9 Replies Latest reply on Nov 26, 2010 5:13 PM by jkom51

    Health care cost  in retirement

    charadrius
      I am 57 years old and trying to plan for a retirement that I hope I could start in about 5 years.  I think I have a good plan and a good grasp on finance, but there is one element of the plan that I have been having a hard time getting good information on, and that is how much I need to budget for health care costs after I retire.

      This question actually has two parts: what will health care cost before I qualify for Medicare and what after?  My work does not include any health care benefits in its retirement plan. 

      I am hoping that some people who are retired might provide some insight into how they covered, or are covering, health care insurance before Medicare eligibility and supplemental insurance after they qualified. 

      Thanks.
        • Re: Health care cost  in retirement
          JerryD
          Not sure how the recent health care bill affects insuring yourself, but I covered the spouse and I for a number of years until I became eligible for Medicare. We used a Blue Cross plan with a $2500 deductible to keep it cheaper - still cost $600+/month. She is still covered under the same plan and the cost is over half that.

          Just went to the Blue Cross Supplemental/Advantage plan meeting for next year. The major hospital/provider in the area refuses to accept Advantage plans so forget the everything, including drugs, for the cost of Medicare Advantage option. I now must pay 150%+ above my Medicare cost for the best (and now obsolete, but grandfathered) MediGap plan plus a basic drug coverage. This plan does have excellent coverage but the drug plan must cover the drugs you need so shop around. They are fairly cheap until you hit the "donut hole" then you pay $4000+ out-of-pocket until you get through it and get much better coverage . The Blue Cross guy said to buy  the Wal-Mart, Sam's, Target, etc. $4 drugs if you can find yours covered when you are in the donut hole.

          Medicare Part B (docs) costs different amounts depending on when you get in and how much you make. The latter isn't a problem for most but you must consider. Part A (hospital care) is "free" because you paid for it while working. After 65, you must get a drug plan or pay a hefty penalty for each month you do not have one if you want to get one later. For planning purposes, ask an agent or maybe even HR to give you literature or point you to an organization that can quote the current rates in your state for you for Medicare, drug plan and good supplemental (MediGap) plan. Since Medicare does not cover all costs and can have unlimited out-of-pocket, I highly recommend the best MediGap plan. It costs a few hundred more a year but covers most things that Medicare does not.

          Hope that this helps for budget planning.


            • Re: Health care cost  in retirement
              charadrius
              Jerry,

              Many thanks for this information.  Would you be able to provide a rough estimate of the total annual cost of the supplemental and prescription insurance that you found necessary, and how much you expect them to go up when your wife is also Medicare eligible?
                • Re: Health care cost  in retirement
                  JerryD
                  For me in AR in 2011:

                  Medicare + supplemental (Blue Cross Plan J - now best is Plan F which is actually cheaper but drops annual physical) + drug (Basic - about tripe for Premium) = ($96.40 + $132 + $30) *12 = ~$3100/yr + inflation of course. For instance, the drug plan seems to go up 20%/yr.

                  Double for your spouse.

                  But you need to consider your state/city, income, supplemental and drug choices and the Medicare cost is because I have had it a couple of years with no Social Security increase which fixes Medicare cost too. A new person is looking at something around $110-112/month for the basic Medicare.

                  Hope that is good enough for budget planning.
                    • Re: Health care cost  in retirement
                      charadrius
                      Jerry,

                      Many thanks.  It looks like even with Medicare, health insurance is still a major cost.
                        • Re: Health care cost  in retirement
                          jkom51

                          This is excerpted from a 2009 WSJournal article. BTW, pls remember that the current Healthcare Reform bill has the CLASS act for a modest LTC care benefit (buy-in period is at least 5 years and employer participation is voluntary) and the 'donut hole' in Part D will be slowly phased out by 2020. Of course, if the Republicans are successful in negating the reform bill, as they are threatening to do, those two provisions may disappear from lack of funding:

                          Retirees May Need Even More Money for Medical Expenses

                          WSJournal March 27, 2009

                           

                          "A 65-year-old couple who retires this year will need about $240,000 to cover their medical expenses in retirement, according to Fidelity Investments research released this week.

                           

                          This year’s number is 6.7% higher than last year’s $225,000–and 50% higher than the $160,000 estimate in 2002, the first year Fidelity came up with a number. “These costs are going up at a faster rate than income,” says Sunit Patel, a senior vice president of Fidelity’s Consulting Services group. Higher costs for doctor visits, diagnostic tests and prescription drugs contributed to the increase, he adds.

                           

                          Keep in mind that this eye-popping number is a lifetime estimate and assumes that the couple has no employer-provided retiree-health-care coverage, since many companies are phasing out that benefit. It also assumes life expectancies of 17 years for the husband and 20 years for the wife after retirement.

                           

                          What’s even more sobering than the big chunk of money involved is what it covers-–and what it doesn’t. Mr. Patel says that 29% of those savings are needed by the average couple to pay premiums for Medicare Part B, which covers doctor visits and other outpatient costs, and the Medicare Part D prescription-drug plan. Another 41% goes toward Medicare copayments, deductibles and other cost-sharing provisions. The remaining 30% goes toward prescription-drug costs not covered by Medicare Part D.

                           

                          But this estimate does not include over-the-counter medications, most dental services or long-term care–and those costs could quickly throw any budget out of whack. In 2008, the average annual rate for a private nursing-home room was $76,460–up 17% since 2004, according to Genworth Financial Inc., one of the country’s largest long-term-care insurers. In a separate study last year, Fidelity estimated that the average 65-year-old couple needs $85,000 to buy adequate long-term-care insurance."

                            • Re: Health care cost  in retirement
                              JerryD
                              I have seen these numbers several times but not much support for them as I recall. What is frightening is that the life expectatcies of 17 and 20 years imply 37 years of coverage AND about $6,500/year for each year covered. Ouch!!!!!

                              I imagine the extended care costs add up pretty fast, if required.
                                • Re: Health care cost  in retirement
                                  jkom51

                                  Actually, Fidelity's figures are low compared to the ones from the Center for Retirement Research at Boston College, which was quoted in an April 2008 column by financial columnist Liz Weston:

                                  Will medical bills ruin retirement?

                                  Projections of how Americans will fare in retirement don't even include their huge health-care costs. The bottom line? You need to take action to cut your risks.

                                  By Liz Pulliam Weston, April 17, 2008

                                  (Full article at: http://articles.moneycentral.msn.com/Insurance/AssessYourNeeds/WillMedicalBillsRuinRetirement.aspx?page=all)

                                   

                                  (Excerpt) "The index, developed for the Center for Retirement Research at Boston College a couple of years ago, attempts to predict the percentage of households that won't be able to maintain their standards of living in retirement. The latest result: 44% of U.S. households are likely to fall short.

                                   

                                  The percentage predicted to fail is high, yes, but that still leaves a majority of households in good shape -- except that the index doesn't explicitly consider health-care costs.

                                   

                                  Staggering out-of-pocket costs

                                  That seemed like a pretty big omission to Alicia Munnell, the center's director. So she and other researchers decided to include out-of-pocket medical costs including Medicare premiums and co-pays, which currently average about $3,800 a year.

                                   

                                  The sums required to pay those costs are, in a word, staggering. After adjusting the expenses for predicted inflation, the researchers said a couple retiring in two years would need more than $200,000 to cover their lifetime out-of-pocket medical costs. A couple retiring in 2040 would need close to $500,000.  

                                  Note: The Center’s website has a full list of its white papers on Healthcare at: http://crr.bc.edu/topics/health.html, and this specific analysis can be found at: http://crr.bc.edu/briefs/health_care_costs_drive_up_the_national_retirement_risk_index.html."

                                    • Re: Health care cost  in retirement
                                      JerryD

                                      Jkom, you continue to scare me more and more. IMO one needs to get a comprehensive MediPak or supplemental insurance to pick up most things that Medicare does not. I have a relative that couldn't afford one and the co-pays/co-insurance on lessor plans are pretty much bankrupting him. Also, the drug program is getting a bit cheaper as they address the donut hole costs.

                                        • Re: Health care cost  in retirement
                                          jkom51

                                          Well, knowledge is power, as they say. It's why I don't tend to agree with those who say you don't need a professional (fiduciary) advisor if you can use a spreadsheet and DIY. A person's financial well-being depends on many factors, and investment ROI is only a very small portion of that holistic strategy.

                                          DH and I tend to be very aware of supplemental medical costs because although we have very good retirement insurance, dental and vision are no longer covered, and for the last 6 years we have spent thousands of $$ on a regular basis for alternative medical practices that come out of our own pocket.

                                          Many people are amazed at how well DH recovered from a severe haemorrhagic stroke at age 50. But we spent almost $8,000 of our own money in the first 12 months, getting him regular acupressure treatments. Our acupressurist even came to the hospital in those first days to treat him. He saw her 3x/week for regular treatment. It was so much more effective in his recovery than the standard physical therapy he received, which was minimal anyway - we belong to an HMO, and they wouldn't even find him a cane when they shoved him out the hospital door after 4 days.

                                          When we were doing our retirement budget, alternative/supplemental healthcare costs were always included as a substantial line item. But I think many people tend to grossly underestimate how much healthcare costs are going to impact one's budget, especially with inflation a factor.