MAY 5, 2003
YOUR RETIREMENT
By Ellen Hoffman
The Sickening Rise of Health Costs | If your proposed retirement budget doesn't include at least several hundred thousand dollars for medical care, you need a new plan
|
Steven "Shags" Shagrin, 47, a financial planner in Youngstown, Ohio, has given plenty of thought to financing retirement -- for his clients as well as himself. As familiar as he is with what goes into a comfortable retirement, even he was shocked by recent estimates for medical-insurance costs. A new Web calculator estimated that if he retires in 20 years and lives to be 100, his medical insurance bill would be $1.1 million. The fact that the cost would be less than half that if he lives to only 85 offers little solace.
Even though the warning signs of spiraling health-care costs for future retirees have been mounting for several years, it's not surprising that even a professional like Shagrin would be startled by the figures. Annual surveys by Mercer Human Resource Consulting have found that the number of companies with 500 or more employees offering retiree health benefits has declined from 46% in 1993 to 29% in 2001. Mercer has also found that more of the companies (39% in 2000, up from 31% in 1997) that offer the benefits are asking employees to shoulder the entire cost of the premium and implementing other cost-cutting measures such as capping total benefits.
A recent Kaiser/Hewitt Retiree Health Survey suggests that these trends will continue. The survey reported in 2002 that 82% of large employers say they're "very likely" (64%) or "somewhat likely" (18%) to increase the amount retirees must contribute to paying the premiums. Also, 54% said they were "very likely," and 22% said they were "somewhat likely" to also require employees to pay more of the actual health-care costs. The full results are available at the Kaiser Family Foundation Web site.
MEDICARE SHORTFALLS. These studies and several others that document the growing scarcity and higher costs of retiree health benefits are summarized in Retiree Health Benefits: Savings Needed to Fund Health Care in Retirement, a recent analysis by Paul Fronstin and Dallas Salisbury of Washington research group Employee Benefits Research Institute (EBRI). You can read the full report on the EBRI Web site.
Medicare covers only 56% of health-care costs for people who are enrolled, according to Tricia Neuman, vice-president of the Henry J. Kaiser Family Foundation, a nonprofit research organization based in Menlo Park, Calif. And Medicare has other drawbacks, too. With rare exceptions, you can't get coverage until age 65, and the coverage is neither free nor comprehensive.
Medicare's Part A, which covers in-hospital costs, has a deductible of $830 in 2003. Current beneficiaries also must pay $58.70 a month for Part B, the insurance for outpatient costs such as doctor visits. But these rates -- and various other deductibles and co-payments required by Medicare -- tend to increase every year. And people who aren't in the hospital get no prescription-drug coverage. According to a Commonwealth Fund study, the average out-of-pocket medical expense for someone on Medicare in 2000 was $3,142, a figure that the Fund estimates could grow to more than $5,200 by 2025.
SPINNING SCENARIOS. Sobering as these trends are, your medical expenses in retirement could be even higher if the cost trends exceed the Centers for Medicare & Medicaid Service's projection. Its estimates are a conservative annual increase in the cost of health spending of 6.4% per person from now to 2010.
So what does this mean to you? The EBRI paper spins several scenarios that estimate the money needed to cover costs depending on retirement age, lifespan, and estimated increases in insurance premiums. If you're into numbers and probabilities, you can look these up in Figure 9 of the report at the EBRI Web site.
Even better, you can follow Chagrin's example and use the Retiree Health Calculator at the "Choose to Save" Web site. It's sponsored by EBRI and a public-private group that promotes saving for retirement, the American Savings Education Council.
|
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
