Medical spending in retirement

 describes the impact medical spending could have on your retirement and how to incorporate it into your retirement planning.

Overview
No other area better illustrates how spending habits change as we grow older. In a 2009 — 2010 BLS survey, households with members age 62 and older reported spending 11.3% of annual income after taxes on healthcare, including insurance. The average for all households, including the elderly, was 6.9%. Medical costs outpaced overall inflation from 1983 — 2012 except for 1996 according to the BLS, and medical costs grew 5.1% annually in that time frame.

From 2006 — 2011 both the experimental CPI-Elderly (62 years and older) and the CPI for All Urban Consumers (CPI-U) rose at the same annual rate of 2.3%. This turnaround was caused by changes in medical care and shelter: the gap between medical care inflation and overall inflation has generally fallen since 2005, and shelter inflation has been rising more slowly.

In 2017 it was reported that “Average spending among people who are 64 years old is about 4.8 times as high as average spending among people who are 21 years old,” according to the Congressional Budget Office last year, citing research by actuaries.

Health Conditions
Unlike employer insurance plans, Medicare plans cover only individuals, not couples or families. Chronic health conditions will increase doctor, hospital, and drug costs, and may make one combination of Medicare supplemental plans better than another.

The percentage among Medicare beneficiaries in 2010 of the 15 most common chronic conditions were:

Over two-thirds of beneficiaries had two or more chronic conditions, and 14% had 6 or more. Beneficiaries with 4 or more chronic conditions had higher than average Medicare spending. Beneficiaries with 6 or more chronic conditions had over 3 times the average Medicare spending; these beneficiaries were more likely to have heart failure, chronic kidney disease, COPD, atrial fibrillation, and stroke.

Those 80 and older are more likely to have multiple chronic conditions and functional limitations, and this combination (compared to chronic conditions only) is associated with
 * increased emergency department visits and inpatient hospitalizations, and
 * higher Medicare spending for inpatient hospital, skilled nursing facility, and home health services.

Health Insurance
If you paid off your mortgage before retirement, you probably changed from itemized to standard deduction on your tax returns. After retirement, paying for health insurance alone will move you back to itemized deductions.

Medicare
Medicare Part A (Hospital) is paid by previous payroll deductions, and Medicare Part B (Doctor) premiums are standardized, but these plans only cover 80% of hospital and doctor costs.

Medicare Part A and B is sometimes called original, traditional or fee-for-service Medicare to differentiate from Medicare Advantage health maintenance organization (HMO) or preferred provider organization (PPO) plans. Original Medicare is usually bundled with private supplemental (Medigap) and drug insurance plans (below) to provide similar benefits.

Medicare Part A and Part B does not cover the following (although they may be included in Medigap or Part C Advantage plan private insurance):
 * Long-term care (also called custodial care)
 * Most dental care
 * Eye examinations related to prescribing glasses
 * Dentures
 * Cosmetic surgery
 * Acupuncture
 * Hearing aids and exams for fitting them
 * Routine foot care

Medigap
Standardized Medigap plans are offered in all states but  
 * Massachusetts
 * Minnesota
 * Wisconsin

The standard plan features are shown in the table "How to compare Medigap policies" below:

In 2010 the most popular Medigap plan was Plan F (60% of total spending), followed by Plan C (21%) and Plans B and D (5% each). Plan F was in the middle of the original Plan A to J range of benefits and expense. Plan F was also the least expensive to offer 100% coverage on Part B excess charges and the Part B deductible.

Medicare has a Medigap Policy Search.

Medicare health plans
A Medicare health plan is offered by a private company that contracts with Medicare to provide Part A and B benefits to people with Medicare who enroll in the plan. The two most common are Medicare Advantage plans and Medicare Medical Savings Account (MSA) plans.

Medicare Medical Savings Account
Medicare Medical Savings Account (MSA) plans combine
 * 1) A high-deductible health plan: The first part is a special type of high-deductible Medicare Advantage Plan (Part C). The plan will only begin to cover your costs once you meet a high yearly deductible, which varies by plan.
 * 2) A Medical Savings Account (MSA): The second part is a special type of savings account. The Medicare MSA Plan deposits money into your account. You can choose to use money from this savings account to pay your healthcare costs before you meet the deductible.

In addition to the Medicare services that all Medicare Advantage Plans must cover, some plans may cover extra benefits for an extra cost, like dental, vision, or long-term care not covered by Medicare. Medicare MSA Plans do not cover Medicare Part D prescription drugs; this would require a separate Prescription drug plan (Part D).

This is similar to the High deductible health plan and Health savings account in the Bogleheads&reg; Wiki.

Comparison of common Medicare plan bundles
The table below summarizes the features of two common Medicare plan bundles:
 * 1) Medicare Parts A (Hospital) and B (Doctor) with Medigap supplement and Part D Prescription drug plan, and
 * 2) Medicare Advantage Part C with drug coverage.

Dental
A common complaint on the Bogleheads&reg; Forum is that dental and long-term care insurance insurance cover small expenses that many could self-insure, but not high expenses causing financial hardship. The consensus is that dental insurance is not worthwhile unless it is an employee benefit. Many dentists participate in dental discount plans, such as Coast2Coast Rx Card.

Long-term care insurance
You may need long-term care if you are unable to care for yourself due to physical illness, disability, or cognitive impairment, such as Alzheimer’s disease. You can receive long-term care at home or in a hospice, adult day care center, nursing home, or assisted living facility.

Long-term care insurance can help protect your assets against the high cost of extended long-term care. However, a common complaint on the Bogleheads&reg; Forum is that dental and long-term care insurance insurance cover small expenses that many could self-insure, but not high expenses causing financial hardship. If you don’t have long-term care insurance, you may have to pay down your assets until you qualify for Medicaid. Medicaid paid for 49% of Americans' long-term care in 2002, and 40% in 2016.

In 1999, the average length of stay for nursing home residents was 2.4 years for all residents, and 8.9 months for discharged residents.

To determine whether long-term care insurance is right for you, consider your personal risk factors: The National Association of Insurance Commissioners (NAIC) "Shopper’s Guide to Long-Term Care Insurance" contains a set of worksheets that can help you decide if long-term care insurance is needed. It also includes the comment that you should not purchase a policy if you can't afford the premiums.
 * life expectancy,
 * gender,
 * family health history,
 * assets, and
 * available alternatives.

Sample Costs
The following out-of-pocket costs were posted by Sheepdog in 2016:

Reviewing and changing Medicare plans
Changes between original Medicare (Part A and B) with a Medigap supplement, and Medicare Advantage (Part C), can also be made but require careful study in advance. For example, insurance companies can base Medigap approval and premium on pre-existing medical conditions after the initial enrollment period at 65. You can get local, personalized Medicare counseling from your State Health Insurance Assistance Program (SHIP).

Social Security Administration
If you are considering when to collect Social Security retirement benefits, one factor is how long you might live. The Social Security Administration's Life Expectancy Calculator utilizes data compiled by the Social Security Administration. For example:


 * A man reaching age 65 in 2016 can expect to live, on average, until age 84.2.
 * A woman turning age 65 in 2016 can expect to live, on average, until age 86.6.

About one out of every four 65-year-olds in 2016 will live past age 90, and one out of 10 will live past age 95.

After you use the Life Expectancy Calculator, you can go to:


 * The Social Security Retirement Estimator to get estimates of your future benefits; and
 * When to Start Receiving Retirement Benefits to learn more about the factors you should consider when making a decision about when to start collecting Social Security retirement benefits.

Dr. Thomas Perls - Living to 100
The Living to 100 Life Expectancy Calculator, Thomas Perls MD, MPH, retrieved August 5, 2016.

Abaris - How Long Will I Live?
How Long Will I Live?, Abaris Financial, Inc., retrieved August 5, 2016. Abaris is a registered fixed annuity producer in Philadelphia, PA and licensed in all 50 states and the District of Columbia.

Northwestern Mutual Lifespan Calculator
Lifespan Calculator, Northwestern Mutual, retrieved August 5, 2016.