Life Expectancy and Healthcare Planning

“What was the key event of the 20^th century?”

The question was posed to a group of financial advisors by Leslie D. Michelson, CEO of Private Health Management, Inc., Los Angeles, CA. One can name many world shaping events including advancements in aviation, the microchip, etc. Michelson opined that the one event that most greatly impacts your life and your planning is the increase in life expectancy.

 Life expectancy rates in the Middle Ages in Europe were skewed by a high infant mortality rate, but few adults survived past age 45. Little progress was made even into the Industrial Age. A baby born in America in 1900 had a life expectancy of 48 years. With advancements in medicine and medical technology, a child born in 2000 had a life expectancy of 78 years—a 60% increase in 100 years!

 Life expectancy is the expected number of years to be lived on average for a particular group. “Life expectancy at birth” assumes that mortality trends continue for the rest of the group’s life. Leading edge boomers born in 1946 had a life expectancy at birth of 63.6 years for males, 68.1 years for females. A median average assumes that half of those would die before their scheduled expiration date, and half would live longer.

 Fortunately for the boomers still around, life expectancy has increased. A male boomer turning 65 today has an additional 18.6 years of life expectancy and a woman 20.9 years. We expect half to live longer, half to die sooner. Given the potential for longer life, how do you plan for health-related expenses in retirement? How will your healthcare be delivered?

 More physicians are moving to concierge medicine, no longer the province of the super rich. Concierge medicine is encompassing a wider range of services and access arrangements. Fees may be a doctor’s sole source of income or he/she may take insurance, with fees supplementing income. Fees at the lower end may be in the $1200-$1800 annual range. For a family or retired person, that becomes an added cost.

 With boomers retiring and governmental mandates covering more people with insurance, plus entitlements like “free annual screenings”, demand for medical services will accelerate. The supply of physicians will not keep pace. Many services will be delivered by paraprofessionals, nurse practitioners, and physician’s assistants.

 ABC News, WTDV Raleigh-Durham, NC, teamed up with AARP and volunteers “shopped for a new doctor.” Randomly calling family physicians, nearly 50 percent of the 200 doctors contacted are not taking new Medicare patients. With Medicare and Medicaid squeezing doctors on reimbursements, expect the physician shortage to get worse.

 Your health care expense budget may have to be far larger than you imagine. We may be headed toward a private pay option for those who can afford it and a public system for everyone else. Quality care and timely access may be a matter of affordability or sacrifice in some other aspect of retired life.

 Fidelity estimates that a couple age 65 retiring in 2012 needs $240,000 to cover medical expenses. Fidelity applied a 17 year life expectancy for the husband, 20 years for the wife. Cost sharing under Medicare was included; the projection excludes expenses such as over-the-counter medications, most dental services, and long term care. Fidelity’s estimate was $160,000 in 2002, indicating a 50 percent increase over ten years.

 Fidelity assumed that the female retiree would live to age 85. However, women are living longer, and more do so alone due to divorce or widowhood. Of females age 85 and over, only 13 percent are married with a spouse present. That could mean higher costs for care or a burden on boomer children.

 Consider changes in Medicare as a factor in health care estimates. Means testing, an increased eligibility age, waiting periods, or de facto rationing as physicians opt out and concierge medicine becomes more common, would increase cost burdens.

 Realistic estimates of healthcare costs in retirement are critical in investment choices leading up to retirement and in budgeting thereafter. The challenge is compounded by the lowest interest rates in decades and the potential for rising rates and galloping inflation. Healthcare and wealthcare are inextricably intertwined. 

Lewis Walker is President of Walker Capital Management LLC. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA).  Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies. ▪  3930 East Jones Bridge Road ▪ Suite 150 ▪ Norcross, GA 30092 ▪ 770-441-2603 ▪