Rising out-of-pocket healthcare costs could force older clinical laboratory workers to put off retirement plans altogether, even when on Medicare
For the past decade, anatomic pathology laboratory executives have been bracing for an expected avalanche of retiring baby boomer medical technicians, histotechnologists, cytotechnologists, clinical chemists, and pathologists who are reaching retirement age. However, rising out-of-pocket Medicare and other healthcare costs may cause these older medical laboratory professionals to defer full retirement as long as possible, a recent study concludes.
The latest Retiree Healthcare Cost Estimate from Fidelity predicts that the average 65-year-old couple will need to set aside a record $260,000 in today’s dollars for Medicare and all other out-of-pocket medical costs during their retirement years. That’s a 6% jump from 2015 and up 18% from 2014. The average 65-year-old woman can expect to need $135,000 of that total because she is expected to live two years longer than the same age man.
Fidelity blames the $15,000 increase from 2015 costs on seniors’ higher use of medical services, and rapidly rising prescription and specialty drug prices. The cost estimate does not include long-term care coverage, which Fidelity estimates would require an additional $130,000 in savings for an $8,000 maximum monthly benefit spread over three years and including a 3% inflation adjustment per year.
Out-of-Pocket Expenses Create Sticker Shock
“The sticker shock of this estimate hopefully reinforces for many people that they need to act now, regardless of their age,” Stavisky states in a Fidelity Viewpoints article. “Rising healthcare expenses are forcing people to make educated decisions now more than ever, ranging from the services they utilize to the age they choose to retire.”
While Medicare is designed to cover many healthcare related expenses in retirement, Medicare’s monthly premiums and out-of-pocket costs can be substantial, quickly adding up to $300 or more per month. According to a Commonwealth Fund Issue Brief, a retiree’s monthly premium in 2017 for Medicare Parts A and B is $134, with Medicare Part D (prescription drug coverage) adding $42 to that total. The Commonwealth Fund is a private foundation that advocates for higher quality healthcare and accessibility for low-income and elderly Americans.
In addition, higher income beneficiaries pay an “income-related monthly adjustment” to their premiums for Medicare Part B and Medicare prescription drug coverage. Adding to the monthly costs are deductibles and co-pays:
- Medicare Part A, which covers hospitalization, has a $1,316 deductible and potential co-insurance;
- Part B, covering outpatient services, doctors care, preventive services and medical equipment, has a $183 deductible, with 20% co-insurance for most doctors’ visits, inpatient services or durable medical equipment; and
- Medicare Part D’s deductible, which varies by policy, is capped at $400 per year.
The Commonwealth Fund found that “more than one-fourth of all Medicare beneficiaries—15 million people—spend 20% or more of their incomes on premiums plus medical care, including cost-sharing and uncovered services … Overall, beneficiaries spent an average of $3,024 per year on out-of-pocket costs,” the study concluded.
Retirement Cost Gap Affects Pre-retirees
Fidelity’s Retiree Healthcare Cost Estimate underscores how important it is for retirees to understand what Medicare does and doesn’t cover.
“Healthcare is creating a ‘retirement cost gap’ for many pre-retirees,” stated Lee Belniak, Vice President in Fidelity Workplace Investing, in a Fidelity Viewpoints post. “Although many assume their savings will cover all their expenses in retirement, healthcare costs are often higher than anticipated. Many people assume Medicare will cover everything, but it doesn’t. The average 65+ retiree today should expect to pay around $5,000 a year on healthcare premiums and out-of-pocket expenses, and should carefully weigh all options.”
A Medicare supplement (Medigap) plan, from a private insurer is one way to guard against runaway Medicare costs. A Medicare Supplement reduces out-of-pocket expenses when using Medicare Part A or B and may include vision and dental benefits. However, The Commonwealth Fund note in their Issue Brief that Medicare supplement plans are expensive, with premiums averaging $2,000 per year in most areas, but as much as $200 per month in New York City.
- Health maintenance organizations (HMO);
- Preferred provider organizations (PPO); and
- Private fee-for-service (FFS).
Medicare Advantage Plans often charge a premium in addition to the Medicare Part B premium, but the plans may pay a higher percentage of claims than Medicare Parts A and B, and provide additional benefits such as routine vision and dental care. While Medicare Advantage plans charge co-payments or co-insurance for covered services, they include an annual out-of-pocket limit. Fidelity notes that, over an extended retirement period, a Medicare Advantage plan could reduce a retiree’s overall healthcare costs.
Most Boomers Not Prepared for Retirement
According to an Insured Retirement Institute (IRI) study on boomer retirement savings and expectations, only 23% of boomers believe their savings will last throughout retirement, and only six in 10 included healthcare costs in their retirement savings projections.
“Baby boomers are not taking full advantage of the resources available to help them achieve a secure and dignified retirement,” IRI President and Chief Executive Officer Cathy Weatherford noted in a press release. “Retirement planning which focuses on holistic strategies, and considers retirement risks such as longevity, healthcare, long-term care, and lifestyle expectations, is the key to ensuring boomers’ financial resources will provide income and security for their lifetimes.”
Clinical laboratory managers and pathology groups should be asking, “How many of our retirement age workers have no intention of retiring any time soon?” If the Fidelity and Commonwealth studies are accurate, the answer to that question could greatly impact how medical laboratories maintain their workforces.
—Andrea Downing Peck