The rising costs of health care are having a trickle-down effect on Americans. They not only are drastically affecting current and future retirees but the Medicare and Medicaid systems as well.

According to the Center for Medicare and Medicaid Services, “Health spending is projected to grow at an annual rate of 5.8% from 2012-2022. This is a full 1.0% faster than expected annual growth in the Gross Domestic Product (GDP).” For retirees, many of whom are on fixed incomes, this could translate into significant reductions in their retirement income and purchasing power.

If that’s not enough, when it’s time to enroll in Medicare (most individuals are eligible at age 65), the complexity of options is overwhelming. Between Medicare (Parts A, B and D) and Medicare Supplement Plans (ranging from Plan A to N), understanding the choices can be challenging.

How to Accurately Estimate Your Healthcare Costs

Accurately estimating your health care costs and retirement planning is complex, and many factors must be considered, including:

  • any private coverage you have before reaching 65
  • Medicare Part B and D premiums
  • Medicare supplement premiums (also known as Medigap)
  • out-of-pocket expenses, such as co-pays, deductibles, and non-covered medical costs

Medicare Part A covers (up to certain limits): hospital care, skilled nursing care, nursing home care, hospice and home health services. Part A is typically provided at no cost because enrollees (or their spouse) have already paid premiums through payroll deductions.

Medicare Part B covers medical insurance, such as doctors’ services and outpatient care. Most individuals pay a monthly premium.

Medicare Part D covers prescription drugs and also requires a monthly premium. Premium costs depend on your MAGI or the total of your adjusted gross income (AGI) and your tax-exempt interest income (See SSA publication No. 05-10536).

Insurance companies offer Medicare Supplement or Medigap Plans to help cover gaps in existing coverage. These policies help individuals with their copayments, coinsurance and deductibles. Benefits vary between plans and are distinguished by a letter (A through N). Find out more by visiting this website.

Costs for coverage are increasing at a rapid rate. According to the 2012 and 2013 Medicare Board of Trustees Report, premiums have gone up annually by an average rate of 7.87% for Part B; 7.12% for Part D; and 5% for Medigap insurance.

Out-of-pocket costs may include dental care, vision, hearing and drug costs not covered by the typical prescription drug plan. Long-term care expenses aren’t covered by Medicare or Medigap plans.

Sky rocketing health care costs will continue to have a profound effect on retirees and the country. Individuals can be better prepared for these increases by planning ahead and accounting for them in their financial plans.

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by Lindsay Malzone, Lindsay Malzone is the Medicare expert for She's been contributing to many well-known publications as an industry expert since 2017. Her passion is educating Medicare beneficiaries on all their supplemental Medicare options so they can make an informed decision on their healthcare coverage.