Healthcare costs are a major concern for retirees, particularly for those on fixed incomes. As a member of the Florida Retirement System (FRS), understanding your healthcare options in retirement is essential for maintaining financial security and peace of mind. In this article, we’ll cover key considerations for managing healthcare costs, including the updated Health Insurance Subsidy (HIS) provided by FRS, employer-sponsored retiree health programs, dependent coverage options, and transitioning to Medicare after age 65.
The Updated Health Insurance Subsidy (HIS) with FRS
The Health Insurance Subsidy (HIS) is an important benefit for FRS retirees, helping to reduce the cost of health insurance premiums. Here’s what you need to know about the updated HIS:
- Eligibility: You qualify for the HIS if you’re a retired member of FRS, receive a monthly pension or have received a distribution from FRS Investment, and are enrolled in a health insurance plan, whether through your former employer, Medicare, or another qualifying plan.
- Subsidy Amount: As of the latest update, the HIS provides $7.50 per month for each year of creditable service, with a minimum of $45 and a maximum of $225 per month. For instance, if you have 25 years of service, you would receive $187.50 per month.
- Application Process: To receive the HIS, you must submit an application to the Division of Retirement. The subsidy is then included in your monthly pension payment if you are in the pension plan and paid separately monthly if you are in the investment plan. The forms for activating this benefit can be located here: https://www.myfrs.com/Health_Insurance_Subsidy.htm.
The HIS is designed to help cover a portion of your health insurance premiums, easing the financial burden of healthcare in retirement. However, it’s not intended to cover the entire cost of insurance, so it’s important to plan accordingly.
Retiree Health Programs and Annual Enrollment Options
Many FRS employers offer retiree health programs, allowing you to remain on the group health plan after retirement and often offering either 1) a reduced cost for retirees or 2) a stipend similar to the FRS Health Insurance Subsidy that is a set amount per year multiplied based on the number of years of service. For those under Age 65, and who are not pursuing employment with a new employer post-retirement, retiree health programs are often a more cost-effective option compared to individual health insurance plans, with generally better coverage.
Things to consider:
- Retiree Health Program Continuation: As a retiree, you can generally stay on your employer’s retiree health insurance plan (usually its a separate plan), which is particularly beneficial if you retire before you’re eligible for Medicare. Group plans typically offer broader coverage and lower premiums than individual plans.
- Open Enrollment: During the annual open enrollment period, you can make changes to your health insurance plan, such as adding or removing dependents, including spouses and children. This is each year, so if your spouse is employed now and receiving health benefits from their existing employer, they can be added during open enrollment each year or with a qualifying event if they retire and lose coverage.
- Dependent Coverage: Under the Affordable Care Act, children can remain on their parents’ health insurance plan until the age of 26. This can be a valuable benefit for retirees with dependents who are still in school or just beginning their careers, though extra planning is likely necessary as the cost of family healthcare plans for retirees is often exorbitant. Depending on the age and health of the children it is sometimes less expensive to insure them privately. AWP can help evaluate and compare these options.
When evaluating whether to remain on your employer’s retiree health plan, it’s important to compare the costs and benefits with other available options thoroughly.
Navigating Medicare After Age 65
As you approach age 65, your healthcare coverage will undergo significant changes as you transition to Medicare. Understanding the various Medicare options and their associated costs is essential for maintaining comprehensive coverage in retirement. The same evaluation that was necessary about which coverage to maintain and for whom in the family is essential again as you turn 65 – a re-evaluation definitely needed.
Base Medicare (Part A and Part B)
Part A (Hospital Insurance)
Most people qualify for premium-free Part A if they or their spouse have paid Medicare taxes while working. Part A covers inpatient hospital care, skilled nursing facility care, hospice, and some home healthcare.
Part B (Medical Insurance)
Most people qualify for premium-free Part A if they or their spouse have paid Medicare taxes while working. Part A covers inpatient hospital care, skilled nursing facility care, hospice, and some home healthcare.
Note: This premium will be based on your AGI, so if you take taxable distribution from your 457(b) plan or IRA this could cause the premium to rise.
2024 Part B Premiums by Income Bracket
| 2024 Tax Filing Status | AGI | Medicare Part B Premium |
|---|---|---|
| Single | $103,000 or less | $174.70/mo |
| Single | $103,000-$129,000 | $244.60/mo |
| Single | $129,000-$161,000 | $349.60/mo |
| Single | $161,001-$193,000 | $454.20/mo |
| Single | $193,001-$500,000 | $559.00/mo |
| Single | $500,001 or more | $594.00/mo |
| Married, filing jointly | $206,000 or less | $174.70/mo |
| Married, filing jointly | $206,001-$258,000 | $244.60/mo |
| Married, filing jointly | $258,001-$322,000 | $349.60/mo |
| Married, filing jointly | $322,001-$386,000 | $454.20/mo |
| Married, filing jointly | $386,001-$750,000 | $559.00/mo |
| Married, filing jointly | $750,001 or more | $594.00/mo |
Medicare Advantage (Part C)
Part C Plans
Medicare Advantage plans are offered by private insurance companies approved by Medicare. These plans must cover everything Base Medicare covers but often include additional benefits like vision, dental, and prescription drug coverage. Costs vary by plan and provider.
Medicare Prescription Drug Coverage (Part D)
Part D Plans
Stand-alone prescription drug plans (PDPs) help cover medication costs. If you choose Base Medicare, you’ll need to purchase a Part D plan separately, while many Medicare Advantage plans include drug coverage.
Medigap (Supplemental Insurance)
Medigap Plans
Medigap policies, sold by private companies, help pay some healthcare costs that Base Medicare doesn’t cover, like copayments, coinsurance, and deductibles. Medigap is only available if you have Original Medicare, not if you’re enrolled in a Medicare Advantage Plan.
Oftentimes, your employer’s health care plan premium can be maintained as a medicare supplement, and the annual premiums will decrease. There are also low-cost medicare supplements that should be reviewed to determine if there is an opportunity to save money. The best way to review this is by going to www.medicare.gov and using their tool to enter your existing conditions, physicians, hospitals and medications. This will help calculate an estimated cost of healthcare annually based on the various policies. AWP regularly assists clients in this process and evaluation of coverage.
Costs and Coverage Considerations
- Premiums and Out-of-Pocket Costs: Compare premiums, deductibles, copayments, and coinsurance for each Medicare option. Original Medicare typically has lower premiums, but Medicare Advantage plans may offer lower out-of-pocket costs for certain services.
- Provider Networks: Medicare Advantage plans usually require you to use a network of doctors and hospitals, while Original Medicare allows you to see any provider that accepts Medicare.
Leveraging Your $3,000 Tax Exemption for Qualified Healthcare Expenses
The $3,000 exemption for withdrawals from a 457(b) plan offers a significant tax benefit to eligible retired public safety officers who use their retirement funds to pay for qualified health insurance premiums. This exemption can be claimed whether the plan administrator directly pays the healthcare provider or the participant receives the payment and then covers the healthcare costs.
To maximize this benefit, it is crucial to maintain thorough documentation of the payments, ensure accurate tax reporting, and consult with a tax professional. Understanding the correct procedures and staying informed about potential changes to the law, such as a proposed increase in the exemption amount, can help retired first responders effectively reduce their annual federal income tax liability.
For a more detailed look into how the $3,000 tax exemption works, read our article on the topic.
Conclusion
Managing healthcare costs in retirement is a critical aspect of financial planning, especially for Florida Retirement System members who have greater complexity given the options than many non-special risk retirees.
For personalized advice and to ensure your retirement plan meets your unique needs, consider meeting with us to navigate these complex decisions and create a secure retirement plan tailored to your situation.
