As I was coming close to turning 65, I knew I had to make some important decisions regarding my health care coverage. For the previous 20 years, I had been riding the coattails of my wife’s employment, and paying sometimes nothing and sometimes a token amount for soup-to-nuts health insurance coverage. But no more. The minute I turned 65, I would be dropped like a hot potato from my wife’s employer-provided health insurance policy. Goodbye, free ride. Hello, Medicare.
There are plenty of health care cost horror stories on the blogosphere and, like most of you, I had read my share. Health care costs: the bottomless pit… the destroyer of retirement stashes… the car crash waiting to ruin my carefully laid plans for financial independence. What to do?
While all these happy thoughts were progressively rising to my mind’s surface more and more often, my mailbox started spewing forth more and more direct (junk) mail packets from insurance companies eager to take my money in exchange for… what? I figured I had better start digging in and find out.
Asking the Right Question
Yes, Medicare would cover a very large part of the front end, but not everything and not without limit. And it would actually cost me?! (Surprise, surprise, I thought all that money deducted from my paychecks for over 40 years would take care of that.) And so, to cover what Medicare would not, I would need a Medicare supplement policy. Or not (!) since I could also opt for a “Medicare Advantage” policy to combine the core Medicare coverage and the supplemental coverage under one insurance roof. Boy, oh boy.
I started making lists and evaluating policies, tabulating who gave what for how much and up to what limit, and yaddy yaddy — and then it came to me. Too many possible answers. But… what was my question? What problem was I trying to solve? Without nailing that down, no way would I recognize the right answer when I saw it.
The first thing I realized, before even formulating that all-important question, was that I had begun my policy search implicitly trying to replace what I was losing: soup-to-nuts coverage. But did I really need that? Sure, it had been great “fun” to go to doctors and be able to walk out having to co-pay a whole ten bucks (!) for a consultation or an annual physical or anything. Blood tests? Sure! An x-ray? Bring it on! A colonoscopy? Well, if I really had to. What did I care; I wasn’t paying for any of it.
But did that mean I could NOT pay for it? Did I really need health insurance to cover that? What did I REALLY need the health insurance to do? And so I had my question. And I also had my answer. I needed a Medicare supplement policy that would keep me from suffering a catastrophic loss of retirement assets as the result of treating an illness or accident.
Coming Up With the Right Answer
So, what would a “catastrophic loss of retirement assets” look like? How much loss would be catastrophic? That number is (of course) different for everybody. But since this is my story, this is my catastrophic loss number: anything above $25,000. What I needed was a policy that would LIMIT MY RISK to that $25,000. And I should search for and select a policy based on how well it would limit my risk, and not on what I could get for my premiums along the way.
By now, you are probably starting to see where I ended up going. To arrive at what I would consider the best overall deal for me, I looked at 2 factors: annual premium and annual out-of-pocket risk. And lo and behold, a High Deductible Plan F Medicare Supplement policy was right up my alley. My premium is $636 a year. My deductible (and therefore my out-of-pocket risk) is $2110 a year. Add to that $1260 in annual Medicare premiums, $180 a year for my prescription plan, and $325 for my annual prescriptions deductible and it all adds up to $4511 a year.
Throw in another $489 in theoretical prescription co-pays a year and we get a worst case scenario of $5000 a year — which is one hell of a lot less than my $25,000 tolerance limit.
Every year, I’ll pay the premiums (which, I realize, will creep up every year). Then I’ll be on the hook for the first $2110 of medical expenses — over and above what Medicare will pay — plus the first $325 of prescriptions. And after that… ZERO cost for up to 15 months of hospitalization… ZERO cost for 100 days at a nursing facility… ZERO cost for all physicians services… ZERO cost for all laboratory diagnostic services… plus a bunch of prescription medicines thrown in. (Hey! If I’m still racking up medical costs after 15 straight months of this stuff, it’s going to be time to pull the plug anyway.)
So I put those policies in place. Then the last piece of the puzzle for me was to set aside $5000 in a savings account specifically intended to cover two years’ worth of the $2435 in annual worst-case medical and prescription out-of-pocket annual medical expenses. Case closed! I could stop worrying about my health care coverage, and get on with my financially independent living.
The takeaway: I focused on overall worst case scenario risk to come up with a maximum expense number ($5000 a year) I could most certainly live with. And the best news of all? Even if you’re under 65 and without Medicare, you could make this work too (like Mr. Money Mustache has done).
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image courtesy of holohololand at FreeDigitalPhotos.net