Fidelity recently came out with a new estimate of what a
couple retiring this year may expect to pay for healthcare expenses over the
remainder of their lives: $285,000 ($135,000 for the husband and $150,000 for
the wife—the larger figure mostly due to her longer life expectancy). Predictably, there followed an outbreak of
fear-mongering articles in newspapers, AARP publications, and over the internet, with dire warnings
that we all need to start saving more to cover our healthcare expenses, which
were alternately described as “staggering” or “whopping”.
Left unreported and largely ignored: over that same time
period, that couple can expect to spend $120,000 for groceries. Have they started saving for THAT? Well, no, you say; that’s a part of daily
living. It’s built into their monthly
budget. So broken down into a category
in their budget, $120,000 is not such an intimidating figure.
So why can’t we approach healthcare expenses the same
way? Another investment firm, T. Rowe
Price, on its website posted an article that advises that very approach. They acknowledge healthcare is not
cheap. But broken down into bite-sized
chunks of money in a weekly or monthly budget, healthcare expenses can be
manageable.
Truthfully, I’ve been skeptical of these huge dollar amounts
that studies like Fidelity’s throw out there as “average”. We all know how averages can skew a
picture. A few very expensive examples
(let’s say a couple of people with a liver transplant or a coronary bypass
surgery or years spent in a nursing home) can dramatically increase a group’s
average number. Finding the mean—the
number at which half of the study group paid more and half paid less—is a much
better way to predict true costs.
Interestingly, I could not find a mean for retirees’ healthcare costs. Every source I found only referred to an
“average”.
But put aside the “average vs. mean” argument. Is the quoted figure realistic? It reportedly includes “Medicare’s premiums,
deductibles, and co-pays” but not “things that Medicare doesn’t cover, like
dental work, long-term care, and vision coverage.” It leaves me wondering if they are accounting
for retirees’ various insurance options.
Consider the following:
- The premium for Medicare Part B (physician and other services) paid by most people this year is $135.50 per month, and it is usually deducted right from the retiree’s Social Security check, so it is essentially already in their budget. (Hospital services, the Part A of Medicare, was paid for during the retiree’s working years through payroll taxes, and he will pay nothing additional for that coverage in retirement.)
- But for a national average of about $143 per month, a retiree can purchase a Medigap policy that covers all those Medicare co-pays and deductibles, plus offers some additional benefits.
- For a national average of about $34 per month, a retiree can purchase a Part D Medicare plan to cover the cost of prescription drugs.
So for about $312.50 per month, a retiree can insure against
his medical and drug costs and generally pay $0 out-of-pocket for doctor
visits, hospital stays, labs, etc.
Today’s 65-year-old can expect to live about 19.4 more years. So let’s call it twenty and multiply that
monthly figure by 12 months per year and then 20 years. The total only comes to $75,000. I can’t picture many retirees incurring an
additional $60,000 to $75,000 in dental and vision expenses to reach that
$285,000/couple. So the total figure
seems exaggerated, to me.
Of course, I’m dealing with “averages”, too. Some people will live well past their 80’s
and end up paying more for healthcare. I
have not accounted for inflation. And
some states have higher Medigap policy costs than others. But I also know that those states tend to be
more densely populated ones, which also means they are more likely to have good
Medicare Advantage plans available. A
Medicare Advantage plan—also called a Medicare Part C plan—can replace the
regular Medicare Parts A, B, and D and the Medigap policy for potentially no
additional cost above what is already deducted from the Social Security check,
$135.50. Plus, they usually offer
additional benefits like vision and dental coverage at no extra premium.
So $312.50 per month, though not a small amount for most
retirees, is more easily digested than $285,000, and over the course of the
years adds up to less anyway. It can be
worked into a budget, and you certainly don’t need a separate pot of money in
the six-figure range to cover your healthcare costs. Don’t believe all the scare stories.
Until next time,
Roger
“The Philistine army
had a hero named Goliath who…was over nine feet tall….And his spear was so big
that the iron spearhead alone weighed more than fifteen pounds….David defeated
Goliath with a sling and a rock. He
killed him without even using a sword.”
I Samuel 17:4,7,50 CEV
