From 1991 to 2007, bankruptcy filings by people age 65 to 74 rose by 178%. It’s reasonable to assume that the number of elder Americans facing financial problems has risen even more since 2007, as the recession has taken a toll on retirement savings, job availability, and home equity. Health care expenses are definitely contributing to the number of seniors who are facing financial difficulties or filing for bankruptcy. Since 2002, retiree health care expenses have increased by a whopping 56%, and are currently up 4.2% over last year (overall, consumer prices are only 1.1% higher than last year, so even in the midst of a recession, health care costs are continuing to rise far faster than overall prices).
According to studies done by the Center for Retirement Research, the average 65 year old American couple will spend $179,000 on health care over the rest of their lives, but this number does not include any sort of long term care. The $179,000 is for insurance premiums and out of pocket expenses for expenses that aren’t covered by Medicare and/or supplemental Medigap policies. If you include typical long term care needs, the average costs rise to $260,000. And five percent of couples will have costs that reach at least $570,000.
Preparing financially for future medical care is obviously a major task, but it’s one that needs more planning than simply purchasing insurance. Yes, long term care insurance and Medigap policies will help to pay for care that isn’t covered by Medicare, but people also need to make sure that they have a financial strategy in place for paying for care that isn’t covered by insurance, and for dealing with premiums that can and do rise over time.
Advisors typically recommend purchasing long term care when applicants are in their 50s or 60s, but younger people who want to start planning for future medical expenses can do so far earlier than that by getting an HSA qualified high deductible health insurance policy and setting up a health savings account. People who are healthy and don’t need to use the funds in the HSA for current medical care can let the money grow until it’s needed, which could be particularly useful during retirement. Funds in an HSA (which are deposited pre-tax and can be used without incurring taxes if they are used for qualified medical expenses) can be used to pay premiums for Medicare A (if you are not covered by Social Security), Medicare B, and Medicare D, as well as long term care premiums. In addition, funds in an HSA can be used to cover all sorts of medical care that isn’t paid for by insurance. Some home modifications can be paid for with HSA funds, if their primary purpose is medical care (such as making a house wheelchair accessible).
It’s never too early to start coming up with a good strategy for coping with the financial realities of health care in later life. Long term care insurance and Medigap policies are one piece of the puzzle, but we also have to be able to pay for care that isn’t covered by insurance and to keep up with premiums.