July 2018 Monthly Insight: 5 Steps to Reducing Health Care Costs in Retirement

Posted By T. Lee Sherbakoff, CPA/PFS, CFP® on Jul 5, 2018


“Most Americans understand that annual health care costs have been growing faster than inflation for some time.”

– Planning for Health Care Costs in Retirement, Vanguard Research, June 2018

5 Steps to Reducing Health Care Costs in Retirement

Health care costs will be the biggest expense for most retirees. It’s not a pleasant prospect, but it is a reality. That’s why planning for health care costs is one of the most important parts of a sustainable retirement income plan. In retirement income planning we try to make prudent, well-thought out assumptions, but health care costs are extremely difficult to forecast and have been increasing annually much faster than core inflation. A 65-year-old couple that left the workforce in 2017 will spend an average of $275,000 to cover medical expenses through retirement, according to the latest estimate provided by Fidelity Benefits Consulting. That’s a 5.8% increase from the estimate of $260,000 in 2016.

We can’t just sweep this under the rug and hope it goes away. Instead, let’s take proactive steps to deal with the challenges. This list is not all-inclusive, but here are five ways to be proactive with health care and perhaps even lower the lifetime cost of care.

#1: Do your best to stay healthy.

Even if we don’t always express our gratitude, we are appreciative of our physicians. He or she is happy to see us when we need care, but our doctor also finds joy when we follow the preventive measures that are suggested. Stay active, remain social, exercise regularly, eat well, and do your best to stay healthy and out of the doctor’s office (except, of course, for wellness visits and preventive care). It will save you money and increase your sense of well-being.

#2: Complete a doctor-supervised pharmacy audit.

Late last year, The Washington Post ran a story entitled, “The Other Big Drug Problem: Older People Taking Too Many Pills.” Researchers estimate that 25% of people ages 65-69 take at least five prescription drugs to treat chronic conditions. It jumps to nearly 46% for those between 70 and 79. Did you know at least 15% of seniors seeking care have suffered an adverse drug event (according to American Family Physician)? About half were believed to be preventable. In some cases, polypharmacy (the simultaneous use of multiple drugs) has been associated with an increased mortality risk. Let me be clear here: Make no changes before consulting with your health care provider. But, in addition to the cost savings, you may reap health benefits by doing a complete pharmacy audit that may lead to cutting back on some of the pills. Again, please talk to your doctors and your pharmacist to determine if you can cut back.

#3: Consider a Medicare supplemental plan.

You know it and I know it – Medicare doesn’t cover all the incidentals, and it won’t cover health costs while you’re traveling abroad. While there will always be out-of-pocket expenses, consider a Medicare supplemental plan, sometimes called Medigap, which may pick up some of the costs Medicare denies. Prices will vary depending on benefits. While there is an outlay of funds to secure the insurance, it can help prevent nasty surprises and can pick up the slack where Medicare Parts A (hospitalization) and B (outpatient and physicians services) end.

Another option is called Medicare Advantage, which allows you to purchase an all-in-one managed care plan. Medicare Advantage includes Part A and Part B, many costs not covered by Parts A and B, and it may also include Part D (prescription drug coverage). This may sound complicated, so you may want to consult with your doctor, family, and friends. Of course, we’re available if you need direction. That’s what we’re here for.

#4: Work to prevent falls.

Falls are a threat to the health of older people and may reduce their ability to remain independent. More than 95% of hip fractures are caused by falling, usually falling sideways, according to CDC data from “Important Facts about Falls.” Falls are also the most common cause of traumatic brain injuries. In 2015, medical costs from falls totaled more than $50 billion, with Medicare shouldering 75% of the costs.

How to prevent falls:

  • Talk to your doctor and evaluate your risk.
  • Consider strength and balancing exercises per doctor’s guidance.
  • Have your eyes checked.
  • Make your home safer—are there uneven floors, rugs that slide around, or other things you can trip on? Add railings on both sides of the stairs. Add a grab bar inside and outside your tub or shower and next to the toilet. Simple preventive measures will pay health and cash dividends.

#5: Become a smart shopper.

Find the cheapest place to get your prescription drugs and consider generic versions. Some services are now free, including mammograms, prostate screenings, and annual physicals. Check with your insurance provider regarding various tests. Insurance companies negotiate much lower rates with facilities that specialize in specific tests. For example, hospitals and ERs often charge much more for an MRI than an outpatient MRI center does. Catch a problem early and you can save money and heartache.

Health care costs are like taxes. You can’t avoid them. But a smart and informed shopper can reduce the financial burden. That’s money in your pocket, and it can lead to a healthier and more enjoyable retirement.

We hope you’ve found this review to be educational and helpful. If you have any concerns or questions, let us say this one more time–please feel free to reach out to us. That’s what we’re here for.

As always, we are honored and humbled you have given us the opportunity to serve as your financial advisor.