Living Longer, Living Better | Health

The price of health

Insurance and hospital bills will only get more expensive, so it’s smart to plan ahead

Even with Medicare, Chris Neri, 59, knows that he’ll need to pay for a large share of his health costs in retirement. Even with Medicare, Chris Neri, 59, knows that he’ll need to pay for a large share of his health costs in retirement. (John Tlumacki/Globe Staff)
By Elizabeth Cooney
Globe Correspondent / October 31, 2010

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Chris Neri, a self-employed real estate agent, has had to buy his own health insurance for decades, so he knows better than most that medical care is expensive. He also knows he’ll continue to pay a large share of health costs after he retires, probably supplementing government-provided Medicare with other coverage.

“I’ve seen people’s lives ruined by large hospital bills,’’ said Neri, 59. “I have to protect my health and my home.’’

Neri hasn’t chosen a particular supplemental plan, but he’s ahead of many aging Americans who haven’t even broached the topic of paying for health care, which can cost $10,000 a year once they retire. Financial planners and retirement specialists say people should prepare now for the day when paychecks stop coming, but medical bills start climbing.

Couples retiring this year will need at least $250,000 to pay for health care over the rest of their lives, according to Boston mutual fund giant Fidelity Investments, and those costs are only likely to increase. As a result, financial planners say, people will need to replace much more of their working income after retirement.

Nan Sabel, a financial planner with the Women’s Financial Network in Bedford, said she advises clients that their savings, investments, and pensions need to replace 100 percent of their pre-retirement income, instead of the traditional 70 percent. Bill Driscoll, a financial planner in Plymouth, gives this advice:

“Save, save, save and cut, cut, cut expenses. Get long-term care insurance in place before you’re not healthy, start accelerating your savings specifically for retirement. You want to get rid of as much debt and expenses as you can.’’

If retiring before 65, get ready for sticker shock. Many people choose not to retire early because they can’t afford the full cost of health insurance — which can top $20,000 a year for a couple — once their employer stops contributing.

After turning 65, Medicare, the government insurance plan for the elderly, provides coverage for hospitalization, doctor visits, and prescription drugs, with some of the cost subsidized through payroll taxes. But Medicare participants still have to pay premiums and out-of-pocket expenses. For example, Medicare only covers 80 percent of the cost of hospitalization.

Medicare users can pay as much as $7,000 a year to cover premiums and deductibles, depending on their income, plus other out-of-pocket expenses. One way to lower those costs is to enroll in Medicare Advantage, an HMO-type program offered through private insurers. Medicare Advantage plans, which often include prescription drug coverage, can lower overall premiums by as much as $3,400, but require patients to see doctors in the plans’ networks, or pay extra.

Stand-alone prescription drug coverage offered through Medicare is also provided by private firms, which charge premiums ranging from $380 to $1,440 a year. Medigap — or supplemental — plans are sold by private insurers to people who want more coverage without going the managed care route. They typically cost $2,000.

On average, out-of-pocket expenses for retirees are triple those of workers on employer health insurance plans, said Cheryl Matheis, senior vice president, health strategy at AARP, the lobby for older Americans. “Over the years’’ she said, “people’s out-of-pocket expenses for Medicare have increased.’’

And then there’s long-term care. AARP estimates that 60 percent of older Americans will need long-term care services not covered by Medicare. For Massachusetts residents, that could add up to $100,000 a year for nursing home care, or $50,000 a year for home health services.

Long-term care insurance can help cover these costs, but don’t wait too long to get it, financial planners advise. Premiums are lower for younger and healthier people.

For example, a healthy 60-year-old would pay about $2,500 a year to gain $4,500 a month in benefits when care is needed, said Sabel, the Bedford planner.

The new national health care law will allow employers to offer a voluntary, government version of long-term care insurance through automatic payroll deduction. Called Community Living Assistance Services and Supports, or CLASS, it may not roll out until 2012 or 2013, according to Matheis of AARP.

Once it becomes available, it might make it easier for people to save for future health care costs. But again, don’t wait, said Matheis. “It’s always better to start today than start tomorrow,’’ she said.

Neri, the real estate agent, is still formulating his plans for retirement. Like many agents, he may just continue to work after turning 65, gradually cutting back his hours. But how fast he reduces his work load, may well depend on how quickly health care costs rise.

“We all have to deal with it,’’ he said, “and figure out a way to get by.’’