Working people are well aware of the importance of their medical benefits. Many employees will tell you that one of the reasons they chose their present job is that it provided good medical coverage for their family.
As important as medical coverage is to workers and their families, it’s just as important to retirees. According to Fidelity Investments’ latest health care cost estimate, a 65-year-old couple retiring in 2010 without employer-provided retiree health insurance would need about $250,000 to cover future medical expenses. Besides actual medical costs, this figure considers such healthcare-related expenses as Medicare Part B and D premiums, Medicare cost-sharing provisions, co-payments, coinsurance, deductibles, excluded benefits, and prescription drug out-of-pocket costs. It does not include other health expenses, such as over-the-counter medications, dental services, or long-term care needs.
The $250,000 represents a 4.2 percent increase from Fidelity’s estimate last year of the amount a typical U.S. couple would need during retirement to pay for health care. Since the forecast was first calculated in 2002, the number has risen 56 percent.
The study found that health care costs average $535 a month per couple, the second largest expense compared to food costs, which average $659 a month. Furthermore, healthcare costs account for approximately one-fifth of an average couple’s monthly payments of $2,842.
These findings come on the heels of the current employer trend of getting rid of healthcare plans that supplement Medicare because of rising costs and making retirees directly responsible for paying their healthcare expenses. Combine this phenomenon with health insurance premiums growing more than three times earnings growth and two-and-a-half times the rate of consumer inflation. You have the beginning of a trend toward making individuals accountable for all or part of their healthcare costs in retirement.
Fidelity offers the following six suggestions to help Americans better manage their retirement healthcare costs:
1. Set aside money specifically for medical needs
Rather than saving generically for retirement, it may help to have separate and distinct savings account specifically for medical expenses in retirement, given their essential nature. To achieve the goal, eligible individuals could use a healthcare savings vehicle such as a health savings account (HSA) or earmark a portion of their retirement account.
2. Investigate the cost of supplemental health insurance in various geographic locations
Supplemental insurance reimburses individuals over 65 for some or all of their cost-sharing, not covered by traditional Medicare. In addition to additional insurance, other coverage may also be available (e.g., Medicare HMO). Medicare’s official Web site (medicare.gov) and many state Web sites list the supplemental health plans available, including those for Medicare Part D. As individuals approach retirement, they should become familiar with their plan options, the costs, and how these vary by location.
3. Consider phased retirement as part of an overall strategic plan
Some employers offer part-time work with health care benefits. This type of employment can allow pre-retirees to avoid dipping into their savings accounts too soon for healthcare needs. By gradually entering retirement, these individuals will be protecting their savings for longer.
1. Be proactive in preventive care
There are simple ways to help contain healthcare costs. For example, get routine doctor-recommended screenings for diseases such as colon cancer. If an individual is otherwise healthy, it is still important to maintain recommended preventive care guidelines. Taking prescription medications according to schedule is another way to avoid complications.
2. Select quality providers
The U.S. Department of Health & Human Services Web site provides information on how healthy hospitals nationwide care for patients with certain medical conditions or who have undergone various surgical procedures. Using a national database of hospitals, the Web site compares a given hospital’s quality of care and treatment/surgery. Patients at better-performing hospitals tend to have fewer complications, reducing the risk of additional medical expenses.
3. Always review health claims for accuracy
It is not uncommon for mistakes to happen in the claims payment process. The error could be in many forms, including charges for services not rendered or incorrect charges for a given service. When retirees receive medical bills, they should take the time to review them and follow up with their healthcare provider when they have questions or concerns about billing.