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Older men who expect
high health care costs for themselves or their spouses after age 65 retire about
13 months later than those who expect low costs.
The difference for women
is 12 months. For those receiving health insurance from their employers, continued
work reduces the risk of high out-of-pocket health care costs. Working longer
also increases retirement incomes, making health care costs more affordable.
Introduction
Rising health care costs
threaten many older Americans’ financial security. Medical expenses now
consume a substantial share of household spending in retirement, and that share
is likely to rise as costs continue escalating. Cutbacks in employer-sponsored
retiree health benefits add to many older Americans’ difficulty paying
for health care.
Many older workers are responding
to these financial pressures by delaying retirement. For those receiving health
insurance from their employers, continued work reduces the risk of high out-of-pocket
health care costs. Working longer also increases retirement incomes— making
health care costs more affordable—by raising earnings, boosting Social
Security and employer sponsored pension wealth, improving the ability to save,
and reducing the years over which retirement wealth must be spread. Not all
older adults, however, are able to continue working.
Health Care Costs at Older
Ages
Although nearly all Americans
age 65 and older ar covered by Medicare, many face substantial out-of pocket
health care costs. The annual Medicare deductible for hospital stays in 2008
is $1,024. Medicare Part B, which covers outpatient services, requires a substantial
premium, now about $1,157 for most enrollees (and more for singles with incomes
above $82,000 and couples with incomes above $164,000). Part B carries an annual
deductible of $135, plus a 20 percent coinsurance rate.
The standard Medicare Part
D benefit for outpatient prescription drugs also requires hefty premiums (currently
averaging about $324 per year), a $275 annual deductible, and 25 percent coinsurance.
Once total drug costs exceed $2,510, however, beneficiaries must pay 100 percent
until total out-of-pocket spending reaches $4,050 (after which enrollees pay
only 5 percent of drug costs). Additionally, older adults must pay for services
not covered by Medicare, such as dental care, routine vision care, hearing exams,
and most long-term care services. These costs add up. Median out-of-pocket health
care spending consumed 14 percent of income for adults age 65 to 74 in 2003
and 22 percent for those age 85 and older (Neuman et al. 2007).
To keep costs down, many
older Americans obtain private supplemental coverage, either individual policies
from insurance companies or group coverage from former employers. Individual
plans are expensive, though, and many employers are cutting back on subsidized
retiree health benefits. Low-income seniors may qualify for public assistance
to pay their Medicare premiums, deductibles, and copayments. However, enrollment
entails a complex application process at stat welfare offices and a strict asset
test. Relatively few eligible seniors apply for these benefits.
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