PAX Centurion - November / December 2013

Page 32 • PAX CENTURION • November/December 2013 617-989-BPPA (2772) BPPA Retired Patrolmen’s Division News Directors of the Retired Patrolmen’s Division of the BPPA: John Murphy David Mackin Joe Vannelli Joe O’Malley Billy Flippin Future retirees’ health care costs growing more daunting By Ann Carrns, New York Times J eff Strack, a 61-year-old sales manager in Charlotte, N.C., enjoys his work and is in good health. But the prospect of paying for health costs after he retires weighs on him. “Within health care,” he said, “there’s all kinds of uncertainties.” Strack hasn’t decided when he’ll stop working full time. But he doesn’t expect any retiree health coverage from his employer, which now provides insurance for him and his wife, Penny, a retired educator. If he leaves work before he turns 65, he won’t be eligible for Medicare — so they’ll have to buy interim coverage on the private market. He hopes affordable plans will be available, but the rocky debut of theAf- fordable CareAct’s health insurance market worries him. “I don’t think anybody knows how this is going to play out,” said Strack, who is saving cash in a tax-advantaged health-savings account to help pay future medical costs. Strack isn’t alone. As the population ages and insurers try to rein in costs, the share of health and medical costs retirees can expect to shoul- der is becoming more formidable. A look at estimates suggests that, if long-term care costs are in- cluded, it is not difficult to come up with a situation in which a couple’s tab for out-of-pocket costs post-retirement could approach – or even exceed – $1 million. Getting to such a large number can mean combining some bleak possibilities – say, both spouses ending up in a nursing home in a high- cost part of the country – and factoring in extended life spans. But it is not far-fetched. “It’s certainly possible,” said Paul Fronstin, a researcher at the non- profit Employee Benefit Research Institute. That doesn’t mean it is likely for most people. But it does suggest that most need to think about saving a lot more for health costs in retire- ment. Half of Medicare beneficiaries have just $77,500 in personal savings, according to the nonprofit Medicare Rights Center. That is far less than the estimated amount retirees will need to pay out of pocket for basics like doctor visits and prescription drugs, never mind long-term care or other retirement needs or wants. Boston-based Fidelity Investments estimates that a married couple retiring this year at age 65 need $220,000 to cover health costs throughout retirement. That has actually fallen from last year’s estimate of $240,000 because of lower-than-expected Medicare spending, Fidelity said; also, people have cut back on medical care during the lackluster economy, and increases in payments to doctors and health plans have slowed under theAffordable CareAct. But the number is still daunting. Adjusting some of the assumptions used to arrive at the estimate can also make the amount grow substantially. Fidelity, as an investment firm that markets retirement plans and health savings accounts to employers, may have a vested interest in encouraging people to save and invest more money. But others estimate big numbers, too. The Employee Benefit Research Institute, Fronstin’s organization, estimates that amarried couple retiring in 2013 at age 65with traditional Medicare (with a prescription drug plan, a generous supplemental plan, andmedian drug costs) will need $255,000 to have a 90 percent chance of having enoughmoney for health care costs throughout their retirement. A couple who are both in the 90th per- centile for prescription drug costs throughout retirement – perhaps both have a serious chronic illness – will need $360,000. The institute’s estimate doesn’t factor in any costs for long-term care. And it’s those costs that can push the overall health cost number into the high six figures and beyond. Medicare generally pays little for long-term care – it covers only short stays in nursing homes, typically after a stay in a hospital. If you are poor, you may qualify for Medicaid, the federal-state health care program for low-income people. But if you’re not, you’ll have to pay for care yourself; you’ll qualify for Medicaid only after you spend nearly all of your own money. An estimated 70 percent of people over 65 will need long-term care at some point – whether at home or in an institution – for an average of about three years, according to research cited by the SCAN Founda- tion, a nonprofit group that works for better health care for seniors. Nursing homes are the most expensive option. About 35 percent of retirees will need care in one (women are more likely to need one than men), and those who do end up there will stay for more than two years, on average – but 5 percent will stay more than five years. Genworth Financial, which sells long-term care insurance, says the average stay in a nursing home, based on its claims history, is about three years. Genworth reports the median cost for a semiprivate room in a nurs- ing home is $77,000 a year. (A private room is $84,000.) So if a hus- band and wife were to both end up in a nursing home – not necessarily simultaneously – and each stayed for three years, the total cost would be $462,000 at current rates. That tab is likely to increase; Genworth says nursing home costs have been growing by more than 4 percent a year. Adding together the high-end Fidelity estimate of $355,000 for medical costs, plus $462,000 for a nursing home, gives a ballpark estimate of $817,000 for a couple. But costs vary greatly by region. The median cost for a shared nursing home room in Massachusetts, for instance, is about $126,000 a year, which pushes the cost for a couple both needing care to nearly $756,000. A couple in a high-cost market, then, could have combined health and long-term care costs of more than $1 million. Assisted living is less costly – the median annual cost for a one- bedroom is $41,400. And home care, which most people prefer, is the least expensive option. Say each spouse winds up needing 20 hours of home care a week, for three years. At an hourly rate for a home health aide of $19 an hour, that would come to about $119,000 for a couple; adding the medical costs brings the total to $474,000. Such numbers are scary for most people, said Brenda Spillman, a researcher with the Urban Institute. While it’s important for people to save for retirement, she said, it is also in the interest of insurers to emphasize big numbers to justify higher premiums. And for those of limited means, she said, there is the safety net of Medicaid. See Retirees on page 33