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Growing and Aging Retiree Population Puts Focus on Medigap Need

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Americans today are living longer, which is certainly great news. But they are also encountering more healthcare issues and expenses as a result. That fact makes supplemental health insurance and Medigap insurance among the most important benefits that retirement planners can recommend to many clients.

For proof, consider the results of a recent study by the Henry J. Kaiser Family Foundation, “Medicare Per Capita Spending by Age and Service: New Data Highlights Oldest Beneficiaries.” The Kaiser Family Foundation is a nonprofit that conducts research on issues related to healthcare insurance coverage and global health policy.

Co-authored by Tricia Neuman, Juliette Cubanski, Jennifer Huang and Anthony Damico, this is the foundation’s first time looking at the topic. And the study results were significant, including the fact that Medicare spending peaks for people that are in their mid to late 90s. That’s right, late 90s.

Americans truly are living much longer. But along with that gift come added healthcare costs for skilled nursing facilities and inpatient care. The key to making sure that healthcare services don’t swamp an individual may be such supplemental insurance.

The Most In-Depth Study On Medicare Spending By Age

While others have done some similar studies, looking at Medicare trends and spending by age group, the Kaiser study is one of the most in-depth examinations of this question in terms of spending at each age, spending at each age over time, and by type of service, said Juliette Cubanski.

“We focus a lot of our attention on Medicare and Medicaid and health insurance coverage available through the Affordable Care Act. One of our primary goals is to provide information and analysis and communicate those to help inform policy discussions,” Cubanski said.

According to the Foundation’s study, nearly 30 million Americans were covered by traditional Medicare in 2011. But “Medicare beneficiaries age 80 or older account for a disproportionate share of Medicare spending and are expected to triple as a share of the 65-plus population by 2050,” according to the study.

In light of this, Cubanski hopes the foundation’s efforts are helpful for retirement planners, who face a growing number of questions from clients in how to best prepare for healthcare costs in their later years.

“I think the landscape for coverage as a Medicare beneficiary has gotten more complicated in recent years,” Cubanski said. “For people who work with financial planners, understanding what their healthcare costs are and trying to plan for them, this is important information to have.”

The study also looks at the impact of spending in the Medicare system overall based on what is being drawn by beneficiaries at each age group. While the assumption was that the greatest burden would be by younger retiree age groups, due to the larger number, the spending peak was higher than anticipated. This reflects the growing need for healthcare-related services by a growing older retiree population.

“I think one of the key findings that stand out is that Medicare spending peaks for people that are in their mid to late 90s,” Cubanski said. “The peak age of Medicare spending is 96. In 2000 the peak age of Medicare spending was age 92.”

The other key findings of the study concern where this money is going.

“We’re seeing a shift in terms of the types of services that people are using at different ages. We’re seeing more spending as people age, more spending on things like skilled nursing facilities and hospice care, and to a lesser extent on home healthcare,” Cubanski said.

The Need For Early Planning

The lesson for retirees and their advisors is the need to do careful healthcare coverage planning early on, including plans for the unexpected, Cubanski said.

“This is an important issue, given that we are seeing more people living longer and we have an aging, growing population. To the extent that this trend continues and we see more spending at older ages, I think it calls into question whether perhaps there might be more we might be doing to make sure that people are getting the right care in the right setting,” Cubanski said.

As to the actual out-of-pocket healthcare expenses that a retiree will experience as they age, that depends on the types of services they are using and the type of supplement coverage they may have.

But the study did draw some conclusions on when Medicare spending peaks for specific services. For example:

• Spending on physician services peaks at age 83

• Spending on skilled nursing facilities peaks at age 88

• Spending on inpatient care peaks at age 89

• Overall Medicare spending peaks at age 96

“If you’re involved in traditional Medicare and you also have a Medigap supplement policy, the out-of-pocket expenses will be relatively predictable, because you pay a premium for the overall plan.” Cubanski said. “For people without supplemental coverage, their costs will change depending on how many services they’re using and how expensive those services are.”

If they aren’t already recommending it, Cubanski advises retirement planners immediately brush up on Medigap insurance and what it covers.

“Medicare actually provides a lot of very good consumer-friendly information,” Cubanski said. “It is very helpful in understanding policy, nuances, and the different options that are available to people.”

The website is a good repository of information about Medicare coverage and how it works, how different types of coverage coordinate with Medicare, and what the different costs involved are for different types of services covered by Medicare.

“So there really is quite a wealth of information available to somebody who is interested in understanding how to help someone, whether it is their client, or their family or their friends,” Cubanski said.