I have written about out-of-pocket medical expenses many times on The HealthView Blog. This post explains in detail that health care costs are a significant expense even when a person has insurance.
This point is proven in The American Journal of Medicine’s recently published clinical research study shows that more than 62.1% of personal bankruptcies in 2007 were due to debt associated with health care costs. Most of the people who filed for bankruptcy are middle-class and college-educated homeowners. And 75% of them had health insurance.
The American Journal of Medicine study titled, Medical Bankruptcy in the United States, 2007: Results of a National Study reveals the following key findings:
Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%
When asked about problems that contributed very much or somewhat to their bankruptcy,
41.8% bankruptcies were due to a health problem
54.9% cited medical or drug costs
37.8% blamed income loss due to illnessAmong common diagnoses, nonstroke neurologic illnesses such as multiple sclerosis were associated with the highest out-of-pocket expenditures, followed by diabetes, injuries, stroke, mental illnesses, and heart disease.
Hospital bills were the largest single out-of-pocket expense for 48.0% of patients, prescription drugs for 18.6%, doctors’ bills for 15.1%, and premiums for 4.1%. The remainder cited expenses such as medical equipment and nursing homes. While hospital costs loomed largest for all diagnostic groups, for about one third of patients with pulmonary, cardiac, or psychiatric illnesses, prescription drugs were the largest expense.
Chronic illnesses obviously take a serious toll on individuals, their families, and their finances as health care costs can be staggering. I encourage you to discuss your health risks with your doctors, and learn as much about health care expenses today and in the future so that you will be better prepared.
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can you quantify how you arrived at $ 587,000?
what portion is the medicare premiums?
medicare supplement premiums?
ltc costs? etc.
My prctice in asset management with physicians will be greatly affected if above is true.
purpose of medicare, medicare supplements and ltc policies is that you will not have to pay anything out of pocket. please call, write, meet me and explain.
mike jhala
440-460-0640
mjhala@investorscapital.com
Mike,
Thank you for your questions. I will address each of your questions below:
#1) Can you quantify how you arrived at $ 587,000?
The example is a healthy couple who are both 57 years of age. The healthy male will likely live to 85 years of age and the healthy female will likely live to 89. They plan to retire at age 67. The couple will be fully insured with Medicare part A, B, D and supplemental insurance designed to complement Medicare. Their out of pocket health care expenses (this is what the couple will need to pay) 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.
Our data comes from one of the leading health care actuarial companies in the country, which works with proprietary medical underwriting guidelines and in-depth analysis of U.S. nationwide average healthcare costs. We assume that the male and female in our example are healthy, and continue to enjoy good health throughout retirement.
The following assumptions are important to consider when we calculate the out-of-pocket health care costs:
Savings rate: 5.00% per year during retirement
Inflation rate: The assumed healthcare inflation rate is 7-13% based on the medical expense.
Future value calculation as of your retirement year of 2019
#2) What portion is the medicare premiums?
For the male in the example: his premiums are 65.9% of his total health care expenses
For the female in the example: her premiums are 65.3% of his total health care expenses
Here is a more detailed breakdown for the male and female:
Male:
Premiums: 65.9%
Co-pays: 25.1%
Dental expenses: 9.0%
Female:
Premiums: 65.3%
Co-pays: 25.7%
Dental expenses: 9.0%
#3) ltc costs? etc.
The data in this example does not include any long term care costs.
#4) purpose of medicare, medicare supplements and ltc policies is that you will not have to pay anything out of pocket.
The example does not include any long term costs or benefits included in a long term care policy. The example assumes that the couple will be fully insured with Medicare part A, B, D and supplemental insurance designed to complement Medicare. People that are covered with this insurance are still responsible for premiums, and co-pays (including for prescriptions). In addition, Medicare does not cover most expenses associated with hearing, dental and vision. I wrote a blog post on 5/8/09 titled “See No Coverage, Hear No Coverage, Speak No Coverage” which address the fact that “Medicare does not cover everything, and it does not pay the total cost for most services or supplies that are covered.” According to The Employee Benefit Research Institute, “Medicare covers 51% of expenses associated with health care services. Individuals are in large part responsible for covering the other 49%.”
The Medicare web site has a Medicare Coverage Database where you can search for Medicare Coverage information by state and coverage topic. Entering information into the Medicare Coverage Database will most likely reinforce the idea that “Medicare does not cover everything.” For example, I entered a few coverage topics in Massachusetts, and received the following information:
“Medicare does not cover an eye exam.
Generally Medicare does not cover eyeglasses or contact lenses.
Medicare does not cover routine hearing exams or hearing aids.
Medicare does not cover routine dental care or most dental procedures such as cleanings, fillings, tooth extractions or dentures. Medicare does not pay for dental plates or other dental devices.”