The Employee Benefit Research Institute has just issued a new report on health care expenses in retirement that is likely to shock many advisors and their clients.

According to the report, a couple 65 years old with median prescription drug expenses would need $296,000 in savings to have a 50% chance of having enough on hand to cover their health care expenses in retirement. If they wanted 90% odds of covering those costs, they would need $400,000 in savings.

Moreover, “many Americans will likely need more savings than cited in this report,” said Paul Fronstin, director of EBRI’s Health and Research and Education Program and co-author of the report, in a statement. That’s because the study doesn’t factor in long-term care expenses and other health expenses not covered by Medicare; its calculations include projected premiums for a comprehensive Medigap plan that will no longer exist for new Medicare recipients starting in 2020, namely Plan F; and cutbacks are expected in the Medicare program as well as in private employment-based retiree health programs.

In addition to Plan F, EBRI’s calculation include premiums for Medicare Parts B (for physicians, ambulances and preventive services) and D (prescription drugs) and out-of-pocket spending for outpatient prescription drugs.

“Medicare was not designed to cover health care expenses in full,” according to the report, which notes that deductibles for inpatient and outpatient services were always part of the program. In 2015, Medicare covered just 60% of the cost of health care services for beneficiaries 65 and older. Those beneficiaries had to foot the bills for out-of-pocket spending and private insurance, which accounted for 12% and 15%, respectively, of health care costs.

EBRI’s latest forecasts for retiree health care spending is markedly higher than its previous forecast, in 2017. The couple wanting a 90% chance of having enough funds to cover their health care costs are projected to spend 8% more in 2018 than in 2017 whether their prescription drug costs are close to the median or are among the most expensive, in the 90th percentile. It does not take into account a presidential proposal for Medicare to pay lower prescription drug prices, based on prices in other advanced industrial countries, that was announced Thursday.

As part of a demonstration project covering half the country, Medicare would establish an “international pricing index” and use it as a benchmark in deciding how much to pay for drugs covered by Part B of Medicare.

“This is a revolutionary change,” Trump said in a speech on Thursday at the Department of Health and Human Services. “Nobody’s had the courage to do it, or they just didn’t want to do it.”

Trump said his plan took aim at “global free riding” that forces Americans to subsidize lower drug prices in other countries.

The report concludes with a sober warning: “Issues surrounding retirement income security are certain to become an even greater challenge in the future, as policymakers begin to realistically address financial issues in the Medicare program with solutions that may shift more responsibility for health care costs to Medicare beneficiaries.”

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