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Older men who expect high health care costs for themselves or their spouses after age 65 retire about 13 months later than those who expect low costs. The difference for women is 12 months. For those receiving health insurance from their employers, continued work reduces the risk of high out-of-pocket health care costs. Working longer also increases retirement incomes, making health care costs more affordable.
Rising health care costs threaten many older Americans’
financial security. Medical expenses now consume a
substantial share of household spending in retirement,
and that share is likely to rise as costs continue escalating.
Cutbacks in employer-sponsored retiree health
benefits add to many older Americans’ difficulty paying
for health care.
Many older workers are responding to these financial
pressures by delaying retirement. For those receiving
health insurance from their employers, continued work
reduces the risk of high out-of-pocket health care costs.
Working longer also increases retirement incomes—
making health care costs more affordable—by raising
earnings, boosting Social Security and employer sponsored
pension wealth, improving the ability to
save, and reducing the years over which retirement
wealth must be spread. Not all older adults, however,
are able to continue working.
Health Care Costs at Older Ages
Although nearly all Americans age 65 and older ar
covered by Medicare, many face substantial out-of pocket
health care costs. The annual Medicare deductible
for hospital stays in 2008 is $1,024. Medicare Part B,
which covers outpatient services, requires a substantial
premium, now about $1,157 for most enrollees (and
more for singles with incomes above $82,000 and couples
with incomes above $164,000). Part B carries an
annual deductible of $135, plus a 20 percent coinsurance
The standard Medicare Part D benefit for outpatient
prescription drugs also requires hefty premiums (currently
averaging about $324 per year), a $275 annual deductible,
and 25 percent coinsurance. Once total drug costs
exceed $2,510, however, beneficiaries must pay 100 percent
until total out-of-pocket spending reaches $4,050
(after which enrollees pay only 5 percent of drug costs).
Additionally, older adults must pay for services not
covered by Medicare, such as dental care, routine vision
care, hearing exams, and most long-term care services.
These costs add up. Median out-of-pocket health
care spending consumed 14 percent of income for
adults age 65 to 74 in 2003 and 22 percent for those age
85 and older (Neuman et al. 2007).
To keep costs down, many older Americans obtain
private supplemental coverage, either individual policies
from insurance companies or group coverage from
former employers. Individual plans are expensive,
though, and many employers are cutting back on subsidized
retiree health benefits. Low-income seniors may
qualify for public assistance to pay their Medicare premiums,
deductibles, and copayments. However, enrollment
entails a complex application process at stat
welfare offices and a strict asset test. Relatively few eligible
seniors apply for these benefits.
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