As Medicare Premiums Whipsaw, Focus on the Big Picture

The price control negotiation process the Biden administration announced this week for 10 of a planned 25 drugs will help reduce expenses for many more retirees, with a range of health conditions.

How to Watch What's Happening

With out-of-pocket costs for medications accounting for an average of 20% of all retirement health care expenses (including premiums and OOPs), these changes need to be seen in the context of overall costs and the variables that need to be considered.

This is not a simple task.

My firm offers a health cost planning tool. To make that work, we draw on data from 530 million medical claims, annual program changes, government projections, actuarial data, Medicare premium inflation figures, supplemental insurance cost figures, and out-of-pocket costs for hearing, vision and dental expenses to provide dynamic projections of annual and lifetime expenses.

These costs will be incurred over time, and that in itself is another important reason for taking the long view.

Funding

For advisors and clients, what may be most important is determining the savings required to generate enough income to match a client's health care expense decumulation curve.

Exclude Medicare Part B premiums, which will be deducted from Social Security benefits.

If you leave out Part B costs, the present value of the other retirement health care costs for an average, healthy 65-year-old male/female couple retiring in 2023 and living to age 87 will amount to $376,872.

If the clients will be making annual withdrawals to cover health care costs starting this year, and we assume a 6% return on the portfolio, the clients will need to have $260,995 in the portfolio today to fund the projected care costs.

Market performance, asset allocation, changes to annual Medicare premiums, and a client's health condition will affect the amount of savings needed to address additional health care expenses.

As we discuss in our new white paper "Automating Retirement Planning & Decumulation to Address Healthcare (and Other) Expenses," automation provides the key to taking all of these factors into account, to generate reliable data for planning, to help clients understand if their portfolios are fully funded, and to set withdrawals to match annual expenses.

A comprehensive view of retirement health care costs, combined with the efficiency automation brings to the projection of expenses, the planning process and the decumulation process, offers a path to more successful retirement outcomes and to freeing up advisors' time to focus on strategies for achieving those outcomes.

Ron Mastrogiovanni is the CEO of HealthView Services, a provider of the Health Planner Plus system and other retirement, health care, Social Security, and long-term care data and planning tools.