4 Ways to Manage Health Care Costs in Retirement

Jeff McClenning |

4 Ways to Manage Health Care Costs in Retirement


Managing and wrapping your head around health care costs and health insurance may seem like a daunting task.

A financial wellness study by  PricewaterhouseCoopers [https://investor.vanguard.com/investor-resources-education/retirement/planning-how-much-does-retirement-health-care-cost] found that over one-third of baby boomers—38% to be exact—said that the cost of health care is their top fear.  It’s even higher than anxieties generated by the fear of running out of money.

But there are ways to manage costs and reduce surprises as you travel the road into retirement.  Let’s look at several ideas.

  1. Do you have a health savings account?  You may qualify for an HSA if you have a high deductible health plan (HDHP).  For 2022, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. 
  • In most states, a tax deduction is allowed for an HSA, earnings are not taxed within the account, and withdrawals can be made tax-free for qualified medical expenses.
  • Take full advantage of your HSA.  You may even consider putting it roughly on par with a traditional IRA.
  • An HSA not only allows for tax-free withdrawals for qualified medical expenses, but once you turn 65, you may take a penalty-free withdrawal for any purpose, though you will pay ordinary income tax if not for a qualified medical expense.  Penalty-free withdrawals for IRAs begin at 59½.
  • While you can pay Medicare premiums with your HSA funds, once enrolled in Medicare you lose the option to contribute to your HSA.  [https://www.medicarefaq.com/faqs/hsa-and-medicare/]


  1. Get the right Medicare plan for your needs.  Do you want to enroll in traditional Medicare (Parts Ahospital insurance, B—medical insurance and D—prescription drug coverage).  Or would Medicare Advantage (Part C that is offered by private companies) be your best choice?
  • Medicare C plans are offered by private companies approved by Medicare and must follow rules set by Medicare.  It’s an option for you to receive your Parts A and B coverage.
  • You may be drawn to the advantages of Part C, including benefits for hearing, dental and vision, fitness programs, and the possibility of lower monthly premiums (can vary from $0 to $200+).
  • The maximum in-network, out-of-pocket, is $7550 in 2022.  [https://www.ncoa.org/article/medicare-advantage-medicare-part-c-costs]
  • Be aware that if you have a Medicare Advantage plan that includes prescription drug coverage, you will have a separate out-of-pocket maximum for prescription drug costs.  Most Medicare Advantage plans include prescription drug coverage (Part D).
  • As with most choices in life, you must balance the benefits with any drawbacks.
  • Are your doctors within your plan’s Medicare Advantage network or could the Part C plan you’ve chosen be discontinued?  You may also face limits switching back to original Medicare.  With Medicare, you can choose any doctor that accepts Medicare payments.
  • Choosing the right policy can be a daunting task, and the themes we’ve touched on are meant to provide you with a starting point.  If you have questions or would like additional resources, please let us know.


  1. Be aware of the late sign-up penalty for Medicare.  [https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties]
  • Most of us are aware that Medicare becomes available at age 65.  But did you know that if you miss your initial enrollment period (IEP), you will wind up paying a penalty unless you have other coverage that’s similar in value to Medicare (like from an employer)?
  • The IEP spans from three months before the month you turn 65 through three months after you turn 65.  It includes the month you turn 65 for a total of seven months.
  • If you miss your seven-month IEP, you may have to wait to sign up and pay a monthly late-enrollment penalty for as long as you have Part B coverage.  [https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-does-medicare-coverage-start]
  • Late enrollment penalties are added to your premium—they are not a one-time late fee, and the penalty rises the longer you wait to sign up.  [https://www.ncoa.org/article/understanding-medicare-s-late-enrollment-penalties]
  • You may also pay a penalty if you must pay a Part A premium.  Most people, however, don’t pay for Part A.
  • You may also be subject to a permanent Part D penalty unless you have coverage that’s similar in value to Part D or you qualify for what Medicare refers to as ‘extra help.’
  • It sounds complex.  However, if you have questions, please let us know.


  1. Consider long-term care.  Long-term care can be part of your overarching financial plan.  It can be a multifaceted and weighty topic that many delay talking about or planning for.
  • Someone turning 65 stands about a 70% chance of eventually requiring some type of long-term care, according to the Administration for Community Living.  [https://acl.gov/ltc/basic-needs/how-much-care-will-you-need]
  • Currently, Medicare only covers short nursing home stays or limited home health care when you require skilled nursing or rehab.
  • A long-term care policy can provide you with options and eliminate some costly risks, but plans aren’t cheap, and the premium may rise.  If you choose to purchase insurance, it will depend on what’s best for you, your family, and your ability to pay expenses out of pocket.
  • If you need long-term care, support usually comes from an unpaid family member or friend, a professional who comes to the home, adult day services, or long-term care facilities.


How you decide to approach health care will ultimately depend on various factors that are unique to your situation.  We are here to assist and are happy to entertain any thoughts or questions you may have.