Spike in Health Costs Fuels Retirement Fears

Rising out-of-pocket health care costs, teetering individual health insurance markets and potential repeal of the Affordable Care Act have Americans concerned about how to pay for health care costs in retirement.

Nearly one in six Americans – a record – view health care costs as the leading obstacle to financial security in retirement, according to the latest 2017 Planning & Progress Study by insurer Northwestern Mutual.

“Yes, this is the highest it has ever spiked,” said Rebekah Barsch, vice president of planning, Northwestern Mutual.

The survey found that 58 percent of people viewed health care costs as the No. 1 obstacle to financial security. In the 2016 survey, 45 percent of respondents pointed to health care costs as the leading obstacle.

The 2017 survey polled 2,117 adults age 18 or older.

Only 20 percent of respondents said it is “extremely likely” that Social Security will be available when they retire, the survey found.

In addition, 47 percent of respondents said they experienced some level of anxiety around outliving their retirement savings.

But it is the health care costs in retirement that top the anxiety charts year after year as the price of medical services rises and consumers shoulder greater cost burdens through higher deductibles and greater out-of-pocket costs.

Nailing Down Estimates

Financial advisors say the best way for consumers to face their insecurities around the unpredictability of future medical costs is to plan.

“The absolute most important issue is making sure future retirees have a handle on estimates of how much health care will cost,” said planner Mark G. Smith, president of Vision Wealth Planning in Glen Allen, Va.

Often, people who fear health care costs are the same people who have never done much in the way of financial planning themselves, he said.

“I suspect a lot of people's fear is simply not really knowing what to expect,” he said.

Health care costs usually turn more predictable in retirement compared to health care costs that fall on heads of households in their 30s and 40s supporting a family, he said.

The more predictable the costs, the more people know what to expect. The more people know what to expect, the easier it is to plan.

Medicare Planning

“Planning for this expense is critical,” said Patrick Amey, a financial planner and wealth manager at KHC Wealth Management in Overland Park, Kan.

Among the many considerations advisors should think about when planning for health care expenses for retirement clients is to consider buying health insurance on the open market, even if it can cost $500 a month or more.

Despite allocating more in premium, a group plan can cut the cost of services by 50 percent after age 65 thanks to Medicare Supplemental coverage, he said.

Barring that, enrolling in Medicare Part B or C, or additional coverage through a Medigap plan that covers what Medicare won’t cover, will help.

However, Medigap plans will not cover services for people already covered by Medicare Advantage.

“It is not just Medicare Part A, but the escalating costs of Part B and (Part) D as well as supplemental coverage,” said Peter J. Creedon with Crystal Brook Advisors in Mt. Sinai, N.Y.

Indeed, navigating and planning for Medicare benefits alone is a full-time job and an entire industry of experts specialize in Medicare planning.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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