I’m always keeping my eye on trends and projections about health care. We all know that the cost of just about everything in life naturally goes up every year. But there is one such predicted rise in cost that I need to make sure you are aware of.
According to HealthView Services’ “Retirement Health Care Cost Index,” the cost of senior medical care will rise dramatically in the next decade. The financial planning and health-risk assessment firm warns that the combination of Medicare and Social Security benefits just won’t cover the cost of health care in retirement for most Americans.
How Health Care Costs Will Rise in the Next Decade
HealthView’s study revealed that, for a healthy couple receiving the average social security at full retirement age, the cost of health care could increase from 69 percent to 98 percent of their social security payments just one decade from now.
That percentage for couples retiring twenty years from now will equal an even higher percentage of the average social security payment – a whopping 127 percent!
For those of us who will retire thirty years from now, we can basically hand our social security paychecks over to our medical bills since health costs are expected to surpass that retirement benefit by 190 percent!
How to Keep More of Your Social Security Check
Once you near retirement, you’ll quickly discover the necessity of medigap insurance to cover what Medicare does not. But I’m going to fill you in on another powerful secret weapon to saving you money from three different angles. A health savings account gives you a triple tax advantage: a reduced taxable income advantage, a premium advantage, and a retirement advantage.
The first advantage is that when you contribute to your HSA, you’re reducing your taxable income. Secondly, by reducing your taxable income via HSA pre-tax contributions, you can actually improve your eligibility for health insurance premium subsidies. Third, you never lose your contributions because they roll over each year through retirement.
HSAs are now 10 years old. Since they first came on the scene, they’ve steadily gained popularity for their tax advantages, freedom of health care decisions and, ultimately, supplemental retirement funding. You may be surprised to know that HSA-contribution assets are projected to clear the 36 billion dollar mark.
Get Control of Your Spending with Help from an HSA…
As a nagging proponent of price transparency, I love the way my HSA lets me choose to see an alternative medical practice, or a doctor or specialist outside my network. I don’t have to ask my insurance carrier permission! In the big picture, this kind of free-market behavior is the key to individual awareness of how we spend our health care dollars.
Up until retirement age, HSA funds can be used for any of the many, many qualified healthcare expenses recognized by the IRS. Once you reach retirement age, your HSA savings are yours to use for absolutely anything you want. Although there is no penalty for using your HSA funds for discretionary purposes after age 65, withdrawals are taxed as retirement income.
Combining Medicare, Employer-sponsored Retirement and HSAs
Keep in mind that when you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “medigap” policy.
The key is to plan ahead in order to keep retirement, even if it’s 20 years away, as stressless as possible.
How are you handling the rising costs of healthcare? What are your plans for the future? I appreciate your comments and suggestions for your fellow readers.
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.