2020 Retiree Healthcare Costs

With 2020 comes some changes within Medicare and unfortunately with these changes the out-of-pocket expected costs for a couple retiring today have increased significantly.

For a couple, both 65 years old today, projecting to live until age 87 for the female and 85 for the male the expected cost to insure themselves through Medicare will cost just over $405,000.00. This is, roughly, a 11.50% increase from 2019 where the costs were slightly above $360,000.

If this couple actually plans on using the healthcare system while retired, due to the changes within Medicare, then the out-of-pocket costs will be closer to $423,000.00.

This projection is based on a couple being considered fully insured through Original Medicare. Fully insured is defined as having coverage through Medicare Parts A and B (Original Medicare), as well a Part D prescription drug plan which includes the Part D Deductible and a Plan G Medigap Plan (Supplemental Plan).

Why such a significant increase from 2019

The contributing factors to such a high increase in costs is due to changes within Medicare Part D as well as the coverage within Supplemental Plans or Medigap Coverage.

The changes in 2020:

Medicare Part D: prescription drug coverage:

Though the overall Part D premium, on a national level, declined by more than 13.5% from 2019, the deductible which comes with this coverage, increased by over 5.60%.

Compounding the issue of this coverage further is that the number of Part D plans offered which include the Part D Deductible in the premium were cut by about 50% from 2019. The premiums for these plans were also increased by more than 15.25% nationwide.

Ultimately, retirees who purchase a Part D plan will most likely have both the premium and the Part D Deductible to pay.

The national average premium for Part D plans that include a deductible is just under $34.00 a month with the Part D Deductible costing just about $402.00 for the year. For Part D Plans without a deductible the premium is just under $82.00 a month.

According to the Medicare Board of Trustees (MBT) the National Base Premium (Part D), through 2028, is projected to inflate by over 5.75% annually while the Part D Deductible is expected to grow by 5.55% over the same time too.

Supplemental Coverage (Medigap):

For 2020 the most robust Medigap Plan, Plan F, which provides the ability to cover all the gaps within Original Medicare, specifically the Part B Deductible, was closed to new beneficiaries of Medicare.

Retirees in 2020, who opt to have the most robust plan, now only have the Medigap Plan G policy to choose from which does not cover the Part B Deductible. Thus, if a retiree actually uses their health coverage, they will have to pay this deductible out of their own pocket.

Please note that the Part B Deductible, in 2020, is $198.00 for the year. According to the MBT this deductible is projected to inflate by just under 6% annually for the next 8 years.

Although Medigap Plan G plans are typically less expensive, the premiums associated with these plans on a national level increased by over 6.00% from 2019 to 2020. Compounding this increase in costs, the step-up rate for those in “Attained Age” states experienced another increase over 2.00% in the price of the premium as well.

The MBT is projecting that costs associated to the gaps within Original Medicare, which Medigap Plans cover, will increase at a rate just under 3.60% annually for the next 8 years.

Medicare Part B:

The premium for Medicare Part B increased by 6.71% from 2019 with the 2020 premium being $144.60 a month. This premium is also projected to inflate, on average per year, by over 5.70% through 2028 according to the MBT.

Due to these changes within Medicare those enrolling into Medicare today have even more out-of-pocket costs that they are responsible for while the costs associated to them are expected to inflate by more 5.50% annually for at least the next 8 years.

The cost of healthcare is quickly becoming one of the largest expenses people will have in retirement.

 

These figures do not factor the costs associated to Medicare’s Income Related Monthly Adjustment Amount (IRMAA).

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