Uninsured Health Care Costs From Age 65

This brief from the Center for Retirement Research at Boston College estimates that the present value of expected uninsured lifetime health care costs for a typical age 65 married couple is $197,000. Moreover, there is a good probability that costs will considerably exceed that amount.

Source: Center for Retirement Research at Boston College

What is the Distribution of Lifetime Health Care Costs from Age 65?

by Anthony Webb and Natalia Zhivan
IB#10-4

Introduction

Medical and long-term care costs represent a substantial uninsured risk for most retired households.  In 2007, spending on Medicare premiums and co-payments among married couples age 65 and over averaged $7,600.  But such statistics are of limited value to households trying to determine how much to set aside for health care costs in retirement or how to manage wealth decumulation during retirement.  Households care not only about average costs, but also about the risk of incurring unusually high costs.  Furthermore, calculations of the distribution of health care costs incurred by households in any particular year tell us little about lifetime risk unless we also know the extent to which the same individuals are incurring high health care costs every year.

This brief outlines the findings of new research that calculates the distribution of lifetime health care costs.  The research shows that the expected present value of lifetime uninsured health care costs for a typical married couple age 65 is about $197,000 – including insurance premiums, out-of-pocket costs, and home health costs and excluding nursing home care.  But a typical household has a 5-percent risk that the present value of its lifetime uninsured health care costs will exceed $311,000.  And when nursing home costs are included, the amount for a typical couple increases from $197,000 to $260,000, with a 5-percent risk of exceeding $570,000.  Even at the peak of the stock market in 2007, less than 15 percent of households approaching retirement had accumulated that much in total financial assets, much less financial assets available for health care costs.

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