The Affordable Health Care Act notwithstanding, a considerable amount of
money is being siphoned out of many retirees’ nest eggs. According to
government projection, health care spending will account for nearly one
out of every five dollars spent by the year 2024.
Not long ago, I wrote that retirees should earmark at least $250,000 for
health care related costs and expenses. To my amazement, I recently
opened up one of my financial journals and a headline read, ”Michigan is
the most expensive state for retirement health care.”
That was the conclusion reached by HealthView Services, the nation’s
leading producer of health care cost-projection software. Their research
indicated that a 65-year-old Michigan retiree would spend $3,707 in
premiums for Medicare parts B and D supplemental insurance this year.
HVS also said that over a 20-year period, a Michigan retiree would spend
$40,000 more than his or her Hawaiian counterpart. It should be noted,
however, that Hawaii is among the states with the lowest health care
costs.
The bottom line is that, even after all of the health care debates and
the passage of the Affordable Health Care Act, the costs associated with
health care continue to increase at an alarming rate.
Meanwhile, because the government’s data indicates there’s no inflation,
it appears that retirees collecting Social Security benefits will not
see an increase in their payment in 2016.
Nonetheless, those same retirees are likely to be hit with jaw-dropping
increases on their Medicare premiums. Clearly there’s a disconnect
between Uncle Sam’s perception of inflation and the reality of
increasing health care related costs and expenses.
Roughly 10,000 people per day turn 65 in America. As this group moves
through their retirement years, it’s going to put a great strain on our
health care system. The question that I believe will continue to be
debated is, “Who should pay for these increasing costs?”
There are already new taxes in effect dedicated to paying some of the
increased costs. For example, the .09% increase in Medicare taxes for
married couples filing jointly who make more than $250,000 a year. And
in 2018, a new excise tax for those whose employers offer so-called
Cadillac health care plans will be phased in.
It’s important that people understand before they retire that all of
their retirement dollars aren’t going to be spent on vacations. It’s
very likely that a significant amount will go instead toward mundane
expenses related to their health.
Anyone who is currently working and has a large deductible should see if
you’re eligible for a Health Savings Account. If not, before the next
enrollment period you should check to see if you can switch your
coverage to a plan that is HSA eligible.
Simply stated, an HSA is similar to an IRA in that both are tax
deductible and they accumulate tax deferred. Ultimately, the funds can
be used for a wide array of health care services.
If you’re not HSA eligible, you just have to be more aware that a
significant portion of your retirement nest egg will likely be used for
health care related expenses.
After the Affordable Health Care Act was passed, many thought that, as a
nation, we would stop debating health care costs. I have a feeling the
discussion is just getting started.
Ken will be speaking at a workshop regarding healthcare spending on Oct.
21. For information and reservations please contact Lifetime at
248-952-1744.
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