Protecting Your Golden Years
With steady increases in health care costs, it comes as no surprise that employers across the country are no longer offering health care to retirees, putting an additional strain on retirement savings.
Financial adviser Ray Martin visited The Saturday Early Show with some advice for those approaching the golden years with little or no health care after retirement.
Martin says although many seniors rely on Medicare for health care assistance, it is not enough for many. According to new research from the Employee Benefit Research Institute, many Americans at or near retirement age would require more than $1 million to pre-fund medical costs over their remaining life.
Martin says after three consecutive years of double-digit increases in health care costs nationwide, the number of employers offering health insurance coverage to retirees age 65 and older is rapidly declining. The number of employers with 500 or more employees who provide retiree medical benefits fell almost 60 percent, from 57 percent in 1987 to 23 percent in 2001. The added expense of health insurance adds to the already strenuous task of saving enough money to live a comfortable life in retirement.
Martin says this trend is unlikely to change, mainly because of the rising cost of health care.
To better prepare for a comfortable life after retirement, Martin suggests start planning your retirement at least five years before you actually decide to retire. Be sure to assess your post retiree medical cost and coverage. Some websites (choosetosave.org, retirementcalc.com and bankrate.com) offer a retiree health savings calculator, which will help you identify approximately how much you may need to save to pay for health insurance during your retirement.
A study by the Employee Benefit Research Institute released in February concluded that a 65-year-old retiree without employment-based insurance may require up to nearly $1.5 million to pre-fund lifetime medical expenses (assuming death at age 100 and medical inflation of 14 percent annually).
For those with employment-based insurance, the maximum figure exceeds $500,000. A man who retired at 65 and died at 80 would need $47,000 with employment-based insurance and $116,000 without it (assuming 7 percent inflation).
The disparity between the two figures in each case largely reflects reimbursement for prescription drug costs included in work-based plans. Today, the average 65-year-old male lives to age 80.8 and the average female to age 84. These numbers are startling, but real. So those thinking of retirement really need to consider these facts as they plan their future.
Martin says a growing number of retirees are taking on at least part-time employment after retiring. According to the AARP, 80 percent of people in retirement are working at least part-time to supplement the costs of health care, among other things.
Medicare, Martin says, is perhaps the most popular option for the elderly. But, it does not come cheap. According to a Commonwealth Fund study, the average out-of-pocket medical expense for someone on Medicare in 2000 was $3,142 — a figure that the Fund estimates could grow to more than $5,200 by 2025.
Martin says this figure puts a financial strain on retirees, and that is before the additional cost of prescription medicine. People under Medicare find that only 50 to 60 percent of their costs are covered by Medicare.
Lawmakers are working out the details of a provision that will cover some of the costs of prescriptions, but right now, the typical senior today spends nearly $1,300 a year on prescription drugs, according to Martin. Under the proposed Medicare provision, the prescription plan will cost $35 monthly. Additionally, there is a $270 deductible, so a retirees' out-of-pocket cost is $690 before the cost of prescriptions.
People who are not receiving health coverage from their former employer may embrace this new prescription drug program addition to Medicare because it will offer some relief for the costs of prescription drugs. But retirees who are covered under their former employer's health insurance plan would have no interest in the Medicare provision because most companies are likely to drop prescription coverage if passed into law, and the person would have no choice but to pay for the Medicare plan.
The Congressional Budget Office (CBO) projects that more than one-third of Medicare beneficiaries with retiree coverage might lose that coverage with enactment of a Medicare prescription drug bill.
But, Martin says, there are a couple of options to reduce your Medicare costs. Some private health insurance companies are contracted with the Medicare program to offer Medicare health plans, known as Medicare + Choice. Congress mandated the types of Medicare + Choice coverage that health insurance companies must offer if they want to sell policies to retirees that supplement Medicare health benefits.
Martin says Medicare + Choice policies types H, I and J offer some prescription drug coverage, and should be considered by retirees. But many health insurance companies faced with higher than anticipated claims, are exiting this business, stranding a growing number of retirees with fewer options. Martin says those nearing retirement should examine the Medicare Personal Plan Finder on the Medicare.gov website to see what Medicare + Choice coverers, if any, is available from health insurers in their area.
For those without health insurance spending all their money on prescriptions, Martin says there's been some new affordability programs launched by major pharmaceutical companies such as Pfizer and Johnson & Johnson. Pfizer launched their "Share Card" program and Johnson & Johnson's has a "Together-Together" program. Many other pharmaceutical companies are following suit.
Martin suggests the programs are for people who are enrolled in Medicare and meet certain income requirements - $18,000 to $28,000 for singles; $24,000 to $38,000 for married couples. They can get their prescription drugs for a flat fee of $15, a 20 percent to 40 percent discount. Martin suggests visiting your pharmacy or go to your state's Medicare Web site and find out if you are eligible for these programs.