Health-Care Costs Not Factoring Into Early Retirement Decision

July 14, 2004 ( - Workers eyeing early retirement expect to have health insurance coverage, even though few have given much thought to how that coverage will be paid for.

Almost two-thirds (64%) of the workers planning on retiring before age 65 report they would be covered through their own or their spouse’s employer or union. Others planned to purchase a health policy on their own (11%), go without health insurance coverage (9%), obtain coverage through provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA) (6%) or receive some form of public coverage (5%) such as Medicaid or the Department of Veterans Affairs, according to Health Affair’s report Paying For Health Care In Retirement: Workers’ Knowledge Of Benefits And Expenses.

Paying for future health-care costs was of little concern as well. In terms of the confidence those polled had in being able to afford to pay their portion of the premium for this coverage, more than half said that they were extremely or very confident, 30% were somewhat confident, and only 16% were not too or not at all confident. However, when asked how much they expected to pay for their retiree health insurance, one-third of the 703 respondents ages 45-64 said that they could not provide any information about the expected costs.

One reason the potential future costs have not entered into the picture is that few of those canvassed have sat down and planned for the costs of retirement. Only 22% of people ages 45-54 and 29% of those ages 55-64 said that they had given a lot of thought to how they would pay for health care services not covered by Medicare. Almost half of each group said that they had given the subject a little thought and 30% of the younger cohort and 24% of the older group said that they had not thought about it at all.

Cost Figures

These numbers are particularly troubling when measured against a study released by the Employee Benefit Research Institute (EBRI).Looking across a 40-year career, EBRI said a younger worker could save more than $300,000 using various retirement health-care savings vehicles. However, this amount would still be inadequate given that medical costs grow significantly more quickly than the economy does generally, EBRI said (See EBRI: HSA Alone Is Not Enough ). Further, EBRI said a 55-year old worker would need $137,000 to pay premiums and out-of-pocket medical expenses if they live to 80 and if the worker lives to 90, the expected health-care costs go up to a possible $250,000.

Not all workers however are so naïve about the potential costs of health insurance during retirement. For workers who did not expect to have employer-sponsored retiree health benefits available after age sixty-five, more than two-thirds (69%) said that they definitely or probably would purchase Medicare supplemental coverage, yet only a third of these were extremely or very confident about their ability to afford the associated premiums.

Additionally, the level of confidence expressed was lower for those who were not expecting employer-provided coverage than for those who expect to get insurance from their employer or union. A higher proportion of the former group had no knowledge of potential premium costs. When asked how much they expected to pay for their individually purchased coverage, 40% of respondents were unable to provide any information about expected costs. Another 11% reported that they did not know whether they would purchase supplemental coverage.

A copy of the full report can be downloaded at .