Confronting Health Care Cost Fears With Hard Data

Sometimes it just takes a little insight to dispel a lot of fear and uncertainty—especially when it comes to financial planning and the future cost of health care. 

The 2016 Guide to Retirement from JP Morgan Asset Management provides a range of insights about what financial challenges individuals should expect in retirement, including hard figures on Medicare premiums, long-term care costs and other critical aspects of retiree health care.

Reading the guide will be a troubling experience for anyone not already versed in the retirement challenges faced by workers in the United States, notes JP Morgan Asset Management Global Head of Retirement Solutions Anne Lester. “A lot of the numbers we cover are going to be discouraging for a lot of people to read,” she says.

For example, a 65-year old in 2016 should now expect to pay upwards of $4,660 per year on health care, and that’s just at the median. This includes $400 for vision, dental and hearing care; $1,900 on Medicare “Medigap” Plan F; between $900 and $4,000 on Medicare Part D premiums and prescription out-of-pocket costs; and another $1,460 in Medicare Part B coverage.

“And these are just the predictable costs,” Lester warns. “There will be additional premiums per person for families with modified adjusted gross income above approximately the $85,000 threshold. And then there are the true uncertainties of things like health care inflation, Medicare solvency issues, long-term care needs, etc.”

Chief Retirement Strategist Katherine Roy predicts that, should current demographic and pricing trends hold, health care costs will inflate by upwards of 6% or 7% per year through the 2020s and 2030s. “Projecting the current numbers forward, that would mean the individual turning 65 today would be paying $18,000 per year for health care by age 85.”

NEXT:  Where’s the good news? 

Perhaps most troubling in the updated Guide to Retirement report, Roy points out that the likelihood of at least one member of a married couple turning 65 today requiring professional long-term care is “now alarmingly high.” For women, a whopping 73% will require such care at some point in their lifetime, while just 35% of men will require long-term care from a non-family professional. 

“This is yet another important outcome of women’s increased longevity over men. They live longer and are far more likely to die alone than their male spouses, so this must be planned for,” Roy warns.   

One piece of good news is that long-term care is not always as expensive as one might fear, and there is an emerging ecosystem of tools and advice to help individuals confront these vexing questions. According to the JP Morgan research, there is a one in three chance that a long-term care need will last less than six months, and just a one in 10 chance it will last five or more years. Further, many families are able to pull together and provide some aspects of long-term care directly for their loved ones, but this is often a strain both financially and practically.

“In the end, many people realize nursing home care or in-home care is going to be expensive, but they should also know there is significant cost variation depending on where and how care is utilized—so smart consumers and planners can protect themselves and their families,” Roy says. “Nursing home care, especially, varies a great deal state-by-state, and between urban and non-urban settings. These are all things to think about well in advance of retirement.”

Lester concludes that investment-based tools such as health savings accounts (HSAs) will have to play a big role in helping people confront these incredible cost projections. “The next step for us at JP Morgan is to get really empirical and dive deeply into the real spending patterns of our clients as they enter retirement and start paying for all these things from accumulated assets. We will be looking for insights to help those people who still have a long time to plan, and those people already facing these challenges.”