What you’ll pay for Medicare coverage
Medicare Part A (Hospital Insurance) covers inpatient hospital care, skilled nursing facility care, hospice and some home health services. Almost nobody—as long as they’ve worked and paid Medicare tax for at least 40 quarters (ten years)— pays a premium for Part A. There is a deductible (it was $1,484 in 2021), as well as co-insurance for hospital stays beyond 60 days.
Medicare Part B (Medical Insurance) covers doctor and other healthcare providers' services and outpatient care. Part B also covers durable medical equipment, medically-necessary home healthcare and some preventive services. The monthly premium for Part B in 2022 is $170.10; this can change year to year.
Medicare Part C—also known as Medicare Advantage—is available through private insurance companies. It will provide the same coverage as Medicare Parts A and B, but with supplemental coverage that depends on the plan you choose. The cost can be up to $200 monthly.
Medicare part D covers prescription drugs. Part D premiums are generally in the $30-50 range per month, though they may be higher where you live.
There’s also something called Medigap—also available through private insurance companies—that, literally, helps fill in the gaps in Traditional Medicare.
For a more complete breakdown and explanation of costs and coverage, refer to our booklet, “Medicare fundamentals: A guide to planning for healthcare in retirement.”Opens pdf
A good nest egg, high income—even robust health—won’t get you off the hook for retirement healthcare expense planning. In fact, if your income is above $88,000 as an individual or $176,000 as a couple, you’ll pay multiples of the normal amounts for Medicare Part B or Part D because of something called IRMAA—the Income Related Monthly Adjustment Amount—which is set by the Social Security Administration. So, you might want to consider tax- and income-planning strategies that can minimize what you’ll pay in healthcare surcharges.
Sometimes people think, “I’m 65; I’m in good shape; I’m only taking one prescription. Supplemental healthcare isn’t going to cost me that much.” And while it’s true you likely have a long life ahead, that also means a lot of years of paying for healthcare. And even if your healthcare expenses are low now heading into retirement, they might not stay low forever. Plus, don’t forget to factor in inflation: Healthcare costs are projected to continue their historical trend of rising at a rate of 2-2.5 times that of U.S. inflation.
To offset those unknowns, TIAA builds healthcare costs into its retirement planning tools, so the good news is it’s likely you’re already preparing for them without recognizing it.
Timing matters, too
According to Shelly Eweka, Senior Director of Financial Planning Strategy at TIAA, “When you retire matters to your healthcare expenses decisions. For example, if you decide to retire before age 65, you will not be eligible for Medicare yet. So, you’ll need to make accommodations for healthcare expense coverage until then through some other source, like your spouse’s plan or the healthcare marketplace.”
One possible break: Look at what benefits your employer offers. Some employers extend healthcare coverage to retirees. The amount can depend on how long you’ve been at your employer, whether you have tenure or how old you are.
“This is all critical to think about and talk about before you hit 65,” says Eweka.
In addition: Explore health savings accounts, or HSAs. Employees who have actively contributed to their HSAs have the ability to save for healthcare expenses now and in the future. HSAs’ most significant benefit comes from their ability to provide triple tax savings—not only are contributions tax-deductible, earnings and withdrawals for qualified medical expenses are tax-free.
“It’s important to keep in mind that once you enroll in any part of Medicare, you can no longer contribute to your HSA,” says Kendra Smith, Senior Director, TIAA Health Solutions. “However, you can use your HSA to cover out-of-pocket medical expenses, including Medicare premiums part B, C and D, except for Medigap.”
No need to go at it alone
One way to get a quick estimate of your healthcare costs in retirement is to use the TIAA Healthcare CalculatorOpens in a new window.
But for a more personalized and detailed look, as well as strategy advice, it’s best to talk to a financial advisor—and the sooner, the better. Some of the questions you might ask them include:
- How do I estimate my future healthcare costs?
- Is long-term care insurance right for me? and,
- What if I discover gaps in my healthcare expense coverage?
Everyone is different, so you’ll need to look at your own circumstances and decide what makes sense for you today and down the road.