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Figuring out the Health Insurance Puzzle for Retirees

A broad range of my clients hope to retire before age 65, though they may not be willing to pay up for their own health insurance. Monthly premiums can exceed $1,000, at least until enrollment in Medicare at age 65 kicks in. I often suggest that such clients see if they are eligible for insurance premium subsidies through their state's health insurance marketplace.

But enrollment in Medicare doesn't mean that such concerns go away. In fact, a typical retiree can expect to pay thousands of dollars in medical premiums, dental and vision coverage, co-pays and other out-of-pocket costs. A recent estimate suggests  that you'll spend, on average, around $165,000 on medical expenses in retirement. That's twice as high as most people assume.

Enrolling in "Medicare Advantage" holds appeal for many seniors, as many of the out-of-pocket expenses are covered by a seemingly reasonable monthly premium. Yet many don't realize that Medicare Advantage can be quite stingy when it comes to things like authorizing surgeries or seeing a top-flight specialist. That's why I strongly prefer "Original Medicare." If you opt for that plan, you'll have access to a much wider array of doctors and specialists and are more likely to have referrals or surgeries approved for coverage. 

Healthcare consultants Milliman note that once someone's health gets worse, out-of-pocket medical costs can spike 39% per year, on average for people enrolled in Medicare Advantage, compared to a more modest 9% increase for people enrolled in Original Medicare. 

To my mind, Original Medicare, combined with a "Medi-Gap" supplement, provides the best of all worlds. Predictable expenses for when you are healthy or sick, and a greater choice of doctors, referrals and surgery authorizations. Kiplinger's recently reviewed the nation's top-rated Medi-Gap plans. And the Medicare website also offers helpful ways to compare various plans

Lastly, pre-retirement and post-retirement choices are not a set-it-and-forget-it issue. You should shop around every autumn during "open enrollment" season to ensure you still have the best coverage at the right cost.