Medicare does not cover 100 percent of all medical expenses. I’m going to repeat this sentence until you have memorized it because, as a financial planner working with your retiring clients, you need to make sure that you’re preparing them for their upcoming retirement costs. Although there is much that Medicare covers, Medicare doesn’t cover everything. And when Medicare does cover something, it leaves deductibles and co-insurance for most participants.
What Medicare Does Not Cover
Medicare does not cover 100 percent of all medical expenses, and that includes premiums. Medicare Part B has a premium. Some clients will pay more in premiums than others. For clients turning 65 this year, you can expect they’ll need about $1,600 a year per person; two people need twice as much. And you can expect that amount to go up each year.
If clients collect money from Social Security, premiums will come out of their monthly checks. If not, they’ll be billed. Each of your clients on Medicare must be prepared to pay it. For your higher-net-worth clients, that annual amount could be significantly more. There is no wiggle room with this premium — it will be paid.
Additionally, many clients choose Medicare Supplements, which also have premiums. If a Medicare Supplement is right for your client, double the premium set aside. In some states, clients will need more; in others, clients will need less. Call around and find out what an average annual premium is in your state. Even though this amount can be a burden for some, many choose to pay that premium.
This is because Medicare does not cover 100 percent of all medical expenses — and that includes co-insurance. Co-insurance is the percentage that Medicare makes your client or a Medicare Supplement owner pay. In other words, it is 20 percent of many services, although it is deeper than that. If a person has a Medicare Supplement plan, these charges are fully paid, making the premium a bargain for many.
However, if a person chooses to self-pay the co-insurance, or has a Medicare Advantage plan, what they save in premiums they’ll need to have in the bank in case of large medical expenses. Make sure they have a fund set aside to pay these. If they already have a health savings account with a balance, they cannot contribute once Medicare begins (IRS Publication 969, Page 6); however, they can use the proceeds to pay many of these co-insurances.
It’s Tough To Calculate Drug Costs
Medicare does not cover 100 percent of all medical expenses — and that includes prescription drugs. Whether your client has a stand-alone plan or part of a Medicare Advantage plan, they will need to be able to pay part of their drug costs. This is hard to calculate as every drug costs differently on every plan, it changes every year, and it changes based on how many drugs your client is taking. A worst-case annual scenario for most people would be about $5,000, although a person with average drug needs will spend significantly less while they are healthy. Just make sure they can pay reduced drug costs if they arise.
Medicare does not cover 100 percent of all medical expenses — and that includes dental, eyeglasses and long-term care. Don’t be fooled by dental offerings that are out there. With certain plans, a limited amount of dental is offered, which is usually preventive only. If your client needs dental work, it is generally not covered by these plans. It is almost never covered by Medicare.
As far as vision goes, except after cataract surgery, Medicare also doesn’t cover glasses or contact lenses. It does cover treatment for conditions of the eye. An extra financial buffer for these services is usually enough.
We have not seen many clients who have consistent, year-over-year, high expenses with dental and vision. But long-term care is another matter. It is a much more significant discussion. For now, be aware that Medicare is very clear about the fact that it will not cover long-term care. Have a discussion with your clients about the best way to fund this.
Medicare does not cover 100 percent of all medical expenses. The more you can do to get this message out to your clients, the more prepared they will be, and the more they will be grateful for your help in preparing them to pay their share.