Today's High Inflation Will Increase Retirement Health Care Costs...Forever
by Javier Simon | Originally posted in Money
Record inflation isn’t just hitting Americans at the supermarket and at the pump. It's also driving up health care costs, and the current spike will have a lasting effect on retirement medical expenses even after inflation returns to normal levels, a new study finds.
The study by HealthView Services projects that health care inflation will remain elevated at an annual 11.9% over the next two years. This means that a healthy 65-year-old couple will have to spend an additional $85,917 on lifetime medical expenses over what they would if inflation had stayed at the historic norm. For a 55-year-old couple, those figures nearly double to $160,712. And for a 45-year-old couple, the extra lifetime costs jump to $259,808, according to HeathView Services, a Danvers, Mass.-based company that provides health care cost data to financial advisors.
The report predicts that in about two years, inflation will return to historical averages. But today's short-term inflation will have a long-term impact. HealthView Services CEO Ron Mastrogiovanni says that historically, health inflation has risen at 1.5 to 2 times higher than the consumer price index (CPI), which is currently at 7.9% year-over-year. So even if general inflation eventually falls back to average levels, health care inflation will continue to rise on prices that increased sharply during this inflationary spike, compounding lifetime medical expenditures.
“Let's say gas prices are $5,” explains Mastrogiovanni. “Now, in a month, they could be $4.50. But in health care, if it goes up to five bucks, it doesn't fall back to $4.50. It keeps going up, but at a slower rate. That's the problem with healthcare prices.”
Social Security won’t cut it
Many Americans were pleased to hear that the Social Security Administration increased the Cost of Living Adjustment (COLA) to 5.9% in 2022. That’s the highest it has been since 1982, and it meant that retirees saw a healthy a bump in their Social Security benefits this year. However, the raise didn't go that far — as the report notes, Medicare Part B premiums alone increased by nearly 15% from 2021 to 2022, a record high.
You can expect that a good portion of your Social Security benefits will get eaten up by health care costs. In fact, the study found a 65-year-old couple retiring and starting Medicare coverage today will need 71% of their lifetime Social Security benefits just to cover their medical expenses — that's 9% more than if inflation were to remain at historic levels for the next two years. Researchers project that health expenditures will exceed projected Social Security income by 56% for those retiring in 20 years. (The report also notes other factors besides inflation that are driving up health care prices, including hospital consolidations, the COVID-19 pandemic and rising salaries for nurses and other medical professionals.)