Posted on 26 March 2009
By Mark Miller
The exploding cost of health care poses one of the most serious threats to retirement security–even with Medicare covering everyone over age 65. The pressures have accelerated in recent years as health care costs accelerate. Today, Fidelity Investments reported that a 65-year-old couple retiring in 2009 will need approximately $240,000 to cover medical expenses in retirement even with Medicare insurance coverage. That figure is 6.7 percent higher than Fidelity’s 2008 estimate of $225,000.
Fidelity has calculated an retiree health care costs annually since 2002. For many Americans, health care is likely to be their largest expense in retirement. Over the past seven years, the amount needed for retiree health care costs has jumped $80,000 or 50 percent from $160,000 in 2002, Fidelity says.
The Fidelity 2009 retiree health care cost estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for Medicare. The estimate takes into account cost sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare. The estimate does not include other health-related expenses, such as over-the counter
medications, most dental services and long-term care.
Fidelity also offered up some tips on how individuals can manage and contain their costs. For pre-retirees:
- Set aside money specifically for medical needs – Rather than saving generically for retirement, it may help to have a separate and distinct savings account specifically for medical expenses in retirement given their essential nature. To achieve the goal, individuals could use a savings vehicle such as a Health Savings Account (HSA) devoted solely to this cause or earmark a portion of their retirement account for this purpose.
- Investigate the cost of supplemental health insurance in various geographic locations – Supplemental insurance reimburses individuals over 65 years old for some or all of their cost-sharing, not covered by traditional Medicare. In addition to supplemental insurance, other coverage may also be available (e.g. Medicare HMO). Medicare’s official Web site (medicare.gov), as well as many state Web sites list the supplemental health plans available, including those for Medicare Part D. As individuals approach retirement, they should become familiar with their plan options, the costs and how these vary by location.
- Consider phased retirement as part of an overall strategic plan – Many employers offer part-time work with health care benefits. This type of employment can allow pre-retirees to avoid dipping into their savings accounts too soon for health care needs. By gradually entering retirement, these individuals will be protecting their savings for a longer period.
For people already in retirement:
- Be proactive in preventive care – There are simple ways to help contain health care costs. For example, get routine doctor-recommended screenings for diseases such as colon cancer. If an individual is otherwise healthy, it is still important to maintain recommended preventive care guidelines. Taking prescription medications according to schedule is another way to avoid complications.
- Select quality providers – On the Web site for the U.S. Department of Health & Human Services, (www.hospitalcompare.HHS.gov), there is information available on how well hospitals nationwide are caring for patients who have certain medical conditions or who have undergone various surgical procedures. Using a national database of hospitals, the Web site compares the quality of care of a given hospital and a given treatment/surgery. Patients at better-performing hospitals tend to have fewer complications, which reduces the risk of future additional medical expenses.
- Always review health claims for accuracy – It is not uncommon for mistakes to happen in the claims payment process. The error could be in many forms, including charges for services not rendered or incorrect charges for a given service. When retirees receive medial bills, they should take the time to review them and follow up with their health care provider when they have questions or concerns about billing.
More than anything else, the Fidelity data underscore just how much health care costs are out of control, the extent to which health expenses threaten the economic security of older Americans, and the need for health care reform.