Money Retired Seniors Need to Pay for Health Care is
Medicare was not designed to cover all health care
expenses; seniors have to pay deductibles for services, uninsured costs
of prescription drugs
Nov. 3, 2014 – The amount of money senior citizens
need to have available in retirement, just to cover health care costs,
is in decline, says a new study by the nonpartisan Employee Benefit
Research Institute (EBRI). The reason they found is the enhanced
prescription drug coverage provided by the Patient Protection and
Affordable Care Act (PPACA), often called “Obamacare.”
WASHINGTON—Projected savings targets American
elderly need to cover their health care costs in retirement continue to
decline, due in part to enhanced prescription drug coverage provided by
the Patient Protection and Affordable Care Act (PPACA), according to new
The report by the EBRI, an update of previous
computer modeling of retiree health savings needs, found that savings
targets declined between 2 percent and 10 percent between 2013‒2014.
For a married couple both with drug expenses at the
90th percentile throughout retirement who wanted a 90 percent chance of
having enough money saved for health care expenses in retirement by age
65, targeted savings fell from $360,000 in 2013 to $326,000 in 2014.
In 2014, a man would need $64,000 in savings and a
woman would need $83,000 if each had a goal of having a 50 percent
chance of having enough money saved to cover health care expenses in
retirement. If either instead wanted a 90 percent chance of having
enough savings, $116,000 would be needed for a man and $131,000 would be
needed for a woman.
As the EBRI report notes, Medicare beneficiaries
can expect to pay a share of their costs out of pocket because of
program deductibles and other cost sharing. In 2011, Medicare covered 62
percent of the cost of health care services for Medicare beneficiaries
ages 65 and older, while out-of-pocket spending accounted for 13
percent, and private insurance covered 15 percent.
“Medicare was never designed to cover health care
expenses in full. Individuals over 65 have to pay for their own
deductibles for inpatient and outpatient services, as well as for
uninsured costs of outpatient prescription drugs,” said Paul Fronstin,
director of EBRI’s Health Research and Education Program, and lead
author of the latest report.
As the EBRI report notes, when outpatient
prescription drugs were added as an optional benefit under Medicare, the
program included a then-controversial coverage gap known as the
so-called “donut hole.” PPACA included provisions to reduce the size of
this coverage “gap.” By 2020, enrollees will pay 25 percent of the cost
of prescription drugs when they are in the coverage gap for both generic
and brand-name drugs.
However, Fronstin notes, regardless of the effects
of PPACA, individuals may pay a greater share of their overall costs in
the future because of the combination of the financial condition of the
Medicare program and cutbacks to employment-based retiree health
The EBRI report points out that projections of
savings needed to cover out-of-pocket expenses for prescription drugs
are highly dependent on the assumptions used for drug utilization, which
is why the analysis provides three sets of estimates:
● prescription drug use is at the median (mid-point, half above and
half below) throughout retirement;
● prescription drug use at the 75th
percentile throughout retirement; and
● in prescription drug use is at the 90th
percentile throughout retirement.
Some Seniors Will Need More, Some Less
“It should be noted that many individuals will need
more than the amounts cited in this report,” said Fronstin, because it
does not factor in the savings needed to cover long-term care expenses,
nor does it take into account the fact that many individuals retire
prior to becoming eligible for Medicare. However, some workers will need
to save less than what is reported if they choose to work past age 65,
thereby postponing enrollment in Medicare Parts B and D if they receive
health benefits as active workers.
The full report, “Amount of Savings Needed for
Health Expenses for People Eligible for Medicare: Good News Not So Rare
Anymore,” is published in the October EBRI Notes, online at
The Employee Benefit Research Institute says
it is a private, nonpartisan, nonprofit research institute based in
Washington, DC, that focuses on health, savings, retirement, and
economic security issues. EBRI does not lobby and does not take policy
positions. The work of EBRI is made possible by funding from its members
and sponsors, which include a broad range of public, private, for-profit
and nonprofit organizations. For more information go to
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