By Susan Beverley
For Americans living and working abroad and those planning to retire overseas, Medicare can be an expensive annoyance as well as a non-solution to your medical problems. Although there are those who are campaigning for significant changes to make Medicare benfits available to all eligible American citizens no matter where in the world they choose to live, the reality is that currently Medicare is only available – and of any use – if you’re actually living in the U.S.
Medicare and Those Retiring Abroad
If you and/or your spouse have lived and worked legally in America and paid U.S. taxes for at least the last 10 years, you are most likely to become eligible for Medicare coverage when you hit 65. For most eligible people Part A (hospital insurance) is free of any monthly premium. You can choose to add on parts B (medical insurance) and D (prescription drug insurance) for additional premiums which will be deducted automatically from your Social Security payments (if you’re eligible).
However, if you’re planning on retiring overseas, you get zero Medicare coverage abroad despite the fact you have been paying your taxes and contributing directly toward the system all your working life. (The only advantage is that you do not have to continue paying into the system in the form of premiums for additional benefits such as parts B and D as mentioned above.)
This is seen as one of the largest injustices facing American citizens who choose to exercise their right to freely live where they want when they come to retirement age.
The argument the government continually regurgitates when challenged on this issue is one they first came up with in 1979, namely: “There are two primary difficulties in extending Medicare services abroad: (1) determining reimbursement rates for foreign services; and (2) ensuring compliance with Medicare standards by foreign medical personnel and facilities.”
However, this argument didn’t hold much water back then, and it certainly doesn’t today because there is already a working model in place to deliver the insurance benefits to those who are eligible and who are living abroad, namely TriCare, the model used to support and reimburse U.S. military personnel and their dependents who are resident overseas.
Currently there are thousands of American citizens retired abroad who would be eligible for Medicare if they lived in the United States, but who have contributed for a significant proportion of their lives to a system which provides them with nothing now that they live abroad.
If you would like to benefit from Medicare you have two choices: 1. Return to America to live permanently or 2. Return to the US if you require medical treatment…
Naturally neither option is ideal for those who want to live abroad permanently in retirement.
Additional points for you to consider include the fact that if you want Part B coverage as a US citizen retired overseas you can have it by paying a monthly premium. However, as Medicare benefits are only available inside America it can make little sense to continue to pay a monthly premium for a service that’s not actually available to you.
So, you may decide not to enrol in Part B or just drop it as soon as you move abroad – however if you do this and then return to live in America at some point in the future if your plans or circumstances change, you will be required to enrol again and then pay a premium that is 10% higher for each 12-month period that you did not have coverage. What’s more, you can only re-enrol between January and March in each year, with your coverage not resuming until July of that same year.
Health Insurance Options
While you may choose to add your voice to the active campaigns in place to extend Medicare benefits to Americans retired abroad, you also have to find a way to fund your medical care once you retire overseas. The good news is that there are international health insurance companies as well as national companies in many nations around the world which will all offer you insurance coverage. The bad news is that medical insurance is nothing if not expensive – particularly for those living on a fixed retirement income and for those over the age of 55.
Your only two real options are:
- Self-funding your medical care on an ‘as-required’ basis using your saved and invested retirement wealth or monthly Social Security or pension income. Advantages include having no outlay as long as you’re healthy. Disadvantages include having the uncertainty of what you may need to afford in later life, as well as perhaps not having enough money to pay for critical care.
- Buying a level of insurance coverage to suit your affordability constraints as well as your potential requirements. Advantages include having the peace of mind that you will be looked after should you fall ill. Disadvantages include the fact that insurance premiums become more expensive and restrictive as we age.
In many countries, including Ecuador, you might be better off without Medicare, even if you are eligible. A 2012 study by AARP reported that Medicare only covers 51% of medical expenses, given co-pays and other non-covered expenses. With expenses for similar treatments and procedures running about 20% of those in the U.S., you will probably save money in Ecuador even if you are a full-pay patient.
What the Government Says
According to IRS.gov: “If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.” However, the following is also true: if you are living permanently abroad and an employee of a foreign employer and are subject to foreign laws governing their social security tax, you are not required to pay US Social Security tax such as Medicare taxes.
For Americans determined to remain abroad into retirement this means that they effectively avoid having to pay taxes towards a service that they will never benefit from…however, as we all know, plans can change. If the plan in question means that the American currently living abroad and legitimately avoiding having to pay towards Medicare one day returns to the US in retirement, they will have to pay a huge premium to gain access to just the most basic element of Medicare, namely Part A.
There are those who may choose to make voluntary contributions towards Medicare as a result, even though they are living and working abroad. Your situation and the choices you make will of course depend on whether you believe you will one day return to American shores and benefit from the Medicare solution.