3 ways beyond Medicare to pay for health care

Helping clients cover high medical costs in retirement

Health care is a significant expense throughout all life stages. On average, for all ages,  8.4% of spending goes toward health care; for people 65 and older, that jumps to 14%

Health care expenses are a much bigger part of spending for people age 65 and older who are nearing or in retirement. It is important for your clients to have stable income throughout retirement to help cover these costs.

And yet, fewer retirees say they are worried about health care costs, according to the latest Retirement Risk Readiness Study* from Allianz Life. While 73% of retirees said they worry that health care costs will be so high they can’t afford needed care in 2021, just 43% said the same in 2022. This could leave some people unprepared for the rising costs of health care in retirement.


Making a plan

To help your clients with planning for health care costs in retirement, you will want to show them how health care coverage in retirement works, the potential costs and impacts of health care coupled with inflation and longevity, and strategies to help cover potential out-of-pocket expenses.

The primary way that your retired clients will cover health care costs is through Medicare. Medicare eligibility starts the first day of the month a person turns age 65. The process is not automatic. Your clients must enroll to receive Medicare benefits, if they are not currently receiving Social Security benefits.

Clients will need to make three main decisions about Medicare:

  1. Do they want coverage?
  2. Do they need to add prescription drug coverage?
  3. Do they need to add supplemental coverage?

The cost of Medicare can vary based on the plan type, the state of residence, and other factors. It is very important for your clients to have a health care cost strategy in place.

Medicare has four parts for hospital insurance, medical insurance, Medicare advantage plans, and prescription drug coverage:


Part A

This insurance pays for some of the costs for hospitalization, hospice care, and home health services. Medicare Part A coverage is usually premium free, but there are co-pays and deductibles.


Part B

This medical insurance primarily covers physicians’ services, most outpatient hospital services, and certain related services. Long-term nursing home care is not covered. Part B insurance has a premium.


Part C

Medicare Advantage Plans in Medicare Part C include managed care plans, private fee-for-service plans, and medical savings accounts. These plans may offer extra coverage such as vision, dental, and wellness programs. The monthly premium will vary by plan.


Part D

Prescription drugs can be covered through this voluntary Medicare coverage. Part D coverage has a premium.

Having a plan to cover the cost of Medicare is essential, but it’s also important to understand that Medicare does not cover everything. For example, Medicare does not cover one of the largest medical costs associated with aging – nursing home care.

Most people (70%) who are turning 65 these days will require long-term care at some point in their life. The average annual cost for a private room with 365 days of care in a nursing home is $105,850, according to the U.S. Department of Health and Human Services. A holistic plan will include strategies for paying for health care costs outside of Medicare coverage.

Three funding options you can discuss with clients


An income annuity

An income annuity can be used to fund health care costs. The guaranteed income from an annuity can allow for flexibility with discretionary expense and provide more health care choices.


Life insurance

Consider utilizing life insurance for death benefit protection to help replenish funds for the surviving spouse.

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Products with riders

Consider life or annuity products with optional riders (often at an additional cost) to help fund critical illness or long-term care. Some riders may also provide the potential for increasing income.

*Allianz Life conducted an online survey, the 2022 Retirement Risk Readiness Study, in February 2022 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.

Products are issued by Allianz Life Insurance Company of North America, PO Box 59060, Minneapolis, MN 55459-0060.