Tag Archives: Robert Schmidt

Retiree health cost estimates for 2020

The potential cost of healthcare as a retiree is important to consider well before an employee decides to retire. These costs can change as a result of regulations, inflation, new drugs, health risks, etc. Each year, Milliman develops estimates of retiree health costs in order to educate employees and retirees about the potential cost of healthcare over the course of retirement. This post outlines four different scenarios of projected costs to help prospective retirees plan appropriately.

(1) Projected costs for a healthy 65-year-old couple retiring in 2020

A healthy 65-year-old couple retiring in 2020 is projected to spend approximately $351,000 in today’s dollars ($535,000 in future dollars) on healthcare over their lifetime. Expenses at age 85 are estimated to be 234% higher than at age 65.

(2) Projected costs for a healthy 45-year-old couple

A healthy 45-year-old couple is projected to spend approximately $505,000 in today’s dollars ($1.4 million in future dollars) on healthcare over their lifetime.

Both scenarios (1) and (2) above have calculated these projected costs using the following assumptions:

  • The health statuses of the retiree and spouse are assumed to be average for their entire life spans.
  • The retiree and spouse are assumed to be male and female with life spans of 88 and 90, respectively.
  • Nationwide average premiums and out-of-pocket expenses from a retirement age of 65 through life span for a Medicare Supplement Plan G and a standard Medicare Part D plan are used.
  • Future medical trend is assumed to be 4.9% per year. This assumption is based on long-term estimates from a Society of Actuaries model, supplemented with Milliman research and converted to an annual equivalent rate.
  • For calculations of present values in today’s dollars, investment return of 3.0% per year is used.
(3) Average premium plus out-of-pocket cost at age 65

The estimated 2020 annual premium plus out-of-pocket cost for a healthy 65-year-old is $4,700.

Scenario (3) has calculated the out-of-pocket cost using the following assumptions:

  • The health status of the retiree is assumed to be average. The average is based on a typical commercially insured population based on the Milliman Health Cost GuidelinesTM.
  • A male or female age 65 is assumed.
  • 2020 nationwide average premiums and out-of-pocket expenses at age 65 for a Medicare Supplement Plan G, Medicare Part B, and a standard Medicare Part D plan are used, based on the Milliman Health Cost Guidelines and premium information obtained from the Centers for Medicare and Medicaid Services (CMS).
(4) Portion of Social Security benefit spent on healthcare

A healthy 67-year-old couple is projected to spend 34% of their Social Security benefit on healthcare in 2020.

Scenario (4) calculations are based on the following assumptions:

  • The health statuses of the retiree and spouse are assumed to be average. These averages are based on a typical commercially insured population based on the Milliman Health Cost Guidelines.
  • The retiree and spouse are assumed to be male and female.
  • 2020 nationwide average premiums and out-of-pocket expenses at age 67 for a Medicare Supplement Plan G, Medicare Part B, and a standard Medicare Part D plan are used, based on the Milliman Health Cost Guidelines and premium information obtained from the CMS.
  • The December 2018 average monthly Social Security benefit at age 65-69 of $1,432.02 for retirees and $849.81 for spouses is used, with adjustments to 2019. Social Security cost of living adjustments of 2.8% in 2019 and 1.6% in 2020 are used.
Conclusion

The healthcare marketplace is volatile, partially due to legislative and regulatory changes, as well as the state of the drug pipeline, among other factors. Actuarially derived health cost estimates can help employees plan for the future and ensure that their retirement account is funded appropriately to reach the healthcare needs of the future.

This article first appeared in the Health and Group Benefits News and Developments: April 2020.

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Managing the cost of employer-based health benefits

Managing health benefit spend in today’s complex marketplace requires consistency, resourcefulness, and knowledge. Given the rising costs of employer-based health benefits, this already difficult task can start to feel overwhelming.

The financial risks associated with offering a health benefit plan can’t be entirely eradicated. But there are many proactive steps plan sponsors can take to optimize their approaches to health benefits. By taking advantage of available expertise, research-based insights, analytics, and communications, plan sponsors of all sizes can keep costs low and get the most out of their plans.

In this paper, Milliman’s Robert Schmidt discusses five ways that plan sponsors can manage their health benefit spend.

Four steps financial advisers can take to help clients with health and wealth planning

According to the Milliman Medical Index, healthcare costs for a hypothetical American family of four with an average employer-sponsored preferred provider organization grew at 10% a year in the early 2000s and, more recently, at 3.8% from 2018 to 2019. Medical expenses make up a significant portion of retirement living, and the costs of long-term care are rising. As a result, people are looking for ways to protect their long-term health and wealth. They expect their financial advisers to create more comprehensive plans that will help them in this quest.

How can financial advisers provide clients with better financial planning solutions and stand out from the competition? Here are four foundational components that will enable financial organizations to better support financial advisers in providing more targeted retirement planning solutions:

  1. Data on healthcare costs
  2. Future cost projections
  3. Connections to different conditions
  4. Delivery through application programming interfaces

By using these resources to provide clients with better health and wealth planning, financial advisers can realize four key advantages:

  1. Better protection and insurance
  2. Better tax planning
  3. More sound financial advice
  4. Happier clients

To learn more about these four foundational components and these four key advantages, read this paper by Milliman consultants Joseph Boschert, Janet Jennings, and Robert Schmidt.

The connections between health and wealth run deep

There is a strong connection between health and wealth. The relationship between the two is not limited to one country or ethnic group. Research shows that people classified as having “high socioeconomic status” are more likely to be healthier than those classified as having “low socioeconomic status.” People who are committed to improving their wealth, both in the short and long term, are also likely to care about their short-term and long-term physical health.

In addition, several studies have found that the overall health of a country’s population is positively tied to its level of economic development, while overall health falls in relation to the decline in the level of economic inequality.

In this paper, Milliman’s Joseph Boschert, Janet Jennings, and Robert Schmidt discuss the various connections between health and wealth and the repercussions of ignoring those connections.

How much does retiree healthcare cost?

Projecting retiree healthcare costs is complex. Milliman’s estimates are developed to help educate employees and retirees about the potential cost of retiree healthcare. Below are some recent findings:

  • A healthy 65-year-old couple retiring in 2019 is projected to spend $369,000 in today’s dollars ($551,000 in future dollars) on healthcare over their lifetime, and expenses at age 85 are estimated to be 250% higher than at age 65.
  • A healthy 67-year-old retired couple is projected to spend 39% of their pre-tax Social Security benefit on healthcare in 2019.
  • A healthy 45-year-old couple who retires at age 65 is projected to pay $532,000 in 2019 dollars, and $1.4 million over their retirement years, for retiree healthcare.
  • The estimated 2019 annual premium plus out-of-pocket cost for a healthy 65-year-old is $5,000.

To see more retiree health cost estimates, read Robert Schmidt’s paper here.

Private health exchange reading list

Employers are increasingly considering the option of offering their employees health insurance through private health exchanges (PHEs). Plan sponsors should understand the financial and administrative implications involved with PHEs before opting into one. The following list of articles from Milliman consultants can help employers evaluate key issues regarding PHEs.

Private exchanges: The future for large plan sponsors or a passing fad?
By Troy Filipek, Gregory Herrle, and Paul Houchens

Private exchanges and plan sponsors: The headlines, facts, opportunities, and potholes
By Robert Schmidt and Suzanne Taranto

Private health exchanges for large employers: Some questions to ask
By Dan Bostedt

Four things employers should know when evaluating private health exchanges
By Mike Williams and Stephanie Noonan