How to Limit Health Care Costs

Medicare Basics

There are four basic types of Medicare coverage that you can choose from:

• Part A (Hospital Insurance) covers your inpatient care in hospitals, skilled nursing facilities, hospice, and home health care.
• Part B (Medical Insurance) covers your doctors’ services, hospital outpatient care, home health care and some preventive services.
• Part C (Medicare Advantage Plans) works like a health maintenance organization (HMO) or a preferred provider organization (PPO). Part C includes Part A and Part B coverage, and often Part D, through private insurance companies approved by Medicare.
• Part D (Medicare Prescription Drug Coverage) is a prescription drug program administered by Medicare-approved private insurance companies. Part D is designed to help cover the cost of your prescription drugs.

For more detailed information about Medicare, see the Medicare & You (PDF file) handbook at www.medicare.gov.

How to Limit Costs

To limit health care costs prior to retiring and while on Medicare, consider the following:

• Open and fund a health savings account (HSA). You are eligible to open an HSA if you are enrolled in a high-deductible insurance plan. (In 2018, a high-deductible plan is defined as a plan with a $1,350 deductible for an individual and a $2,700 deductible for a family.) You may contribute up to $3,450 as a single person or up to $6,900 as a family, and any person age 55 or older may add an extra catch-up contribution of up to $1,000. As long as you use the money for medical expenses, you will not be taxed on HSA contributions, investment earnings or withdrawals. Note that, once you start receiving Social Security benefits or enroll in Medicare, you no longer can contribute to an HSA.
• Pick the right Medicare Part D drug plan for your planned use of prescription drugs. Check the formulary (the list o drugs that a Part D plan covers) and stay informed about any changes to your plan. Sign up for Part D when you enroll in Medicare and select the plan that will cover your typical medications at the best price you can afford.
• Purchase Medigap insurance in most cases. Medigap is private insurance that covers some of the typical Medicare out-of-pocket expenses such as premiums and deductibles. Note that you cannot purchase Medigap coverage if you are enrolled in Part C (Medicare Advantage Plans).
• Look for help with paying for Part B. Depending on your income level, you might qualify for Medicaid or a state Medicare Savings Program, either of which may pay some or all of your Part B premiums. Part D offers its Extra Help program to provide low-cost drug coverage.