Those putting money away for retirement may not need to save quite so much, partly thanks to the Patient Protection and Affordable Care Act and its provisions for prescription drug coverage.
That was the news in a report containing updated computer modeling by the Employee Benefit Research Institute of retiree health savings needs, which found that savings targets fell between 2 percent and 10 percent between 20132014.
That means that, for the relatively modest goal of wanting to have 50 percent of health care expenses covered by retirement savings, a man would need $64,000 and a woman $83,000. A married couple who both have 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 would find that targeted savings dropped from $360,000 in 2013 to $326,000 in 2014.
The EBRI report noted that Medicare beneficiaries will be paying some 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.
The inclusion of outpatient drugs to Medicare as an optional benefit was done with the so-called “donut hole,” a coverage gap that meant that some people born within a certain time window found themselves paying a larger share. PPACA included provisions to reduce the size of the donut hole, so that 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.
“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, in a statement.
Fronstin added that despite the PPACA measures, individuals may be paying a larger 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 programs.
While the news on the prescription drug front may be good, Fronstin continued, “It should be noted that many individuals will need more than the amounts cited in this report.” That’s because the report does not include savings necessary to pay for long-term care expenses, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare. Some workers, though, can save less than the report suggests if they work past 65, thus staying covered with employer health benefits and being able to postpone enrollment in Medicare Parts B and D.
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