Health Care after 55: Are You Ready? Are Insurors Ready for You?

The McKinsey Quarterly (as quoted by Forbes) reports that health insurance companies, while doing a good job of marketing prescription drug benefits and Medicare Advantage benefits, have done considerably less well at providing seniors with insurance for out-of-pocket costs caused by reduced employer health insurance benefits and increasing medical costs. Although less sizable than the prescription/Medicare Advantage market, the out-of-pocket market is still sizable and less susceptible to government caprice. McKinsey research shows that pre-retirees are already thinking about post-retirement healthcare costs and many would like a plan in place well before retirement. By not developing products (along the lines of Medigap insurance) and corresponding marketing and distribution activities, health insurors risk losing this potentially lucrative market to financial services businesses. To illustrate the significance of post-retirement medical costs, McKinsey indicates that two-thirds of "boomers" believe that employer health plans will cover them in retirement; in practice, 30% of Americans are covered and rising costs may cause employers to drop post-retirement benefits, reducing that percentage even farther. Furthermore, Medicare will cover only about 80% of medical expenses and a catastrophic illness, even if covered by Medicare, can cost $30,000-$50,000 out-of-pocket, more than even a vigorous user of Medical Savings Accounts is likely to accumulate if the MSA is started by someone 55 or older.

The last three paragraphs of this article are quite unsettling and a good "wake-up call" regarding the future medical costs for those of us who are middle aged and do not have a guarantee of post-retirement benefits from our employer.