Government Spends Too Much on Senior Health, But So Do Seniors
Here is why we need to control the growth of medical costs: A typical couple retiring this year can expect to receive the equivalent of nearly $400,000 in government Medicare benefits before they die. Yet, they would still have to pay an average of an additional $200,000 in out-of-pocket medical costs. I’ll say it again: A 65-year old couple will likely spend $200,000 (in present value) of their own money, even after they get their Medicare benefits.
And that is just for health care. Add in long-term care needs and that typical family would have to put aside as much as $260,000. And for many who exhaust their financial assets, Medicaid will pick up the long-term care tab at a cost to taxpayers of tens of thousands more.
The estimated value of government health benefits comes from my
The projection of total health costs after age 65 comes from a new study by Anthony Webb and Natalia Zhivan at the Center for Retirement Research at
A very rough estimate: Many seniors will spend one-third of their retirement income on medical care, and more if they need long-term care. Why will they pay so much out of pocket? A big chunk will be premiums for Medicare Part B and Part D (the drug benefit), Medicare Supplement (Medigap) insurance, and retiree health insurance. The rest is for deductibles, copays, and other care not covered by insurance.
That $200,000 is far beyond the financial resources of most Americans. According to EBRI, the average 401(k) balance at the end of 2008 was less than $90,000, and half of plan participants had accounts of less than $45,000. Even those in their 60s had average balances of only about $125,000. Bottom line: Typical retirees would have to empty their 401(k)s just to pay for health care. Since such retirement accounts and Social Security make up the overwhelming share of most Americans’ financial assets, it is hard to see how these seniors will pay for medical treatment as well as rent, taxes, transporation, food, and the rest of their living expenses. And if they need long-term care, either at home or in a nursing facility? Don’t ask.
This, in the starkest terms, is the health care paradox. With Medicare and Medicaid spending projected to reach 15 percent of total Gross Domestic Product by mid-century, government can’t afford to keep providing ever-more costly benefits to retirees. Yet, even with Medicare benefits that are breaking the fiscal bank, many retirees face a difficult future, especially as they reach their 80s when medical and long-term care costs explode.
There are only two solutions. We need to save more for our retirement. And we must slow the growth of what we spend on medical care. As we’ve seen in the last year's health reform debate, that isn't easy. But, as these numbers show so dramatically, it is critical to both the health of seniors and the fiscal sustainability of government.
Very interesting points
Yes, health care cost will need to be controlled. The current health care bills will not do that though. When a person knows how much it will cost to do a certain procedure then they will be more careful of their own health. Unfortunately the “poor” do not know how much it cost nor do most of them care since they won't be paying for it. I do think that the “poor” should have a job even if it is moving rocks from one side of a fence to the other and back again. Instead today and for the last 50+years we have been making the “poor” more dependent on government and less on themselves. Yes, I know that some of the “poor” are unable to work, those should be taken care of but all others should be required to work according to their ability.
Lessening third party payment would be fine if health care were a “normal good,” however it is not. The choice is often get the care or face death (especially at an older age), which makes the enjoyment of all other economic goods moot.
I disagree that this makes third party payment a good idea. When it costs $50k per month to keep you in the hospital, who is in the best position to make a decision that properly weighs the cost and benefits? You and your family, not a faceless third party.
Does that make the decision tough? You bet. But avoiding that tough decision is not worth the cost to society of maintaining third party payment.
If you and your family are able to pocket the savings, you will likely find an alternative that costs much less than $50k per month, and the hospital and doctors and home care providers will have an incentive to help you find that alternative. All without one-size-fits-all mandates.
It looks just like the same thing. They spend a lot for seniors and in return seniors still spend too much. Things would have been better if we get the most of what we are expecting when it comes to expenses and tax.
The rising medical costs facing senior citizens is rising at a rate that they can't keep up with for much longer. I agree with the author and his views on the topic. As someone who works in the industry, I see this need for a better system each and every day.
Regards,
Alex Stone
http://www.psmbrokerage.com
Check out my site for the latest information on Medicare Supplements and other senior insurance products.
Lessening third party payment would be fine if health care were a “normal good,” however it is not. The choice is often get the care or face death (especially at an older age), which makes the enjoyment of all other economic goods moot.
The plug for additional savings in the original article ignores the fact that seniors often pay for their health care expenses with their Social Security, especially the multitude of them that own their homes outright. The value of these homes will also be used if long term health expenses occur, prior to Medicaid picking up the tab. 401(k) and similar retirement savings only become fodder for such long term care expenses, which is why those who are wealthy get long term care insurance as well. Care will be paid for by someone, the long term insurance is protection for wealth, not health.
Additional savings are necessary for an active retirment. Trips, vacations and the ability to give gifts are the benefits of additional retirement savings. Social Security, however, will always be enough to pay at least Medicare part B premiums.
There is a non-governmental option, however it would involve having former employers continue to cover retirees fully in lieu of payroll taxes and the collection of income taxes to fund Medicaid for seniors. Replacement of a portion of both of these with a VAT, which could be avoided by providing coverage, would put the financial issues in stark relief for most people. A private approach would also provide an incentive to provide better care for less cost – an incentive that neither the government nor health providers and claims processors hired by the government currently have.
I am available if you wish to discuss this further.
Economists know that the root of the explosion in medical expenditures is third party payment. Any true solution must change that. Patients must become customers, facing true marginal costs as often as possible. Insurance should only cover truly rare events, so that only a small minority of policy owners ever collect anything from it. Government assistance should be in flat amounts as often as possible, allowing people to pocket the savings or pass it on to their heirs.
The consequences of such a structure are distasteful, but I see no viable alternative in the long run. In my opinion this structure is superior in every way to rationing by government, and rationing is never a viable long-term solution.
We all ration our purchases of everything according to what we can afford. The same has to happen with health care, ending the fantasy that everyone can afford everything. Self-rationing works, but rationing by government or any other third party does not.