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7 Ways to Reduce Healthcare Costs in Retirement

Medical expenses can easily spiral out-of-control! Even when you think you have a handle on them, you’re still probably paying too much. It’s an understatement that the U.S. care system is expensive and confusing. The following are the 7 best strategies to reduce healthcare costs in retirement:

  1. 1
    Keeping in good condition saves you money
  2. 2
    Use your benefits for proactive maintenance and well-being
  3. 3
    Choose the medical care plan that best meets your needs
  4. 4
    Health Spending Account (HSA) Savvy
  5. 5
    Managing prescription charges
  6. 6
    Use in-network providers
  7. 7
    Outpatient procedures and treatments
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How Much Does It Cost?

In 2019, Fidelity estimated the average 65-year-old couple will spend a whopping $285,000 on medical care and expenses throughout their retired years.

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Keep in mind, this is an average and those with chronic conditions are likely to incur more frequent medical services and charges. Estimates suggest that as many as half of Americans suffer significant risks associated with elevated cholesterol levels, high blood pressure, cardiovascular disease, asthma, and diabetes. Baby boomer facts discusses this more.

The U.S. spent $3.65 trillion in 2018 on medical expenses which works out to be $10,586 per American. The Center for Medicare and Medicaid Services (CMS) estimates that spending could reach $6 trillion by 2027, or about $17,000 per person.

1. Keeping in Good Condition Saves You Money

Diet and regular exercise are the best defense to reduce healthcare costs in retirement. They may even help to prevent some chronic conditions. Some of the things that should be considered include:

  • Maintain a healthy weight 
  • Manage stress
  • Get proper rest
  • Monitor your blood pressure
  • Lower cholesterol levels
  • Limit alcohol intake and don't smoke

The sickest 5% of the population are responsible for about half of all spending. More than 85% of these charges are incurred treating chronic conditions.

On the flip side, staying in good condition could reduce healthcare costs in retirement. It minimizes your risks of getting sick and developing medical conditions leading to frequent doctor visits, expensive tests, and treatments.

Mental state also plays an important role. As many as one in five retirees suffer from some form of depression. Besides being costly to treat, physical well-being is often neglected.

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2. Use Your Benefits for Proactive Maintenance and Well-Being

Annual check-ups and remaining vigilant about your physical condition help ward off serious problems before they develop. In addition, regular dental, vision, and hearing tests are recommended.

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Explore using any free or discounted services that your plan may include. An example could be a fitness program such as Silver Sneakers. 

3. Choose the Plan That Best Meets Your Needs

COBRA (Consolidated OmniBus Reconciliation Act) ensures that you have the option to retain your existing employee benefit plan after leaving work. Generally, you’ll bear the full cost of premiums plus a 2% administration fee for a period of up to 18 months.

While this might seem convenient, without the employer contribution, the full cost can be shocking. There are reports that premiums can exceed $1,000 per month for a single person.

Having stated this, do not let your coverage lapse! Otherwise, your next plan may be harder to get and include penalties, exorbitant premiums, and any pre-existing conditions may be exempt.

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A fully featured plan makes sense, especially if you have a medical condition or anticipate future issues. These more comprehensive plans may include:

  • Lower deductibles
  • Higher levels of coverage
  • Private hospital rooms
  • Ambulance rides
  • Greater range of prescription drugs
  • Dental care
  • Vision care and eyeglass replacement
  • Hearing loss

If you are in decent condition and rarely need medical care, a barer bones approach with a higher deductible makes sense. It could cut your expenses down in a couple of ways. Due to the lesser amount of care and coverage required by you, it will lower your monthly expense for this type of insurance. 

Private insurance providers may offer competitive plans that better meet your needs. Alternatively, it may be more convenient dealing with your existing insurance provider. Also, your strategy should include a health spending account (HSA).

The Health Insurance Marketplace is an online exchange operated by the federal government and / or local state. This enables you to shop for a plan that best suits your needs. Also, you may be eligible for a subsidy if your income is below a certain level (typically 150% of the poverty level).

4. Health Spending Account (HSA) Savvy

A Health Spending Account (HSA) is a tax-free saving account allocated to offset future medical charges. To qualify, you need to be on a high-deductible wellness plan ($1,400 for an individual in 2020). In addition to setting aside money, you benefit by reducing taxes gaining a triple tax advantage:

  • Contributions are tax-free thereby reducing your income tax.
  • Your account can consist of stocks, bonds, and mutual funds enabling tax-free investment growth.
  • Tax-free withdrawal at any time for qualified medical expenses.

Similar to other government regulated tax-free saving vehicles, you’re limited by how much can contribute each year. In 2019, the maximum was $3,500 for self coverage ($7,000 for a family plan). For 2020, the limit has been raised to $3,550 (or $7,100).

There are no time restrictions on HSAs and can be used for almost any medically approved expenditure. The list is expansive including:

  • Doctor's office visits and prescribed treatments
  • Ambulance trips
  • Drug prescriptions
  • Dental treatment
  • Hearing aids and batteries
  • Acupuncture and chiropractors
  • And much more...

Once you’re on Medicare, the HSA becomes a Medical Saving Plan (MSA) operating in a similar manner.

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5. Managing Prescription Charges

Depending upon your insurer’s plan, prescription drugs and over-the-counter medications can put a big dent in your wallet. Choosing the best plan requires comparing coverage and determining the most cost-effective means. These considerations can include:

  • Some plans may not cover brand name drugs, only generic brands.
  • The annual limit may be exceeded depending upon your prescriptions.
  • The proximity of an in-network pharmacy.
  • The substitution of lower cost generic medicines.
  • Availability of less expensive medicines treating the same condition.
  • Mail order can supply some medications at a lower cost.
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While it’s important to take your medication, over time, things will change. For instance, better condition through exercise and diet may minimize the need for certain prescriptions. Natural products and herbal supplements can also help. Any changes need to be monitored with your medical professional.

6. Use In-Network Providers

Each care plan is slightly different in what (and how much) is covered and their network of providers. The insurance companies have negotiated discounted rates on behalf of their members with select providers. These include hospitals, doctors, specialists, pharmacies, dentists, and many others.

Based on these rates, they have determined how much they’ll cover for each treatment. As an example, a visit to the doctor’s office is usually between $200 and $300. Your insurer may have determined $200 as a fair and reasonable cost for a doctor (in-network). Going to a doctor out-of-network, likely would be billed closer to $300.

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Your out-of-pocket cost can be significantly higher when you stray from designated providers. In addition, these out of network charges may not be applied to your deductible. For this reason, you’ll want to check which care providers are part of your insurance company’s network. Don’t expect the provider to know what your insurance coverage is. Plan ahead and check with your insurance company and preferred providers.

7. Outpatient Procedures and Treatments

If you require a surgical procedure or treatment, ask if it can be done on an outpatient basis. An overnight hospital stay can be expensive and not always necessary for basic procedures. Day surgery and treatments are often cheaper at medical clinics that specialize in it.

Again, ensure you’re in-network to avoid incurring unnecessary expenses.

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Unfortunately, mistakes can be made with the final invoice including duplicate billing or charges for things that you never received.

Reduce Healthcare Costs in Retirement

There is no way to avoid the fact that medical expenses are on the rise and sooner or later, we will all need hospitals and doctors. Unfortunately, you cannot stop the aging process. 

However, you can do things to keep these amounts under control. Some of these include a nutritious and balanced diet, daily physical exercise, medical insurance plan that best meets your needs, and paying attention to any billing errors that may occur.

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