Remember that the goal of No Surprises Retirement is to help you minimize or eliminate surprises that can damage your retirement. A risk is defined as “exposing something valued to…loss”. We’ll discuss a couple of risks today, both involving healthcare; inflation and coverage. The goal here is preparation and risk mitigation or avoidance, not fear and depression. We will review a change in the Federal government direction on pre-existing conditions that may affect your retirement date. On the inflation side, we will look at the healthcare inflation trend and see what that does to your retirement lifestyle. Let’s start with the pre-existing conditions situation.
Pre-65 retirement risk – pre-existing conditions coverage is unstable
If you are planning on retiring before Medicare (pre-65) and don’t have retiree medical care from your employer, this might be a good time to consider continuing to enjoy your work colleagues and workplace a little longer, until a potentially expensive change to individual health insurance is more settled.
The Patient Protection and Affordable Care Act, sometimes called PPACA or nicknamed Obamacare, mandated that insurance companies take all applicants regardless of any pre-existing conditions and charge them on a community-rated basis. Since the general audience of No Surprises Retirement is likely in the retirement age range, a lot of us likely have pre-existing conditions. Examples here could include a diagnosed knee condition, heart problem, cancer treatment in the past, or abnormal liver test results. Basically, under PPACA, pre-existing conditions were not a problem for anyone.
But, there’s a change!
It’s kind of a long, involved story, but there are a number of states who are suing in Federal court to have the PPACA declared unconstitutional. Winning was not a slam dunk, but if they won, all of the PPACA could go away, including the coverage of pre-existing conditions part. Risk level – moderate.
Just this week, the Federal Government’s Department of Justice decided to not defend the PPACA against the state lawsuit. This makes it much more likely that the PPACA will go away. Risk level – high.
If the PPACA goes away, pre-existing conditions would then come back in to individual health insurance underwriting. People (think pre-65 retirees here) applying for individual health insurance could be rejected or have exclusions for their pre-existing conditions.
What can I do, you ask?
Remember that without health insurance or with insurance with limitations on pre-existing conditions, you could be liable for some very large medical bills if you have a serious illness or accident. I had a knee infection that cost about $25,000 (and is now a pre-existing condition!). If you incur a large medical bill without coverage because of a pre-existing condition, that money would likely have to come from your retirement savings and potentially lower your retirement income for the remainder of your retirement, a bad retirement surprise
In my case, I am very concerned about what will happen to coverage for pre-existing conditions. I have decided to avoid the risk of a change to the way pre-existing conditions are insured and now plan to do my best to stay employed and covered under my employer’s plan until we are eligible for Medicare. If, for some reason, the risk for pre-existing conditions coverage improves, I can always re-plan.
What does FRED say about healthcare inflation?
Remember that inflation is “a general increase in prices and fall in the purchasing value of money”. You’re paying more for the same thing.
FRED is Federal Reserve Economic Data. The St. Louis Fed, using FRED data, states, “…Going back as far as the series are available, since 1948, the price of medical care has grown at an average annual rate of 5.3% while the entire basket, headline CPI, has grown at an average annual rate of 3.5%. In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6%—about 70% faster.”
What does that translate to?
Let’s be optimistic and assume that healthcare inflation will stay toward the lower side at 4%. That means that healthcare costs will double approximately every 18 years, or once or twice over the span of a typical retirement. Inflation is reverse compound interest working against you. If you retire at 62, by the time you’re 80, your insurance premiums and out of pocket costs will likely have doubled; they increase a little each year.
The question here is what will have happened to your income in the same time period? While Social Security is inflation adjusted, that inflation adjustment may not keep up with healthcare inflation. US Government and Military pensions are inflation adjusted, but most defined benefit plans are not inflation adjusted. Depending on your investments, IRA investment returns can offset some inflation. In any case, you will likely need to plan to spend more on healthcare and less in other areas.
What can I do, you ask?
Use less healthcare by getting in and staying in the best shape you can. Proper exercise, diet, and sleep.
Monitor your personal healthcare prices and shop around for the best non-emergency prices.
Learn about healthcare prices and different approaches. When you find one that you like, register and vote for political representatives who will represent your position in state legislatures and the U.S. Congress. As an example, some people want Medicare to negotiate prescription drug prices while others want Medicare to stay away from negotiating. Whatever your position, if you don’t vote, you are letting others decide your health insurance inflation fate.
Actions you can take include:
-Plan your risk strategy around pre-existing conditions and health insurance.
-Spend some time on healthcare inflation and potential solutions, then register and vote.
If you have not seen the “Why you should read this blog…WIIFY” post, it’s here.
Questions, comments, or suggestions for retirement surprise areas you want to know more about?
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