Investor's Business Daily, March 23rd, 2007
There's a downside to longevity. The medical miracles that extend life will cost plenty.
And plenty of people will want those miracles. The key group will be the 80 million baby boomers -- those born from 1945 to 1964.
They account for 25% of the population. To extend life and maintain its quality, they'll demand the best technology and services money can buy.
They'll need to have lots of money. Medical costs rise while the assets of the aging shrink.
Medicare won't be a backstop, says Merrill Matthews, head of the Council for Affordable Health Insurance, which advocates free-market fixes for U.S. health care.
"Medicare is in a mess," he said.
Medicare will soon spend more than it takes in, and that's for Part A alone, Matthews says. Part A covers only hospitalization.
Those over 65 who want more service must buy supplements that cover some costs of doctor visits and drugs. If they want better service, seniors must buy private insurance.
"Do Americans need to save more for their old-age health care? The simple answer is yes," Matthews said.
A study for the National Center on Policy Analysis, which seeks private alternatives to government, shows why. The aging spend 17.2% of available cash on health.
By 2030 -- when the last of the baby boomers and the first post-boomers hit retirement age -- seniors will spend 23.5% of personal income on health care.
Bulk Amount
Seniors spend an amount equal to 44.5% of their Social Security benefits on health care, the NCPA report says.
Without savings, older Americans will see their quality of life decline as their health care eats up disposable income.
In two recent surveys, market research firm GfK Roper found health care and medical costs the top financial concern of Americans. "Health costs are a deep-rooted fear," said Kathy Sheehan, GfK Roper senior vice president.
Sudden income loss frightens 86% of boomers. The top reasons they expect to lose income are: major illness and the cost of routine care.
Among pre-boomers, those born before 1945, 72% worry about the cost of illness.
"People feel they have no control over it," Sheehan said.
Among all Americans, 87% worry about health costs. Despite that fear, few plan to take action to build up their financial reserves.
Roper found that only 26% of Americans say they'd like to save for retirement this year.
Boomers are thinking about staying in the work force past age 65, Sheehan says. "One of the drivers to continue working is to keep employer-paid health insurance."
Many won't have that option, says John Goodman, NCPA founder and president. Up to 80% of boomers will stop working before age 65.
They'll be laid off or injured or forced to care for elderly parents. They'll be unable to save and will lose employer-paid insurance.
Old Problem
They'll face high health insurance costs because of their age. And they'll have to buy insurance with after-tax dollars, Goodman says. That's if they can afford it.
Meanwhile, today's seniors face a harrowing option.
They can spend down their funds to poverty level and go on Medicaid, Goodman says. Medicaid is the last-resort federal-state plan that pays health costs for the poor.
For people with some work years ahead, Goodman has a suggestion: Invest in health savings accounts.
HSA contributions are made with pretax dollars. They're not taxed while they grow.
The funds can be spent on health care tax-free.
But the maximum contribution is just $2,850 a year for an individual. For a family, it's $5,650.
For those facing retirement and loss of income in a few years, HSAs offer some comfort. Even with as few as five years to save, "you could put several thousand dollars into an account," Goodman said.
Here's the catch. Workers covered by a typical, low-deductible employer health insurance plan can't contribute to a health savings account.
Employees can contribute to an HSA only if their employers provide a less-comprehensive insurance plan with a high deductible.
And people over 65 cannot contribute to an HSA.
Meanwhile, seniors need to have more money for Medicare's premium hikes. Increases for Part B, which covers doctor and outpatient care, have been 60% in five years.
Social Security inflation increases have been just 14%.
Copyright 2007 Investor's Business Daily, Inc.
