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Investing Specialists

Controlling Healthcare Costs in Retirement

Morningstar readers share their tips for finding the best deal on supplemental coverage, keeping healthy, and maximizing HSAs.

Healthcare costs can be a huge expense in retirement. Medicare pays only a portion of medical bills and prescription costs, leaving retirees on the hook to pay the difference from their own coffers. 

We recently asked Morningstar readers to share their best ideas for controlling healthcare costs and lowering out-of-pocket expenses in retirement.

Many respondents agreed that shopping for the best deal on supplemental coverage plans every year during open-enrollment season is a major way they can control costs. Many also said that they hoped to avoid costly medical problems down the road by staying active and eating well. 

But unfortunately, as many readers bemoaned, there is much about healthcare that is beyond our control. A few readers, such as beamray, agreed that long-term care insurance is the "real killer" in terms of costs. In planning for longer-term health expenses, some readers said that they use a health-savings account to save and invest--this tax-advantaged account type can be a good choice to save for longer-term costs as the money will compound tax-free. 

To read the full thread and weigh in yourself, please click here 

'The only "managing" I can do is shop insurance and drug costs each year.'
As pointed out by phillyl59, quoted above, one important thing retirees can do to save money is to reshop their coverage annually. Premiums for prescription-drug plans can jump sharply from year to year, along with the level of coverage provided for medications, says Morningstar contributor Mark Miller. Miller urges retirees to consider not only the monthly premium they'll pay, but how well a plan matches their medication needs. (You can read Miller's checklist for Medicare open-enrollment season, which we update every fall, by clicking here.)

"Shop around: Shop everything, every year. Be sure you understand, for supplements, that all F's are equal, all G's are equal, and so on, EXCEPT for their cost, which varies by the company," said Pickyone.

"Good insurance: Medicare and plan F medigap and low-cost part D," said bilperk. "Total cost: Medicare part B $104 + plan F, $184 + part D, $23 = $311/month or $3,732/year. Plan F picks up all deductables and all expenses not covered by Medicare A & B. Part D has no deductable and low copays as my scripts are all tier 1 generic. Since turning 65 five years ago, I have not paid one cent for medical care other than the above premiums and part D."

Gomersdaddy said: "I found Plan N Medigap worked best for me. Nothing wrong with Plan F, but the small deductible and copays were well worth paying for the difference in premiums."

"Part F Supplement (shop around!) and low-cost Part D," said rethink. "I would strongly advise against a lesser supplement; if you go with a supplement that covers less, you'll spend more time and effort making sure your copays and deductibles are correct."

"Supplement F, by law, are all the same so pick cheapest--for us that was BCBS, which was not found at certain search engines because you have to contact them directly," adds John21.

Finally, this advice comes from Boomerguy: "For those of you, as I did, who become Medicare-eligible, but choose not to take your Social Security until full retirement age, be warned about a little 'gotcha' in the fine print. If you are paying for your Medicare directly, not from SS, and there is no COLA increase, you are *not* in the protected group (roughly 70% of recipients) who can't have their Medicare rates increased!" (For more on this, see this article by Mark Miller. Medicare has complex rules governing when you file for benefits, and understanding them can help you circumvent expensive premium penalties.)  

'Stay out of doctor's offices.'
Some readers, like modsquad, said that healthy living is part of their strategy to stave off expensive health problems down the road. 

"My wife and I believe exercise, a very active life, and eating healthy are the best way to minimize the high cost of [healthcare]," said lem0805.

"I plan to keep medical costs down by maintaining my daily exercise and book reading routine, and eating the correct food--in other words staying physically and mentally active," said C F S.

"Trying to do what we can to stay healthy is our focus," said prs174. "All of the money and insurance in the world can't replace good health." 

"After retiring, I stopped smoking. It didn't reduce my healthcare costs…but I'm healthier and the savings on cigarettes cover my insurance premiums," said acamus.

Finally, BigHead said: "I see the doctors once a year and have a checkup. I take all my medication, sleep eight hours a night, joined the YMCA, drink a few super food smoothies every day, do not drink or smoke, and finally stopped watching cable or network news. I hope this will keep me out of the hospital for a long time."  

'Built up a decent HSA balance to cover healthcare costs in retirement.'
A few respondents, such as FiveStar, mentioned that they used health-savings accounts. This type of savings account is "triple tax-advantaged": Contributions to HSAs aren't subject to tax, investment earnings on the assets in the account aren't taxed from year to year, and withdrawals are tax-free, provided they're used on qualified healthcare expenditures. That feature can make them a good way to invest and grow your savings for healthcare expenditures that may come up in the future.

"If you have access to a health savings account during your working years, contribute the maximum every year you can, don't spend it, invest it, and only use it after you retire," said artsdoc. "You can then pay for your healthcare costs, including your Medicare premiums, from the HSA." 

Juris2 adds: "Long-term care insurance also qualifies as a medical expenditure. So HSA funds can be used to cover the LTCI premiums."

"I have and will continue to contribute until age 65 the max to an HSA that is 50% invested in a broad-based Vanguard equity fund," said prs174. "My plan is to use those monies after 65/70 to offset healthcare costs. We purchased 'hybrid' LTC insurance through Lincoln National, which creates a sinking fund for later LTC costs, if we incur them."

FiveStar said: "Nice to put pretax dollars into an investment account that grows tax-free and eventually comes out tax-free. I don't know why HSAs aren't more prevalent. ... Who better to manage healthcare expenses than the actual end user?"

'Use the SHIIP services for free.'
Finally, the following are some good miscellaneous tips for keeping a lid on healthcare costs, such as this one from jackpine:

"As a volunteer with our local SHIIP (Senior Health Insurance Information Program) office, every week I help people find the right Medicare supplement or managed care plan for them as a public service. [I] strongly suggest those nearing retirement or for those 65+ who are losing health coverage make an appointment with your local SHIIP office (available in every state). ... You have too much to lose by being swayed by glitzy brochures or salesmen who work for commissions."

"Some dentists (and presumably some physicians and optometrists et alia) give a small but nontrivial cash discount," said drmoran. "They all are small-businesspeople. My dentist does 5%. It never hurts to ask, and I carry a paper check with me to visits right next to the credit cards."

Ray888 said: "Change location. We moved from a high-price metropolitan area to a small rural area in another state. Price of continuing with a Medicare Advantage plan dropped from about $250/month to about $40/month. Other option was to switch to a Medicare Supplemental F plan for about $230/month. Either way it's a win--either pay considerably less for the same coverage or pay a little less and get vastly more coverage."