What’s not covered in Medicare?

What’s not covered in Medicare actually leads to some of the greatest unaccounted for costs in retirement. Health care costs are vastly underestimated in most retirement plans especially given the rate of increase the cost is seeing annually. While I tend to agree with The Motley Fool’s advice on investments, their retirement planning advice on “What Will it Cost?” takes an admittedly simplistic approach. The financial services company that’s dedicated to the goal of building the world’s greatest investment community offers great online resources to calculate the expected retirement expenses and the average inflation rates. But we’d like to underscore the increased attention retirement planners are going to need to pay to rising healthcare costs.

And evidence from recent studies supports our emphasis. Fidelity Investments released a report on the latest retiree health care costs and found that couples retiring in 2012 should expect to pay 4 percent more over the course of their retirement than couples retiring the previous year (that’s $240,000 over 20 years up from $230,000 in 2011). Over the past decade Fidelity has been calculating increases in medical expenses and has found that “medical inflation is outpacing salary increases and cost of living adjustments.”

Survey results, put out by Nationwide Financial, show that 38% of respondents nearing retirement have not discussed it (retirement) at all with a financial advisor and only one in five of those who did discuss with a financial advisor included health care costs in the discussion. Yet more than 50% of soon to be retired, high net worth Americans are afraid of what health care costs could do to any retirement plans they’ve made. John Carter, president of Nationwide Financial Distributors, deduced from his personal experience and the results of the survey that “too many [people] assume their employers will continue to pay their premiums during retirement or Medicare will cover all health care expenses.” The same survey responses also indicate that only one in five are confident in their understanding of Medicare coverage but more than half believe it to be important to educate themselves on it.

So then, really, what’s not covered in Medicare that you should factor in? This video by Health Alliance Plan does a great job of explaining what additional coverage you should consider: What Isn’t Covered by Medicare? Quite simply, 49% of costs: hospital stays, dental care, routine hearing exams, eyeglasses, copays and coinsurance, prescription drug coverage, and health care while outside or the United States are not covered by Medicare part A or B. To make up for these gaps you’ll need to get coverage through a Medicare advantage plan, a prescription drug plan, or a Medicare supplement plan.

Brad Kimler, vice president of Fidelity’s Benefits Consulting business, has said that until medical inflation stops outpacing increases in salary and cost of living, “it is critical that individuals include health care costs in their retirement savings strategies today so they can be prepared to pay their medical bills throughout retirement.” We couldn’t agree more.