Impact of Health Care Coverage

The Roman poet Virgil said, "The greatest wealth is health." But without adequate insurance coverage, medical costs could wreak havoc on both your personal health and your post-retirement finances. That's why this installment of the Retirement Lifestyle series is focused on the ins and outs of post-retirement health care options.

Recent health care trends:

  • Health care premiums have grown a whopping 73 percent since 2000, according to Bankrate.com.
  • Demographics suggest this trend isn't going away. As 77 million baby boomers begin to retire this year, they will strain the health care system's financial and manpower resources.
That's why planning ahead is critical. The Center for Retirement Research estimates that:
  • An individual retiring in 2010 will need $102,966 to pay for out-of-pocket health care costs.
  • In 2020, that number increases to $141,752.
  • By 2040, that number grows to a staggering $245,767.
New medical and technological advances will hopefully ease some of these costs, but excessive malpractice suits, increased regulations, high administrative expenses, and other costs will probably continue to shift prices upward.

Coverage options. In light of this, it's important that you are aware of the various post-retirement health care coverage options available to you:
  • Medicare is a government program enacted in 1965 to provide automatic health care coverage to people once they turn 65. Medicare covers many medical costs—like hospital care, physician care, laboratory tests, and physical therapy—but it doesn't cover all costs. Most notably, it doesn't cover nursing home expenses if you stay longer than 30 days. Medicare's deductibles tend to be high, which can be burdensome if you live on a fixed income.


  • Medigap is available to supplement Medicare coverage. It reduces high co-payments for an additional premium.


  • Medicaid is a government program available for people with certain disabilities or a limited income or net worth. Medicaid requirements vary by state, but program features are typically based on federal guidelines.


  • Long-term care insurance can be an option if you plan ahead. It covers custodial care in the home, as well as care in assisted living facilities and in nursing homes for people who need assistance with daily living activities or who are cognitively impaired. Premiums increase substantially as you grow older, so it is wise to buy a policy now. Keep in mind that you might not be able to get coverage at any age if you have health problems.


  • Extending employment past the age of 65 could prolong your employer-sponsored health care plan. This could provide you and your spouse with a better policy and lower premiums for a longer period of time.
Net worth risk. If you don't plan ahead, inadequate health care coverage could mean paying out of pocket for hefty medical expenses. In this scenario, you could be forced to sell personal assets to pay for medical bills. Not only does this threaten your current lifestyle, but it also risks the wealth that you intend to pass on to the next generation or to charitable causes.

As an example, if an individual who relies solely on Medicare coverage unexpectedly needs to stay in a nursing home for an extended period, that individual could be personally responsible for any costs incurred after 30 days. Keep in mind that the average cost for a private room in a nursing home is $213 per day, or roughly $78,000 per year, according to the 2007 MetLife Market Survey of Nursing Home and Assisted Living Costs. By planning ahead, the individual could have purchased a long-term care policy to help avoid these high out-of-pocket costs.

Preparing for the future. Our country is facing an uphill battle to keep health care costs affordable while maintaining the quality of the system. The National Coalition on Health Care reported that our country spent $2.7 trillion on health care expenses in 2007—that's 4 times what we spent on national defense.

Proactively planning ahead for your health care coverage can help ensure that your retirement is both physically and fiscally fit. As always, if you'd like to review your options, I invite you to call me so we can prepare your game plan for a healthier tomorrow.

© 2008 Commonwealth Financial Network