Less could be needed to meet health care costs in
retirement, according to new modeling by the nonpartisan Employee Benefit
Research Institute (EBRI). Projected savings targets needed so that the
American elderly can cover their health care costs in retirement continue to
decline, in part because of enhanced prescription drug coverage provided by the
Patient Protection and Affordable Care Act (ACA), EBRI finds in a new report.
Savings targets declined between 2% and 10% between 2013 and
2014, according to the EBRI report, an update of previous computer modeling of
retiree health savings needs. For a married couple both with drug expenses at
the 90th percentile throughout retirement who wanted a 90% chance of having
enough money saved for health care expenses in retirement by age 65, targeted
savings fell, from $360,000 in 2013, to $326,000 in 2014.
As the report notes, Medicare beneficiaries can expect to
pay a share of their costs out of pocket because of program deductibles and
other cost sharing. In 2011, Medicare covered 62% of the cost of health care
services for Medicare beneficiaries ages 65 and older, while out-of-pocket
spending accounted for 13%, and private insurance covered 15%.
Medicare was never designed to cover health care expenses in
full. Individuals over age 65 have to pay for their own deductibles for
inpatient and outpatient services, as well as for uninsured costs of outpatient
prescription drugs, says Paul Fronstin, director of EBRI’s Health Research and
Education Program, and lead author of the report.
As the EBRI report notes, when outpatient prescription drugs
were added as an optional benefit under Medicare, the program included a
then-controversial coverage gap known as the so-called donut hole. ACA included
provisions to reduce the size of this coverage gap. By 2020, enrollees will pay
25% of the cost of prescription drugs when they are in the coverage gap for
both generic and brand-name drugs.
Share of Costs Could
Rise
However, Fronstin notes, regardless of the effects of the
ACA, individuals may pay a greater share of their overall costs in the future
because of the combination of the financial condition of the Medicare program
and cutbacks to employment-based retiree health programs.
Projections of savings needed to cover out-of-pocket
expenses for prescription drugs are highly dependent on the assumptions used
for drug utilization, EBRI points out, which is why the analysis provides three
sets of estimates: prescription drug use is at the median (midpoint, half above
and half below) throughout retirement; prescription drug use at the 75th
percentile throughout retirement; and in prescription drug use is at the 90th
percentile throughout retirement.
Many individuals will need more than the amounts cited in
this report because it does not factor in the savings needed to meet long-term
care expenses or take into account that many individuals retire before becoming
eligible for Medicare. However, some workers will need to save less than what
is reported if they choose to work past age 65.
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