Medicare Recipients Face Significantly Higher Projected Costs: EBRI

An annual estimate of how much money a 65-year-old Medicare beneficiary should have in savings to cover health care costs in retirement jumped yet again in 2022, according to the Employee Benefit Research Institute.

The predicted health savings targets shot up by about $17,000 for a 65-year-old man enrolled in a Medigap plan with average premiums and median prescription drug costs, assuming the goal is to have a 50% chance of holding enough liquid assets to cover all out-of-pocket care expenditures.

According to EBRI, this individual will need to have saved $96,000 to achieve this outcome, while the average woman will need to have saved $116,000, which is up from $103,000 over the prior year’s estimate.

To have a 90% chance of meeting their health care spending needs in retirement, a man will need to have saved $166,000, and a woman will need to have saved $197,000, EBRI’s data suggests. Meanwhile, couples enrolled in a Medigap plan with average premiums will need to have saved $212,000 to have a 50% chance of covering their collective medical expenditures in retirement and $318,000 to have a 90% chance.

Representing an extreme case, a couple with particularly high prescription drug expenditures will need to have saved $383,000 to have a 90% chance of having enough money to cover their health care costs in retirement. This figure is up dramatically from the 2021 estimate of $361,000 and the 2020 estimate of $325,000.

According to a press release accompanying the newly updated report, EBRI has improved on previous iterations of its Medicare cost simulation model by incorporating recent changes to Medicare Part D enacted by the Inflation Reduction Act of 2022 and testing varying assumptions about Medicare Advantage and Medigap plans that Medicare beneficiaries may purchase.

The release also highlights that, while there is significant individual-level variation, enrollees in Medicare Advantage plans generally have lower savings targets. Specifically, a man enrolled in Medicare Advantage who has median drug expenditures and an average usage of health care services will need to have saved $56,000 to have a 50% chance of meeting his health care spending requirements in retirement. He would need $96,000 to have a 90% chance.

Under the same circumstances, a woman will need to have saved $67,000 to have a 50% chance and $113,000 to have a 90% chance of having enough to cover her health care costs in retirement. Couples in this situation will need to have saved $123,000 to have a 50% chance and $184,000 to have a 90% chance of covering their health care expenditures in retirement.

Of course, as the press release notes, there are factors other than out-of-pocket costs to consider when it comes to choosing a Medicare Advantage plan over traditional Medicare. Medicare Advantage plans often have limited networks or may require approval before certain medications or services are covered.

(Image: Shutterstock)