Medicare beneficiaries need to save even more for health expenses

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By Susan Rupe

Medicare beneficiaries need to save even more for their health expenses as a new research report from the Employee Benefit Research Institute finds that the amount of money Medicare beneficiaries could need for health expenses increased again in 2023. In fact, some couples with high prescription drug costs could need as much as $413,000 in savings.

“EBRI built a simulation model allowing for uncertainty due to mortality and rates of return on assets in retirement. This model incorporates recent changes to Medicare Part D enacted by the Inflation Reduction Act of 2022 and tests varying assumptions about Medicare Advantage and Medigap plans that Medicare beneficiaries may purchase,” explained Jake Spiegel, research associate, health and wealth benefits research, EBRI. “The output of this updated simulation model is the basis of this new report.”

Key findings

Key findings in the research report include:

The predicted savings target for Medicare beneficiaries to cover premiums, deductibles, and prescription drugs in retirement rose in 2023, representing a slight increase from the $383,000 savings target last year.
To have a 90% chance of meeting their health care spending needs in retirement, a man will need to have saved $184,000, and a woman will need to have saved $217,000. Couples enrolled in a Medigap plan with average premiums, meanwhile, will need to have saved $351,000 to have a 90% chance of covering their medical expenditures in retirement.
Representing an extreme case, a couple with particularly high prescription drug expenditures will need to have saved $413,000 to have a 90% chance of having enough money to cover their health care costs in retirement.

One of the reasons behind the EBRI simulation model, Spiegel told InsuranceNewsNet, is that “costs for health care expenses in retirement are not really a salient issue for a lot of workers.

“When you’re in your 20s, you’re thinking about saving for a house. And then when you get older, you think about saving for your kids’ college expenses. You only start thinking about saving for retirement – and those health care costs become more salient – once you get a little bit older. And it’s important for people to start saving early because the costs that people can face for their health care expenses in retirement can be pretty significant.”

Rising premiums, longer lives add to cost

Among the drivers of the higher savings target, Spiegel said, are higher Medicare Part G premiums and longer life expectancies.

“People are living longer, Medicare Part G premiums are expensive and health care costs in general have been rising faster than the rate of inflation for some time,” he said. “Those are the three things driving those big scary numbers.”

Another issue impacting Medicare beneficiaries’ health care costs, Spiegel said, is what traditional Medicare does not cover.

“Traditional Medicare does not cover dental care; it doesn’t cover vision or hearing expenses. So Medicare beneficiaries have to save a little bit more to be able to cover those expenses as well,” he said.

In addition, the EBRI report does not consider a Medicare beneficiary’s potential long-term care cost, Spiegel said.

How to model still at issue

“We’re still trying to wrap our arms around how to best model that,” he said. “It’s tricky because for someone, their long-term care cost could be $0. And for someone else, it could be a half-million dollars if they end up living in a facility for 20 years.”

In addition to getting a jump on retirement savings at a young age, Spiegel said those who enroll in Medicare Advantage plans generally have lower savings targets for health care costs in retirement.

A man enrolled in Medicare Advantage who has median drug expenditures and is an average user of health care services will need to have saved $99,000 to have a 90% chance of meeting his health care spending requirements in retirement. Meanwhile, a woman will need to have saved $116,000 to have a 90% chance of having enough to cover her health care costs in retirement. Couples will need to have saved $189,000 to have a 90% chance of covering their health care expenditures in retirement. But there are tradeoffs to consider; Medicare Advantage plans often have limited networks or may require approval before certain medications or services are covered.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.