Health-Care Trends You Dare Not For­get

The Washington Post Sunday - - Business - Martha M. Hamil­ton

H ow do you en­vi­sion re­tire­ment? Rock- climb­ing on week­days, mi­nus the week­end crowds? Sit­ting on the back porch knock­ing off the great books one by one? Or strug­gling to pay med­i­cal bills?

That last one may not rank high among re­tire­ment fan­tasies, but it’s be­com­ing a re­al­ity for more peo­ple as health- care costs rise and private- sec­tor em­ploy­ers re­duce spend­ing on re­tiree health care.

If you re­tire be­fore Medi­care el­i­gi­bil­ity at age 65, with lim­ited or no re­tiree health- care cov­er­age, your op­tions aren’t great: You can buy a higher- priced in­di­vid­ual pol­icy or take your chances pay­ing those doc­tors’ bills. Even when Medi­care kicks in, it doesn’t mean your med­i­cal costs will be fully cov­ered. The Em­ployee Ben­e­fit Re­search In­sti­tute es­ti­mates that Medi­care cov­ers only 51 per­cent of ex­penses as­so­ci­ated with health- care ser­vices for most in­di­vid­u­als.

Fi­delity In­vest­ments, which has been track­ing re­tiree health- care costs since 2002, cal­cu­lated in a re­port last week that a 65- year- old cou­ple re­tir­ing this year will need about $ 215,000 to cover med­i­cal costs in re­tire­ment, up 7.5 per­cent from the pre­vi­ous year. For about 40 per­cent of the re­tirees whose

pri­mary source of in­come is So­cial Se­cu­rity, health ex­penses could eat up as much as half of their re­tire­ment ben­e­fits, Fi­delity said. Some es­ti­mates of re­tiree health costs have been even higher.

An un­ex­pected health cri­sis can take an even big­ger bite out of re­tire­ment sav­ings. Take the case of Pamela Vo­tava. In her 50s, she de­vel­oped post- po­lio syn­drome, a pro­gres­sive weak­en­ing of the mus­cles. On the ad­vice of her doc­tor, she de­cided to re­tire in July 2004 at age 61 to help slow the dis­ease’s progress. Her hus­band was cov­ered by Medi­care, and Vo­tava fig­ured she could find private in­sur­ance to cover her costs. But the in­sur­ance com­pa­nies she ini­tially ap­plied to turned her down.

“ I had man­aged a med­i­cal of­fice and thought I was pretty savvy on in­sur­ance,” said Vo­tava, who lives out­side of Toledo. “ When I found that I couldn’t get in­sur­ance, it took me by sur­prise.”

She was able to ex­tend her em­ployer health in­sur­ance tem­po­rar­ily for $ 675 a month, but her em­ployer was too small to be cov­ered by CO­BRA, a fed­eral law that ex­tends in­sur­ance cov­er­age for many re­tir­ing work­ers. She was ap­proved for So­cial Se­cu­rity Dis­abil­ity In­sur­ance in Jan­uary 2005, which also made her el­i­gi­ble for Medi­care to cover her health costs. But there was a two- year wait­ing pe­riod be­tween SSDI cov­er­age and the be­gin­ning of Medi­care pay­ments. Dur­ing that pe­riod she needed in­sur­ance to help pay for fre­quent doc­tors’ ap­point­ments and for leg braces, which cost about $ 1,000.

Vo­tava even­tu­ally was able to ob­tain cov­er­age, but at a high price. Her pre­mi­ums for the first year were $ 1,533 a month, ris­ing the next year to more than $ 2,300. Al­though her fam­ily helped, most of the money came out of the cou­ple’s re­tire­ment sav­ings — money they had hoped to spend on travel or a big­ger house. “ It cer­tainly had an im­pact on our re­tire­ment,” she said.

Most re­tirees will have an eas­ier time than Vo­tava did in find­ing private in­sur­ance or will con­tinue to be cov­ered by their em­ploy­ers, both be­fore and af­ter they are el­i­gi­ble for Medi­care. But that doesn’t mean they won’t face higher costs.

From 1994 to 2004, the me­dian amount that re­tirees ages 55 through 63 paid in pre­mi­ums for em­ployer- pro­vided in­sur­ance more than quadru­pled, af­ter ad­just­ing for in­fla­tion, ac­cord­ing a study au­thored by Richard W. John­son, a re­search as­so­ci­ate for the Ur­ban In­sti­tute and the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege.

And the fu­ture looks even less promis­ing. Not­ing that com­pa­nies in­clud­ing Gen­eral Mo­tors, Ford, Chrysler, Nis­san, Ver­i­zon and Sears had an­nounced cuts in re­tiree health ben­e­fits for fu­ture re­tirees, John­son con­cluded that “ cov­er­age ap­pears to be slowly dis­ap­pear­ing, pos­si­bly jeop­ar­diz­ing re­tire­ment se­cu­rity for fu­ture gen­er­a­tions.”

Work­ers think­ing ahead to their re­tire­ment ap­pear to be pick­ing up on the omi­nous sig­nals about fu­ture health- care ex­penses. A re­cent study by in­vest­ment com­pany Ed­ward Jones found that nearly a third of Amer­i­cans say not hav­ing enough to pay for health care in re­tire­ment is one of the big­gest con­cerns fac­ing the na­tion. An­other study by PNC Wealth Man­age­ment found that even the rel­a­tively af­flu­ent are wor­ried: Forty- three per­cent of those sur­veyed who had in­vestable as­sets of $ 500,000 to $ 999,999 said they’re con­cerned that “ health- care costs will ul­ti­mately con­sume a ma­jor por­tion of [ their] fi­nan­cial as­sets.”

Maybe as a na­tion we’ll find a way to slow the in­creases in health- care costs — but, judg­ing by the record so far, the odds are against it. So if you’re risk averse, you might want to tuck away more money to cover fu­ture health- care needs.

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