This is not your parents' retirement
BOOMER BUST: Retiring workers face health cost quagmire
December 27, 2004
freep.com
BY KIM NORRIS
FREE PRESS BUSINESS WRITER
As 76 million baby boomers surge toward the twilight years of their lives, they would do well to remember one thing: This is not your parents' retirement.
Like the aging bodies they inhabit, the health system boomers will rely on with increasing urgency is crumbling.
Even before they need it, the nation's tax-funded health insurance program for people 65 and older is ailing. Medicare, which insures 40 million seniors, is straining under the costs of a program designed when people didn't live as long and health care options were fewer and less expensive.
Rising costs associated with more expensive technology and medicines -- coupled with more use by more people -- are draining the Medicare financial reservoir. The consensus among budget watchers and policy makers is the system has to be changed before it goes broke.
Those changes likely would include increases to premiums, fewer benefits and possibly raising the age requirements. But there appears to be a lack of urgency among elected officials to address what many perceive as an issue that will come to a head after they leave office.
"The program is clearly sustainable," says Tricia Neuman, who heads the Medicare division of the Kaiser Family Foundation. "There may have to be changes. Attention hasn't focused on how to care for an aging baby-boom population."
Contrary to common misperceptions, Medicare isn't entirely free. Seniors pay premiums for Part A, which covers inpatient hospital and skilled nursing homes, and for Part B, which covers physician and outpatient services, among other things.
And those costs, like everything else, have risen. In fact, in 2005, the largest premium increase in the 40-year history of Medicare will occur when rates for Part B jump 17.4 percent to $78.20 a month. Deductibles on Part A will rise 4.1 percent, to $912 a year.
On top of that, beneficiaries may purchase supplemental insurance to cover costs Medicare doesn't. Prices on those policies vary widely.
Broken promises
Even as the national safety net frays, the private system of health coverage provided by the nation's employers is unraveling.
Companies that once promised their retirees they would provide for them until death did they part -- often encouraging them to retire early in the process -- are rethinking their commitments.
They are cutting benefits, asking retirees to pay more and, in increasing numbers, discontinuing retiree health care benefits altogether.
The share of employers offering retiree health benefits has declined from 66 percent in 1988 to 36 percent in 2004, a 2004 Kaiser Family Foundation survey shows.Baby boomers will be less likely than their parents' generation to receive retiree benefits, said Neuman.
"Even when employers are maintaining benefits, retirees are seeing significant increases in premiums and cost sharing, deductibles and co-pays to prescription drugs. Even if retirees are fortunate enough to retain benefits, they can expect to pay more," Neuman said.
Kaiser's annual survey of retiree health benefits showed 79 percent of firms increased their retirees' contributions for premiums in 2004 and 85 percent expect to do it next year. A typical worker under 65 who retired in 2004 paid an average of $2,244 in premiums for individual coverage and $4,644 with spousal coverage through their employer.
More ominously, 8 percent of employers surveyed eliminated subsidized benefits for future retirees in 2004, and 11 percent said they are likely to follow suit in 2005.
Today, workers who don't have employer benefits and who retire before they are eligible for Medicare can expect to pay between $1,200 and $1,400 a month for coverage, says Ron DeStefano, senior vice president and consulting actuary for Baltimore-based Aon Consulting.
"For younger retirees, it may be difficult to find good, affordable coverage in years just before they qualify for Medicare," Neuman said.
Carol Benedict hopes to retire from her job as principal of Oak Ridge Elementary School in five years when she reaches 60 and has accumulated 30 years of service with the Royal Oak school system. Because she will be five years shy of Medicare eligibility,
Benedict said she wouldn't even be able to consider retiring then if she didn't have the promise of employer-provided health coverage. Both she and her husband, Frank, expect employer coverage to continue after they retire.
Carol Benedict is less confident that Medicare will be there for them than she is that her employer will continue to provide coverage. "We're pretty secure about that, she said.
The Benedicts are conscientious about not being a financial burden on their two children and have been saving for retirement for 25 years. But their fund dedicated to health care costs is more recent and relatively small.
The couple are considering long-term health care policies to provide for them in the event one or both need nursing care in the future.
"It's something you know you're going to have to deal with . . . but you're feeling well and you don't want to really think about it," she confessed. "In the same vein, you know you have to save for it, even though you can never save enough. At least my kids will have some money."
Obesity epidemic
If the parents of baby boomers already are pushing the envelope of the public and private payment system, imagine the strain when 76 million more adults move into retirement.
In addition to the sheer volume of the aging boomer population is the undeniable fact that, while people are living longer, they aren't necessarily living healthier. Obesity -- and all its accompanying health complications -- is at epidemic proportions.
Statistics show the likelihood of having health problems increases after 50. Already, senior citizens, who make up 13 percent of the population, consume a third of prescription drugs. And that segment of the population is about to get much bigger.
If current trends continue, the nation faces a potential scourge of what one generational observer termed "silver-haired velociraptors" with insatiable appetites for health care goods and services. And yet, says Dorothy (Dottie) Deremo, president and CEO of Hospice of Michigan, "These are the good old days."
"If you look at Social Security, there are four people paying into the system for every one" using it. "By 2030, there will be two."
In addition, she noted, for most of history, the average life span was 19. At the turn of the 20th Century it was 46.5 years. Today, it is 80 for men and higher for women.
"For baby boomers -- if we live to 50 without any serious chronic illnesses, we probably will live to 100 years of age," Deremo said. "Never, ever in the history of the world, will we have the number of elderly in the world that we will have in the next 20 years."
By 2030, 53 percent of the U.S. population will be 55 years or older, and it will be higher in other countries.
Gratifying as that might seem for those people who want to stick around, Deremo pointed out that "all of our structures -- business and work, social, infrastructure -- are designed around having more young people than old."
Uncertain future
"When I retire I don't know what in the world will be there for me," says Susan Voyles, a self-employed writer in Canton. "I don't know if Medicare is going to be there. I don't even know if Social Security is going to be there for me."
She and her husband, Ken, would like to retire in another 20 years or so, when they are 66, and follow her parents South if possible.
But, before they can even think about that, they have two children ages 12 and 8 to raise and put through college.
Susan Voyles has watched preceding family generations grapple with health care issues. She helped financially with grandparents in nursing homes. Her parents, who divorced and remarried other people, are both approaching 65, the qualifying age for Medicare.
At that time, her widowed father will lose coverage through his former employer, and her mother will be severed from her current husband's company retiree plan.
Ken Voyles has a rare form of arthritis that results in calcification of the spine. One of his medications costs $1,200 a month, paid for by his company insurance, minus a $20 co-payment. Medicare doesn't cover medications and the various Medicare supplemental insurance products cover very little.
But Medicare reform is supposed to bring more coverage for prescription drugs starting in 2006. But there's a long way to the end of baby boomers' retirement years, and whether there would be enough money to provide benefits is uncertain.
"In the back of our minds, we know we're going to have to somehow fund health care in some form," Voyles said.
That's about as specific as many baby boomers get when it comes to financial planning to fund health care costs in their twilight years.
"The typical retirement approach does not take into account escalating health care costs," said John Rother, chief policy director at the AARP in Washington, D.C. "Hopefully you will know something about your health insurance, whether you will have employer-provided or on your own. But no one knows what health care events they are going to have. Whether you will die in your sleep or live to be 100."
Fran Parker is better versed in health care and its costs than most people. But the president of Health Alliance Plan, who recently turned 50, doesn't have any more answers than anyone else.
"I have a group of friends and we'll get together to exercise and eat, and when we talk about retiring, the single thing we talk about the most is health care and how do you pay for it.
"You have to think about how long do you want to work and how do you bridge the gap between end of employment coverage and Medicare''
Many baby boomers seem to have put their faith in the belief that the health system, like most everything else in the universe, will change to accommodate them. That unflappable optimism is fostered by a generation that -- like the proverbial pig in the python -- has altered the shape of its environment as it has moved through its long life cycle.
"Do you think maybe we'll have a different system by then?" asks 47-year-old Florence Misuraca, who doubts she would be able to retire at 62 when her husband wants to, partly because of the costs of health care.
The Clinton Township couple have been married 11 years. She has been unemployed since June and, if it weren't for her husband's health plan, she would have no insurance.
Her husband, John, 50, is more sanguine about the future.
"He says, 'I just know they're going to have to do some kind of major change in this country'. . .and that's about the extent of how we talk about it," Florence Misuraca says.
It's not an unreasonable assumption.
"On the other side of the velociraptor equation, baby boomers have always been creative and energetic and have changed everything they've touched," said Hospice of Michigan's Deremo. "I think there are potential opportunities for crafting a much better future, but they need to happen in context of a national dialogue.
"Beyond the rhetoric and beyond being locked into polarized positions, there needs to be a national dialogue around these very serious issues. Using this ostrich strategy of putting their head in the sand is not going to get us there."
Most people who spend any time thinking about the topic -- which seems to be pretty much everyone these days -- agree that a national approach to the issue of providing accessible and affordable health care to everyone is necessary and probably inevitable.
"I'm thinking, by the time we retire, there will be more affordable options because there has to be," HAP's Parker said.
"When Bill Ford says we have to do something about retiree costs, and GM and DaimlerChrysler all say it . . . I think the big employers will be at the table and help come up with solutions."
She noted the federal government wants disease management and prevention included in Medicare benefits on the theory that such measures prevent catastrophic health events down the road.
"Obviously we're not going to make much progress unless we talk about it," said AARP's Rother.
"I tell baby boomers this: You may think the biggest problem is saving enough money and the future of Social Security, but the biggest challenge you face is health care. And how we deal with the cost, quality and effectiveness of the health care system is going to have more to do with your quality of life for the rest of your life than any other factor." |
