How to combat the impact of inflation on pension expenditure on health care

Prices for gas, food and housing have risen in recent years. Less noticeable to some is the rising cost of health care.

Medicare, the U.S. government’s national health insurance program for Americans age 65 and older, imposed a 14.5 percent increase in Part B (outpatient care) premiums for 2022, a record-high and nearly doubled reading of the annual U.S. inflation rate in March. measured by the consumer price index.

Rising health inflation could have major consequences for current and future pensioners, as medical expenses are expected to fill an ever-increasing share of pensioners’ income. “When it comes to prioritizing your cost of living over health care, it’s a big issue,” said Kathy Martin, a 50-year-old resident of New York State, when asked what worries her most about health care spending.

Kathy Martin prioritizes her health care by taking the time to exercise.

Martin trains a few times a week with seniors who are part of the Silver Sneakers fitness program at her local gym in Somers, New York. Her classmate Laura Rodriguez, 67, shares her concern. “What’s going to happen when I get older, you know?” she said. “How should I be able to pay for the care I need?”

What two years of inflation in healthcare can cost

Studies illustrate how rising medical expenses can increase. If health care costs grow by 2% above consumer inflation over the next two years, a healthy 55-year-old couple could face $ 267,000 in additional medical costs when they retire at age 65, according to an analysis by HealthView Services.

The same couple could expect to spend more than $ 1 million on health care expenses in their lives, almost the same amount they could expect to raise in social benefits.

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“Whether you’re wealthy or you’re the average person … when you look at your social security check, you pay for health care,” said HealthView Services CEO Ron Mastrogiovanni.

It pays to plan

After paying the premiums, Medicare covers about two-thirds of healthcare expenses, with out-of-pocket expenses accounting for about 12%, according to the Employee Benefit Research Institute.

“Apart from housing, food and transport, [health care is] probably the most expensive item we are going to face in retirement, “said Mastrogiovanni.” Know what it is; Be prepared.”

The most important thing is that you start saving and you start saving early.

Paul Fronstin

Director of Health Benefit Research at EBRI

Increase savings through pension scheme

HealthView Services estimates that a 55-year-old couple would have to invest an additional $ 53,000 to cover the $ 267,000 in additional costs from inflation.

Increased savings now can increase security later. Experts say you should consider adding more money to your 401 (k) plan or a Roth Individual Retirement Account if you qualify. “The most important thing is that you start saving and you start saving early; the earlier you do, the better prepared you will be,” said Paul Fronstin, director of health benefits research at EBRI.

Consider health savings accounts

Health savings accounts are another tool for saving for future health care expenses, but they require a high-deductible health care plan and have annual contribution limits. For 2022, the HSA contribution limit is $ 3,650 for single insured and $ 7,300 for families. For people over 55, each of these limits increases by $ 1,000 through “collection fees”.

Do not count on employer coverage

There was a time when employers offered healthcare to retirees, but EBRI found that only about 4% of companies had these benefits, down from about 45%, before a change in accounting rules in the late 1980s required companies to place the liability on their balances.

“When they had to do it, it just didn’t look good on the balance sheet, so they started cutting back on benefits to the point where very few workers will be eligible for this kind of benefits in the future.” said Fronstin.

Stay healthy

Meanwhile, Silver Sneakers fitness instructor Melanie Scala, who turns 59 next month, said, “I definitely feel like I’m leading people in the right direction to cut back on their health care costs.”

But while physical fitness can help control some health costs, experts say planning medical expenses over a longer life should also be included in the equation.

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