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What Retirees Will Pay for Health Care, in 5 Charts

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Boomer couples building up a nest egg for their golden years might need to revise existing retirement plans to appropriately account for substantial — and rising — health care costs.

This is one conclusion to be drawn from research unveiled by HealthView Services in its 2015 Retirement Health Care Costs Data Report. Culled from 50 million health care cases, the report draws on claims data from year-end 2014, the company’s actuary and physician-reviewed cost projection methodology, plus other data sources.

According to the report, average lifetime retirement health care premium costs for a 65-year-old healthy couple retiring this year and covered by Medicare Parts B, D, plus a supplemental insurance policy, will be $266,589. When factoring additional health care costs — dental, vision, co-pays and out-of-pockets — the number rises to $394,954. The figure ratchets up again to $463,849 for a 55-year-old couple retiring in 10 years.

“The report demonstrates that health care costs will account for a very significant and growing portion of retirees’ budgets,” says HealthView Services Founder and CEO Ron Mastrogiovanni. “The data also shows that Medicare-related costs are only part of the story.  Retirees need to plan for health-related expenses not covered by Medicare, and the potential impact of income-based Medicare surcharges.”      

HealthView Services’ average cost estimates assume that a couple’s retirement income falls below the $170,000 ($85,000 for an individual) modified adjusted gross income (MAGI) threshold at which surcharges are added. Retirees whose income exceeds this amount will face Medicare surcharges of between 35% and 200%, increasing their retirement health care costs.

The report forecasts annual health care cost inflation of 6%, up from 3.6% in 2014. The rate is more than four times the consumer price index growth of 0.8%. The report also forecasts that health care inflation will remain a “multiple of CPI and significantly outstrip Social Security cost of living adjustments.”

The report shows health care will account for a rising percentage of Social Security benefits, the greatest source of income for many in retirement.  Drawing upon year-end 2014 data, for the average 66-year-old couple retiring this year, who are eligible for full Social Security Benefits, HealthView Services’ Retirement Health Care Cost Index reveals total health care costs will consume 67% of their lifetime Social Security benefits. 

For a couple retiring in 10 years at 65, approximately 90% of their lifetime Social Security benefits will be required for health care expenses. The index is calculated based on average Social Security benefits of $25,332 in 2015, and assumes annual 2% COLA adjustments. The data also assumes that a couple optimizes Social Security payments at their full retirement age. 

The charts starting on the following page summarize key findings from the report. 


Table A displays annual health care premium costs for Medicare Parts B, D, and a supplemental policy at ages 65, 70, 75, 80 and 85 for an average 65-year old couple retiring today. As indicated, the couple can expect to spend $583 per month during their first year of retirement. This monthly expense is likely close to what the couple would be accustomed to paying if enrolled in an employer-sponsored plan. However, this number will more than double by age 85.

Table B highlights the total health care expenses and the cost differential between a 65-year-old couple retiring this year and a 55-year-old couple retiring in 10 years. These numbers assume that a couple’s retirement income is below $170,000 ($85,000 for an individual).

Retirees whose Modified Adjusted Gross Income (MAGI) exceeds this income bracket will face Medicare surcharges and significantly higher costs. If the same couple earns more than $170,000 in retirement, surcharges could raise their Medicare B and D premiums by 35% to over 200%. An affluent 65-year-old couple retiring this year who falls into Medicare’s top income bracket will pay $279,377 in lifetime Medicare surcharges. A 55-year-old couple retiring in 10 years will pay $375,864.

Health care inflation, pegged at 3.6% in 2014, was more than four times the consumer price index (CPI) increase of 0.8%, continuing a long-term trend. Consistent with government numbers, HealthView expects that health care cost inflation will return to normalized levels of approximately 6% in the coming decades.

The change anticipates a modest rise in CPI, and a health care inflation rate that is a multiple of CPI, consistent with the historical trend of the past 50 years. The year-end 2014 summary from the Centers for Medicare and Medicaid expect retirees to endure at least eight years of health care inflation of between 5% and 7%.

HealthView Services’ Retirement Health Care Cost Index reveals the rising impact of retirement health care costs on middle-class Americans by detailing the portion of retirees’ Social Security benefits that will likely be required to pay for health care expenses.

For the average couple retiring this year, the index shows that total health care costs will consume two-thirds of lifetime Social Security benefits. For the same couple retiring in 10 years, approximately 90% will go toward health care expenses. The Index also shows that, over time, total retirement health care costs may surpass individual Social Security benefits.

Table D shows the percentage of annual Social Security benefits at five year increments required for the health care costs of a 66-year-old couple receiving average Social Security benefits based on a primary insurance amount of $25,332.

The chart shows that health care will assume a growing percentage of Social Security benefits amounting to 89 percent at age 87. For this couple, the average lifetime percentage of social security benefits required for total retirement health care costs is 67%.


Table J displays cost differences based on selected coverage for a 65-year-old couple living in Ohio. This couple can expect a doubling of health care costs with addition of supplemental insurance premiums. Costs rise by almost 200% when other out-of-pocket expenses are included in the projection.

If this couple’s annual income exceeds $428,000 (placing them in the highest modified adjusted gross income bracket), health care costs total $670,962 — a 394.5% increase over the basic cost of Medicare Parts B, and D premiums.

HealthView’s data also shows that supplemental insurance can vary greatly by state. A 65-year-old retired couple living in Hawaii can expect to pay $89,338 in lifetime supplemental insurance premium costs, whereas a 65-year-old couple living in Maryland can expect to pay $154,495, 73% more than if they lived in Hawaii.

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