Health Care Retirement Costs Top $400,000

By Brian O'Connell

The total cost of health care in retirement for an average 65-year-old couple retiring in 2017 is $404,000, a new report found.

In addition, the annual rate of health care costs is growing (5.47 percent) at double the annual growth rate of Social Security cost-of-living adjustments, the Danvers, Mass. HealthView reported in its 2017 Retirement Health Care Costs Data Report.

Financial health care specialists say the $400,000 figure doesn’t necessarily mean bad news for retirees who plan ahead.

“Unfortunately, yes, healthcare costs are growing uncontrollably, but there are several policies available (at a reasonable cost) to help account for and combat this troubling trend,” said Adam Hyers, president of Hyers and Associates, an insurance provider in Columbus, Ohio.

One big issue is that too many retirees shopping for traditional long-term care policies are turned off by the high cost, Hyers said.

“Oftentimes their search ends there,” he added. “There's no doubt that traditional (annual pay) LTC plans cost a lot -- usually in the neighborhood of $5,000 a year for a couple -- and those high premiums can be out of reach, especially since they will likely increase over the life of the policy.”

Additionally, because the Affordable Care Act does little for retirees, most of whom are on Medicare, and Medicaid only offers assistance once you've depleted your assets,
alternate insurance plans should be considered.

“Too many rely on Medicare, but don't know its limitations,” Hyers said. “And Medicare benefits are on the chopping block in Congress, too.”

Consider Hybrid Plans

Hyers is encouraging his clients to consider hybrid long-term care plans that can be
paid in full with a single premium.

“Hybrid annuities and life insurance plans can go a long way to protecting an estate while preserving assets for the insured,” he said. “The elimination of ongoing (and often rising) LTC premiums offers financial security as well. … If unused, there are proceeds to the estate or the named beneficiaries.”

When hybrid plans are out of reach, consumers should consider short-term care plans, Hyers added.

“These types usually provide funds for healthcare costs for a year or two, but can provide ample cushion in the event someone faces a $400,000 health-care event,” he said. “They are very reasonably priced as well -- they just don't last as long as more traditional plans. However, very few people need long-term care for more than a couple of years.”

As the majority of retirees age 65 and older are on Medicare, retirees should know that Medicare parts A and B covers 80 percent of the bill for hospitals and doctors.

“That’s why it’s important to cover the other 20 percent with a Medicare supplement plan, specifically plan F, G or N,” said Sean Hughes, a financial advisor and founder of Hughes & Dern Financial Group in Rolling Meadows, Ill.

It’s also worth noting that Medicare does not cover nursing home costs, Hughes explained.

“Nursing home and assisted-living costs continue to skyrocket,” he said. “The average nursing home cost is now $60,000 to $80,000 a year, but this is dependent on the state you live in and the quality of the facility. This is a cost most seniors can't fathom covering.”

In addition, drug costs have continued to trend upwards, especially for the new, cutting-edge drugs, Hughes noted.

“There are several drug plans offered by insurance companies that work with Medicare,” he said. “It’s important to check drug costs to decide which Medicare drug plan (Part D) makes the most sense for you.”

Manipulate Social Security

One way to handle ultra-high health care costs is to manipulate Social Security payments to maximum advantage.

“The easiest way to cover this cost is by delaying taking Social Security payments until age 70,” said Nathan Garcia, a retirement planning specialist with Westbourne Investments in Alexandria, Va. “Doing so will increase your benefits 32 percent more than what you receive at your normal retirement age and 76 percent more than what most people collect at age 62. These increased benefits can help cover out of pocket expenses or be saved for a long-term care fund.”

Advisors should discuss with their clients what's covered and not by Medicare, as well.

“Things like vision, dental and hearing are not covered by standalone Medicare policies,” Garcia said. “To get coverage for these areas, advisors should help their clients review their options for a Medigap or Medicare Advantage plan. They should also review coverage options for Part D so that retirees have adequate prescription drug coverage.”

A $400,000 bill is surely an alarming figure for retirees wondering about health care costs.

But if you act fast, and lay out a blueprint ahead of time -- paying for good health care doesn’t have to mean everything all at once -- you’ll likely even get a discount by preparing early.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].