Controlling Your Health Care Costs in Retirement

It’s no secret that health care becomes a bigger concern for most of us as we grow older. More ailments are likely to develop, which means more money spent to visit health professionals and buy medication. Even if you remain healthy through your later years, the costs of preventative care and preparing for potential unexpected health situations are rising.

Health-related expenses will likely be one of the biggest components of your retirement budget. You need to be prepared to pay for comprehensive insurance coverage and potential out-of-pocket costs for care. Here are three strategies to help you manage this critical expense in retirement.

Understand how Medicare works

The good news for Americans age 65 and older is that you qualify for Medicare. That makes increased dependence on health care services more affordable. At age 65, most people automatically qualify for Medicare Part A at no cost, which primarily provides coverage for hospital stays and skilled nursing care. Medicare Part B must be purchased (approximately $109 per month in 2017 for most retirees). Part B covers the costs of visiting a physician, but with some deductibles. Many people purchase additional coverage to use for out-of-pocket expenses, such as a Part D prescription drug plan or a Medicare Supplement policy.

With Medicare, timing is important. Signing up when you first qualify for coverage will keep costs at the lowest level. If you maintain insurance through your employer after turning 65, you can delay Medicare enrollment without risking late penalties.

If you retire prior to age 65, you will need to purchase insurance on the open market to cover health-related expenses until you become eligible for Medicare. Individual coverage tends to get more expensive as you grow older, so work the cost into your retirement budget. Some employers offer retiree health insurance as a benefit. Check with your human resources department to see if this option is available to you.

Allocate sufficient funds for health care costs

As you develop your retirement income strategy, make sure you have money set aside for health expenses that will be your responsibility. By one estimate, the average 66-year-old couple will need to tap more than half of their lifetime pre-tax Social Security benefits to pay for health care expenses throughout retirement. Most people will likely have to rely, in part, on their own savings to help offset some medical expenses.

Along with other retirement savings, you may want to establish a health savings account (HSA) during your working years. HSAs are designed to help build tax-advantaged savings to pay for out-of-pocket medical expenses you incur during your working years. However, any leftover funds can be applied to health expenses later in life, including premiums for Medicare and long-term care insurance. Keep in mind that you must be enrolled in a high deductible health plan to open an HSA.

Focus on your own health

One way to potentially keep health care costs under control in retirement is to create or maintain a healthy lifestyle. Small changes you make today, such as eating right or prioritizing sleep, could reduce the likelihood that medical issues will impact you later in life. Being physically active may also benefit your finances in retirement – according to the American Heart Association, it could potentially help you save $500 a year today on health-related expenses.

Having a plan doesn’t guarantee that you will avoid heath issues, but you may find comfort in knowing how you can tackle health care costs in retirement.

No End To Rising Health Care Costs

Everyone knows the cost of health care is rising every year with no end in site. Many families are burdened with premiums that are eating up a large portion of their budget. Those with health insurance plans through work are seeing their out of pocket costs grow. Some employees are even paying more for benefits at work then they would on their own.

A RAND Corp study, released in September of 2011, examined the health care an the average American family’s budget from 1999 to 2009. While the average family saw a 30% increase in their income, much of that was wiped out by greater gains in the cost of medical care. Inflation and higher taxes further decimated the gains.

They found that monthly premiums for health insurance grew by 128% over the decade studied. This is well beyond the rate of inflation. Prices on all goods tend to go up over time due to the devaluation of currency called inflation. But when a price for a good goes up faster then inflation, it becomes relatively more expensive then other goods in the economy. This is precisely what is happening with health care. When people are forced to spend relatively more on a good, they feel they are taking a step backward in terms of the living standard.

Making matters worse, many people who receive their health benefits through their employer are seeing lower wage gains. An employer has to take the total cost of an employee into account, and that includes what the employer spends on health benefits. When health care costs increase for the employer, they have actually increased the amount they spend per employee, only it doesn’t feel that way to the worker. The worker is indeed getting a raise, it is just going directly to their health care costs. As health care costs for employers continue to rise, it will put downward pressure on wages.

Health care costs are going up for a variety of reasons. First and foremost, patients now have access to cutting edge – and expensive – medical procedures that were not available before. While these procedures extend people’s lives and well being, they are very expensive and have to be paid for. Additionally, with few patients paying the direct cost of medical care, rather paying their insurance company, the market for medical care becomes distorted.

Another reason for the recent surge in health care costs is the recent Affordable Care Act. One of the new requirements is that employer plans now cover children up to the age of 26. While that may help provide insurance to young adults, it comes at a cost. A survey by the Kaiser Family foundation found that the cost for premiums on employer heath insurance plans increased by 9% in 2010. The increase in premiums has put even more downward pressure on wages during the weak economy.

Many employers are now putting some, if not all, of the cost of health care on to their employees. Many workers are now paying part of the monthly premium and often a large deductible as part of their plan. Often times, if they are young and have no pre-existing conditions, they can purchase private health insurance at a lower price then they are paying for their work plan.

There is no end in sight to rising health care costs. Medical advances will continue, the American population is aging, and reforms in Washington do not seem likely to help reduce the cost of health care.

Health Care Reform Or Not – You Pay the Same Health Care Costs Either Way

Health policy in the U.S. heavily relies on the strategy of denial. Health care costs eat up over 16% of the U.S. Gross Domestic Product (GDP).

The typical American works two months out of every year just to cover medical treatment! Or, to put it another way, in 2007 the U.S. spent an average $7,421 per resident for health care. That same year, total medical costs were rising at 6.1% annually – far higher than the rate of GDP growth. What could you do with an extra $7,421 each year for every member of your family?

If you are healthy, you may think this cost does not apply to you. While the cost is an average, think about all the places that health care costs are hiding.

Federal income taxes – to pay for Medicaid, Medicare, and other programs

State taxes – to pay for the state’s share of Medicaid and other programs

Your health premiums – the amount you pay each month to your employer or an insurance company to cover just being insured (if you have insurance)

Your out-of-pocket costs – your part of the bill when you go to the doctor or emergency room, are admitted to the hospital, buy a prescription, or use any other health care service. If you have insurance, notice that every year you likely pay more to get less in coverage.

Part of every purchase – no matter what you buy, from an electronic gadget to clothes, school supplies, a car or bike, or food, health care costs are hidden in the purchase price. Why? For one thing, the seller has to pay taxes too, and part of its taxes goes for health care programs. Second, the seller is likely providing health care insurance to its employees, with a hefty tab skyrocketing year after year. The seller needs to cover those costs somehow, and you’ve been nominated.

Seventy five percent of the costs ($5,566 for you and each family member) go to treat people with chronic illness. In other words, those suffering from high blood pressure, arthritis, diabetes, asthma, Alzheimer’s, cancer, autoimmune disease, skin and eye diseases, sinusitis, irritable bowel syndrome, depression, and more. The painful list goes on and on. Money is only a minor part of the human cost.

Whether or not there is health care reform will make only a tiny difference in the long run. The soaring costs are not sustainable because other parts of the economy simply can’t keep up. If costs keep mounting as they are, engulfing a bigger part of our national resources each year, it won’t matter who pays or how. Because no one will have that much money and the system will slide downhill.

The only way to permanently construct a sane health care plan is to have people make meaningful changes in their lifestyle. This means reducing the risk of getting a chronic illness.

Eating a plant-based diet of whole foods is the single most critical action you can take to lower costs and stay well enough to survive the imploding system. This choice is for you to make, not Congress. Breathe easy that you can stay largely outside the polarizing health care debate and hospitals both if you make the best lifestyle choices. And that is not as hard as you might think.

If you are already ill and need treatment, this may be of little comfort. If we drastically reduced, as a nation, the total cost of health care through better diet and other great decisions (such as quitting smoking), there will be plenty to go around to take care of each and every sick person. We won’t need to skimp on anyone.

Don’t discount the healing power of a whole foods diet. You may feel a lot better even before we get to that long-awaited day when everyone gets the highest quality care.

Will the health care system be public, private, or a little bit of both once we get costs under control? We would have the luxury of debating options at that point because we could afford to! So let’s get out of denial and start building a healthier nation now. It starts with you.