Retirees Underestimate Health Care Costs

May 19, 2004
Retirees drastically underestimate how much they will pay in health care costs by wrongly assuming that Medicare and employer health plans will pick up the tab, according to a recent study by the Employee Benefits Research Institute.

The institute found:

• Actual health care costs are five times higher than what most retirees anticipate.

• Despite the new Medicare drug benefit, retirees need to save anywhere from $80,000 to $700,000 in order to pay out-of-pocket health care costs.

• Employers are providing less coverage for retired former employees, and the level of benefits is expected to drop to 10 percent of total medical expenses by the year 2031.

• Currently, only 71 percent of employers are increasing retiree premium contributions.

Paul Fronstin, director of the EBRI study, suggests that individuals:

• Estimate their lifespan, considering factors such as nutrition, health habits and family history.

• Double-check what benefits are offered by their employer; since 1988, the number of employers (with more than 200 employees) offering retiree health coverage has declined by almost 50 percent.

• Assume a life expectancy of 80 and save at least $80,000 to cover health care costs not covered by Medicare.

• Purchase long-term care insurance to cover nursing home expenses, which can run $50,000 per year or more.

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