A new report from the Employee Benefit Research Institute (EBRI) found that some medicare beneficiaries may need to set aside hundreds of thousands of dollars to cover health care expenses in retirement, with some couples needing as much as $469,000. The report found that even with the Inflation Reduction Act's new $2,000 cap on Medicare Part D out-of-pocket prescription drug spending in 2025, retirees may still need substantial savings to cover premiums and other health care costs.
These findings come as retiree health coverage continues to become less common among private-sector employers, shifting more responsibility for health care costs onto workers and retirees.
"Health care costs remain a major financial challenge in retirement, even for people covered by Medicare," said Paul Fronstin, director of health benefits research, EBRI. "While the new Medicare Part D out-of-pocket cap offers important financial protection, our analysis shows many retirees will still need significant savings to have a reasonable chance of covering health care expenses throughout retirement."
Among the report's key findings, some couples could need nearly half a million dollars in retirement savings for health care. In extreme cases, a couple with particularly high prescription drug expenditures would need $469,000 to have a 90% chance of covering health care costs in retirement.
Similarly, many couples enrolled in Medigap could face especially high savings targets. A couple enrolled in a Medigap plan with average premiums would need $267,000 to have a 50% chance of covering medical expenses in retirement and $405,000 to have a 90% chance.
The survey also found that many single retirees will need substantial savings to cover costs. A 65-year-old man enrolled in a Medigap plan with average premiums would need $120,000 in savings to have a 50% chance of meeting retirement health care expenses, while a 65-year-old woman would need $146,000. To have a 90% chance of covering those same expenses, a man would need $212,000 and a woman would need $252,000 according to the report.
While savings targets are generally lower for Medicare Advantage enrollees, trade-offs remain as Medicare Advantage plans often have narrower provider networks or require prior approval for certain services or medications.
The report also underscores that Medicare was never designed to cover all health care expenses in retirement.
"Retiress and workers nearing retirement should not assume Medicare will fully shield them from potentially high health care costs," said Jake Spiegel, senior research associate, EBRI. "These findings highlight the importance of planning ahead and understanding the trade-offs among coverage options, including differences in premiums, out-of-pocket costs and access to care."
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