Alicia Munnell wishes she could persuade policymakers to pay more attention to the rising cost of health care.
Today, the most visible health finance reform efforts deal with access to coverage, rather than the underlying cost of medical care, says Munnell, director of the Center for Retirement Research at Boston College.
But, if current trends keep up, the rising cost of the care itself will pose a threat to the well-being of all Americans, and especially to baby boomers’ retirement finances, Munnell warns.
The trustees of the Medicare trust fund recently predicted that the fund could be empty as soon as 2019, and officials at the U.S. Treasury Department predicted that Medicare and Social Security together could consume about 80% of federal revenue by 2050.
The numbers “are so huge,” Munnell said. “The current system is just not sustainable. It’s going to implode, and God knows what’s going to replace it.”
Munnell’s center has published a National Retirement Risk Index Report that shows that, largely because of the escalation of health care costs, 50% of the U.S. boomers born from 1948 to 1954, and 61% of the boomers born from 1955 to 1964, will be at risk of being unable to maintain their standard of living in retirement.
Even when center researchers looked at boomers who rank in the top third in terms of income, they found that health care costs put about half at risk of being unable to maintain their standard living.
To cover projected out-of-pocket health care costs, a boomer couple retiring in 2010 will need to put about $206,000 in an annuity, the researchers write.
In 2030, a retiring couple might have to put $378,000 in an annuity to pre-fund post-retirement health costs, the researchers say.
These results are similar to those produced by a separate health cost estimation effort sponsored by Fidelity Investments, Boston. Fidelity researchers say a 65-year-old couple that retires this year will need about $225,000 to cover post-retirement medical costs.