Addressing Rising Healthcare Costs
Healthcare costs have been rising exponentially in the United States since the 1970s. The American Association of Retired People estimates the average annual cost of healthcare for individuals 65 and older to be over $3,000 today, rising to more than $30,000 annually by 2027. Fidelity’s Retiree Health Care Cost Estimate for 2016 rose to $260,000 in total costs for a couple, up 6 percent from the 2015 estimate of $245,000. And this does not include the cost of long-term care. Genworth’s 2016 Cost of Care survey gives an annual average cost range of $45,756 for in-home assistance to $92,376 for nursing home assistance, on top of the cost of healthcare. Given this daunting landscape, it is prudent to develop strategies to control costs and maximize current resources. While planning and strategizing for future costs is necessary, let’s start with what we can do right now to address rising healthcare costs. Looking at current habits, connections, and networks and shoring up our resources in terms of wellness and social structure are incredibly important and often overlooked areas of health and cost savings.
Make Young Friends
A profound piece of advice offered to me many years ago was to make friends with people of all ages, remembering to befriend people younger than myself as I moved through adulthood. A strong social network is a tremendous resource for maintaining health and quality of life, keeping us cognitively and emotionally engaged members of our communities. A 2001 study by Bryant, Corbett, & Kutner defined health in aging as “going and doing something meaningful.” A strong social network makes the likelihood of experiencing this definition of health more likely. Involvement in social or civic organizations, places of worship, affinity groups, or volunteer organizations, all provide opportunities to strengthen our network of friends and acquaintances. These types of involvements also provide built-in, meaningful activities and adventures for all stages of our lives. Having a strong social network can also translate into cost savings in both health and long-term care by addressing two key areas. First, nearly 40% of health outcomes can be attributed to social and economic factors, according to a 2014 literature review, with stronger social support correlating to improved health outcomes and overall lower costs. Second, individuals with a strong social network have more resources available to them by virtue of their social connections—whether that is the availability of transportation assistance, resources for wellness care, or trusted, caring individuals with whom to problem-solve an issue, just to name a few. Needless to say, healthy lifestyle choices today will also contribute to better health outcomes and, therefore, lower costs tomorrow. Maintaining an appropriate weight, engaging in regular exercise that includes strength and balance training, eating a balanced diet, getting adequate sleep, having proper hydration—all pay positive dividends in reduced healthcare costs. So, too, do preventative health and dental care and following physicians’ directions regarding medications and checkups.
Home Sweet Home
As the cost of healthcare continues to climb, the medical landscape continues to adjust to improve outcomes while controlling expenses. We have all witnessed the move from surgery meaning a several day hospital stay to the same procedure now being completed at a same-day outpatient surgery center. The good news is that research is supporting home as an equally good, and sometimes better, setting for recovery than the traditional hospital or rehabilitation center. In an article published earlier this year by the American Academy of Orthopedic Surgeons (AAOS), it was shown that even patients who live alone can safely and effectively recover at home, including after a total joint replacement. The estimated healthcare cost savings was found to be nearly $11,000 per patient. Since the AAOS contends that nearly all orthopedic surgery patients can recover successfully at home, this could potentially translate into an annual savings of $1.5 million, just within the specific area of orthopedics.
Similarly, Genworth’s annual Cost of Care survey consistently finds home based long-term care to be the most cost effective option for long-term care needs. The Genworth study bases in-home care costs, including both homemaker and personal care assistance, on an average of 44 hours per week of service. However, annual industry surveys, such as that conducted by Home Care Pulse, consistently show that the average weekly hours used by home-care clients is in the 20- to 25-hour range. Since in-home assistance is provided on an hourly basis and can be customized to meet an individual’s specific needs, it is far more cost effective to hire the amount of additional help needed. Home care services are also available short term, such as during recovery from surgery or an illness, as well as long-term for more chronic or progressive health concerns.
This transition back to home-based care is also leading to an increase in skilled home-based medical care. While home healthcare services such as nursing and therapy, as well as hospice and palliative care, have been a staple in healthcare for decades, we are now seeing an increase in home-based private nursing, care management, daily money managers, and even “house call” physician services. All of these resources help to manage healthcare costs while focusing on improved patient outcomes.
An Ounce of Prevention
Finally, a natural place to address rising costs is with your financial planner. As we move toward full or partial retirement, our financial needs and goals change. Sometimes our existing financial planner can meet our needs, but sometimes it is best to make a change to an individual or organization who specializes in financial planning and management for retirement. Re-assessing the skills and experience of your current financial planner to ensure he or she understands the options for, and priorities within, retirement is highly recommended.
Regardless of who your financial planner may be, he or she should be able to explore tools with you to address health and long-term care costs. These tools may include: utilizing a health savings account, long-term care insurance, life insurance with a long-term care rider, home-care indemnity insurance, purchasing an annuity, and exploring reverse mortgages.
Taking a brief look at health savings accounts (HSA), we see this tool has grown significantly over the past several years, due in large part to its triple tax-savings advantage. As many people who are still working will save more in an HSA account than they spend, the HSA tool provides an additional investment to grow resources for healthcare costs in retirement.
Likewise, long-term care insurance coverage is being pursued by ever-increasing numbers of adults during the last five to ten years of their planned working years. Statistically, we know that the majority of us, in fact, estimates as high as 70 to 80 percent, will need long-term care assistance for six months or longer. The increasing cost of long-term care, not otherwise supplemented by other insurance products, is helping to drive renewed interest in this protection. The long-term care insurance industry has gone through many growing pains since the products were first launched thirty years ago, with the plans available today looking very different than those initially offered. While the price of long-term care insurance can still cause sticker shock, it is a drop in the bucket compared to the probable out-of-pocket cost. Fidelity’s Retiree Health Care Cost Estimate for 2016 estimated a couple retiring this year would need $130,000 for long-term care insurance in retirement. Contrast that with what National Care Planning Council reports as an average of four to five years of combined long-term care assistance (including in-home care, assisted living, and skilled nursing) with an individual price tag of $300,000, and long-term care insurance seems like a wise investment. As long-term care insurance requires an underwriting process, learning whether or not you even qualify can provide invaluable information for managing your health and long-term care costs.
While these numbers can be staggering, advanced planning with qualified advisors can make a daunting proposition manageable. Working with an elder law and estate planning attorney to assure you have a solid plan in place in the event of incapacitation, and making sure that your healthcare proxy knows your wishes, can work to protect your assets and your health. Planning for health and long-term care costs with your financial advisor can help you be positioned for a secure and realistic retirement. Familiarizing yourself with aging services providers such as care managers and in-home assistance, and having a clear idea of what you want for yourself, all work together to address rising healthcare costs. As you already know, North Shore Senior Center is an excellent resource for finding vetted resources in all these areas and more.
Heather Lantry
General Manager and Owner, Right at Home
8424 Skokie Boulevard, Suite 212
Skokie, IL 60077
773.775.4677
