By Mark Miller
CHICAGO May 15 Healthcare costs put a big squeeze on retiree pocketbooks, but the grip may be relaxing a bit.
A 65-year-old couple retiring this year will need $220,000 to pay for healthcare for the rest of their lives, an amount that is eight percent less than a year ago, according to a Fidelity Investments report issued Wednesday. Fidelity has been forecasting the cost of healthcare in retirement since 2002, and has forecast lower lifetime costs only once before - an eight percent drop in 2011.
Experts are hesitant to call a long-term downward trend, but lower healthcare inflation is a boon to retirees, since healthcare costs are one of the largest single expenses they face in retirement.
"It's good news, because it means healthcare inflation is below the cost of overall inflation - and that doesn't happen often," says Sunit Pate, senior vice president of Fidelity's benefits consulting group.
The bright forecast is closely tied to spending in the Medicare program, where per enrollee spending increased by just 0.4 percent last year, and just 1.9 percent between 2010 and 2012- far below the seven percent annual increases that were the average between 1985 and 2009. Lower Medicare spending can pass through to retirees in the form of lower coinsurance and deductible payments, and reduced pressure on premiums.
Other recent signals also have pointed toward a moderation of healthcare inflation. Overall U.S. healthcare spending has been rising at a 3.9 percent annual rate for three consecutive years; that's slightly higher than the 3.2 percent increase in the U.S. Consumer price Index in 2012 and an improvement from recent years. In 2009, healthcare spending jumped 6.6 percent.
The moderation in Medicare inflation has been even more striking. The Congressional Budget Office said earlier this year that Medicare per-beneficiary spending rose only 0.4 percent in fiscal 2012, and overall Medicare spending was up just three percent.
GENERIC DRUGS AND OBAMACARE CREDITED
The weak economy may be holding down healthcare utilization, experts suggest. But in the Medicare program, several other factors are at work:
- The cost of prescription drugs has moderated as many of the most common brand name drugs have gone generic.
- Obamacare has reduced the rate of payment increases to hospitals, physicians and health plans.
- The Medicare population is getting younger. While Washington debates raising the eligibility age of Medicare, the swelling wave of baby boomers now entering the program actually is bringing down per-enrollee costs and premiums. Younger retirees are healthier and their care is less costly, but they are contributing premium dollars to the program's risk pool.
Fidelity's forecast assumes a couple age 65 using traditional Medicare, with no retiree coverage from employers. It also assumes average life expectancy from age 65 to be 17 years for men and 20 years for women. About one-third of the forecast costs are Medicare part B and D premiums; the remainder covers an assortment of Medicare co-pays and cost-sharing costs. The estimate doesn't include costs of any long-term care that a couple might need, or out-of-pocket expenses for dental services or over-the-counter medications.
And the forecast is expressed in today's dollars - a dedicated amount of savings that few retirees likely have set aside.
RESULTS MAY VARY
The Fidelity numbers are just national averages; individual spending is influenced by several factors, including medical condition and geography - Medicare B and D premiums don't vary nationally, but private Medigap premiums are set and regulated at the state level and vary substantially.
Age, expected years in retirement and gender all are factors that can help predict healthcare costs. For example, the Society of Actuaries has estimated that a couple that expects to live until age 90 would need an average of $441,200 to meet out-of-pocket healthcare costs.
It is a bit early to proclaim victory in the fight to tame healthcare costs. For example, per capita expenditures for claims filed through employer-sponsored insurance plans rose 4.6 percent in 2011, according to the Health Care Cost Institute. And final implementation of Obamacare this year has some experts forecasting big increases in commercial health insurance premiums as the market adjusts to a big increase in medical claims under the law's universal coverage feature. Notes Patel, "the jury is still out on the long-term trend."