9161 / What should retired servicemembers understand about expenses related to medical care and long-term care?

The longer a retiree lives, the more likely it becomes that healthcare costs will increase while retirements savings decrease. As retirees age, they are more likely to face ever-increasing healthcare and long-term care (LTC) costs. Additionally, retirees will have used up more of their retirement savings, if any, regardless of changing income tax rates, due to the number of years they have drawn on the savings. The primary concern for retirees regarding longevity is running out of savings and impoverishing a well spouse with the cost of one’s LTC driven by Alzheimer’s disease, dementia, or another serious disease.

Medicare and Tricare for Life

Like civilians, military retirees are entitled to Medicare. They are also entitled to receive Tricare for Life. Having served for a qualifying period prior to retirement, the military retiree receives Medicare Part A for life with no monthly premium. Medicare Part B premiums, assuming income of $182,000 or less for a married couple filing jointly, cost about $174.70 per month in 2024.¹ Enrollment in Medicare Parts A and B is a requirement for enrollment in the Tricare for Life program.

The Tricare for Life (TFL) program is an entitlement benefit for military retirees from the active and reserve components that is provided with no monthly premium and a $150 deductible. TFL is administered by the Department of Defense and is not associated with Medicare.² TFL generally covers the medical costs of retirees associated with medical care that Medicare Parts A and B do not fully cover such as doctor visits, urgent care, emergency room visits, and inpatient services. Medicare is billed first and then TFL covers the remaining portion not covered by Medicare. TFL also covers or substantially reduces the cost of prescription drugs for retirees.³

Long-Term Care

Paying for care in a long-term care facility is a separate challenge. Neither Medicare nor TFL cover the costs of LTC, and the VA has limited ability to house most veterans who do not meet VA disability and financial qualification requirements.⁴ LTC costs can vary widely, but the national monthly average is currently $6,844 per month for a semi-private room and $7,698 per month for a private room in a nursing home.⁵

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Planning Point: For most retirees, a $7,000 monthly expense would have a a serious impact on retirement savings. Learning that Medicare, TFL, and the VA do not cover that expense at the time assistance is needed could be financially devastating to the veteran and spouse. A military retiree’s pension, Social Security benefits, and TSP savings may be enough to offset or materially blunt the cost of LTC, but it leaves nothing for a well spouse to live on. Justin L. Baker, JD, MBA, Army Reserve Lieutenant Colonel, Candidate for LLM in Wealth Management and Masters in Strategic Studies at the U.S. Army War College; https://www.bakerwealthstrategies.com/welcome/

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The VA does provide Aid and Attendance benefits for some qualifying veterans and their spouses of around $2,000 per month who meet financial needs, wartime service and medical needs requirements.⁶ For the majority of military retirees who do not meet the criteria for VA Aid and Attendance, the options are to privately pay, use some form of LTC insurance coverage, or Medicaid. As noted above, private pay is a suboptimal solution for those who cannot afford to fund the high cost LTC. Medicaid is a federal welfare program, administered by the states with significant financial needs requirement.⁷ Paying out of pocket for an extended LTC scenario may well lead to unintended Medicaid qualification.

Considering that private pay and Medicaid both have fairly dire financial implications, LTC coverage is a viable option to help military retirees buy down the risk associated with LTC costs. One way to provide for coverage in the event of LTC event is with a traditional LTC insurance policy. LTC insurance policies provide a guaranteed benefit for LTC costs in exchange for a monthly premium. They are “use it or lose it” proposition with increasing premiums as the insured gets older, and they have generally fallen out of favor in the market due to other available options to cover LTC costs.⁸ One of the other options that has emerged on the market is a hybrid, asset-based product that provides LTC coverage, a cash surrender value, and a death benefit for any unused benefits. They are typically funded through permanent life insurance policies or annuities and have a variety of options available to mitigate the risk of LTC costs.⁹