Fidelity Investments’ most recent study of lifetime health care costs made me shudder. It is now almost impossible for working people to educate their children and accumulate enough money to retire. You can't get there from here.
How do I see such a global conclusion in a report on health care costs?
Follow the numbers with me. The headline number in the report is that a 65-year old couple can expect to spend $245,000 on health care before they both die. That’s up $25,000 from last year, an increase of 11 percent.
Yes, you read that right. Up 11 percent in a period of low-to-no inflation. Up 11 percent when retirees will get no cost of living increase from Social Security.
The same report tells us that a single man can expect to spend $110,000. A single woman will spend $130,000. Those are intimidating sums. So lets see what they do, and don’t, include. The total expenditure includes Medicare premiums (parts B and D), copays, deductibles and out-of-pocket prescription costs. It doesn’t include dental expenses. Nor does it cover long-term care, if needed. In each case, the figures assume you have the full sum on hand at age 65.
These figures, by the way, aren’t the kind of bogus claims we get from presidential candidates on the magical power of tax cuts. They’re legitimate research. The Employee Benefit Research Institute (EBRI) reports similar figures. So does the Center for Retirement Research at Boston College. The numbers vary some, but converge on one central fact: They are all astronomical relative to the income and net worth of most retirees.
You can see how big a problem this is by checking the net worth of those who are 65 and older. The most authoritative source for this is the Survey of Consumer Finance. The Federal Reserve did the most recent survey in 2013. The health care liability for women is greater than the net worth of 44 percent of all women 60 to 65. It is greater than the net worth of 41 percent of all men of the same age.
Here’s another way to get a sense of proportion: use the average monthly Social Security check, $1,291, as a yardstick. A man with that benefit would pay 85 months—more than 7 years— of benefits for medical expenses over his remaining lifetime. For a woman with the same benefit, her higher medical costs would absorb 100 months of benefits. That works out to 8 years and 4 months of benefit checks spent on medical expenses.
It would be ungrateful to complain about some of these increased costs. A portion of the cost increase is due to the ongoing increase in our life expectancies. According to the Fidelity report, the life expectancy of a 65-year old man has increased from 82 to 85. So the typical retirement would last 20 years. The expectancy of a 65-year old woman has increased from 85 to 87—a 22-year retirement. Added years mean more health care costs.
Now lets combine life expectancy and lifetime health care costs. Health care costs are expected to absorb 85 of 240 months of Social Security benefits for men and 100 of 264 months for women. Change that to a percentage figure and it is 35 percent of benefits for men and 38 percent of benefits for women.
Health care costs are increasing faster than Social Security benefits. That means health care is crowding out the most important source of retirement income for most Americans. Health care is no longer the large but reassuring elephant in the room. It is the monster in the room, feared by all.
Financial services firms use numbers like this to urge us to save more money. That’s good for them, of course. It allows them to appear caring and paternalistic as they push to gather ever more assets. But they miss the point.
Our politicians miss the point, too. So do the vast majority of people inhealth care.
There is a limit here, and we have reached it. The cost of health care has become an administrated tyranny, a national extortion. It threatens our ability to lead a normal life. People live in fear of any kind of health event, in fear of changes in insurance policies, in fear of cancellation of policies.
People live in fear of health care itself.
It's time for change. Big change.