Retiree Health Savings Needs Drop Due To ACA Provision

from Spencer’s Benefits Reports: Projections for how much elderly Americans need to save for out-of-pocket health care in retirement have decreased, due to a provision the Patient Protection and Affordable Care Act (ACA) that covers more prescription drug costs, according to a recent report from the Employee Benefit Research Institute (EBRI). The report, Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News, published in the October EBRI Notes, found a 1 percent to 2 percent reduction in needed savings among individuals with median prescription drug use, and a 4 percent to 5 percent reduction in needed savings among individuals in the 90th percentile in prescription drug use.

The ACA reduces cost sharing in the Medicare Part D “donut hole” to 25 percent by 2020. This year-to-year reduction in coinsurance will continue to reduce savings needed for health care expenses in retirement, all else equal, for individuals with the highest prescription drug use, EBRI noted. When the Medicare Part D was originally enacted in the Medicare Prescription Drug, Improvement, and Modernization Act, it included a coverage gap, more commonly known as the “donut hole.” The ACA will reduce, but not eliminate, this coverage gap.

Due to this reduction in the donut hole, EBRI now projects that a 65-year-old man would need $70,000 in savings and a woman would need $93,000 in 2012 if each had a goal of having a 50 percent chance of having enough money saved to cover health care expenses (excluding long-term care) in retirement.

By comparison, a 65-year-old couple, both with median drug expenses, would need $163,000 in 2012 to have a 50 percent chance of having enough money to cover health care expenses (excluding long-term care) in retirement; $227,000 to have a 75 percent chance of covering those expenses; and $283,000 to have a 90 percent chance of doing so. EBRI noted that these estimates are 1 percent to 2 percent lower than the savings targets estimated in 2011.

For more information, visit http://www.ebri.org.

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