What to do About Retiree Healthcare Costs

Consumers expect the hammer to fall on Medicare, but don’t know what to do about it.

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Consumers can see a healthcare tsunami heading their way but don't know how to protect themselves, according to a new healthcare survey of middle-class consumers ages 47 to 65, sponsored by Bankers Life and Casualty Company.

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"A typical married couple age 65 can expect lifetime uninsured healthcare and nursing home costs of $260,000," said the study. "There is a five-percent risk that costs will exceed $570,000. At a time when half of middle-income boomers have saved less than $100,000 for their entire retirement, it is easy to understand why middle-income Americans are concerned."

Upwards of 80 percent of those surveyed expect the nation's budget deficits to lead to cuts in Medicare and Social Security. Baby boomers of all ages clearly understand they are facing high and perhaps uncontrollable healthcare costs as they age. But beyond saying they are taking better care of themselves, there is no evidence that large numbers of aging Americans are building financial plans for a world of less-generous government healthcare support.

For years, investment companies and experts have tried to send wake-up calls to consumers about the financial risks of rising healthcare costs. That message, the Bankers Life survey found, has largely gone unheeded.

Many older boomers—44 percent—already on Medicare have been unpleasantly surprised that their healthcare expenses have been higher in retirement than when they were working, the survey found. Monthly premiums for covered doctor and out-patient services (Part B of Medicare) nearly tripled, from $43.80 a month in 1998 to $115.40 last year (they have declined to $99 in 2012.) Even so, consumer support for Medicare is much stronger than for employer-based insurance plans.

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Growing recognition of rising healthcare costs has caused 15 percent of retirees to consider going back to work to receive employer health insurance. For the same reason, many middle-aged employees have decided to tie their retirement dates to Medicare eligibility. But people still covered by workplace plans have acquired little understanding of Medicare and mistakenly think it will lower their costs.

"More than half (56 percent) of middle-income boomers age 47 to 64 report knowing little about the Medicare program, with one in four (26 percent) admitting to knowing almost nothing about Medicare, even those within a few years of turning 65," the study said. "More than one-quarter (27 percent) of pre-Medicare age boomers could not venture a guess as to how much they think they will pay for healthcare once on Medicare versus what they pay today. One in seven (13 percent) boomers under age 65 falsely believes Medicare is free."

"Middle-income Americans appear to take a 'learn as you go' approach to understanding Medicare's coverage and costs in that they wait until they are using the program to investigate how it works," the study added. "Given the complexity of the system, this approach is understandable. However, it does not allow them to adequately plan for healthcare costs, including those services generally not covered by Medicare, such as dental care, vision care, hearing care and long-term care, among others."

[See Nursing Homes Squeezed by Medicare Cuts.]

The study echoed other experts' advice that consumers learn about Medicare coverage details, especially the large menu of free preventive health services offered by the program. "Less than half (42 percent) of middle-income Americans take advantage of Medicare's annual wellness visit," it said. "Fewer than half (47 percent) of women and only one-third (32 percent) of men used this preventive care service in the past 12 months."

Meanwhile, difficulties in paying medical bills have already caused people to reduce or forego medical care. According to the survey, here are the most common ways people have reduced their healthcare costs:

Switched to generic prescriptions: 69 percent

Held off going to a doctor: 22 percent

Changed to a less-expensive health plan: 15 percent

Split pills to extend prescriptions: 12 percent

Postponed surgery or medical procedure: 10 percent

Skipped dose to extend prescriptions: 9 percent

Twitter: @PhilMoeller