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The Impact of Increasing Medical Costs

| August 08, 2022

It’s no surprise that increasing health care costs are impacting households nationwide. From recent college graduates starting their careers to retirees depending on Social Security, everyone is faced with the rising costs of medical care whether those increases show up as premiums, copays, or expenses not covered by insurance. The purpose of this article is to highlight recent research that reveals retirees are experiencing an increasing burden of medical care costs relative to  their own Social Security benefits as well as their retirement income in total.

The latest update from Center for Retirement Research at Boston College lays out the impact increasing medical care costs are having on individuals with fixed incomes, such as Social Security. In 2022, Medicare Part B premiums increased by 14.5%, a far great increase than prior years of 2.7% (2021), 6.7% (2020), and 1.1% (2019). The chart below references Medicare Part B increases the last 20 years.

With a double-digit increase in 2022, retirees are faced with considerably higher medical out-of-pocket costs. The research study defines “out-of-pocket” costs as Medicare premiums for Parts A & B, along with supplemental coverage such as Medicare Advantage. To get a better understanding of the full data and methodology used, a PDF copy of the full brief from the Center for Retirement Research at Boston College, can be downloaded here.

As monthly premiums continue to increase, less and less income remains for non-medical related expenses. To help put things into perspective, the following chart from the 2018 Health and Retirement Study (HRS) displays the share of remaining Social Security income after medical out-of-pocket expenses. For the median retiree (50th percentile), only 75% of Social Security income remains. Those who fall below the median percentile are left with even less.

While the first chart from the HRS study helps us understand the amount of Social Security income that remains after medical out-of-pocket expenses, it may be  more important to look at one’s “total income” that remains. The Health and Retirement Study calculates “total income” as including pensions, government transfers, capital income, income from 401(k)s and IRAs. The following chart breaks down the share of total income remaining after medical out-of-pocket costs.

While analyzing the data from the second HRS chart, it becomes clear the remaining share of total income remains relatively high (88% for those in the 50th percentile) in comparison to Social Security income only. However, the disparity still exists for those who fall below the 50th percentile.

In conclusion, if retiree medical care costs continue to increase at a faster rate than income, retirees will continue to have less discretionary income after medical expenses are paid. Retirees living on only  Social Security may face a detrimental impact to the quality of life. Although retirees who have other available sources of income may not see as big an impact, the increasing medical care expenses may still impact their lifestyle.

Medicare premiums may likely trend upward in the future, and we are here to help you prepare for the retirement income and lifestyle you want. We can implement the right financial strategies based on the resources available to you. Would you like to learn more about how we can help you plan for your retirement? Visit our contact page here.