Think government spends too much on health care? Look at the bill for retirees.

A typical couple retiring this year will get $400,000 in Medicare benefits in their lifetimes. But they'll spend another $200,000 on health care themselves.

Lynne Sladky/AP/File
At a town hall meeting on health care reform last August, Marilynn Garfield (left) of Delray Beach, Fla., and other seniors raised their hands to show they were on Medicare. Beyond Medicare, the typical couple retiring this year can expect to spend $200,000 of their own money on health care during their lifetimes.

Here is why we need to control the growth of medical costs: A typical couple retiring this year can expect to receive the equivalent of nearly $400,000 in government Medicare benefits before they die. Yet, they would still have to pay an average of an additional $200,000 in out-of-pocket medical costs. I’ll say it again: A 65-year old couple will likely spend $200,000 (in present value) of their own money, even after they get their Medicare benefits.

And that is just for health care. Add in long-term care needs and that typical family would have to put aside as much as $260,000. And for many who exhaust their financial assets, Medicaid will pick up the long-term care tab at a cost to taxpayers of tens of thousands more.

The estimated value of government health benefits comes from my Tax Policy Center colleague Gene Steuerle and others. Gene projects the lifetime value of ever-rising Medicare benefits in an era when per capita health costs have been growing at an annual rate of more than 4 percent after inflation. Gene adds, btw, that couple would also get the equivalent of another half million dollars in lifetime Social Security benefits.

The projection of total health costs after age 65 comes from a new study by Anthony Webb and Natalia Zhivan at the Center for Retirement Research at Boston College. Their estimates are consistent with projections of Paul Fronstin at the Employee Benefit Research Institute and others.

A very rough estimate: Many seniors will spend one-third of their retirement income on medical care, and more if they need long-term care. Why will they pay so much out of pocket? A big chunk will be premiums for Medicare Part B and Part D (the drug benefit), Medicare Supplement (Medigap) insurance, and retiree health insurance. The rest is for deductibles, copays, and other care not covered by insurance.

That $200,000 is far beyond the financial resources of most Americans. According to EBRI, the average 401(k) balance at the end of 2008 was less than $90,000, and half of plan participants had accounts of less than $45,000. Even those in their 60s had average balances of only about $125,000. Bottom line: Typical retirees would have to empty their 401(k)s just to pay for health care. Since such retirement accounts and Social Security make up the overwhelming share of most Americans’ financial assets, it is hard to see how these seniors will pay for medical treatment as well as rent, taxes, transporation, food, and the rest of their living expenses. And if they need long-term care, either at home or in a nursing facility? Don’t ask.

This, in the starkest terms, is the health care paradox. With Medicare and Medicaid spending projected to reach 15 percent of total Gross Domestic Product by mid-century, government can’t afford to keep providing ever-more costly benefits to retirees. Yet, even with Medicare benefits that are breaking the fiscal bank, many retirees face a difficult future, especially as they reach their 80s when medical and long-term care costs explode.

There are only two solutions. We need to save more for our retirement. And we must slow the growth of what we spend on medical care. As we’ve seen in the last year's health reform debate, that isn't easy. But, as these numbers show so dramatically, it is critical to both the health of seniors and the fiscal sustainability of government.

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