5 Reasons Why Health Insurance May Be Higher in Retirement – And What You Can Do About It

Do you think that your health insurance premiums are outrageous right now? (You’re probably right, by the way) It may actually get worse! A lot of people (mistakenly) believe that health insurance will be reduced to a non-problem in retirement. In fact, health insurance costs are commonly ignored when people plan for retirement. But there are at least five reasons why health insurance may be higher in retirement than it is right now.

1. No More Employer Health Insurance Contribution

Despite the existence of Obamacare, tens of millions of people continue to go without health insurance.

How can it be? Didn’t Obamacare fix that problem? The answer is sort of.

5 Reasons Why Health Insurance May Be Higher in Retirement - And What You Can Do About It
5 Reasons Why Health Insurance May Be Higher in Retirement – And What You Can Do About It

Most of what Obamacare did was either a) enable people between the ages of 19 and 26 to remain (or be reinstated) on their parents health insurance plans, or b) expand Medicaid for low income people and households. But if you aren’t a young person between the ages of 19 and 26, or if you’re not considered to be low income, the health insurance situation is worse than it’s ever been.

Just as was the case before Obamacare, people who didn’t have health insurance through their employers didn’t have health insurance at all. It’s not so much that employer-sponsored health insurance is cheaper, but rather that the monthly premium is payroll deducted, and heavily subsidized by the employer.

That last point is critical when it comes to retirement. Employers typically pay anywhere from 40% to 80% of the cost of health insurance premiums. That can reduce an otherwise unaffordable $1,000 per month premium to a very comfortable $400 – or roughly the amount of the average car payment.

When you retire, you’ll no longer be covered under your employer’s plan. That means no more employer paid health insurance subsidy – you’ll have to bear the cost of your health insurance entirely from your own resources.

But that doesn’t matter because you’ll have Medicare, right?

Not necessarily.

2. Medicare + Medicare Supplement

Medicare is largely seen by people approaching retirement as the golden ticket out of the healthcare malaise that we have here in the US. There was a time when that may have been true, but the dynamic is shifting rapidly.

First of all, you have to pay monthly premiums in order to get Medicare. These are fairly low, and deducted from your Social Security, making them seem more tolerable. For 2016 the Medicare monthly premium is $121.80, or about $244 per month for for a married couple.

That may seem reasonable on the surface, but Medicare has been scaling back benefits for years in an attempt to control the runaway costs of the program. We should expect that situation to get worse, since there’s no political will in Washington to make any kind of serious changes.

According to the Social Security Administration’s A Summary of the 2015 Annual Reports, by the Social Security and Medicare Boards of Trustees, the Medicare program is already operating in deficit, and will exhaust its trust fund reserves by 2030.

For this reason, we should fully expect to be squeezed on both sides, by a combination of increasing Medicare premiums, and decreasing Medicare benefits payments.

This is why many millions of retirees now carry Medicare supplemental policies, sometimes known as Medigap policies. These policies can cost several hundred dollars per month in premiums. If you are an individual paying $122 per month for Medicare, plus another $250 for a relatively inexpensive Medicare supplemental policy, you’re up to $372 per month. If you are a married couple, that doubles to nearly $750 per month.

If you’re currently on your employer’s health insurance plan, $750 per month is probably more than you’re paying as your part of the premium. And again, that’s with a cheap supplemental policy, which means your co-payments and out of pocket costs will be higher.

From where we stand right now, it’s probably reasonable to assume that a single person will be paying somewhere between $350 to $500 per month for health insurance, while a couple should expect to pay somewhere between $700 and $1,000 per month. That’s not a whole lot less than the cost of unsubsidized private coverage during your working years.

3. Healthcare Inflation

If you spend much time reading the financial press, you may be slightly convinced that the rate of inflation is around a very tame 1.something per cent. I have serious doubts about that, but one thing is certain: health care inflation is much higher. In fact, it’s expected to run at 5.8% for the foreseeable future. Using the accountants “rule of 72”, that means that we can expect the cost of healthcare to roughly double in the next 12 years. If you are 20 or 30 or 40 years away from retirement, the outcome will be significantly greater.

Given the amount of money that is being poured into healthcare, we should fully expect healthcare inflation to continue unabated. Exactly how this can be accurately forecast for retirement planning is entirely an open question.

4. The US Healthcare Situation is a Complete Wreck

Optimists want to believe that there’s a political solution to the US healthcare crisis somewhere in the future. We’ve been hearing about this for decades, and nothing seems to happen. Obamacare was touted as a complete overhaul of the system, but it has done nothing to stop the relentless rise in the cost of healthcare.

The reasons for this are more than a little political. This is just my opinion, but with healthcare costs representing 18% of America’s gross domestic product, healthcare – like the big banks and select big corporations – has been deemed too big to fail. That means that the political system in the US has little interest in containing costs, but great interest in keeping this rapidly growing, major component of the US economy moving forward.

A growing healthcare sector is seen as necessary to grow the US economy, much as real estate is. Have you noticed that in the face of declining employment in other sectors of the economy, the solution for the American worker is increasingly to get training, certification, or a degree in some area of healthcare?

And at some deep psychological level, it’s likely that there is generally widespread public support for more spending on healthcare, in the mythical hope that we can live forever (as a Bible-believing Christian, I do not participate in that fantasy – Hebrews 9:27).

It’s likely that the dysfunction in the industry will become even more dysfunctional going forward.

5. The Early Retirement Dilemma

Early retirement is become something of a closet industry in the blogging universe. Everyone’s going to save and invest their money – at perpetual double-digit rates of return – and retire at age 55, 50, 40, or even 35. As a blogger, I actually read a lot of these articles. One discussion that is highly conspicuous by its absence is how the would-be early retiree will deal with outrageous health insurance premiums. Since early retirement will occur under most projections in middle age, that will translate into health insurance premiums that will be as big as a house payment.

If you are serious about planning for early retirement, you are going to have to address this issue. It is likely that health insurance will be at least the second largest line item in your early retirement budget, and maybe even THE biggest. If you’re not prepared to deal with this, then early retirement will be more of a wish than an attainable goal.

All of the problems associated with health insurance will be magnified with early retirement. You’ll be too young to get Medicare, too old to get cheap coverage on the health insurance exchanges, and probably too prosperous to qualify for Medicaid.

What’s the Solution?

The pessimist will say that all of this right on the money. But the optimist will say that it’s nothing but doom-and-gloom nonsense – there’s a solution out there somewhere, there has to be. But the only logical position to take is that of a realist, and that means recognizing the situation as it really is. And it isn’t a happy one.

You can be as optimistic as you want in your assumptions, but the more responsible position is to be pessimistic in your planning. The reality is that the healthcare situation has gotten progressively worse in the past decade, the past two decades, and in the past three decades. If you think that it will fix itself then you’re betting against the historical trend.

Given that the crisis state of healthcare and health insurance is apparently intractable at the national level, what can you do on an individual basis to deal with it in retirement, a time when you will likely be physically more dependent on the system, and financially less able to cope?

Here are 7 strategies to deal with high retirement health insurance premiums:

  1. Optimize the state of your health. Many of conditions experienced in old age are the result of bad habits early in life. While you are preparing your finances for retirement, make sure that your body is equally prepared. The less dependent you are on the healthcare system, the more options you will have.
  2. Stay on top of health insurance developments. The usual strategy is to ignore it under the assumption that somehow it will work itself out in time for your retirement. That’s a bad assumption. Knowledge is power, and you’ll need plenty of it here. Pay particular attention to new and unconventional developments – they could be the wave of the future.
  3. Build a high health insurance premium into your retirement planning. At current cost levels, assume $500 per  month if you’re single, and $1,000 per  month if you’re married. If it’s too high you’ll have extra income for other purposes. But chances are, it’ll be higher than you think it will be.
  4. Semi-retirement may be preferred to complete retirement, since it may provide access to an employer-sponsored health insurance plan. If you haven’t adequately calculated health insurance into your retirement budget mix, this may be the preferred solution, especially if you are planning on early retirement.
  5. Prepare to create an income stream that will be dedicated specifically to paying your monthly health insurance premiums, including Medicare and a Medicare supplement.
  6. Have a healthy post retirement emergency fund that will not only provide you with cash to pay for uncovered medical expenses (particularly from a cheap Medicare supplemental policy) or to deal with sudden premium shocks. It may not be a permanent solution to the premium problem, but it will give you some time to maneuver.
  7. Eliminate or reduce expenses. If it seems likely that you won’t be able to afford high retirement health insurance premiums, develop a plan to seriously reduce or eliminate other expenses to make room for the premiums.

This is a difficult and emotional problem – it’s easy to see why so many people prefer to ignore it. What is your assessment of preparing to deal with health insurance premiums in retirement? And what strategies can you add to the list above?

( Photo by Images_of_Money )


8 Responses to 5 Reasons Why Health Insurance May Be Higher in Retirement – And What You Can Do About It

  1. Well, we all know now that obamacare was never really about affordable insurance. If it was, there would not have been so many mandates that my single son have maternity and birth control coverage, or at age 90 my mother have drug abuse coverage. As a retired person with a spouse, and whose child is independent and self-supporting, the thing I also dislike is that for my husband and I our premiums are the same (self and family) as a person who has several small children, all making many trips to the doctor for ear infections or other childhood illnesses. This year our insurance did offer a self plus one option, but it was only a couple of dollars cheaper than the self and family so it was hardly worth the effort to change coverage.

  2. Hi Kathy – Hope you had an excellent holiday season. I’m not at all surprised by what you’re reporting, and it’s the reason for this article. Health insurance only seems to get more expensive with age, no matter what the politicians say, or how much the happy-talk media prefers to avoid the subject. I’d go so far as to say that it’s become a major obstacle to retirement, particularly early retirement. Lost in all the Obamacare optimism is that policies may still charge higher premiums based on age, and they’re taking full advantage of that, probably to make up for lower premiums elsewhere.

    If you take Medicaid and the tax credit subsidy out of the equation, Obamacare is just providing cover for the continued escalation of premiums (and even increasing them through mandates, like your son’s maternity coverage or your mom’s drug abuse coverage). One of my predictions is that we quickly go back over 50 million uninsured in the next recession, as people lose coverage with their jobs and have no money to get new coverage. Then the beneficent Uncle Sam will hit them with penalties for not having coverage. God Bless America! What the heck ever happened to common sense???

  3. Health insurance cost are as bad as car insurance costs,you are basically paying excessive amounts on the chance you need to use it. (like a car accident or the annual doctor visit). Staying healthy is a key item but I shouldn’t have to pay 0ver $10,000 annually to see the doctor I chose for a yearly visit and annual testing. The overhead cost of administration of healthcare needs to be cut not the services rendered. Every time I read about rising cost I am reminded of the book The Rainmaker by John Grisham which talks about insurance companies deliberately deny paying claims by technicalities e.g.wording of claims. Most seniors use specialist doctors because of needs in old age but those doctors are considered out of pocket cost on most plans. I have need of a cardiologist specialist who also does internal medicine but I am expected to see a general practitioner who may not know how to deal with preventive medicine. I am a firm believer in preventive medicine to avoid problems that might occur. (think taking a driver education course to improving driving skills). Another thing wrong with the cost is the basing it on geographic area which is totally wrong. A cost of care is the same no matter where it is served. You can’t raise the cost because the area has more people to demand service. With the so-called millions enrolled into healthcare,which more than before it was a requirement, cost should have gone down not RAISED. I happened to have seen cost of health care plans prior to now and I could have afforded to pay the cost. Now I can’t without giving up a necessity like pay for rent or food because I am considered having TOO HIGH in income on social security.

  4. Hi Maria – You’ve made a lot of good points, but I want to focus on what you said about how costs should go down with more people having health insurance. Healthcare in America is like education, military spending, government and law – economies of scale don’t apply. They’re virtual cartels, favored and enforced by official policy (tax breaks, penalties, easy loans, and government mandates), so the price always goes up, regardless of how many “units” of production must be provided.

    Those are sectors of the economy that are not subject to economics, and they operate like an elevator that only goes up no matter what is happening, at least price wise. This is why healthcare (and the other sectors) are intractable problems. If the average person is suffering because of a system, you can bet that it’s because a few people are benefiting nicely from the imbalance. In a truly free market, price and service balance would be achieved by the market itself, but we don’t have a free market. I won’t be voting for Bernie Sanders, but his “rigged economy” message is spot on, even if a lot of people don’t want to believe it.

  5. Hi Kevin,

    Interesting and thought provoking article. We agree the healthcare system is a mess. We can point our fingers at Obama care, or those hypochondriacs abusing the system, or opportunists hoping to win the litigant lotto. Or, on the flip side, we can blame those doctors who place their patients on the diagnostic and intervention hamster wheel, seemingly forever, simply to avoid the litigant lotto payouts.

    Quite honestly, we are very skeptical whether the care received, in the area of diagnosis and treatment of disease, would be a wise undertaking, at any price. Even with the best diagnostic tools on the market, misdiagnosis is very common. And for every diagnosis there is a treatment plan. If the diagnosis is wrong, the treatment could end up being worse than the disease. Simply doing nothing would be the better choice than being treated for something you don’t have and still having the original problem unresolved. It would be a little like them pushing you into the emergency room and removing the wrong leg. You still have a bad leg that needs removing and your good leg is gone. When someone is treated based on a misdiagnosis, their state of health is lessened. If the diagnosis is radical, the treatment plan is equally radical whether we are talking about dangerous chemicals, radiation, or surgery. If the diagnosis is wrong, that makes the medical intervention unnecessary and hazardous to one’s health. They actually have a medical term to describe this phenomenon. It is called iatrogenic dis-ease.

    Another area of legitimate concern is hospital/clinic acquired infections. The numbers are alarming and most likely they are under reported rather than over reported. In spite of the hazards associated with medical intervention, there are still many who can’t seem to take a pass on what they see as a “good deal.” They’ve paid their premiums and their out of pocket exposure is limited. Therefore, they feel the need to get ‘something’ for the premiums they’ve paid. Very little thought is given to lifestyle choices, alternatives that might incur more out of pocket expenses, or simply doing nothing and letting nature take its course. So, they go to the doctor and say “fix it doc.”

    Obviously, we can’t control the behavior of the bureaucrats and lawyers pretending to be medical experts. Likewise, we can’t control hypochondriacs or others who loathe personal responsibility. Nor can we control those looking to reclaim their premiums through inventive means.

    The only person we can truly control is ourselves. Each person will decide for themselves what they are willing to pay. When it exceeds that threshold, they, on an individual basis, will stop paying the premiums. Instead, they may decide to self-insure by setting aside the amount they’ve been paying in insurance premiums to a personal rainy day health fund. If radical and expensive medical care is required, they may decide to go off-shore for their care at significant cost savings. One thing is very certain about self-insuring. When one self-insures, one becomes much more cautious and careful about engaging the services of the medical establishment. There is a natural disincentive to spending one’s own money when self-insured.

    Yes, if you cancel your insurance, there will be a penalty to pay and yes the penalty may eventually become even more punitive for the non-compliers out there. Penalties and premiums, however, have something in common. They both have a potential threshold beyond which life is unsustainable. We each will have to decide where those thresholds are and hopefully decide and act in favor of life. Personally, we don’t view the healthcare bubble in a linear fashion. It, like all bubbles will eventually burst and a reversion to the mean will take place. The bubble can end, on an individual basis, right now by withdrawing our consent to be herded like cattle to the slaughterhouse and finding alternative solutions to our healthcare needs.

    Much of what is perceived as healthcare is an illusion and many are paying a dear price for maintaining this fiction. Where does healing come from? Most accept the premise that doctors can heal. Can they really? Take a slab of fresh meat out of the fridge and make a deep long cut down the length of it. Take it to your doctor and have him shoot it full of anti-biotics and pour salve all over it. Next, have the doctor or attending nurse carefully wrap up the treated slab of meat in gauze and tape. Take this treated and bandaged up slab of meat home and let it sit out on the kitchen counter for a couple of weeks before unwrapping. Did the doctor heal this slab of meat? No, he didn’t. Some might cry foul and say the doctor couldn’t heal the cut slab of meat because it wasn’t alive. And, that is our point. Doctors don’t heal. Life heals. The key to health is simply getting out of the way and allowing life to do its thing. The medical establishment has been riding the coattails of life for far too long and taking way too much credit.

  6. Hi Steven and Debra – You don’t comment often, but when you do you hit a home run every time! Your comment reminds me of something Robert Ringer wrote way back in the 1970s, about doctors playing God. I think there’s something to that. Doctors are at the pinnacle of society, much as the witch doctors in aboriginal tribes. I often say that we pay doctors for what we wish they can do, not for what they actually do. It’s comforting to believe that doctors can be miracle workers, even if it isn’t nearly true. My wife and I have seen too many cases close to our own lives where there was either a mis-diagnosis, or the providers failed to find the cause of chronic health problems. In more obvious cases, they make the right call and the right therapy, and the myth is perpetuated.

    There was a case just before Christmas of a 4 year old girl who went into cardiac arrest after contracting the flu. The doctors told the parents she needed a heart transplant. The couple requested a prayer chain from family and friends around the world. The girl made a full recovery, and no longer needs a heart transplant. The head doctor is mystified at the outcome. I first saw the story on TV, but you can read about it here Little Girl from Florida Made a Miraculous Recovery (but notice that the part about the prayer chain is conspicuous by its absence).

    Closer to home, my father contracted lymphoma at age 80. His prognosis was considered good, and the doctors were reporting that the chemo therapy was doing it’s job. He still died within 4 months of diagnosis. I saw that he was dying, but the rest of my family were vested in the doctors narrative, and were blown away when he died. I retrospect, the doctors didn’t have a clue.

    My wife had serious shoulder problems a few years back. She had surgery, and the problem persisted. We went to another doctor, who said that according to the scans it looked as if no surgery had been done. It took another surgery to fix what the first didn’t. In this case, the healthcare community was successful, but not without first detouring in the wrong direction.

    My feeling is that while there’s a lot that the healthcare community can do in the way of healing, it’s mostly exaggerated. That comes from the media, academia, politicians and the healthcare community itself. They really want to believe that humanity has full control over its destiny. I’ve never agreed. And I resent that we’re paying stratospheric prices for healthcare and insurance mostly based on perception, not reality.

    I agree that eventually healthcare will revert to the mean, but unfortunately that is only likely to happen after an economic depression when the money to continue inflating the balloon is no longer there. In the meantime we have to make due with a very broken system. I’ve heard it said that the only people who are satisfied with the healthcare system in America are people who have some form of affordable health insurance, but rarely or never have to use it. There are enough people who fit that description that the system probably won’t be reformed intentionally. It will only happen in reaction to a crisis.

  7. Kevin et al:
    This is one of my all time favorite jokes that I heard when I was working at a medical supply house. An EMT told me this joke.
    Today’s chuckle regarding God and doctors:
    A bunch of people were in Heaven waiting in the cafeteria line to be served dinner. As they were waiting, an old man in a white coat came pushing and shoving his way to the front of the line, pushing through the people who had been waiting patiently in line. The man yelled:”Coming through, out of the way people, move it or lose it!”
    One of the people who had been in the line for a long time said to the man:
    “Hey, buddy! Who do you think you are shoving through the line like that?”
    The old man replied: I’m God and today I’m playing doctor!”

  8. That’s a good one Mary! Unless a doctor has never lost a patient, I don’t know how they can be anything but humble. In their heart of hearts they have to be only too well aware of the limits of their abilities and knowledge. But then there are arrogant people in every profession.

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