A 65-year-old couple retiring this year will need $230,000 to pay for medical care throughout retirement, according to a Fidelity Investments estimate released today. Expected health care costs have declined 8 percent from last year’s estimate of $250,000 due to health reform legislation passed in 2010. This is the first time retiree health costs have decreased since Fidelity estimated that seniors would need $160,000 to pay for retirement medical expenses in 2002.
Fidelity’s calculation takes into account the premiums, deductibles, and coinsurance associated with Medicare Parts A, B, and D and some services excluded by Medicare. The estimate does not include over-the-counter medications, most dental services, and long-term care. It is assumed that retirees will not have employer-provided retiree health insurance and that the couple will live until the average life expectancy of 17 more years for men and 20 years for women.
The $20,000 decline in out-of-pocket costs is largely driven by recent changes to Medicare contained in the Patient Protection and Affordable Care Act. Seniors who reach the Medicare Part D coverage gap by spending spend more than $2,840 on their medications in 2011 will get a 50 percent discount on brand name drugs and a 7 percent discount on generic drugs until catastrophic coverage kicks in after they spend $4,550. The coverage gap will be gradually phased out in future years until it is eliminated completely in 2020. A free annual wellness visit and preventative care services with no cost sharing have also been added to Medicare.
Fidelity doesn’t expect health care costs to further decline in future years. “While the savings generated through the health care reform laws is a welcome relief to many seniors, it should be considered a one-time adjustment, at least for the time being,” says Brad Kimler, executive vice president of Fidelity’s benefits consulting business. “Americans should expect health care expenses to continue to increase annually due to a number of factors including higher costs for medical services, the introduction of new technology, and an increased utilization of health care services like diagnostic testing.”
Other researchers have also found a decline in the amount seniors will need to pay for health costs due to the health reform bill. The Employee Benefit Research Institute calculated in December 2010 that a 65-year-old couple with median drug expenses will need $158,000 to have a 50 percent chance of having enough money to cover health care expenses in retirement, down $52,000 from 2009’s estimate of $210,000. However, if a couple wants a 90 percent chance of being able to pay for all their retiree medical bills they will need $271,000, EBRI found. EBRI’s calculation includes the savings needed for Medicare Parts B, D, and Medigap premiums and likely out-of-pocket drug costs after retirement at age 65 in 2010. Like Fidelity’s estimate, EBRI does not include the savings needed to cover long-term care expenses.