Retirement Health Care Costs Continue to Rise:
Financial Choices and Health Condition Management Are Key
To Planning for Future Expenses, Reducing Costs, and Living Longer
HealthView Services’ 2017 Retirement Health Care Costs Data Report Reveals:
Projected benchmark health care expenses for retirees
Percentage of Social Security benefits required to cover health care
Lifetime retirement health care costs higher for women
Average annual out-of-pocket savings from managing type 2 diabetes
Additional out-of-pocket costs during last two years of life
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DANVERS, MA, June 14, 2017 – HealthView Services’ 2017 Retirement Health Care Costs Data Report provides updated benchmark projections for health care expenses in retirement and the savings required to meet future health care needs. The paper also outlines how behavioral changes related to health management can significantly reduce lifetime health care costs and increase life expectancy. Click here for a video introduction to the report.
The third annual Data Report shows that lifetime retirement health care premiums for Medicare Parts B, D, supplemental and dental insurance for an average 65-year-old couple retiring this year are projected to be $321,994 in today’s dollars. When deductibles, copays, hearing, vision, and dental out-of-pocket costs are added, total lifetime retirement health care costs rise to $404,253.
“Health care will be one of the most significant expenses in retirement, and retirees may need to plan on picking up a greater portion of these costs,” said Ron Mastrogiovanni, CEO of HealthView Services. “Homes can be downsized; vacations reduced when budgets are tight; but health care premiums and other out-of-pocket cost are not an optional expense. The Report’s data provide a starting point for how to effectively address these expenses.”
The principal driver behind rising health care expenses continues to be retirement health care inflation related to Medicare Parts B and D, supplemental insurance, and cost sharing. HealthView projects annual retirement health care inflation rate to average 5.47% for the foreseeable future. This is almost triple the U.S. inflation rate between 2012-2016 of 1.9%, and more than double the expectation for projected Social Security cost-of-living adjustments (COLAs) of 2.6%.
In 2016, Medicare Part B premiums increased by 16%. The Medicare Board of Trustees had originally projected a 24% decrease for Part B in 2017, but premiums rose by 10%. Part D grew by 8% between 2016 and 2017, and is expected to continue to increase at a similar pace.
When age-related increases are added on top of basic inflation, the cost of supplemental insurance is projected to rise at an annual rate of 7.12%, driving annual out-of-pocket costs even higher for older retirees.
With health care inflation outpacing Social Security COLAs, the HealthView Services Retirement Health Care Cost Index® shows that a 66-year-old couple retiring this year will require 59% of their Social Security benefits to cover total lifetime retirement health care costs. A 55-year-old couple retiring at 66 will need 92% of their Social Security benefits – and a 45-year-old couple 122% to cover health care.
The Report also reveals that women will face higher lifetime health care costs than men because they are projected to live two years longer. Married women, who are on average two years younger than their spouses, may live four years longer than their spouse. As a result, a 63-year-old married woman retiring at 65 can expect to pay 29.9% more in future dollars for total lifetime health care costs than her 65-year-old husband retiring this year.
On top of basic Medicare premiums, supplemental insurance, and out-of-pocket costs, the Report also details additional expenses from end of life care in the final two years of life. A healthy 55-year-old man will need an extra $7,123 – and a female, $7,681 – for copays and other expenses during this period. These figures are in future dollars and do not include long-term care costs.
“Although these numbers may seem out of reach, the savings required to cover health care when meeting retirement savings goals are often more modest than might be expected,” added Mastrogiovanni. “A 55-year-old can increase 401(k) contributions by as little as $17 per paycheck to address their retirement health care premiums, assuming a company match of 50% and they are meeting an 85% Income Replacement Ratio savings goal. The Report highlights steps, including managing health conditions, individuals can take to plan for, manage and reduce costs.”
Drawing upon millions of health care cases, actuarial data show the difference in savings and potential life expectancy for someone with a chronic medical condition between poorly and well-managed care. A 50-year-old male diagnosed with type 2 diabetes, who makes lifestyle changes and follows doctor’s orders to manage his condition, will increase actuarial longevity by eight years, save an average of $5,000 in out-of-pocket costs annually before retirement at age 65, and reduce in-retirement health care expenses by an average of $2,775 annually.
If these savings were invested and generated a 6% return, they would amount to $120,000 at age 65. When accounting for the $2,775 in out-of-pocket cost savings, this retiree will have access to an additional $16,974 in disposable annual income until age 80. Click here for a video summary of the case study.
“Health care reform has been a major focus in Washington, but it’s important to recognize that the bill that recently passed the House would likely have a marginal impact on lifetime projected retirement health care costs, excluding long-term care,” said Mastrogiovanni. “The Report shows that Americans are not powerless when it comes to reducing these expenses. At an individual level, the impact of health care costs in retirement will be significantly influenced by financial and health-related choices.”
HealthView Services draws upon 70 million health care cases, actuarial, government and economic data to project retirement health care costs. The firm’s rigorous bottom-up approach integrates specific variables – including health status, age, gender, income, and state of residence — that will drive future health care costs. The final calculations draw upon, and are consistent with, government health care inflation forecasts.
Retirement health care cost projections include Medicare Part B premiums which are priced nationally. It is assumed that most Americans paid Medicare taxes while employed and will not be responsible for Medicare Part A premiums. National averages are used for Medicare Part D, supplemental insurance, and dental premiums, which vary by state. Total lifetime projections comprise all out-of-pocket expenses related to hospitalization, doctors and tests, prescription drugs, vision, dental, hearing services, and hearing aids. Calculations assume average actuarial longevity for different health states and ages. As with any aspect of retirement planning, actual costs for individuals may vary from these averages. HealthViews’ retirement planning tools calculate projected costs at an individual level.
HealthView Services (http://www.hvsfinancial.com) is the leading provider of retirement health care cost data, Social Security optimization, and long-term care retirement planning tools for financial advisors. HealthWealthLink, the company’s signature service, is an integrated retirement planning tool that assists financial advisors in preparing personalized estimates of retirement health care costs and associated strategies designed to achieve clients’ retirement goals.
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