Boomers Need Health-Care Costs Reality Check

“The Boomer” is a column written for adults nearing retirement age and those already in their “golden years.” It will also promote reader interaction by posting e-mail responses and answering reader questions. E-mail your questions or topic ideas to thefoxboomer@gmail.com.

Health-care insurance has dominated headlines recently--between the Supreme Court’s ruling on the president’s health-care reform, unemployed workers struggling to cover medical costs and retirees facing rising costs, it’s hard to escape the debates.

For the last 25 years, I have been covered by my wife’s health-care coverage through her employer, and we have watched our premium increase nearly every year. It’s no secret that health-care costs have been steadily rising, but the questions is: just how far can they climb?

When it comes to retirement planning, experts say most boomers overlook the cost of health-care. In fact, a new study from the Society of Actuaries shows nearly half of Americans between the ages of 45 and 70 years have no financial plans in place to protect themselves against outliving their assets and the rising cost of health care.

There was some good news in the report; it showed 75% of Americans ages 45 to 70 years protect their tangible assets, such as housing, through home or renter's insurance, however, only 19% plan to insure the extra costs of disability and well-being by purchasing long-term care insurance.

I spoke with Anna Rappaport, consulting and chair of the Society of Actuaries Committee on Post-Retirement Needs and Risks(www.annarappaport.com), to see how baby boomers could be better prepared for increased health-care costs in retirement. Here is what she had to say:

Boomer: What can baby boomers do to help combat the rising cost of health care?

Rappaport: Baby boomers should do their best to stay healthy, educate themselves about health issues and purchase health care wisely. If boomers have a choice in their coverage, they should evaluate each plan carefully to understand the differences and then choose based on the evaluation. In some geographic areas, premiums savings might be available in exchange for accepting a more restrictive provider network.

The most important long-run strategies to say healthy have not changed and include regular exercise, not smoking, eating healthy and getting enough sleep.

Techniques for saving on health care have also remained constant over the years. Generic drugs can often offer good savings. Conduct due diligence before choosing health care providers. If a procedure or treatment is optional, carefully weigh the pros and cons before making a decision. Individuals should ask their doctors whether a test or procedure is needed and for other less-expensive or invasive alternatives. Patients should shop around for high-quality and low-cost providers.

Boomer: What are the major drivers of the increase in health-care spending?

Rappaport: I have been discussing this question throughout my actuarial career and have heard this question for more than 30 years. Some of the major factors are advancing technology, an aging population, rising health-care prices, increasing utilization of health care and longer lifespans. The marketplace involves negotiation between health plans and providers, and iIn areas where health-care providers have more negotiating power, prices can be higher. The health care liability system and the costs of defensive medicine are also cited as factors for pushing the costs up. Comparative international research has shown that as income rises, spending on health care also rises.

Something I have not heard being discussed is how the expectations of Americans have changed. I know many people who have had knees and hips replaced, and it seems to be becoming much more common. Technology has made this easier, but I believe that expectations have changed as well.

Boomer: What part should health care cost take in boomers retirement planning?

Rappaport: It is important that retirement planning be considered on a holistic basis, and that individuals consider a range of issues when planning. Actuaries are particularly concerned that people take into account how long they will live. While people age 65 will on average live into the 80s, some will live to 100 or beyond. People need to plan for what they will live on, how they will get and pay for long-term care and acute health care.

The Society of Actuaries has issued 11 decision briefs on important retirement decision issues including one on health care. They can be found here.

Here is what individuals need to think about when it comes to health care and retirement planning:

Don’t forget about long-term care.

How are you going to get health care coverage and pay for it? The issues are different for early retirees and for those eligible for Medicare.

Budget for acute medical care costs and Medicare. The Society of Actuaries Decision Brief Securing Health Insurance for the Retirement Journey estimates a couple, both age 65, will need $230,000 to cover these costs, which doesn’t include the cost of long-term care insurance.

Annual costs for health-care insurance for retirees are often significantly higher prior to Medicare eligibility. For people with employer sponsored coverage, this depends on what the employer offers and how much the employer contributes to the cost.

Boomer: How will the Affordable Care Act affect health coverage in retirement?

Rappaport: The biggest impact is on people thinking about or in early retirement. The Affordable Care Act is a game changer for early retirees and it opens up very important new options. Prior to the ACA, early retirees who did not have access to employer coverage found individual health coverage to be expensive and extremely difficult to get if they had health problems. After the ACA, early retirees without employer coverage will be able to buy insurance through the exchanges at a premium not dependent on health status. Today, availability of health coverage is a barrier to retirement for many people. After the ACA, this will not be true.

• The Affordable Care Act prohibits pre-existing condition limitations and requiring that plans cover certain preventive services. These are important improvements for some individuals.
• The Affordable Care Act makes a number changes to Medicare benefits, payments and premiums. They include:
• Improving Medicare Part D benefits by gradually reducing the "donut hole" and placing requirements on drug pricing to reduce the cost of drugs in some situations
• Changing payments to Medicare Advantage plans
• Limiting Medicare provider payment rates
• Increasing Medicare Part B and D premiums for high-income individuals and couples (those with incomes of over $85,000 for individuals and $170,000 for families)

It should be noted that the present level of Medicare taxes is not adequate to support the program in the future. The Affordable Care Act improves the situation somewhat but does not solve the problem. The American Academy of Actuaries has some helpful information on this topic here.