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Suze Orman: 'Medicare is not free,' here's how you can cover the cost

Suze Orman: 'Medicare is not free,' here's how you can cover the cost
Suze Orman: 'Medicare is not free,' here's how you can cover the cost

If you can't wait to turn 65 so you're eligible for Medicare and free of those high health insurance premiums, Suze Orman has a harsh reminder for you.

"You do know Medicare is not free, right?"

The money maven writes in her blog that Americans need to be "clear-eyed" about how much health care will cost them in retirement. She points to a government report that puts the average out-of-pocket costs for seniors at $6,800 a year.

All of a sudden retirement doesn’t look so relaxing, does it? But once you know how much you need to save, you can start working on a plan — and Orman has some advice to get ahead of the problem.

What’s the damage?

Senior confident man working on laptop
LightField Studios / Shutterstock

How much you’ll end up paying for coverage depends on which options you choose.

The basic form of Medicare is known as "original" or "traditional" Medicare. Both names refer to Medicare Parts A and B.

Most people don’t pay any premiums for Part A, which covers your hospital expenses and some home health services. However, you will face a sizable deductible when admitted, and long hospital stays can trigger additional costs.

You will have to pay a monthly premium for Part B, which helps cover your doctor's appointments, exams, tests and a few other things.

As Orman points out, a retiree with an income of less than $88,000 can expect to pay $148.50 a month this year. And since there’s no cap on out-of-pocket expenses, serious medical conditions can still bury you in unexpected bills.

Don’t forget about add-ons and penalties

Serious mature couple calculating bills to pay, checking domestic finances.
fizkes / Shutterstock

The other problem is that Parts A and B don’t cover everything an aging body needs. Prescription drugs aren’t included, and unless President Joe Biden succeeds in expanding traditional Medicare, vision, hearing and dental won’t be covered anytime soon.

That’s why so many people choose to pay for private add-ons or alternatives under the Medicare umbrella.

Part D plans, which cost an average of $32.74 per month last year, will help with prescription drugs, while supplemental plans known as Medigap can help pay steep out-of-pocket costs.

At this point you might decide to ditch traditional Medicare entirely an opt for a privately run Medicare Advantage Plan — that’s Part C.

Whatever you decide, do not drag your feet. In most cases, if you don’t sign up when you first become eligible, Parts A, B and D come with severe late penalties that can haunt you for the rest of your life.

For Part B alone, your premiums can forever go up by 10% for each year you waited.

How to deal with these costs

young doctor discussing test result and diagnosis with senior couple patients using digital tablet in hospital hallway
imtmphoto / Shutterstock

Between the premiums, add-ons and penalties, you can see how easy it would be to spend $7,000 out of pocket each year even with the long-awaited protection of Medicare.

“And that’s just in today’s world. If you aren’t retiring for five, 10 or more years, you know darn well those costs will be even higher,” Orman adds in the blog post.

“For those of you nearing retirement who now realize your health care expenses will be higher than you expected, please stand in your truth.”

What does she mean by that? Orman tells anyone stressed by their financial security to consider “what you might do other than worry.”

And, as it turns out, there’s plenty you can do.

Start saving up right away

glass jar used for saving US dollar bills and notes for IRA retirement fund
FabrikaSimf / Shutterstock

However close you are to retirement, Orman says it’s important to start preparing immediately.

“To give yourself a life where you are not constantly stressed about money requires making key moves today. Not waiting. Not hoping. Not giving up,” Orman wrote for the AARP blog last year.

Step 1 should be locking in more affordable health insurance from now until retirement. Normally searching for a better rate can take ages, but a few sites let you compare quotes from more than 200 providers in a matter of minutes.

Beyond that? Orman is a big proponent of investing through a Roth IRA because your growth and qualified withdrawals are tax free.

“You will be so happy in retirement if you have a pot of savings that you can use without owing any taxes.”

Most banks and brokerages — both traditional and online — handle Roth IRAs. You can even open one through an automated investing service.

Earn a little extra

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Shyntartanya / Shutterstock

Once you have a plan in place, you may discover you need to set aside more money than your current budget allows.

To relieve the pressure, Orman says, you might need to consider working until age 70 — but you don’t have to keep doing the same high-stress job.

Even if it doesn’t pay as much, switching to more enjoyable work later in life can be an “important ingredient” to your long-term financial plan.

In fact, if you have an enjoyable yet marketable skill — like writing, drawing, music or even voice acting — you don’t have to wait. You can boost your income now by picking up a profitable side hustle.

“You always have the power to change whatever you want,” says Orman.

Stretch the dollars you have

Relaxed mature man at home using digital tablet. Handsome hispanic man using laptop on sofa. Confident multiethnic guy with spectacles and beard using digital laptop.
Rido / Shutterstock

Giving your budget a modest boost may not be enough to fund a happy and healthy retirement. In that case, Orman says, you need to scale back on your wants.

“What I see is that many households allow their spending to veer off to fulfilling wants more than needs,” Orman wrote for the AARP.

“Every time you are considering a new purchase — be it furniture, a cell phone, a computer or a remodeled bathroom — ask yourself if you are paying only what is necessary to meet that need. Is a less expensive option available?”

One way to put that advice into practice is to download a free browser extension that automatically scours the web for better deals and coupons every time you shop online.

As Orman says: “Live below your means but within your needs.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.