Five Healthcare Questions You Must Answer Before You Retire

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In 2009, roughly 1.5 million Americans filed for bankruptcy. Most of them were middle-class, well-educated homeowners, just like you. Do you know what caused most of those bankruptcies? It wasn't a fancy adjustable rate mortgage or backlash from the financial crisis. According to a study published in the August 2009 American Journal of Medicine, more than 60% of bankruptcies have their root cause in medical bills.

"Unless you're a Warren Buffett or Bill Gates, you're one illness away from financial ruin in this country," says Harvard researcher and lead author Steffie Woolhandler, M.D. Or, as one of my clients, a physician, said to me, "You are just one step away from the banana peel!"

The bottom line is that funding ever-increasing healthcare costs is almost certainly one of your biggest risks - if not the biggest - in retirement. And since we know it is very difficult to take effective action once you are already in financial crisis, it is important that you answer the following questions before you retire.

If you are planning to retire before age 65...

1. Do you have retiree healthcare benefits available through your employer or union? Is it available for just you or you and your dependents?

If you are among the few who have retiree benefits, count your lucky stars. According to a February 2003 Issue Brief by the Employee Benefit Research Institute, only 12% of private U.S. firms offered retiree healthcare benefits. That number is expected to continue shrinking in the future because of rapidly rising costs.

Even if you do have coverage, remember that not all plans are good plans, nor are they necessarily affordable. You also must be aware, as an early retiree, that your employer is not required to continue to offer you coverage and may discontinue the plan at any time.

2. Do you have any pre-existing conditions which would impact your ability to get coverage?

This is an especially important question for those who will access the private insurance market. Individual insurance goes through a medical underwriting process. If you are un-insurable due to a chronic illness or condition, your only option may be the state high risk pool, which is usually very expensive.

3. Have you examined the relative merits of all your options?

For example, someone with retiree coverage may also be eligible for COBRA and private insurance. It is important to look at the benefits available under each policy and their relative costs. What is the lifetime maximum? Are there survivor benefits? What are the out-of-pocket costs?

Another issue to consider is the possibility of a change in health status. If you are not eligible for retiree benefits, COBRA might be a good option, for 18 months, to bridge the gap until you become eligible for Medicare. But if COBRA won't get you to Medicare eligibility, you might be better off taking private coverage now, assuming you qualify, to hedge the risk of an illness cropping up in the 18 month period that makes you un-insurable.

4. Do you know when and how to enroll in Medicare?

Even if you are eligible for retiree benefits, your company will require you to enroll in Medicare at age 65. At that point, the retiree policy generally becomes second-to-pay. If you receive Social Security benefits prior to age 65, (which we don't advise), you will automatically be enrolled in Medicare Part A. You must elect whether to enroll in Parts B,C and D.

If you delay Social Security benefits, you will need to contact Social Security some time during the three months prior to your 65th birthday to enroll. You absolutely do not want to miss the initial enrollment window, which begins three months before your 65th birthday, includes the month you turn age 65 and ends three months after that birthday.

5. Have you purchased long-term care insurance?

While a serious illness or injury has the potential to run up medical bills in the hundreds of thousands of dollars, long-term care has the potential to cost in the millions over a span of ten to twenty years. Hopefully, you have done this much earlier, but if not, provided you are still healthy enough to qualify for a policy, this is a must.

Nearly 40% of those who need long-term care are under the age of 60. Our rule of thumb is all clients, over the age of 40, with under $3.5 million in investable assets must have a long-term care policy. This is non-negotiable. Over $3.5 million, we still believe it is advisable.

(NOTE: Snider Advisors offers a free special report on long-term care insurance titled, Long-Term Care Insurance: Frequently Asked Questions, which demystifies the issues surrounding long-term care insurance and gives you guidance on how to start getting this all-important piece of your financial plan in place.)

If you plan to retire at 65 or older...

1. Again, are you or your spouse eligible for retiree benefits through your employer?

Make sure you review the cost and benefits. The employer plan will be second-to-pay after Medicare. If it is a good plan, which not all of them are, it may make sense to use your employer sponsored plan as a Medicare supplement. Otherwise, you will want to purchase a Medicare Supplement policy separately during the open enrollment period.

2. Have you purchased Long-Term Care Insurance?

The longer you wait to purchase long-term care, the more expensive it will be and the more likely you are to have a condition which drives up premiums or makes you altogether uninsurable. The ideal age to purchase long-term care is in your 40s. But the next best time is now. When you turn 65, there is a 70% chance you will need at least some some long-term care at some point in your life.

3. Do you understand Medicare enrollment procedures and timelines?

It is important you go through the Medicare enrollment process promptly to avoid a gap in coverage. A gap in coverage may result in higher premiums for the rest of your life. Also, pre-existing conditions, which are not a consideration as long as there is no gap in coverage, enter the equation if you fail to enroll promptly before age 65. Finally, Medicare Supplement insurance, as long as it is purchased in the six months after your 65th birthday, is not subject to underwriting either, but will be if purchased outside the open enrollment period.

4. Do you know where to get help with questions regarding healthcare coverage and strategies for covering the costs?

There are many public resources available. Most state Departments of Insurance have a lot of helpful information available on their web sites, as does the Social Security Administration and Medicare. Private advisors can also help. Possible resources include the Benefits Department of your employer or union, insurance consultants, and retirement planners.

Don't wait until retirement sneaks up on you to begin looking for answers to these questions. Remember that a large percentage of Americans are forced to retire earlier than they had planned. So do your homework and if you need help ask for it from a qualified source.

No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice unless specifically stated as such. All investments involve risk including possible loss of principal.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Retirement

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