Projected lifetime health care costs for people retiring at 65 in 2011 declined $20,000 thanks to the changes in Medicare driven by the health care reform law signed in 2010, calculates Fidelity Investments, the nation's largest provider of employee benefits.
A reduction in out-of-pocket costs for prescription drugs made the biggest difference, Fidelity says, warning that retirees shouldn't get their hopes up that this is a trend. "While the savings generated through the health care reform laws is a welcome relief to many seniors, it should be considered a one-time adjustment, at least for the time being," said Brad Kimler, executive vice president of Fidelity's Benefits Consulting business in a statement.
The Patient Protection and Affordable Care law requires pharmaceutical companies to offer a 50 percent discount on brand name drugs that fall into the so-called "doughnut hole" -- a gap in Medicare's drug benefit plan that begins when an individual's prescription drug costs exceed the initial coverage limit -- $2,840 in 2011 -- and continues until their total out-of-pocket spending qualifies them for Medicare's catastrophic coverage -- a $4,550 threshold in 2011. Medicare recipients most likely to be helped by this are people with no employer-sponsored prescription drug coverage who make too much money for low-income subsidies. The law is expected to phase out the rest of the doughnut hole by 2020.
I used to read these phenomenally high lifetime costs for retirement health care and scoff. I had the mistaken idea that if you are entitled to Medicare, you don't pay very much. Then my accountant husband did the math, and it's pretty clear that Medicare is definitely not free.
Here's the breakdown, if you're doing some retirement planning and need to factor this in:
- Medicare Part B is $115 per person, per month or $2,760 for a couple for a year, plus there is a $162 per person deductible.
- Part D prescription drug coverage averages $40.72 per person, per month or $984 annually for a couple.
- The annual deductible is $310 per person or another $620 for a couple.
- A Medigap policy that covers the things that Medicare doesn't, including the deductibles listed above, is about $250 per person, per month or $6,000 per year for a couple.
You add all that up and you get at least $10,000 per year, per couple -- a significant chunk of money that will almost certainly increase by at least the inflation rate annually.
There is help available for people with low incomes, but people with modest retirement incomes and no retiree health insurance really feel the pinch.
If health care reform helps, any effort to repeal it is a big mistake.