Medicare Fails to Cover Retirement Healthcare Costs

Retirement Plan AdvisorMedicare fails when it comes to the challenges of retiree healthcare costs.  The greying retired workforce is woefully aware of how badly Medicare fails and how.

Retirement readiness includes making sure employees and former employees have set aside ample savings for healthcare costs.  However, many people often overlook this enormous expense when projecting their income needs during retirement.  This can translate into savings possibly being insufficient.  Healthcare continues to be one of the largest retirement-related expenses, after housing and transportation costs.  According to the Employee Benefit Research Institute, some couples may need as much as $383,000 in savings to cover healthcare expenses in retirement.  This may be dependent upon when and where the couple chooses to retire, their health, and their estimated life expectancy.

Counting on Medicare to cover any shortfall isn’t really an option, either.  According to a new report from EBRI, “projected savings that Medicare beneficiaries needed for health expenses remained high in 2022.  In the future, despite the introduction of the cap on Part D out-of-pocket spending, individuals may have to pay greater shares of their overall health costs in retirement because of the financial condition of the Medicare program and cutbacks to employment-based retiree health programs.”  A harbinger that Medicare fails are a strong concern!

Other key findings from the EBRI report include:

  • The predicted savings target for Medicare beneficiaries to cover premiums, deductibles and prescription drugs in retirement remains high.  It is sensitive to assumptions about premiums, prescription drug expenses, and usage of health care services;
  • A 65-year-old man enrolled in a Medigap plan with average premiums will need to save $96,000 in order to have a 50% chance of having enough to cover premiums and median prescription drug expenditures.  A woman will need to have saved $116,000;
  • To have a 90% chance of meeting healthcare spending needs in retirement, a man will need to have saved $166,000, and a woman will need to have saved $197,000;
  • Couples enrolled in a Medigap plan with average premiums will need to save $212,000 to have a 50% chance of covering their medical expenditures in retirement and $318,000 to have a 90% of such chance.  Couples with particularly high prescription drug expenditures will need to save $383,000 to have a 90% chance of having enough money to cover their healthcare costs in retirement; and
  • Enrollees in Medicare Advantage plans generally have lower savings targets.  There are other factors to consider when it comes to choosing a Medicare Advantage plan over traditional Medicare.  Medicare Advantage plans often have limited networks or may require approval before certain medications or services are covered, and some Medicare Advantage plans require a premium.

Clearly, retirement savers cannot rely on Medicare alone to cover their healthcare expenses in retirement. Employers and financial advisors must encourage Americans to include the hefty cost of healthcare in their retirement savings and income projections.  Many people tend to leave it out when considering how much they’ll need to set aside over the course of their lifetime.  A recent Hearts & Wallets study found that financial wellness programs may help improve household savings rates, which could impact retirement preparedness, including accounting for the cost of healthcare.  Retirement healthcare costs are significant, and individuals must be prepared to meet those expenses if  Medicare fails them.  Not actively planning for Medicare fails is a big planning mistake.  Most retirees look forward to living well in their “golden years.”


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