You may have seen here and elsewhere the Medicare reform proposals offered by congressional Republicans and President Obama. Medicare program costs, as babyboomers begin to retire and become eligible for Medicare, are rising with no end in sight as the program moves ever closer toward insolvency.
The Employee Benefit Research Institute (EBRI) has crunched the numbers to determine the retriee health costs, on average for me and women who retired last year. Women will need an average of $93,000 in savings to pay for health care expenses in retirement. Men will need $65,000.
Those numbers above are averages,and that's just for the people who retired last year. The amount will be considerably higher for people retiring in coming years.
Yet few people are aware of how much they will spend on health care in retirement despite being covered by Medicare.
An example given by EBRI
"Premiums for supplemental insurance, or Medigap, cost $2,160 to $2,700 a year in the Milwaukee area for someone who is 75. Medicare Part B, which covers physician fees and other services, runs $1,157 this year. And Medicare Part D, the prescription drug benefit, averages $528 this year in Wisconsin.
That works out to $3,845 to $4,385 a year - $7,690 to $8,770 for a couple - at the age of 75. That doesn't include deductibles or expenses for dental care, eyeglasses or hearing aids.
The cost can be considerably less for people who opt for a Medicare Advantage plan in place of Medigap insurance. But those plans typically have higher deductibles than Medicare supplemental plans.
According to EBRI, one in four people covered by Medicare spent 30% or more of their income on health expenses, including long-term care, in 2006, according to a brief by the Kaiser Family Foundation, which does research on health policy.
Those figures include long-term care, which costs more than $70,000 a year on average. It's a cost that few people can bear for long, and that everyone hopes to escape. Yet an estimated 24% of the people who retired last year will need more than a year of nursing home care, and 9% will need more than five years of care, according to the Center for Retirement Research at Boston College.
Medicare Remedy Needs Compromise
Reform is obviously desperately needed for Medicare, but will Congress compromise and develop a sustainable long-term remedy or will they continue to put off solutions?
"The fact is the program is not solvent, and there are going to be changes to it at some point," said Paul Fronstin, a senior research associate with the Employee Benefit Research Institute. "The question is what those changes will look like."
House Republicans, spearheaded by Rep. Paul Ryan (R-Wis.), have proposed capping the value of Medicare coverage in future years. That would shift some costs to future retirees, although Ryan's proposal would include subsidies for people with limited incomes.
In contrast, Democrats have placed their hopes largely in slowing the rise in Medicare spending through a mix of price controls and reforms to make the health care system more efficient.
No one disputes that Medicare coverage will become less generous. The result could be larger co-pays, higher premiums and fewer benefits. How much more can retirees afford is a question. Half of all Medicare beneficiaries had incomes of less than $21,000 last year, according to the Kaiser Family Foundation. They also had few assets.
An individual's health care retirement spending varies wildly and is impossible to predict. For certain, the burden is heaviest for those who are the oldest and in poor health with modest incomes. But it also depends on when people retire, how long they will live, their health and, to a large degree, fate.
In that equation, the biggest unknown is how long someone will live. But 50% of the women who turned 65 last year are expected to live to 84, and 25% are expected to live until 90. For men, 50% are expected to live to 81 and 25% to 87.
Wild card
Most individuals who understand the growing Medicare dilemma expect to work longer. But whether they will have that option varies with educational level and health. The biggest wild card is long-term care. Long-term care insurance is an option, but the policies are expensive and complicated.
Even people lucky enough to avoid the cost of long-term care are likely to find themselves spending more on health care in their retirement than they ever expected - and the expense is almost certain to be a lot more in coming decades.
Summary
So what should Medicare reform look like? Should eligibility be delayed until individuals turn 70? That woulkd cause early retirees to fend for themselves for a longer period of time forcing those who are sick or with low incomes to try to keep working. Wouldn't that dramatically increase the number of individuas applying for and receing Social Security Disability. What impact would that hve on Social Security's solvency which is already tenuous.
There are no easy answers, only imperfect soutions that cause cost-shifting elsewhere. What do you feel is a viable solution, what are the pitfalls tat you see?
