must pay out-of-pocket for copays, prescriptions and other costs. Some estimates put these costs into six figures for retirees who live into their eighties.

Here are four steps you can take to develop your own health care safety net:

1. Consider buying long-term care insurance

Long-term care insurance covers help with basic activities such as dressing, bathing and eating—the care you might need after a serious injury or an Alzheimer's diagnosis. This type of assistance is not generally covered by Medicare. "If you have assets to protect, it would behoove you to have a long-term care insurance policy in place," says Jeffrey Rickett, a certified financial planner with SunTrust Investment Services in Rockmart, Georgia. "You need to start thinking about this type of coverage in your fifties or early sixties." After an accident or serious medical diagnosis, you may no longer be insurable, so shop for a policy while you're still in good health.

2. Look into supplemental coverage

Consider purchasing insurance, such as Medicare Supplemental Health Insurance (often called Medigap) to cover the holes in regular Medicare coverage. Some Medigap policies also provide extra health benefits not offered by Medicare. Purchasing supplementary coverage means you'll pay more in premiums. But should a serious medical condition arise, you’ll be glad you have the coverage.

3. Pay attention to deadlines

Medicare has specific deadlines and guidelines for enrollment. Missing a deadline puts you at risk that you’ll have medical needs while you’re not insured. You may also face late-enrollment penalties or other costs. Take Medicare Part B, which covers medically necessary lab tests, doctor visits and supplies. Failing to sign up for it when you're first eligible, or dropping Part B and reenrolling later, can raise your premiums by as much as 10 percent. You may be able to avoid this penalty if you sign up during a Special Enrollment Period—but you’ll thank yourself if you sign up in time in the first place.

4. Create an emergency fund

Even with insurance, it's likely that you’ll face out-of-pocket costs such as deductibles and coinsurance. An emergency fund that's separate from your long-term investment portfolio can help cover these expenses. Rickett recommends setting aside the equivalent of six to 12 months of living expenses just in case. "An emergency fund could allow you some flexibility and options to convalesce or rehabilitate before you have to sell investments," he says.

1 October 2012 Employee Benefit Research Institute Notes

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