Costs of Retiree Health Care Higher Than Anticipated, Report Finds
Health care costs during retirement are often "drastically underestimate[d]" by workers because they believe Medicare or their former employers will pay their bills, according to the Employee Benefits Research Institute, Dow Jones/Wall Street Journal reports. According to the EBRI, actual health care costs during retirement are often five times higher than what people tend to estimate. Paul Fronstin, director of EBRI's health research and education program, said that even with the new Medicare prescription drug benefit, individuals will need to save from $80,000 to $700,000 to pay for health care costs during retirement. According to Dow Jones/Journal, while Medicare generally covers about half of the average individual's medical expenses, companies "have been slowly chipping away at the retiree benefits of their former employees." Even individuals with a good supplemental health policy but no employer-provided health plan who retire at age 65 will need to have saved $80,000 to cover medical expenses if they live to age 80, EBRI calculates. That calculation is based on the assumption that medical cost increases moderate to 7% per year, Fronstin said. However, if medical cost increases remain at the current rate of 14% per year, according to EBRI, a retiree who lives to age 100 would have to save $700,000 for medical expenses. EBRI estimates that if medical costs increase at 10%, a retiree would have to save $376,000 if they live to age 100; $206,000 if they live to age 90; and $90,000 if they live to age 80. In addition, medical expenses during retirement can increase further if nursing home care, home health care or any assisted-living help is needed, Dow Jones/Journal reports (Kim, Dow Jones/Wall Street Journal, 5/13).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.