Retiree Health Insurance and Chronic Illness Management

Retiree health insurance and chronic illness management are important components of the overall retirement planning process. As a result, retirees need to take a close look at the costs and options available in order to develop an informed plan. While some variables such as age at retirement and location can be controlled, others like health status and how long one lives can have a significant impact on retiree healthcare costs.

It is not uncommon for retirees to underestimate the cost of healthcare in retirement. As a result, many may not have enough savings to cover these expenses. Milliman’s Retiree Healthcare Cost Index  provides a useful benchmark for retirees to help them understand the potential cost of healthcare in retirement. RHCI Click here estimates the amount of savings (net of taxes) needed at retirement to pay for an average lifetime of healthcare expenses, assuming an investment return of 3.0% per year.

Medicare beneficiaries generally have two pathways to coverage: Original Medicare plus Medigap or Medicare Advantage plus a Part D supplement. Each option has its own set of costs and benefits. The decision of whether to choose one or the other depends on a variety of factors including a retiree’s current and expected healthcare utilization, personal preferences, and current and projected health premiums.

The Centers for Medicare and Medicaid Services is implementing a series of disease management demonstration programs to assist fee-for-service Medicare beneficiaries with chronic conditions. This includes programs focused on heart, kidney, and lung diseases, diabetes, psychiatric disorders, and Alzheimer’s disease and other dementia. These programs can assist with monitoring of these conditions, coordinating care with the primary care physician, and managing prescription drug therapy.

A life insurance policy with a Chronic Illness Rider can provide financial protection against the high cost of certain chronic illnesses in retirement. This type of rider provides access to a portion of the death benefit in the event of the policyholder’s inability to function due to the chronic illness. The term and specifics of the chronic illness rider will vary among insurers, but most define a chronic illness as the inability to perform a specified number of activities of daily living or substantial cognitive impairment.

A chronic illness rider can be added to many types of life insurance policies, including whole and universal life insurance, and is often available for an additional cost. The cost and specific terms of a chronic illness rider can vary considerably among providers. As a general rule, the amount accessed from the chronic illness rider will reduce the death benefit of the main policy.

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