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Health care comes with a big bill

By Jennie L. Phipps ·
Monday, August 9, 2010
Posted: 4 pm ET

My husband is closing in on 65, and we started investigating what Medicare will cost him.

This aspect of retirement planning surprised me. Naively, I thought Medicare made health care a minor expense. Not true.

Medicare comes in four parts. Most people get Part A, or hospital insurance, at no cost. Part B, which covers doctors' visits and medical supplies, is $110.50 per month for most people.

While you could stop here, Part A has high deductibles -- $1,100 for a hospital stay of 60 days or less -- and Part B has no cap on additional expenses after Medicare pays 80 percent of approved expenses. In a world where it is easy to rack up a $100,000 bill -- my husband did last year during a four-day hospital stay -- going without Part C, or what's known as a Medigap or Medicare Supplement or Medicare Advantage plan, to pay these deductibles seems like a big mistake.

Part C is offered by private insurance companies. There are a variety of options, all of them standardized and controlled by the government. Although the prices can vary greatly, you can expect to pay an additional $115 to $175 per month on average.

Then there is Part D, the prescription plan. Again, this is sold by private insurance companies and the costs vary. But the average premium is $32 per month with a $310 annual deductible.

You add all this up and it comes to a minimum of  $257.50 per month or $515 for a couple. It is easy to go much higher if you want plans that offer more bells and whistles. That's about $100 more per month than we contribute to our current health plan offered through my husband's employer, including vision and dental insurance, which Medicare doesn't offer.

When you add $515 per month to the $308 per month we pay for a joint long-term care plan, you get $9,876 annually, which is a considerable sum -- at least for us.

That put in perspective the results of Fidelity Investments' annual "Retiree Health Care Costs Estimate" survey. This survey found that 47 percent of retirees 65 and older are paying more each month for insurance premiums and out-of-pocket health care costs than they had anticipated spending in retirement.

Fidelity found that health care costs average $535 per month, or about one-fifth of an average couple's total monthly expenses of $2,842. Among those surveyed, 11 percent said their health care costs are $1,000 per month or higher. Average health care costs ranked second to the largest expense, food, which averaged $659 per month and slightly higher than housing-related costs, which averaged $494.

Fidelity concluded that a 65-year-old couple retiring this year will need $250,000 to cover medical expenses throughout retirement, not including long-term care. That's 4.2 percent higher than last year's estimate of $240,000, and 56 percent higher than in 2002, when Fidelity first calculated retiree health care costs at $160,000.

Managing to pay those rising retirement costs without sweating it down the road takes smart retirement planning.

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