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The Medical Bills That Hit Retirees Hardest

4 findings from a Kaiser report on out-of-pocket costs of Medicare beneficiaries

(This article appeared previously on MarketWatch.com.)

If you’re trying to estimate healthcare expenses in retirement, a new report from the Kaiser Family Foundation highlights some important numbers.

Medical bills in later life can put even the sturdiest of nest eggs at risk. A study released in June by Fidelity Benefits Consulting estimated that a 65-year-old couple retiring in 2014 will need an average of $220,000 (in today’s dollars) to cover medical expenses throughout retirement. What’s more, that figure doesn’t account for over-the-counter medications, most dental services and long-term care.
As such, if you’re assembling a budget for life after the office, getting a good handle on possible healthcare bills is essential. That’s where Kaiser, a nonprofit that specializes in health policy analysis, can help.

(MORE: Retirement Planning Checklist)

Kaiser’s report, How Much Is Enough, looks at out-of-pocket spending among Medicare beneficiaries. Specifically, it “explores which types of services account for a relatively large share of out-of-pocket spending, which groups of beneficiaries are especially hard hit by high out-of-pocket costs for services and premiums and trends in out-of-pocket spending on services and premiums.”
Among the highlights:
Healthcare costs rise with age. Medicare beneficiaries in 2010 (the most recent year of data available) spent an average of $4,734 out of their own pockets for healthcare. The single biggest chunk — 42 percent — went to premiums for Medicare and supplemental insurance.

Not surprisingly, spending rises with age: Individuals age 85 and older spent about three times as much, on average, than individuals age 65 to 74 — $5,962 vs. $1,926, respectively.

(MORE: Avoiding High Retirement Health Costs)

Good health matters. In short, staying fit in later life saves you money. According to Kaiser, average out-of-pocket spending on services by beneficiaries in poor self-reported health was 2.5 times greater than among beneficiaries who said they were in excellent health.
Some groups of retirees spend more than others. Certain groups — including older women, individuals in long-term-care facilities, those with Alzheimer’s disease and Medicare beneficiaries who were hospitalized — are most likely to wind up in the category of “high out-of-pocket spenders.” Average total out-of-pocket spending was $11,530 among the top quartile of Medicare beneficiaries — and $19,236 among the top decile.
Repeat hospital stays are costly. And speaking of hospitalized beneficiaries, patients with a hospital readmission within 30 days of discharge spent about $1,200 more on services than those with only a single inpatient stay in 2010: $5,687 vs. $4,475, respectively, on average.

Glenn Ruffenach edits The Wall Street Journal’s guide to planning and living the new retirement. Reach him at [email protected].

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