By Mark Miller
CHICAGO May 15 Healthcare costs put a big
squeeze on retiree pocketbooks, but the grip may be relaxing a
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
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
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."