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Social Security Giveth, Medical Costs Taketh Away

Retirees spent on average more than a third of their Social Security benefits on out-of-pocket medical costs in 2014, according to a recent study. Even after factoring in other sources of income, medical spending still took a substantial 18 percent bite out of seniors’ total retirement income, the study found.

In dollar terms, the typical retiree spent $4,274 per year on medical costs, not including long-term care. Insurance premiums accounted for about two-thirds of that total, according to the study, published this month by the Center for Retirement Research at Boston College.

“The premiums are huge,” said Melissa McInerney, an associate professor of economics at Tufts University and a study co-author, describing their importance in overall spending by retirees.

McInerney said she was surprised at the findings, however, when the team did incorporate spending on long-term care and found little difference in average spending. When researchers included survey respondents who said they or their spouse lived in a long-term care facility or received home health care services, average spending was 19.2 percent of total income, versus 17.8 percent for those who didn’t need long-term care.

For the study, researchers analyzed 2002-2014 data from the Health and Retirement Study, a national survey conducted every two years of 20,000 people over age 50. The sample was limited to people at least 65 years old and were receiving both Social Security and Medicare benefits. It included those who also had Medicaid, Medicare Advantage or private group retiree health insurance.

Overall, the average retiree’s out-of-pocket medical spending declined 9 percent over the years studied from just under $4,700 in 2004 (in 2014 dollars) to $4,274 in 2014. That’s likely due in part to the introduction of Medicare Part D prescription drug coverage in 2006 and the gradual closing of the drug coverage gap known as the “doughnut hole” that began in 2010 under the Affordable Care Act, the study found.

However, medical costs for Medicare beneficiaries are expected to outpace the increase in Social Security benefits after 2018, and retirees will have to put a growing percentage of their Social Security income toward medical care, according to study authors, citing projections by Medicare and Social Security trustees and the Congressional Budget Office.

“The main takeaway from the study is that right now, even for retirees who live in the community and aren’t using long-term care, medical out-of-pocket spending is high and is a big share of their income,” said McInerney. “And we might expect that to grow if spending rises at end of this decade.”

Correction: This story was updated on Oct. 13 to correct the information about the researchers’ findings when they included long-term care expenses. They calculated the costs for a group that didn’t include people with long-term care expenses and then for a group that included both those with and without long-term care expenses. The study did not look at people with long-term care expenses separately.

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KHN’s coverage related to aging & improving care of older adults is supported by The John A. Hartford Foundation and coverage of aging and long-term care issues is supported by The SCAN Foundation.

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