Your health is critical throughout life, and it becomes increasingly important as you plan for retirement. Paying for health care can consume a sizeable portion of your retirement budget, and health insurance is the primary way most people manage those costs. That's why it's essential to have a basic understanding of the national health care landscape.
National health insurance is a government-provided health insurance system that covers everybody — regardless of age, employment status or health conditions. Taxpayer dollars typically fund these programs, and all levels of care (from preventative to complex) are included.
The U.S. does not currently provide government-funded national health insurance to everyone. However, the government regulates and pays for health care in several ways. Two of the most important programs for retirement planning are the ACA and Medicare. Federal and state governments also handle Medicaid, which primarily helps people with limited financial resources.
The Affordable Care Act (ACA) Changed the Health Care Landscape
With the 2010 Patient Protection and Affordable Care Act (ACA), the U.S. government made significant changes to the health care system.
The ACA provided access to health care for millions of uninsured Americans, and the Act required virtually everybody to be covered by a qualifying plan. However, since 2018, people typically don't need to pay an "individual mandate" fee for being uninsured.
The ACA also established the Health Insurance Marketplace, also known as "exchanges," where people can compare plans and buy insurance. Insurers can't deny coverage or raise rates based on pre-existing health conditions, and the new law focuses on offering preventative care at no cost to patients. Under the ACA, insurance companies cannot charge women higher premiums than men, and insurers must provide essential services for women and mothers.
For low-income households, the ACA expanded Medicaid, enabling millions of additional people to qualify for coverage.
You pay premiums for health care plans you buy through the Marketplace. However, some low-income households qualify for a premium subsidy, which is effectively a discount paid for by the U.S. government. You typically also have out-of-pocket costs.
Who Is Covered?
Individuals, families and businesses can buy insurance through the Marketplace. If you do not have insurance from an employer, Medicare or Medicaid, these ACA plans may be appropriate. Those who retire before age 65 often use Marketplace coverage after losing employer-provided health care coverage. Then, after reaching age 65, they switch to Medicare.
Medicare Is the Foundation of Retirement Health Insurance
Medicare is a government-funded health care program for people over age 65 and those with certain medical conditions.
Medicare replaces individual policies and employer-provided health care for most Americans at age 65. Traditional coverage includes hospital insurance, also known as Part A, and medical insurance, or Part B. In addition, optional coverage for prescription drugs is available through Part D, and you can tailor your coverage with supplemental Medigap or alternative Medicare Advantage plans.
During your working years, you typically pay into the Medicare system through payroll taxes. Those taxes cover your Part A premium, but you pay monthly Part B premiums after enrolling in Medicare. You may have additional out-of-pocket costs, and you may have to pay premiums for Medigap or Medicare Advantage plans.
Who Is Covered?
Medicare is available for those over age 65 who have paid Medicare taxes for at least 10 years. Your spouse's work history might allow you to qualify, and those with disabilities or end-stage renal disease may also qualify.
Health care is an important piece of your retirement plan, and government regulations affect the costs you pay and the types of coverage available. Before age 65, most people get health care from an employer, but early retirees and those without employer health care often receive insurance through the Health Insurance Marketplace. After age 65, Medicare is available, and you can tailor your coverage using Medigap or Medicare Advantage plans.
As you plan for retirement, estimate how much you'll spend on health care each year. Marketplace coverage can get expensive as you age, so it's critical to research and budget for these costs ahead of time.