Does health care cost too much?

Pills and surgery cost more than staying healthy

Planning for early retirement? Or retirement? Already retired? Then you know one of the biggest uncertainties is the cost of health care. What is the average cost of health insurance in retirement? Short answer? A lot.

The problem is multi-faceted. Individual health insurance was expensive, even before the Affordable Care Act (ACA or Obamacare). It’s even more expensive now. If you’re paying the full, unsubsidized premium.

Is the ACA is a good thing or bad thing? It depends on your individual circumstances of age, health, income, and wealth. How to reform the ACA is an open question.

But let’s ignore health insurance for a moment. Just look at the cost of the underlying health care.

The primary reason health insurance is expensive is that health care is expensive.

Average Cost of Health Insurance

Health care continues to go up in price (inflate) faster than personal income. As a result, it is taking a larger and larger share of consumer’s income. That leaves less purchasing power for all other priorities.

“Health care expenditures as a percentage of total consumer spending hit a record high [in 2017].

average cost of health insurance

Source: @epomboy, @DeanDijour “ as reported in The Wall Street Journal 5/1/2017

Health care is great if someone else is paying. But if we’re footing the bill, either as taxpayers or consumers, is there some limit? What can we afford? Whether as individuals or society? We’re approaching 20% of all income going to health care.

Can we afford 25%, 33%, or 100%? That’s a bit facetious. We can’t spend every dollar on health care. We’d have nothing for equally important priorities like food, shelter, or education. We don’t have a bottomless checkbook. Neither does the guy behind the tree (society).

How much of your personal income or wealth are you planning to dedicate to health care in retirement?

According to Fidelity Investments, an average 65-year old couple today needs $260,000 for health care during retirement. (Your actual mileage may vary.) Unfortunately, early retirees need even more. And health care costs are going up 6% a year.

That’s $600 a month for the average cost of health insurance in retirement. Including insurance premiums, deductibles, and out-of-pockets or other cost-sharing.

The average cost of health insurance is rising. Now you see why we’re emphasizing staying healthy through diet and exercise. It’s cheaper than pills or surgery. 

average cost of health insurance in retirement