Health Care Costs Bigger Problem Than Realized

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Health Care Costs Bigger Problem Than Realized

Out-of-pocket health care costs are a bigger problem than policymakers may realize. In 2000, only 11% of all private sector establishments offered retiree health benefits to Medicare-eligible retirees. In addition, Medicare covers only about 50% of all health expenses, says a study by the nonprofit Employee Benefit Research Institute (EBRI).

The authors of the study analyzed the costs of premiums, copayments, and deductibles to determine how much a retiree will need to cover health care costs in retirement. Age 65 retirees in 2003 who do not have access to employment-based health benefits, and who purchase Medigap insurance, will need to have saved between $47,000 to $354,000 assuming health insurance premiums only increase 7% per year. If premiums increase 14% per year (they have exceeded that in the past four years), $73,000 to $1,458,000 would be needed.

According to the study, benefit consultants are predicting that health insurance premiums will increase 15% this year. “Without policy changes,” the study says, “there is no reason to expect this trend not to continue.”

Source: “Retiree Health Benefits: Savings Needed to Fund Health Care in Retirement,” Paul Fronstin and Dallas Salisbury, Employee Benefit Research Institute, Issue Brief, February 2003.

For a related story see, “CBO Cuts Estimate of Social Security Spending” at http://www.tscl.org/NewContent/101825.asp.

June 2003