Employers Must Prepare Retirees for $275K in Expected Care Costs

August 25, 2017 - Employers are starting to prepare and educate retirees for expected post-retirement care costs of $275,000, according to market analysis published by Fidelity Investments.

The analysis found a 6-percent increase in costs over a similar report last year. But a more startling finding is a 70-percent increase since Fidelity’s initial report on retiree healthcare costs back in 2002.

Healthcare costs for employees and individuals are rising. Lacking an employer-sponsored coverage or another health plan, these individuals become personally responsible for these high costs.

In a comment to HealthPayerIntelligence.com, Fidelity said they broke down retiree spending into three major healthcare categories including monthly expenses, cost-sharing provisions under Medicare, and out-of-pocket prescription drug expenses:

• Medicare cost-sharing provisions, including co-pays, coinsurance and deductibles for office visits, and excluded benefits such as routine check-ups and exams will contribute to 45 percent of retiree health expenses.
• Monthly expenses associated with Medicare Part B and D premiums are expected to account for 35 percent of retiree care costs.
• Prescription drug out-of-pocket expenses such as co-pays and amounts not associated with Medicare Part D will account for the remaining 20 percent of what retirees are spending for healthcare.

Before employees exit the workforce, employers must take more responsibility to make sure retirees can manage healthcare costs on their own, said Senior Vice President of Fidelity Benefits Consulting Adam Stavisky.

“As retiree health care costs continue to rise, it's becoming increasingly important for workers to focus on saving enough to ensure these expenses don't derail their retirement," he added. "But workers can't do it alone — employers need to find practical, innovative ways to help their employees understand the health care expenses they may face in retirement, as well as provide the tools and education to help employees save enough.

Fidelity noted that more employers are starting to launch two popular approaches that help employees manage costs before requiring unexpected out-of-pocket healthcare costs.

Tax-exempt health savings accounts (HSAs) can help individuals save and self-manage their healthcare costs. HSAs can be extremely advantageous for employees before they retire by allowing them to strategically finance unexpected care costs while employed.

Because HSAs are tax-exempt, employees can save more of their own money for retirement purposes. However, because HSAs require individuals to be under the age of 65 employers should encourage employees to open them at earlier points in their life.

Another solution outlined in the analysis calls upon employers to provide wellness programs for their employees. According to a Fidelity/National Business Group on Health study, 87 percent of companies surveyed plan to continue or expand well-being programs next year, with focuses on student loan repayment, debt management, mindfulness training and subsidies for fitness wearables.

Employer health plan leaders like DRIVE say that smoking cessation, preventative screening, and chronic disease management programs help mitigate expenses for both employers and employees by keeping individuals out of the hospital.

“By providing incentives to obtain preventive care and adhere to wellness visits and treatments such as medications to control blood pressure or diabetes at low to no cost, private-sector employers save money by reducing future expensive medical procedures,” a DRIVE testimony stated. “And, employees are living happier and healthier lifestyles.

Even though employers aren’t directly responsible for retirees, they can have a significant positive impact on their financial health as related to their medical health.

“With ongoing uncertainty across the healthcare landscape, it’s more important than ever for individuals to educate themselves on steps they can take to prepare for their health care needs in retirement,” said Stavisky. “These expenses are only expected to increase in the future, so it’s critical that people include health care as a significant part of their retirement plan.”