Tips For Managing Health Care Costs

By: Richard A. Anderson

It’s no secret that health care costs have risen dramatically in the last decade. This has major implications for retirees or those workers approaching retirement age. In general, health care expenses tend to increase with age. Even with good health insurance coverage, out-of-pocket expenses for medical procedures and tests, as well as prescription and non-prescription drugs, can add up. In fact, health care ranks second behind housing in terms of the largest expense in a typical retiree’s budget.

In addition, a recent Fidelity survey found that health care costs are the biggest factor in people’s decision to retire. However, over 40% of those polled who were over age 60 said they did not factor the cost of health care in their retirement planning.

We believe overlooking the cost of health care in retirement could be an expensive mistake and poses a huge danger to your financial health in retirement. That is why we build out health care costs as a separate goal in your financial plan. This includes the cost of individual health insurance for those who retire before age 65 before Medicare coverage starts, as well as Medicare, Medigap supplement insurance and projected out-of-pocket costs. This isn’t to say the projections will be 100% accurate down to the penny. There are always going to be surprise expenses. But having an estimate of what those health care expenses may be means you have a better chance of not sinking your financial plan.

Unlike other retirement expenses like travel, dining out, and gifting that could be reduced should money get tight, health care costs cannot be foregone. That’s not to say there aren’t ways for you to manage the costs of health care.

In an interview with Fidelity Viewpoints, Dr. Orly Avitzur provided some valuable insights on saving money on medical expenses and taking charge of your health. Dr. Orly Avitzur is a practicing neurologist and medical director at Consumer Reports, as well as the chair of the Medical Economics and Management Committee of the American Academy of Neurology.

What’s the best way for patients to ask questions about the cost of treatment?

Dr. Avitzur: Cost should be part of every conversation and patients should feel empowered to bring up the subject. Doctors are not afraid to talk about cost; however, in many cases, we simply do not know the cost of services. We don't have access to insurance product rules to be able to advise patients on exact cost and projected out-of-pocket (OOP) expenses. If a patient has a billing question about a recent hospitalization, contact the hospital billing offices first; then go to the hospital's patient advocacy team, if still not resolved.

The cost question often relates to prescription drugs. For example, some 10%-30% of prescriptions are abandoned at the pharmacy, primarily due to cost. As a physician, I don't want to find out 6 months later that you became more ill because you did not take your medication due to cost.

What should patients know about managing the cost of prescription medications?

Dr. Avitzur: Prescription medication is often the largest cost for patients to wrestle with. Each insurance plan has a drug "formulary" or list of drugs the plan covers. In addition, there are different tiers of coverage. For example, generic drugs are listed in the lowest tier and typically are the cheapest for the consumer because they have the lowest co-pays. If your doctor forgets to bring up a generic prescription alternative during your office visit, then be sure to ask.

Lastly, how important is staying healthy for people to save money on health care?

Dr. Avitzur: It's vital. We all need to better invest in and take time for our health. To stay well, remember 3 things:

1.   Start by knowing your key numbers: blood pressure, pulse, and cholesterol.

2.   Understand your key risk factors based on your family's medical history.

3.   Make an effort to control your weight. Know your BMI (body mass index) because it plays a role in helping you maintain a healthy lifestyle. Some total knee surgeries or hip replacements are related to being overweight. Obesity is also associated with heart disease, diabetes, and a variety of neurologic conditions. In many cases, these conditions can be mitigated by diet and exercise. Remember, a healthy weight is a good investment in your future health.

For more insight on how to talk to your doctors and medical providers and managing health care expenses throughout retirement, please check out the full article “How to talk to your doctor – and save money.”

If you wish to learn more about how we incorporate health care costs in your financial plan, please contact a member of the HIGHLAND team.