Analysis Projects Huge Retiree Health Care Expenses

“Adding deductibles, copays, hearing, vision, and dental cost sharing, the number grows to $607,662 in future dollars,” the research states.

HealthView Services has published the 2017 Retirement Health Care Costs Data Report.

Similar to other recent research results, the findings frankly are grim in many respects for retirement savers. At a minimum, the research suggests retiree health care expenses will rise at an average annual rate of 5.47% for the next decade or more. Such a rate is almost triple the U.S. inflation rate from 2012 to 2016, which stood at a mere 1.9%, and more than double annual projected Social Security cost-of-living adjustments retirees can depend on.

Other findings show, because of longer life expectancies, women will continue to pay more for total lifetime health care than men.

It’s not all bad news, however. Beyond making a strong argument for the use of long-term health savings accounts to address the massive amounts of cash retirees are expected to spend on health care, for the first time, the 2017 Report highlights and quantifies the real and measurable financial benefits associated with behavior modification.

“Americans are not powerless when it comes to reducing costs … Current data show that Americans with specific medical conditions, such as type II diabetes or high blood pressure, have some control over their longevity and health expenditures if they actively change behaviors and follow prescribed treatments,” the firm reports. “Those who manage their conditions can extend life expectancies, save money, and offset future medical expenses.”

The report points to one case study involving a 50-year-old with type II diabetes. Proactive management of the condition can mitigate the associated treatment expense and increase annual in-retirement income by almost $17,000. Naturally, some potentially difficult lifestyle changes and careful adherence to diabetes-care protocols will be required, but it should be encouraging to see that real solutions are possible, even for those with challenging medical conditions.

Specific expense projections are sobering 

According to HealthView Services, total projected lifetime health care premiums for Medicare Parts B and D, supplemental insurance, and dental insurance for “a healthy 65-year-old couple retiring this year” are expected to be $321,994 in today’s dollars, or $485,246 in future dollars that account for inflation projections.

“Adding deductibles, copays, hearing, vision, and dental cost sharing, that number grows to $607,662 in future dollars,” the research states. “Medicare Part B premiums grew by 16% in 2016. The Medicare Board of Trustees originally projected a 24% Part-B decrease for 2017, but instead, premiums increased 10%.” The Trustees estimate a 1.3% decrease in 2018, the report clarifies. Also, the average cost of supplemental insurance will rise at 7.12% per year, driven by annual projected premium inflation of 3.80% and an additional annual age-based increase of 3.32%.

HealthView’s 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 retirement health care costs.

“A 55-year-old couple will need 92% of benefits, and 45-year-old couple, 122%,” the report warns. “Women will face higher lifetime health care costs because they will live, on average, two years longer than men. Expected health care costs (for Medicare Parts B and D, a supplemental insurance policy, and all out-of-pockets) for a healthy 63-year-old woman retiring this year (living to age 89) are projected to be $362,607 in future dollars, or 29.9% more than a 65-year-old male ($279,176).”

The report concludes that health care will undoubtedly be one of the most significant retirement expenditures for many; however, the annual savings required to cover this expense may seem more reasonable if individuals consider investing more aggressively for retirement over longer periods of time. For example, a Millennial entering the work force has a fairly good chance of meeting these worrying figures if they invest regularly in a health savings account (HSA) during the course of their working lifetime. 

The full research report can be downloaded here