How to combat the impact of inflation on healthcare costs in retirement?

Gasoline, food and housing prices have skyrocketed in the past year. Rising healthcare costs are less noticeable to some.

Medicare, the US government’s national health insurance program for Americans age 65 and older, has imposed a 14.5% premium increase for Part B (outpatient care coverage) for 2022, a record high and almost double the March figure for the annual US inflation rate as measured by the consumer price index.

Rising healthcare inflation can have serious consequences for current and future retirees, as medical expenses are expected to take up an ever-increasing share of retirees’ incomes. “If you have to prioritize your living expenses over health care, that’s a big problem,” said Kathy Martin, a 50-year-old New York resident, when asked what worries her most about health care costs.

Kathy Martin prioritizes her health care by making time to exercise.

Martin trains a few times a week with seniors who are part of the Silver Sneakers fitness program at their local gym in Somers, New York. Her classmate Laura Rodriguez, 67, shares her concern. “What will happen when I get older, you know?” She said. “How will I be able to pay for the care I need?”

What two years of healthcare inflation could cost

Studies illustrate how rising medical costs can add up. If healthcare costs rise 2% above consumer inflation over the next two years, a healthy 55-year-old couple could face an additional $267,000 in medical expenses by retiring at age 65, according to an analysis by HealthView Services .

The same couple could expect to spend more than $1 million on health care expenses in their lifetime, almost the same amount they could expect to spend on Social Security benefits.

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“Whether you’re wealthy or an average person…when you look at your Social Security check, you’re paying for healthcare,” said Ron Mastrogiovanni, CEO of HealthView Services.

Planning pays off

After premiums are paid, Medicare covers about two-thirds of health care costs, with out-of-pocket spending accounting for about 12%, according to the Employee Benefit Research Institute.

“Aside from shelter, food and transportation, [health care is] probably the most expensive item we will face in retirement,” said Mastrogiovanni. “You know what it is; be prepared.”

The most important thing is that you start saving and you start saving early.

Paul Frontin

Director of Health Benefits Research at EBRI

Increase retirement savings

HealthView Services estimates that a 55-year-old couple would need to invest an additional $53,000 to cover the $267,000 in additional inflation costs.

Increase savings now to increase security later. Experts say consider adding more money to your 401(k) plan or an individual Roth retirement account if you qualify. “The most important thing is that you start saving, and start saving early; the sooner you start, the better prepared you will be,” said Paul Fronstin, director of health benefits research at EBRI.

Consider health savings accounts

Health savings accounts are another tool for saving for future health care costs, but they require a high-deductible health plan and have annual contribution limits. The HSA contribution limit applies for 2022 $3,650 for individuals and $7,300 for families. For those over the age of 55, each of these limits is increased by $1,000 through “catch-up” contributions.

Don’t rely on employer protection

There was a time when employers offered health care benefits to retirees, but EBRI found that only about 4% of companies receive these benefits, compared with about 45% before a change in accounting rules in the late 1980s forced companies to pay the liability included in their balance sheets.

“When they had to do that, the bottom line just didn’t look good, so they started cutting benefits to the point that very few workers will be eligible for those kinds of benefits going forward,” Frontstin said.

Stay healthy

Meanwhile, Silver Sneakers fitness instructor Melanie Scala, who turns 59 next month, said: “I definitely feel like I’m leading people in the right direction to reduce their healthcare costs.”

But while physical fitness can help control some health care costs, experts say anticipating medical expenses over a longer lifetime should also be factored into the equation.


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