Many retirees believe Medicare and capped drug costs cover most health expenses. However, a report from the Employee Benefit Research Institute (EBRI) indicates some couples could face medical bills as high as $469,000.
The Inflation Reduction Act limits out-of-pocket prescription drug spending to $2,000 annually starting in 2025. Despite this protection, significant savings are still necessary.
Paul Fronstin, director of health benefits research at EBRI, stated that "health care costs remain a major financial challenge in retirement, even for people covered by Medicare." He added that retirees "will still need significant savings to have a reasonable chance of covering health care expenses throughout retirement."
Opting for Medigap supplemental insurance requires higher savings targets than Medicare Advantage plans. For instance, a couple with a Medigap plan might need $405,000 for a 90% chance of covering expenses. For individuals, a 65-year-old man with average Medigap costs would need $212,000 for 90% confidence.
Medicare Advantage plans present lower savings targets. A man with median drug expenses and average healthcare use would need approximately $106,000 for a 90% chance of covering costs. However, these plans often have network restrictions and may require prior authorization.
Jake Spiegel, senior research associate at EBRI, emphasized the importance of planning, noting that "retirees and workers nearing retirement should not assume Medicare will fully shield them from potentially high health care costs." The analysis may also underestimate total costs, as it excludes expenses like long-term care, dental, and vision.