Has the Government Accountability Office underestimated how much retirees will be spending on health care costs once they retire?

That’s what a leading provider of retirement health care cost modeling says. In a commentary, Ron Mastrogiovanni, founder and CEO of HealthView Services, pointed toward factors he said highlight the lowballing.

The first is what retirees pay for health care premiums.

While working, Mastrogiovanni pointed out, employees are on the hook for about 25 percent of their health care premiums, but once they retire all that changes. “[W]ithout employer subsidies,” he wrote, “retirees are responsible for 100 percent of their health care expenses, which will likely include Medicare, supplemental insurance premiums, and other out-of-pocket costs, such as co-pays, hearing, vision, and dental.”

Read: 10 worst states to move to when you retire

All that adds up to a major expense he says GAO has not accounted for: “Data [indicate] that an average retiree may have to pay two or three times more for comparable health care coverage than they did while in the workforce.”

As a result, if calculations designed to predict how much working income a person will need to replace during retirement are based on that 25 percent of health care premiums paid by someone who is actively working, “many current and future retirees will face significant shortfalls when it comes to medical expenses.”

Then there’s health care inflation, which Mastrogiovanni said is projected to push costs up by about 6 percent per year “for the foreseeable future.” A year-end summary from the Centers for Medicare and Medicaid, he said, expected retirees “to endure at least eight years of health care inflation between 5 percent and 7 percent.”

Read: 10 ways retirement is changing in the U.S.

That means that, thanks to inflation, health care costs will rise at more than twice the rate of annual Social Security cost-of-living increases. And, of course, Social Security recipients got no cost-of-living increase for 2016.

In its report, GAO estimated that retirees will spend 77 percent of what they spent in preretirement. While it sought data from numerous sources to arrive at the estimate, and did recognize that the only expense to increase during retirement, as a rule, is health care, it did say that better information on income replacement rates is needed and more work needs to be done to refine estimating tools.

It also specifically recommended that the Department of Labor update the replacement rate calculators featured on its website.

In addition, among “other factors” that could affect income replacement rates, GAO included the post-retirement risk of “developing a health condition with significant out-of-pocket expenses.”

Instant Insights /

Is the GAO underestimating retiree health care costs?

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