You'll Need More Than Medicare to Cover Healthcare in Retirement. Here Are 3 Things to Try

Medicare is your first line of defense against large medical bills in retirement, but it’s not perfect. It has costs of its own, including monthly premiums, deductibles, and copays. And there are some things, like hearing aids, that it doesn’t cover at all. 

You could try paying for these things on your own, but that might not be the best option for your financial security. Consider making the three following moves to better prepare yourself for retirement healthcare expenses.

Doctor taking a blood pressure reading on a smiling patient.

Image source: Getty Images.

1. Try to stay healthy

Prioritizing your health at every age can reduce your risk of serious illness and injury. A healthy diet and regular exercise are key, but so are getting adequate amounts of sleep and finding safe ways to cope with stress.

Doing these things isn’t a guarantee you’ll avoid costly healthcare bills in retirement, though. Anyone can get sidelined by an unexpected injury. So you still need adequate savings and insurance, even if you’re the picture of health.

2. Shop around for the right coverage

When you’re old enough to apply for Medicare, review all your options each open enrollment period. Original Medicare consists of hospital insurance (Part A), which covers inpatient stays, and medical insurance (Part B), which covers outpatient care. But you may want additional coverage as well.

Medicare Part D plans provide prescription drug coverage, which is useful even if you don’t routinely take medication. There are several Part D plans to choose from, and they all have their own costs and coverage options. Review each of them and go with the one that offers the most affordable coverage for the medications you need.

There’s also Medicare Part C, or Medicare Advantage plans. These are plans offered through private health insurers. They cover all the same services as Original Medicare, as well as many things Original Medicare doesn’t. However, you’re often limited to providers within a private insurer’s network with one of these plans, and you may need a referral to see a specialist.

Finally, there are Medicare supplement plans. These are also offered through private insurance companies. They’re designed to complement Original Medicare by filling in some of its gaps. But these plans have their own copays, deductibles, and premiums.

Look into all your options before deciding which combination of insurance policies is best for you. And review this annually. New plans that suit you better could become available over time.

3. Save in a health savings account (HSA)

Health savings accounts (HSAs) are tax-advantaged medical savings accounts open to people of all ages. In order to contribute to one, you need a health insurance plan with a deductible of $1,500 or more for an individual or $3,000 or more for a family in 2023. This means that seniors on Medicare won’t be able to contribute to one of these accounts. But they can still use HSA funds they’ve accumulated over the years.

HSA contributions reduce your taxable income in the year you make them. And if you use the money for medical expenses at any age, it’s tax-free. Contribution limits vary from one year to the next, but in 2023 you may set aside up to $3,850 if you have an individual health insurance plan or $7,750 if you have a family plan. Adults 55 and older may contribute an extra $1,000.

The best part about HSAs is you don’t have to use them for medical expenses if you don’t need to. Once you turn 65, the account becomes similar to a traditional IRA. You can make non-medical withdrawals for whatever you like, though you’ll pay taxes on these. Technically you can do this under 65 as well, but you’ll face a 20% penalty, so it’s not worth it.

If you plan to save in an HSA, look for a provider that will allow you to invest your funds. This will enable you to grow your healthcare savings more quickly than you could with a standard bank account. And try to avoid taking early withdrawals if you plan to use the money in retirement.

Planning ahead for retirement healthcare costs is a good idea, no matter your age. But if you’re a long way from retiring, you should know that your plans will probably change over time. If you experience a major health or financial shake-up or if the government makes significant changes to Medicare, return to the drawing board. Staying flexible will help you to better weather whatever challenges come your way.