The rise in bankruptcy filings among the elderly isn’t a recent phenomenon or a reflection of the current recession. Limited incomes and high out of pocket costs have contributed to the increase in bankruptcy rates. Medicare coverage is fairly comprehensive but does not cover everything and does not have an out-of-pocket cap. If you have a serious illness or need nursing care the medical bills can add up fast.
A University of Michigan Law School study found that the fastest growing segment of the population filing for bankruptcy is age 65 or older. According to AARP, the percentage of those aged 65 to 74, filing for bankruptcy, rose 178 percent between 1991 and 2007 but the biggest rate increase was for those between ages 75 and 84. The bankruptcy rates for this age group increased by 433 percent. Professor John Pottow author of the University of Michigan study says, “The findings are both striking and ominous.”
Lifetime uninsured health costs can be a staggering amount according to the Center for Retirement Research at Boston College. A married couple at age 65 will have spent $197,000 on insurance premiums, out-of-pocket and home healthcare costs and that figure excludes long term care. If nursing care is included the lifetime amount rises to $260,000.
Fidelity Investments research found that the average monthly cost for healthcare is $535 and is second only to the cost of food. Retiree expenses for 2010 are 4.2 percent higher than 2009 but have increased by 56 percent since 2002. Contrasting that rate is the fact that consumer prices are only up 1.1 percent for 2010.
According to Melissa Jacoby, a law professor at the University of North Carolina at Chapel Hill, “Chronic conditions, drug costs and nursing home costs are a big area of concern.” High out of pocket expenses and the cost of financing those expenses leads to increased bankruptcy filings. Research by Melissa Jacoby has shown that one-third of people filing bankruptcy for medical reasons have used a credit card for those expenses. Jacoby adds, “And when people put those expenses on a high-interest rate credit card, the financial burden of those costs escalate.”
The Affordable Care Act (ACA) aims at providing some relief to the health care costs afflicting the elderly. The gap in Medicare Part D prescription coverage for those with high expenses will be closed by 2020. The drug subsidy, Extra Help, which pays 100 percent of premiums for low income seniors will be improved by the ACA. Also, the ACA will add free preventive care to Medicare beginning in 2011. This early intervention will aid in preventing catastrophic health care costs.
There are some ways to plan for the health care expenses that will occur during retirement.
Purchase a Medigap policy. Medicare Part A covers the cost of hospitalization for up to 150 days with you being responsible for co-pays. A catastrophic illness or skilled care over the 150 days leaves you responsible for the additional costs. If you purchase a Medigap policy during open enrollment then insurance companies cannot refuse to provide insurance or charge higher premiums due to pre-existing conditions. This type of additional health coverage caps out-of-pocket expenses and protects you from any catastrophic expense.
Consider purchasing long-term care insurance (LTC). This insurance will protect you from nursing home expenses. On average, one-third of individuals turning 65 in 2010 will require three months of nursing home care and 24 percent will require nursing care for more than a year. In order to get reasonable LTC coverage rates and avoid being rejected for health issues, apply for coverage when you are in your late 50’s or early 60’s.
Research insurance plans and focus on out-of-pocket expense and understanding all of the benefits. Fidelity senior vice president Sunit Patel says, “The key question is, ‘What is my maximum out-of-pocket expense in any given year?”
When saving for retirement include the cost of healthcare in your savings. Patel says. “Just as you would save to finance college education or a general retirement goal, is there a percentage or a specific account earmarked for healthcare?”
Don’t plan on always being healthy. People who end up paying higher Medigap or LTC premiums are those who believed they would never need it. Plan for the worst but expect the best.
Health care costs are a major expense especially for the elderly whose options are limited when faced with a financial crisis. Planning for future health care costs by following the above suggestions will help ease the financial burden of retirement.