Savings Medicare Beneficiaries May Need for Health Care

The Employee Benefit Research Institute conducted an updated analysis of health expenses in retirement. Estimates are based on costs assumed and level of care required.

A 65-year-old couple will need between $174,000 and $296,000 to cover health expenses in retirement. The amounts are based on an updated analysis conducted by the Employee Benefit Research Institute. Like all such estimates, the amount needed is based on costs assumed and the level of care required.

The costs factored into this analysis are premiums for Medicare Parts B and D, premiums for Medicare Plan F and out-of-pocket spending for outpatient prescriptions. Medicare Part B covers the treatment of medical conditions and preventative care. Medicare Part D covers prescription drugs. Medicare Plan F, also known as Medigap, covers the coinsurance payments for Medicare Part A and B.

The lower estimate assumes a 50% chance of there being enough saved to cover medical expenses. The higher estimate assumes a 90% chance of having enough saved. These amounts may not be enough if either or both spouses incur a very high level of medical expenses. A couple whose drug expenses will be in the top 10% throughout retirement will need $399,000 to have a 90% chance of covering health care costs. The dollar amounts are based on present day and are assumed to be invested in a portfolio realizing a median 7.3% rate of return.

All individuals and couples are assumed in this analysis to have Medicare Plan F. The Plan F premiums are used instead of trying to predict when a person will incur health expenses. Effective January 1, 2020, Medicare Supplement Plan F will no longer be available to new enrollees.

Drug costs are based on out-of-pocket spending from the Medical Expenditure Panel Survey data. Retirees incur coinsurance expenses under Medicare Part D. Excluded from the estimates are services not traditionally covered by Medicare, such as dental care. Long-term care, which can be costly, is also excluded from the calculations.

There are two other factors to consider. Shorter expected life-spans decrease the amount needed, while longer life-spans increase it. The timing and severity of illnesses and accidents also play a role. As such, while these estimates can serve as guidelines, actual spending will vary by individual and couple.

Source: “Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $400,000, Up From $370,000 in 2017,” by Paul Fronstin, Ph.D., and Jack VanDerhei, Ph.D.; Employee Benefit Research Institute, October 8, 2018.