Retirees, Beware the Rising Cost of Health Care: RIIA Speaker

Baker, who ran on the Republican gubernatorial ticket in Massachusetts and once led Harvard Pilgrim Healthcare, said addressing health care costs will require policy makers to take a long look at Medicare, which he described as the "chassis" on which the health care system is organized.

Right now, he said, Medicare pays more for expensive procedures and less for routine care, so health care companies have adapted their business plans accordingly. "The big money is trying things that might work," he said.

"Basically that's what drives spending."

He told the investment advisors attending the 2011 Retirement Income Industry Associationspring conference in Chicagothat present-day retirees should put away at least $250,000 to pay for health care costs — and that number will only rise. "People need to understand that people need to start putting away money for health care now," he advised.

Baker concluded his talk by considering how President Obama's health care reform might affect future health care spending. First, he explained, it's not at all certain that the bill will be implemented. Various legal challenges could stop it and state governments might not have the funds necessary to implement parts of the legislation that require them to absorb certain costs associated with Medicaid beneficiaries.

Whatever the results of the legal challenges to health care reforms, Baker maintained that people will have to work longer and harder to pay for their retirements. "People will work into their late 60s and early 70s," he said. "I think people are going to work a long time."