How to combat the impact of inflation on healthcare costs in retirement

Gasoline, food and housing prices have skyrocketed over the past year. Less noticeable, for some, is the rising cost of health care.

Medicare, the US government’s national health insurance program for Americans age 65 and older, has imposed a 14.5% premium increase for Part B (ambulatory care coverage) for 2022, a record high and nearly double the March reading of the US annual rate of inflation. as measured by the consumer price index.

Rising healthcare inflation can have major consequences for current and future retirees, as medical expenses are expected to account for an ever larger share of retiree income. “When you have to prioritize your living expenses over health care, that’s a major issue,” Kathy Martin, a 50-year-old New York state resident, said when asked what who worried him the most about health care costs.

Martin trains a few times a week with older people who participate in the Silver Sneakers fitness program at his local gym in Somers, New York. His classmate Laura Rodriguez, 67, shares his concern. “What will happen when I get old, you know? she says. “How am I going to be able to pay for the care I need? »

Studies illustrate how increased medical expenses can add up. If health care costs rise 2% above consumer inflation over the next two years, a healthy 55-year-old couple could face $267,000 in additional medical costs when they take his retirement at age 65, according to an analysis by HealthView Services.

That same couple could expect to spend more than $1 million on health care expenses over their lifetime, roughly the same amount they might expect to collect in Social Security benefits.

“Whether you’re affluent or you’re the average person…when you look at your Social Security check, you’re paying for health care,” said HealthView Services CEO Ron Mastrogiovanni.

After paying premiums, Medicare covers about two-thirds of the cost of health services, with out-of-pocket expenses accounting for about 12%, according to the Employee Benefits Research Institute.

“Beyond housing, food and transportation, [health care is] probably the most expensive item we will face in retirement,” Mastrogiovanni said. “Know what it is; be ready.”

HealthView Services estimates that a 55-year-old couple would need to invest an additional $53,000 to cover the $267,000 in additional costs due to inflation.

Increasing savings now can add security later. Experts say consider adding more money to your 401(k) plan or a Roth Individual Retirement Account, if you qualify. “The most important thing is that you start saving and start saving early; the sooner you do it, the better prepared you will be,” said Paul Fronstin, director of health benefits research at EBRI.

Health savings accounts are another tool to save for future healthcare costs, but they require a high-deductible healthcare plan and have annual contribution limits. For 2022, the HSA contribution limit is $3,650 for single insureds and $7,300 for families. For people over 55, each of these limits increases by $1,000, via “catch-up” contributions.

There was a time when employers offered health benefits to retirees, but EBRI found that only around 4% of companies received these benefits, down from around 45% before a change in accounting rules at the end of the 1980s requires companies to include liabilities on their balance sheets.

‘When they had to do this it just didn’t look good on the balance sheet so they started cutting benefits to the point that very few workers will be eligible for this type of benefit in the future’ , says Fronstin.

Meanwhile, Silver Sneakers fitness instructor Melanie Scala, who turns 59 next month, said: “I really feel like I’m pointing people in the right direction to reduce their healthcare costs. “

Still, while physical fitness can help control some health care costs, experts say planning medical expenses ahead of time over a longer life should also be factored into the equation.