Medical Costs Slam a Minority of Seniors
As retirees’ health declines, their medical costs go up. These costs include both everyday healthcare expenses and long-term care costs.
The everyday expenses that Medicare does not cover – Part B and Part D premiums, copayments, eyeglasses, and dental care – consume about 20 percent of the incomes of households ages 75 and over. While not exactly good news, 20 percent is “perhaps manageable” for most, concluded researchers at the Center for Retirement Research in a summary of various studies in this area.
The real problem comes for the unlucky minority – about 5 percent of seniors – who spend more than half of their income out of their own pockets for healthcare.
Turning to long-term care, these services are less frequently required but can be very costly. For example, while many nursing home stays are relatively short, a lengthy stay is a potentially crippling expense. One common trigger for a long-term stay is dementia.
The retirees facing the greatest financial risk from health care expenses tend to be those who earned enough to buy a house and put money away in their employer’s retirement plan. They have more to lose if their wealth is eaten up by exorbitant medical costs. The poor, in contrast, are covered by Medicaid, which often pays for Medicare premiums and long-term care.
The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.
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“The retirees facing the greatest financial risk from health care expenses…..The poor, in contrast, are covered by Medicaid, which often pays for Medicare premiums and long-term care.”
This is one of the reasons we purchased a LTCi Partnership policy. This type of policy offers special Medicaid asset disregards.
Purchasing a Partnership-qualified (PQ) LTCi policy provides a benefit described as “dollar-for-dollar” asset disregard or “spend down” protection. Individuals who purchase a PQ policy ‘earn’ one dollar of Medicaid asset disregard for every dollar of insurance coverage paid on their behalf.
Here’s an example. If a PQ policy pays out $150,000 of insurance claim benefits, a Medicaid asset disregard is earned that allows keeping an additional $150,000 over the asset level otherwise needed in order to be eligible for Medicaid coverage. The Partnership Program also protects those assets after death from Medicaid estate recovery.
Between my wife and I – we have a shared policy should one of us need it – have a significant amount of assets protected, while still being able to be covered by Medicaid should things turn out that badly. This is an option that many people should look ok into.
So if health care costs in the US are not controlled going forward it will eventually bankrupt the country; we now spend around 18-19% of GDP on health care or $3.5 TRILLION. It is bigger than the FEDERAL BUDGET and continues to grow faster than INFLATION for 40 years. Furthermore the US spends TWICE what any European country spends on health care with no better outcomes; the main reason is the health care lobby SPENDS $500 million a year buying votes in Congress, which is cheap for a return of $3.4 TRILLION; what a great ROI.
As long as you do not need long-term care, most moderate/high income seniors can manage – while medical expenses are high, they are predictable. You get Medicare A for nothing and know the cost of Medicare B and D and the “fill-in” policy you can buy. If you go into a nursing home, not covered by Medicare except for short-term rehab, all bets are off. Here you are in big trouble unless you are poor (medicaid covers) or really rich.
I totally agree with Jeff that the over-arching problem is that we in the US spend twice what comparable countries do per capita on health care, and refer you to my book, Prescription for Bankruptcy.