Retirees Have Some Options to Pay for High Medical Costs

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By Brian O'Connell

Carl Stoces, a 70-year-old Monterey, Indiana, resident, recently fell off an extension ladder and suffered a traumatic leg injury. He was airlifted to Memorial Hospital in South Bend and had a two-month rehab stay in a nursing home. "The bills that resulted were overwhelming, and the payments would have never been manageable for my fixed retirement income," he says.

Fortunately, a hospital program called CarePayment allowed Stoces to finance his payments, starting at $54 a month. "I was immediately relieved," he says. "I had no options. For me, it was one of the greatest things that has happened. Now I can pay my bills off, and that's good for me and the hospital."

Of course, financing is a temporary measure -- you still have to pay the bills off, sooner or later, and health care bills can really mount later in life. According to (RATE), high medical expenses are the biggest financial worry in for retirees like Stoces. That's true even for people earning more than $75,000 a year, who are "more concerned about high medical expenses than the overall population."

"Health care costs can be one of the most difficult, yet also most critical, expenses to project in retirement," says Joe Jennings, vice president of PNC Wealth Management (PNC) in Baltimore. "Not only do they have the potential to consume a disproportionate amount of a retiree's income, but they have also been rising at a rate much higher than inflation. Another concern is that while life expectancy for retirees continues to rise, many retirees fear they may live longer, but with a lower quality of life due to health-related issues."

Getting the Right Coverage

Jennings says the key is to understand what insurance coverage retirees currently have, how they may need to supplement that coverage and whether long-term care insurance is appropriate.

"Cash-flow projections and a retirement income analysis employing various scenarios with different health care needs and expenses should be performed to determine best, median and worst-case scenarios," he says, with the idea being to figure out whether "your income and assets will be sufficient to cover the worst-case scenario." "Always be conservative in estimates and plan for the worst-case scenario to determine where any shortfalls may exist."

Yet Americans are failing, and in somewhat spectacular fashion, in planning for future medical expenses. According to a study from the Washington, D.C.-based National Foundation for Credit Counseling, most Americans don't even have $1,000 put aside for medical emergencies. Some health care consumers are working with financial professionals to create a "patchwork" strategy to cover health care costs in retirement, and they're making some progress.

Health Savings Accounts

"A few years ago I was meeting with a client who casually mentioned that he was worried about being laid off, as his company was starting to downsize parts of his division," says Mathew Dahlberg, a financial adviser at 111th Street Investments in Kansas City, Missouri. "While the client, aged 62, had been looking forward to retiring, he was worried that he would not be able to afford health coverage on the individual market for himself and for his non-working spouse." The client and his wife were in relatively good health, but he wanted to protect his retirement savings until he could apply for Medicare at age 65.

"After some research, the client, his wife and I came up with a solution: the client would opt for the high-deductible health plan offered through work so that he could sign up for a health savings account at the same time," Dahlberg says. That's a creative approach, as the HSA provides for tax benefits and, more importantly, are available regardless of income.

Supplemental insurance and long-term care insurance are options for worried seniors. "There really is something for everyone, including plans that cost very little and let you sort of pay as you go," says Danielle Kunkle, vice president of Boomer Benefits in Fort Worth, Texas.

But Kunkle sees the fear in the eyes of retirees when she discusses future health care costs, and it's not a pretty sight. "I'll never forget one of my Medicare 101 presentations at a local hospital a couple of years ago," she says. "During my Q&A session at the end, one of the attendees stood up and said: 'There should be a mandatory class that all Americans must go through at age 50 to explain how much these things cost, when we still have time to prepare for it. To find this out now is just devastating.' I couldn't have put it any better myself."
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