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Retiree Health Care Costs on the Rise Again

Industry Trends and Research

 

If your clients haven’t started factoring in how much they’ll need to cover health care costs in retirement, a new report might convince them to start doing so.

Annual estimates about the potential cost of retiree health care produced by consulting firm Milliman show that a healthy 65-year-old couple retiring in 2019 is projected to spend $369,000 in today’s dollars ($551,000 in future dollars) on health care over their lifetime. In addition, expenses at age 85 are estimated to be 250% higher than at age 65.

For purposes of this estimate, the firm assumes that the health statuses of the retiree and spouse are assumed to be average for the entire life span of each person. These averages are based on a typical commercially insured population in the Milliman Health Cost Guidelines. The retiree and spouse are assumed to be male and female with lifespans of 87 and 89, respectively. The estimates also assume that the future medical trend will be 4.9% per year, based on long-term estimates from a Society of Actuaries model, supplemented with Milliman research.

Milliman further estimates that a healthy 67-year-old retired couple is projected to spend 39% of their pre-tax Social Security benefit on health care in 2019. This estimate is based partially on the December 2017 average monthly pre-tax Social Security benefit at age 65 to 69 of $1,388.38 for retirees and $817.99 for spouses is used, with adjustments to 2019.

The projected retiree health care costs for a healthy 45-year-old couple who retires at age 65 is projected to pay $532,000 in 2019 dollars, and $1.4 million over their retirement years.

Meanwhile, the estimated 2019 annual premium plus out-of-pocket cost for a healthy 65-year-old is $5,000. This estimate assumes the health status of the retiree is to be average, based on a typical commercially insured population based in the Milliman Health Cost Guidelines. It also assumes the 2019 nationwide average premiums and out-of-pocket expenses at age 65 for a Medicare Supplement Plan G and a standard Medicare Part D plan are used.  

Milliman does offer a word of caution that the projection of retiree health care costs is a “complicated exercise” and actual results will vary from projections. The firm also notes that laws, regulations and rules governing health plans in the U.S., market forces, changes in health status and external shocks can also have a material effect on retiree health care costs.

Nevertheless, while recent estimates by Fidelity come in slightly lower, both studies appear to lend credence that retiree health care costs remain a top concern of both pre- and existing retirees.

 

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