HealthView Retirement Planning

Increasing Health Care Costs + Age = Even Higher Costs

Fidelity’s latest health care cost estimate represents a 6.7% increase over last year’s estimate.

Mike Thompson of the Thomas Jefferson Institute for Public Policy writes that, "research shows the price of medical care is increasing due to the rising cost of hospitals, doctors, clinical services and home care.” He mentions the federal government’s Centers for Medicare & Medicaid Services recently released figures on national health care spending for 2007.

Total health care spending was 6.1% higher in 2007 than in 2006. Growing faster than the national average were: 
hospital care (+7.3%)
physician and clinical services (+6.2%) 
home health care (+11.3%)
prescription drugs (4.9%)

Health care costs are increasing rapidly. Add this information to the fact that older Americans use more health care than any other age group.

Take a look at how spending increases with age on the Federal Interagency Forum on Aging Related Statistics web site.

So, not only do medical costs increase over time but you will most likely need more care as you age. It is obviously critically important to create a financial plan to cover your health care costs when you retire. 

Health Care Costs Vary Greatly Based on Health

Fidelity announced their annual findings of health care costs in retirement.

A 65-year-old couple retiring in 2009 will need approximately $240,000 to cover medical expenses in retirement even with Medicare insurance coverage, according to Fidelity Investments' latest health care cost estimate.

The Fidelity study assumes no employer-provided retiree health care coverage and life expectancies of 17 years for a male and 20 years for a female.

The health care cost data released by Fidelity is potentially much lower than what a couple will actually need. An individual’s health care costs are affected by a number of factors including health care coverage, life expectancy, and health status. Take a look at how much the $240,000 can increase based on a couple of changes:

#1) The couple lives to their average life expectancy:
Add an additional $134,000
In this scenario, the male lives to 86 (instead of 82 in the Fidelity example) and the female lives to 90 (instead of 85 in the Fidelity example). They will need approximately $374,000 to cover medical expenses in retirement.

#2) The male has Type 2 Diabetes:
Add an additional $25,000 
Please note that Type 2 Diabetes generally decreases life expectancy but for the sake of this example, the male’s life expectancy remains at 82 like the Fidelity example.

An individual’s life expectancy can vary by 20 years and annual health care costs can vary by 50% based on one’s health profile. Understanding your personal situation and expected health care costs in retirement is a critical step to planning for your future financial needs.

HealthView data is based on proprietary medical underwriting guidelines and an in-depth analysis of U.S. nationwide average healthcare costs. Calculations assume individual has Medicare part A, B, D and Medicare Supplement plan.

Part of Retirement Planning is Designating a Health Care Advocate

Victor M. Sandler, MD’s wrote a recent blog post titled “Two Birds With One Stone: Covering the Uninsured by Fixing Medicare”

He describes our medical system as “a disaster…overly expensive and ineffective.” He mentions three causes of medical waste including “unnecessary tests and overly aggressive treatments, emphasis on procedures rather than prevention, and the conflict of interest that pervades health care in this country.”

The conflicts of interest he describes include the fact that

80 percent of medical research and 70 percent of continuing medical education for physicians is paid for by drug and medical device companies.

Of physicians who author clinical practice guidelines, 80 percent are on the payroll of Big Pharma, and 59 percent have relationships with companies whose drugs were considered in the guidelines they authored.

How do these realities impact my health care today and how will they impact my care when I am retired? How can I insure my interests are met if I am in need of care?
 
I have performed the role of health care advocate for family members with health issues, and navigating the health care system is an extremely challenging, time consuming, and often frustrating job. It is a job that most patients simply can not do alone.

The time to think about your health care advocate is now, and not when you are in a crisis or laying in an emergency room. You should enlist a family member or friend as your health care advocate. Do this today. Ask your advocate for support in whatever capacity you are most comfortable.

Having a health care advocate will be incredibly valuable to you should you be hospitalized and/or in need of care.
 

A Healthy Retirement

 
CNN’s Paul Steinhauser’s recently published article discusses a national poll conducted this month that shows “Most Americans like their health care coverage but are not happy with the overall cost of health care.”

 

If you are a baby boomer like me. You may agree that the cost of your health care is high today. But have you thought about your health care costs when you retire?

 

Your health care costs in retirement will likely be the most significant expense you face.

 

Let’s take an example of a healthy couple who are both 57 years of age. The healthy male (John) will likely live to 85 years of age and the healthy female (Mary) will likely live to 89. They plan to retire at age 67. John and Mary will be fully insured with Medicare part A, B, D and supplemental insurance designed to complement Medicare. Their out of pocket health care expenses during the course of their retirement will be approximately $587,000. In order to cover this expense, they will need $322,699 at the point of retirement growing at 5% per year to cover their out of pocket health care expenses.

 

Let look at some of John and Mary’s annual healthcare expenses:

Age    Estimated annual health care costs

67 $9,570

75 $21,480

85 $47,690

 

Financial institutions need to further educate brokers and financial planners on health care in retirement. Consumers must be made aware of the impact that health care expenses will have on their lifestyles in retirement. A small increase in retirement savings can make a big difference but consumers need to be aware of the reality of their expenses in retirement.