Retiree Health Benefits a Thing of the Past

Here's how much you need to budget to make up for it.

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A Wall Street Journal article by Paul Fronstin and Stephen Blakely of the Employee Benefit Research Institute says we are past the tipping point when health benefits were available for retirees. They write:

Most active workers will never be eligible for health insurance in retirement through a former employer. The Agency for Healthcare Research and Quality (AHRQ) reports that only 13 percent of private-sector establishments offered health benefits to early retirees in 2005, down from 22 percent in 1997. Furthermore, 13 percent of private-sector establishments offered health benefits to Medicare-eligible retirees in 2005, down from 20 percent in 1997. The trend among large employers—those most likely to offer health benefits—has been down as well.

The most obvious solution is to keep working (if you can) until age 65 when Medicare eligibility kicks in. But with premiums, deductibles, copayments, and excluded benefits, even waiting until age 65 doesn't quell fears of catastrophic health expenses.

Fidelity Investments estimates that a 65-year-old couple without employer-sponsored retiree healthcare coverage will need $225,000 to cover healthcare costs in retirement, 4.7 percent more than the 2007 estimate. This six-figure amount includes Medicare Part B premiums (which cover physician and outpatient hospital services) and Part D premiums (which cover drug-related expenses), Medicare copayments, co-insurance, deductibles, and excluded benefits, and out-of-pocket prescription drugs but does not include over-the-counter medications, most dental services, or the greatest expense of all--long-term care.

According to Fidelity's calculation, a 65-year-old worker earning $60,000 today and interested in retiring this year should expect to use 50 percent of pretax Social Security benefits to pay for personal healthcare expenses in the next 17 to 19 years.

A paper from the Center for Retirement Research at Boston College puts the amount you should save for health expenses slightly lower but equally as alarming. Boston College says that singles planning to retire in 2010 should have $102,966 earmarked for out-of-pocket healthcare costs in retirement and that couples should have $205,932.

Perhaps we should all practice negotiating on our medical bills now.