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3 Things 11-20-23

Thing One

 

Medical Costs In Retirement

 

A few years ago, we wrote on this topic and noted that the “average” household could expect to spend around $250,000 in medical costs out-of-pocket in retirement.  Given the things we know now that we didn’t know then, we figured it was time for a follow-up to that post.

 

First, some basic facts about Medicare, the health insurance for the elderly (and some non-elderly with specific medical conditions).  Assuming you don’t have an employer policy that covers you after you retire, there are three ways to insure yourself medically as a senior citizen, Original Medicare (Part A and Part B) only, Original Medicare plus a supplemental policy (Medigap), or Medicare Advantage.

 

1.     If you choose Original Medicare only, you generally won’t have co-pays and coinsurance for doctor visits, but if you’re admitted to the hospital, you will have to pay a $1632 Part A (hospital) deductible and your copays will gradually increase from $0/day at first to $400/day, to $800/day, to full cost/day for the remainder of your hospital stay. With this option, your annual out of pocket costs are essentially unlimited.

2.     If you choose a Medigap plan, you will not have any co-pays or coinsurance – for doctor visits or hospital stays.  With this option, your maximum annual out-of-pocket costs, not including your plan premiums and Part B premiums which average $150/monthly (for the best plan) and $174.70 respectively, equal your Part B deductible, which is $240 for the 2024 plan year

3.     If you choose a Medicare Advantage plan, you’ll likely not pay a monthly premium, but you will have co-pays and coinsurance when you see a doctor or go to the hospital.  Unlike the Original-Medicare-only option though, your official out-of-pocket costs (which include deductibles, copayments, and coinsurance, but not premiums) are limited by statute.  For 2024, the maximum any Medicare Advantage plan can hold you responsible for is $8,850.

 

So which option should you choose?  As always, it depends, but we do believe there is an option that you shouldn’t choose and that’s number one.  There is no reason to leave yourself exposed to unlimited medical costs when there is a zero-dollar-premium option that dramatically reduces your maximum annual out of pocket costs. 

 

And how about that $250,000 average we referenced at the beginning of this post, what is it today?  Well, if we use the extreme, but possible scenario of a very sick person that spent 5 months in the hospital under each of the three options we get:

 

1.     Original Medicare only – Not counting prescription drug costs and premiums, over $60,000 would be paid to the hospital in deductibles and co-pays and 20% in coinsurance would be paid for doctor’s services for the 150 days.  The estimated $250,000 over the retiree’s lifetime could be a dramatic underestimate in this case – and this doesn’t even consider the spouse. 

2.     Original Medicare with a supplement – The only out-of-pocket costs for the 150-day period (not including prescription drugs and premiums) would be the $240 Part B deductible.  Yes, you read that right, the total medical costs borne by the patient for a 150-day hospital stay would be $240.  If this person stayed in the hospital for 150 days/year for 20 years, it would cost them $4,800 (not accounting for premiums, drug costs, or the annual inflation in the deductible).

3.     Medicare Advantage – The out-of-pocket costs (not including prescription drugs and premiums) would be $8,850.  Over 20 years, the maximum they would have paid is $177,000.

 

The details suggest a clear answer to the question posed earlier about which plan to choose.  In a future post, we’ll discuss reasons many people do not pick what appears to be the “obvious” choice.

 

Thing Two

 

Good News For Your Credit Report

 

The following is excerpted from benefitspro.com.

 

“…Under mounting pressure from patient advocates and government regulators, the three major credit agencies over the last two years have taken a series of steps to remove some medical debts from credit reports, including unpaid medical bills under $500.

 

The changes appear to be having an impact. As of August, just 5% of adults with a credit report had a medical debt on their report, down from almost 14% two years earlier.  Urban Institute researchers also found that Americans with a medical debt on their credit report in August 2022 saw their VantageScore credit score improve over the next year from an average of 585 to an average of 615.

 

That moved many consumers out of the subprime category. Subprime borrowers typically pay higher interest rates on loans and credit cards, if they can borrow at all.

 

Consumers’ improved scores don’t mean the medical debts have been eliminated. Hospitals, collectors, and other medical providers still pursue patients for unpaid bills. And many continue to sue patients, place liens on their homes, or sell their debts.

 

But the credit reporting changes appear to be mitigating one of the more pernicious effects of medical debt that for years has undermined the financial security of tens of millions of patients and their families.

Credit scores depressed by medical debt, for example, can threaten people’s access to housing and fuel homelessness.

 

In total, about 27 million people experienced a significant improvement in their score, the Urban Institute researchers estimated. VantageScore, which uses a slightly different methodology than FICO, in January stopped using any medical debt to calculate scores…”

 

 

Thing Three

 

Just A Thought

 

"It always seems impossible until it is done." - Nelson Mandela


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