As President Obama prepares to detail changes he's made to his healthcare overhaul proposal today, March 3, a new study conducted by the Center for Retirement Research (CRR) at Boston College and underwritten by Prudential Financial has found that healthcare costs for retiring Americans, including nursing home care, average $260,000 and can exceed $500,000.
The study, "What is the Distribution of Lifetime Health Care Costs from Age 65," found that in more than 300,000 simulations of healthcare cost expenditure patterns that households could experience, the average remaining uninsured lifetime healthcare expenditure for a typical married couple age 65 is $197,000. This amount, the study says, represents the present value of the couple's premiums for Medicare and private insurance, out-of-pocket payments, and home health costs, but does not include nursing home care. While the $197,000 represents the average, the study states that many households will incur greater expenditures--a typical household has a 5% risk that the present value of its lifetime uninsured healthcare costs will exceed $311,000. Factor in nursing home costs, and the amount for a typical couple increases to $260,000, with a 5% risk of exceeding $570,000, according to the study.
"Even at the peak of the stock market in 2007, less than 15% of households approaching retirement had accumulated that much [$570,000] in total financial assets, much less financial assets available for healthcare costs," states Alicia Munnell, director of the CRR.
The CRR says it undertook the study to better determine the risk American households face of incurring exceptionally large health care expenses in retirement. "The objective of the analysis was not to calculate how much households spend on healthcare in practice, or even how much households should optimally choose to set aside to cover health care costs, but to quantify the magnitude and distribution of potential lifetime expenditure," said Anthony Webb, associate director of research for the CRR, in a statement.
The study cites the main sources of retired households' healthcare cost risk as co-payments for Medicare covered payments and payments for non-covered services, such as nursing home care. About one-third of individuals turning 65 in 2010 will need to have money set aside to cover at least three months' of nursing home care expenses, 24% will need to have more than a year's worth of expenses set aside, and 9% will need enough money to cover more than five years of nursing home expenses. In 2008, the annual cost of a nursing home was about $71,000 for a semi-private room and $79,000 for a private room. Medicare pays for a maximum of only 100 days of nursing home care, CRR says.
"Americans need to assess the possibility that they may incur out-of-pocket health care costs that are significantly higher than average," said Malcolm Cheung, VP of Long Term Care for Prudential, in a statement. "Without managing this risk, in some cases, a household may possibly have to either forego needed healthcare or rely on Medicaid."