With healthcare costs on the rise, individuals who are approaching retirement may need to take a second look at their savings to make sure this important expense is accounted for.
A recent report by HealthView Services indicates a 65-year-old couple in good health who retires this year could expect to pay a lifetime out-of-pocket amount of $266,589 on top of what’s covered by Medicare Parts B and D, as well as a supplemental insurance policy. Add in other costs like dental and vision and that amount increases to $394,954, which could account for a significant portion of many retirees’ budgets.
Among other findings, the report also indicates health care cost inflation of 6 percent this year (up from 3.6 percent last year). A couple retiring this year, receiving full Social Security benefits, will spend roughly 67 percent of those benefits on health care costs. For a couple retiring 10 years from now, that number will increase to 90 percent.
Below are 5 charts, along with excerpts from the LifeHealthPro article explaining the findings from the report.
Table A displays annual health care premium costs for Medicare Parts B, D, and a supplemental policy at ages 65, 70, 75, 80 and 85 for an average 65-year old couple retiring today. As indicated, the couple can expect to spend $583 per month during their first year of retirement. This monthly expense is likely close to what the couple would be accustomed to paying if enrolled in an employer-sponsored plan. However, this number will more than double by age 85.
Table B highlights the total health care expenses and the cost differential between a 65-year-old couple retiring this year and a 55-year-old couple retiring in 10 years. These numbers assume that a couple’s retirement income is below $170,000 ($85,000 for an individual).
Retirees whose Modified Adjusted Gross Income (MAGI) exceeds this income bracket will face Medicare surcharges and significantly higher costs. If the same couple earns more than $170,000 in retirement, surcharges could raise their Medicare B and D premiums by 35 percent to over 200 percent. An affluent 65-year-old couple retiring this year who falls into Medicare’s top income bracket will pay $279,377 in lifetime Medicare surcharges. A 55-year-old couple retiring in 10 years will pay $375,864.
Health care inflation, pegged at 3.6 percent in 2014, was more than four times the consumer price index (CPI) increase of 0.8 percent, continuing a long-term trend. Consistent with government numbers, HealthView expects that health care cost inflation will return to normalized levels of approximately 6 percent in the coming decades.
The change anticipates a modest rise in CPI, and a health care inflation rate that is a multiple of CPI, consistent with the historical trend of the past 50 years. The year-end 2014 summary from the Centers for Medicare and Medicaid expect retirees to endure at least eight years of health care inflation of between 5 percent and 7 percent.
HealthView Services’ Retirement Health Care Cost Index reveals the rising impact of retirement health care costs on middle-class Americans by detailing the portion of retirees’ Social Security benefits that will likely be required to pay for health care expenses.
For the average couple retiring this year, the index shows that total health care costs will consume two-thirds of lifetime Social Security benefits. For the same couple retiring in 10 years, approximately 90 percent will go toward health care expenses. The Index also shows that, over time, total retirement health care costs may surpass individual Social Security benefits.
Table D shows the percentage of annual Social Security benefits at five year increments required for the health care costs of a 66-year-old couple receiving average Social Security benefits based on a primary insurance amount of $25,332.
The chart shows that health care will assume a growing percentage of Social Security benefits amounting to 89 percent at age 87. For this couple, the average lifetime percentage of social security benefits required for total retirement health care costs is 67 percent.
Table J displays cost differences based on selected coverage for a 65-year-old couple living in Ohio. This couple can expect a doubling of health care costs with addition of supplemental insurance premiums. Costs rise by almost 200 percent when other out-of-pocket expenses are included in the projection.
If this couple’s annual income exceeds $428,000 (placing them in the highest modified adjusted gross income bracket), health care costs total $670,962 — a 394.5 percent increase over the basic cost of Medicare Parts B, and D premiums.