Save lots of money by managing prescription drug costs
(MoneyWatch) Costs for lifetime prescription drugs, such as drugs to reduce blood pressure and cholesterol, have the potential to really add up to a lot of money. A small co-pay each month -- $5, $10, or $20 -- may not seem like much, so many of us aren't motivated by money to manage these costs. But the sums become substantial when you take into consideration all the drugs taken in the span of a life for a variety of medical issues.
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Let's look at one example. Suppose you're paying $20 per month for your prescription drugs, and you expect to pay this amount every month for the rest of your life. One way to put a present value on your prescription drug costs is to figure out how much retirement savings you'd need to generate an income of $20 per month, or $240 per year.
Using my latest retirement income scorecard for immediate annuities, if a 65-year-old man bought a fixed income annuity paying him $240 per year for the rest of his life, he'd need about $3,428 in retirement savings; a 65-year-old woman would need about $3,582.
Since fixed annuities are one of the least expensive vehicles for generating retirement income, the resulting present value is the smallest estimated lifetime cost for those prescription drugs. If instead you followed the 4 percent rule and made systematic withdrawals to generate the retirement income you'd need to cover your drug costs, you'd need retirement savings of about $6,000 to generate an income of $240 per year.
Both of these estimated lifetime costs are pretax; unless you pay for prescription drugs from a Health Savings Account, you'll have to also factor in income taxes that you'd pay on your income. Assuming you're at a 30% marginal income tax bracket, the above present values would increase to $4,897 ($1,469 more) for the man buying an annuity, $5,117 ($1,535 more) for the woman buying the annuity and $8,571 (about $2,571 more) for the person using the 4 percent rule to generate retirement income.
Any of the above present values could buy you a very nice trip to Hawaii instead! And what would you rather have -- a nice vacation or a pile of receipts for prescription drugs?
The resulting lifetime costs for prescription drugs may be much higher if you pay more than $20 per month for your prescriptions. For example, according to the most recent Consumer Expenditure Survey produced by the Bureau of Labor Statistics, households headed by a person age 65 or older spent $714 per year on drugs in 2011. According to the Food and Drug Administration, doctors write about 3 billion prescriptions each year in the United States. That's roughly 10 prescriptions per year for every man, woman and child. And according to the Kaiser Family Foundation, the average number of prescriptions filled each year for people age 65 and older is 28. So there's a good chance many retirees spend much more than $20 per month on prescription drugs.
Now please don't get me wrong. I'm not advocating that you just throw away the drugs you take for cholesterol, blood pressure or other conditions without first consulting with your doctor. But I am suggesting that you investigate whether you can lessen your use of these drugs by adopting a healthier diet, reducing your weight to healthy levels, getting more exercise and reducing your stress. Studies have shown that these activities can reduce the need for drugs that lower your cholesterol or blood pressure, as well as the need for drugs that treat diabetes or other chronic conditions.
Ask your doctor about a medically supervised lifestyle program that can help wean you off lifetime prescription drugs and reduce the money spent on medicines. If your doctor says it can't be done, get a second opinion. I know many people who've done this successfully. A very desirable "side effect" to taking these lifestyle steps that improve your health in the long run is that you'll most likely look and feel better now. And that's a plus you shouldn't pass up.
