Boomer Out-of-Pocket Health Care Costs to Double by 2040

Last Updated Mar 4, 2010 7:00 PM EST

Having just finished a spin through the Urban Institute's new study, Will Health Care Costs Bankrupt Aging Boomers? my first thought was to go get on the elliptical, pronto. I figure the better shape I'm in, the better shot I have at keeping health care outlays from eating up gobs of my income in retirement.

The Retirement Policy program at the UI ran some computer models to see how health care costs not covered by Medicare might shake out circa 2040, assuming income growth, health care spending, and insurance coverage stay on the same pace as today.

In constant (inflation-adjusted) dollars the UI estimates that out-of-pocket costs will double from about $3,300 a year today to $7,800 per person in 2040, putting a greater burden on retiree incomes.

Source: Urban Institute


In the two lowest income quintiles, 70 percent of retirees will have out-of-pocket costs that exceed 20 percent of their income. Among the two highest-income quintiles, the percentage spending more than one-fifth of their income on health care costs is estimated to rise from a combined 7 percent today to 31 percent in 2040.

Not satisfied with that dose of bad news, the UI data crunchers also took a look at what would happen if employer-provided health care benefits disappeared by 2040. Far-fetched? I hope so, but not entirely out of the question given the sharp decrease in coverage we've already experienced:

Percentage of Large Employers Offering Retirement Health Insurance:

Source: Center for Retirement Research at Boston College


The Urban Institute estimates that if employer health care benefits disappeared completely the percentage of retirees in the top income tier spending 20 percent or more on health care could jump from 5 percent to 13 percent, and in the next highest income tier, the percentage spending at least 20 percent of income on health costs would rise from 26 percent to 38 percent.

And that's sort of the best-case scenario
The report ended on this upbeat note:

Health care costs may contribute to greater financial hardships for older Americans than these estimates suggest. Rising entitlement costs and the ballooning federal debt may lead to Medicare cuts that boost out-of-pocket costs, Social Security cuts that limit income growth, and tax increases that reduce disposable income. Employers may further cut retiree health benefits. Also, our estimates exclude nursing home, home care, and other long-term care costs, which have been increasing steadily and which often deplete recipients' financial resources.


Which brings me back to my elliptical machine. And my nominee for Best (Accidental) Retirement Planner: Jane Brody, the Personal Health reporter for The New York Times. In a recent column , Brody ran through an uplifting array of studies that show how a bit of exercise can sharply reduce the occurrence of certain illnesses. "Regular exercise is the only well-established fountain of youth, and it's free" writes Brody. Moreover, it could help keep a lid on the ever-increasing prospect of steep out-of-pocket health care costs in retirement.