A new survey by the Nationwide Retirement Institute® confirms what many of us already suspected – inflation can be bad for your health, especially in retirement. According to the survey, inflation is forcing Americans to delay medical care and downgrade health insurance. In fact, more than half of respondents (59 percent) say they lack confidence in their ability to pay for health care costs as they age.
Healthcare in an Inflationary Environment.
The relationship between inflation and healthcare in retirement is particularly acute, and inflation’s pain can be both direct and subtle. While it obviously hits the pocketbook hard, it can also lead to unhealthy healthcare decisions.
The direct cost of inflation. Americans are already underestimating the average cost of healthcare in retirement. As the Nationwide survey reveals, adults estimate they will pay an average of $55,000 when the actual cost for an individual was almost triple that at $172,000. Inflation will only exacerbate this problem. For example, the 2024 Medicare premiums and costs were released by CMS on Oct. 12, and they include an increase for both Medicare Parts A and B premiums and deductibles. In fact, the Medicare Part B monthly premiums are expected to increase by six percent in 2024 while the Social Security cost of living raise is only 3.2 percent. That translates to a minimal increase in net Social Security payments for many senior citizens. And affluent Americans are not immune to this problem. According to the survey, two thirds of adults age 50+ with investable assets of at least $250,000 say they are “terrified” at what health care costs may do to their retirement plans.
Delayed care. Many retirees are putting off needed medical care in order to avoid the deductibles and co-pays involved with Medicare. This is borne out by the Nationwide survey which reports nearly 1 in 5 (18 percent) of adults have postponed health care actions such as a medical procedure, physical exam, or renewing prescriptions in the past 12 months to save money. This trend may accelerate particularly for retirees as more and more of them choose Medicare Advantage programs over Original Medicare programs as a way to save expenses. Their monthly outlays are lowered with this approach, but in return they may try to save on co-pays and deductibles by putting off needed procedures. Inflation creates an insidious cycle: use lower premiums to save money, only to incur higher costs when medical attention is actually required.
Family Support. Another troubling effect of inflation is the increased burden on family caregivers. If retirees plan to rely on their children for help with healthcare costs, they should recognize that adult children have their own healthcare concerns. According to Nationwide, working Americans are just as worried about inflation’s impact on their health insurance as retirees. To find additional savings, one tenth of Americans say they are considering downgrading their health insurance plan because of high inflation, including nineteen percent of Gen Z, eleven percent of millennials and fourteen percent of Gen Xers.
A new issue: longevity from artificial intelligence. The study also found that these challenges may be intensified by the potential for medical advancements brought on by artificial intelligence (AI). Consumers expect technology to extend lifespans. The survey reports “one in four Americans (26 percent) expect AI advancements in health care to add over a decade to their lifespan.” If these consumers are right, this compounds the healthcare cost problem. Everyone wants to live longer, but data has consistently shown that the longer an individual lives in retirement, the larger the strain on financial resources. The math is simple: inflation increases healthcare costs while AI extends the period of time healthcare is required. Americans will need either more retirement capital or more real income in retirement – or both.
As expressed by Eric Ludwig, my co-director of the Retirement Income Center at the American College of Financial Services, “The advent of AI in healthcare presents a nuanced challenge: extending ‘life span’ doesn’t inherently mean a longer ‘health span.’ With a quarter of Americans anticipating AI to add years to their lives, it’s vital to recognize that more years may not equate to healthy ones. This disparity could intensify healthcare costs, pressing the need for robust retirement planning that accounts for not just an extended timeline but also sustained health quality.”
What’s the Solution?
If you’re either planning your retirement or already in retirement, the effect of inflation on healthcare is more than a theoretical concern. It’s likely a clear and present worry for you. Fortunately, there are steps you can take to mitigate the challenge.
Don’t look to the government for a solution
The Medicare system is already strained, and Congress has shown little interest in significantly improving health insurance for seniors. There are minor, though welcome, initiatives being worked on such as negotiating drug prices and reigning in abusive Medicare Advantage advertising. But no game changers are in the works. If a solution is to be found, it will be at the individual level.
Make a realistic estimate of your retirement healthcare costs
If you’ve not yet retired, a dose of reality in your planning may make your retirement run far more smoothly. Whether you want to do-it-yourself or get help from an advisor, use real numbers to estimate your retirement costs. Beyond the premiums required for Medicare coverage, there may be deductibles and copays, as well as substantial healthcare costs that are not covered by insurance. More affluent retirees will see increases in their monthly outlay because of the dreaded IRMAA surcharge for Medicare premiums. And give yourself some wiggle room to reflect how medical expenses often rise faster than overall inflation. You may find that your projected healthcare costs in retirement will be more than you expected.
This outcome doesn’t have to be treated as bad news. If you know what your real healthcare costs might be in retirement, you can be more strategic in your budgeting. Maybe you’ll end up buying a smaller boat than you hoped, but at least you won’t be putting off a medical procedure just because of cashflow concerns.
The Nationwide survey exposes a significant belief by consumers that AI will extend lifespans. While this may be more of a hope than an instant reality, medical technology does have the potential to save healthcare costs now. At-home medical devices, provider portals for advice, and telemedicine are all examples of practical ways to save money. For example, this year I had heart surgery without ever meeting the surgeon in person. We both saved time and money by using Telemed.
Carefully consider your Medicare choices
If you’ve not reached Medicare age, a strategy should be to have enough income in retirement each year to afford Original Medicare, including a Medigap and Part D plan. That way you know your budget covers the basic costs of healthcare in retirement. If it turns out you want to use a lower cost Medicare Advantage plan, fine. The additional savings will help pay for the plans’ additional copays and deductibles.
Once you’ve reached Medicare age, an annual review of your plans should be just as necessary as planning your next vacation. Medicare Advantage plans are constantly changing, and it has become a given that Part D coverage (costs, formularies, and tiers) adjust annually. Especially with inflation, you have an annual opportunity to save money simply by adjusting your choices.
Make good health your job in retirement
This may sound like a platitude, but in fact it is reality. Even the best Original Medicare and Medigap plan doesn’t cover all of your medical expenses in retirement. Whether you use an apple a day, Pilates or Silver Sneakers to maintain your health, paying attention to a healthy lifestyle can save money. It can also increase satisfaction in retirement. While AI may extend longevity, it does not follow that it will provide the happiness associated with feeling good and being healthy.
Plan for the worse
The risk of frailty or even a long-term care incident increases with age. With these infirmities come additional expenses. Advanced planning can help mitigate some of these added costs. For example, future nursing care expenses can be mitigated through the purchase of a long-term care insurance plan. If you already have LTCi coverage, especially in light of inflation, consider electing your benefit increase offers when provided. Other costs can be lessened through the use of legal forms. We all know that a medical power of attorney, an advanced directive and a POLST can help make your wishes known in advance. These documents can also help save expenses by providing an organized means for having others make wise healthcare choices on your behalf. If loved ones and care providers know your wishes in advance, they can craft a care plan rather than act spontaneously.
An adjunct to these tools is discussing your healthcare plans with your family. There may be a time when your family must be your medical advocate. Paying attention to difficult topics in advance can help loved ones avoid making well-meaning but ill-advised decisions during a crisis.
Particularly for retirees, inflation represents a threat to good health. It leads to increased costs and delaying medical attention. And, as the Nationwide survey demonstrates, Americans are becoming increasingly wary of this risk. Rather than increase the health risk by stressing over these costs, take steps now to mitigate the effects of inflation. It’s the healthy thing to do.