What percent of your Social Security benefit remains after spending whatever you spend out-of-pocket for health care, including premiums for Medicare Parts B and D?
Not much according to a new study published by the Center for Retirement Research at Boston College. Average out-of-pocket spending, excluding long-term care, was $4,274 per year in 2014, with about two-thirds, or $2,965, spent on premiums.
And that meant the average retiree had only 65.7% of his or her Social Security benefits remaining after out-of-pocket spending and only 82.2% of total income, according to the report, How Much Does Out-of-Pocket Medical Spending Eat Away at Retirement Income?
By way of history, the monthly premium for Medicare Part B and Part D was $134.63, or $1,615.56 per year, for most people in 2014. And the average retiree received $1,294 per month from Social Security in 2014.
“The adequacy of retirement income — from Social Security benefits and other sources — is substantially reduced by Medicare’s high out-of-pocket costs,” wrote the authors of the report. “With less than two-thirds of their Social Security benefits available for non-medical consumption, and limited income outside of Social Security for much of the elderly population, many retirees likely feel that making ends meet is difficult.”
What’s more, things are likely to get worse rather than better for retirees. “Medicare spending per beneficiary is expected to resume its decades-long rise by the end of the decade, which will put even more pressure on retirees’ budgets,” wrote the authors of the report.
So, what can retirees do to reign in out-of-pocket spending?
Enroll in all that you're eligible for. Matthew Rutledge, a research economist with the Center for Retirement Research at Boston College and a co-author of the study, says there was a big difference between Medicare-Medicaid dual enrollees and everyone else.
Medicaid, he notes, is designed to reduce out-of-pocket costs to almost nothing for low-income, low-asset households. “Yet Medicaid take-up is far from 100% among the eligible,” Rutledge says.
According to the Centers for Medicare & Medicaid, dual eligible beneficiaries is the general term that describes individuals who are enrolled in both Medicare and Medicaid. The term includes individuals who are enrolled in Medicare Part A and/or Part B and receive full Medicaid benefits and/or assistance with Medicare premiums or cost sharing through a Medicare Savings Program.
Rutledge also notes that there are major penalties in delaying enrollment for Medicare Parts B and D that will add up to higher out-of-pocket costs for the rest of your life.
Shop wisely. You have to pay premiums for Medicare Parts B and D, or a Medicare Advantage plan, or a Medicare Supplement Insurance — Medigap — policy. And buying the wrong plan for your needs could be much more expensive than you might realize.
“Each year, it's important to think about your expected health needs,” Rutledge says. “It may be worth switching Part D plans if you have fairly new prescription regimes that would be cheaper under a different plan.”
According to Rutledge, Medicare Advantage could make sense for a lot of people, but that’s always the case. “It's definitely not an automatic that those plans will save you money, and you should weigh your own personal circumstances as best you can or with some help from a professional,” he says.
Get help. Choosing the right plan can be complicated. That’s why a cottage industry has sprung up to advise people on enrollment in Part D and other supplemental coverage that will take your personal circumstances into account, Rutledge says. The State Health Insurance Assistance Programs (SHIPs) provides free, in depth, one-on-one insurance counseling and assistance to Medicare beneficiaries, their families, friends, and caregivers. Two firms that provide similar help for a fee are Goodcare.com and mymedicarementors.com.
Become an empowered patient. The onus is now on patients for controlling spending. Learn how to challenge all the unnecessary tests and care that is given, says Carolyn McClanahan, the founder and director of financial planning at Life Planning Partners. “When a test is ordered by a doctor, ask why the test is needed and how will decisions be made based on the results,” she says. “If a doctor can’t answer those questions, the test probably isn’t needed.”
Oftentimes, says McClanahan, tests and X-rays are ordered before the patient even sees the doctor. “Refuse to have these tests done until you have seen the doctor,” she says. “This is especially prevalent in orthopedics, when many problems are muscular, and X-rays are not warranted.”
Ask questions about your medications. If a doctor puts you on medication, make sure you understand how long you will be on it and ask if there are any less expensive ways to treat the situation, says McClanahan. “Ask if there is anything that can be done instead of medication – doctors don’t have the time to counsel on lifestyle changes, but that is all that may be needed for certain things, and lifestyle change is cheap,” she says.
Don’t forget about long-term care. “Long-term care is still the big, scary source of out-of-pocket costs, and deservedly so,” says Rutledge. “Long-term care insurance will provide some piece of mind if it's purchased at a young enough age, but the market is complex and not well organized.”
Robert Powell contributes regularly to USA TODAY, TheStreet, and The Wall Street Journal. Got questions about money? Email Bob at email@example.com.