May 19, 2004
Retirees drastically underestimate how much they will pay in
health care costs by wrongly assuming that Medicare and employer
health plans will pick up the tab, according to a recent study by the Employee Benefits Research Institute.
The institute found:
• Actual health care costs are five times higher than what
most retirees anticipate.
• Despite the new Medicare drug benefit, retirees need to
save anywhere from $80,000 to $700,000 in order to pay
out-of-pocket health care costs.
• Employers are providing less coverage for retired former
employees, and the level of benefits is expected to drop
to 10 percent of total medical expenses by the year 2031.
• Currently, only 71 percent of employers are increasing
retiree premium contributions.
Paul Fronstin, director of the EBRI study, suggests that individuals:
• Estimate their lifespan, considering factors such as
nutrition, health habits and family history.
• Double-check what benefits are offered by their employer;
since 1988, the number of employers (with more than 200
employees) offering retiree health coverage has declined
by almost 50 percent.
• Assume a life expectancy of 80 and save at least $80,000
to cover health care costs not covered by Medicare.
• Purchase long-term care insurance to cover nursing home
expenses, which can run $50,000 per year or more.
