Supplemental Healthcare Coverage in Retirement

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Supplemental Healthcare Coverage in Retirement

The Balance, a personal finance website publisher, recently reported that 643,000 Americans face bankruptcy each year as a result of medical costs. One thing that was shocking about the information gleaned from the many studies conducted on the relationship between high medical bills and bankruptcy, is that people with health insurance are three times more likely than those who do not have health insurance to file bankruptcy related to healthcare costs.

The hypothesis is that the actual protection provided by the health insurance was considerably less than expected once co-payments, deductibles, excluded fees, and expenses were added up. Others found their insurance denied claims or excluded specific services, hospitals, or physicians.

For all these reasons and more, it's important to adjust to life under Medicare coverage in retirement and consider supplemental healthcare coverage to help avoid high medical expenses that could impact your retirement budget and the savings you've built.

What is Supplemental Health Insurance?

Some refer to supplemental health insurance as a type of “gap” insurance. It is designed to plug holes in your Medicare coverage by filling in the gaps. What this means is that supplemental health insurance helps to pay for the expenses your Medicare insurance doesn’t cover. This includes things like:

  • Deductibles
  • Out-of-pocket expenses
  • Co-payments

You might not realize it at first glance, but these expenses can add up quickly, and things like deductibles reset every year. The way supplemental policies for Medicare insurance work is that you pay a monthly fee for the insurance and you get to eliminate the additional debt.

Is supplemental health insurance good for everyone?

There is no such thing as one-size-fits-all. Every home, family, household, and individual is different. While working and earning a living, a supplemental policy may not be critical. However, that takes on a different relevance once you retire, especially if you are using Medicare.

The other thing to realize is that there are different types of supplemental or “Medigap” insurance policies available, each one offering different levels of coverage and types of coverage.

Consider whether now is an ideal time to invest in supplemental health insurance. Those who are just retiring and do not yet have significant medical expenses may not be ready to invest in additional protection. However, your health status can change with little notice. Many people feel it is necessary to invest in supplemental insurance for their Medicare coverage from day one.

When Should You Consider Supplemental Health Insurance?

One key consideration when choosing supplemental health insurance involves whether you are enrolling in Medicare Part B. If that is the case, you should strongly consider signing up for additional Medicare insurance within the first six months of enrollment in Medicare Part B.

Keep in mind that as long as you are covered by a qualified plan provided by your employer, you do not need to sign up for Medicare Part A, B, or D, until you retire. This also means that you would not need to sign up for supplemental coverage until that time as well.

If you do not purchase supplemental health insurance during this six month grace period, your additional coverage options may be limited. Most importantly, failing to do so within the first six months of Medicare Part B coverage eliminates the “guaranteed issue” aspect of supplemental health insurance, meaning you may not be able to enroll at all after the six-month window closes (or you are covered by a qualified company plan).

In other words, the ideal time to purchase supplemental health insurance, if you suspect you will someday need it, is within the first six months of enrolling in your Medicare coverage. Otherwise, you run the risk of being unable to do so at a later date.

If you, as an employee, have a Health Savings Account (HSA) through your employer, and decide to sign up for any of the Medicare parts (A, B, or D), you will no longer be able to make or receive contributions into your HSA as of that effective date. Signing up for Social Security benefits automatically triggers the registration of Medicare Part A.

Key Details about Supplemental Health Insurance

  • Supplemental insurance can spare you the pain of medical cost-related bankruptcy.
  • Different supplemental health insurance plans offer varying degrees and types of coverage.
  • There is a limited window of opportunity to get access to supplemental health insurance with guaranteed issue.
Insurance products are not deposits or other obligations of, or guaranteed by the bank, or an affiliate of the bank. Insurance products are not insured by the FDIC, or any other agency of the United States, the bank, or any affiliate of the bank. Insurance products may involve risk, including the possible loss of value.

Insurance products are offered through Bangor Insurance, a division of Bangor Savings Bank.