WOMEN, ON AVERAGE, LIVE FIVE YEARS longer than men1, but that’s not the only reason their overall health care bills tend to be higher than men’s. Until the Affordable Care Act took effect, many insurance companies charged women higher health insurance premiums. And they’re still often charged more for long-term care insurance.2 Long-term healthcare insurance premiums for single women rose by more than 12% annually between 2012 and 2014, according to the American Association for Long-Term Care Insurance. In addition, women may face obstacles finding affordable health care coverage after a divorce or the death of a spouse. The Kaiser Family Foundation estimates that in 2013, approximately 17% of women ages 19 to 64 were uninsured—leaving them without access to preventive care and more apt to postpone care when they do become ill.
Dealing with higher health care costs can be especially challenging in retirement, when you’re living on a fixed income. While the Affordable Care Act made gender-based health care insurance premiums illegal, no government initiative can take the place of planning for your own needs, says Debra Greenberg, director, Personal Retirement Solutions Group at Bank of America Merrill Lynch. “Women of all ages should budget for health care costs and incorporate future health spending into their overall financial strategy."
Here are four strategies that can help women prepare for the major health-care-related challenges they may face.
Planning ahead for higher expenses.
With Medicare covering only about 60% of the cost of health care, a 65-year-old woman will need to have between $131,000 and $176,000 saved to cover out-of-pocket expenses, according to the Employee Benefit Research Institute. "If you're still working, you could take advantage of catch-up provisions in your 401(k) plan or IRA to contribute more to your savings," suggests Greenberg. Also, working just a year or two longer than you planned can make a big difference in the amount you have available at retirement. In addition, staying in your job longer may allow you to put off starting Social Security. For each month you delay, the size of your monthly check will increase until you reach 70. Finally, consider setting aside assets into an annuity to generate income that can be used to pay premiums on a Medigap supplemental health insurance policy or a long-term-care policy.
Meanwhile, says Greenberg, "I believe it's important that women continue to invest a portion of their portfolios for a degree of growth in retirement, because it could help them stay ahead of ever-rising health costs over a retirement that could last 30 years or more." Investments designed to generate income such as bonds, dividend-paying stocks and annuities could all play a useful role in this regard.
Finding coverage after a divorce or the loss of a spouse.
Each year in the U.S., some 115,000 women lose private health insurance following a divorce, according to a 2012 study supported by the University of Michigan National Poverty Center. About 65,000 lose all health insurance coverage in the months following divorce. Women may also find themselves without coverage if they're widowed. If you separate or divorce, or if your spouse dies, COBRA legislation allows you to stay on your current plan for three years, though you must pay the premiums. As an alternative, you might consider joining an association that is able to offer you coverage at a group rate. A third option is private insurance — it gives you the flexibility to select a health plan with features that suit your specific needs but is generally a costly option. In the case of a divorce, you might negotiate for your former spouse to pay for coverage during a certain period.
For some women, it could make sense to consider plans with high deductibles, says Greenberg. Premiums are lower because you pay a greater portion of your health expenses out of pocket. People with high deductible plans often couple them with a health savings account (HSA). In these accounts, contributions are tax-deductible and your money is allowed to grow, with earnings either tax-free or tax-deferred. Then, if a need arises, you can use assets in the account to pay for any qualified medical expense. Compare health plans online at HealthCare.gov.
Insurers can still charge women higher premiums on long-term care, so it's important to consider all your options to keep costs down.
Combating gender-based premiums.
The Affordable Care Act outlawed gender-rated premiums for health insurance sold to individuals, as well as prohibiting insurers from denying coverage for a pre-existing medical condition, limiting benefits or imposing limits on coverage. That has made it possible to shop for competitively priced health plans through a system of state-based or federally-facilitated health insurance exchanges. But the new laws don't ensure gender equality on all medical fronts. For example, insurers can still charge women higher premiums on long-term care, so it's important to consider all of your options to keep costs down while still maintaining the coverage you need.
Buying long-term care insurance before you need it.
One reason women pay more for long-term-care insurance is that, statistically speaking, they are likely to use more of it. In fact, women, on average, use 3.7 years of long-term care (compared with 2.2 years for men)3 at a total cost of more than $300,000.4 The earlier you purchase coverage the less expensive the premiums will be. One option could be a "hybrid" life insurance policy — one that contains additional features to help cover long-term care among other financial needs. This is a permanent life insurance policy with a long-term-care benefit rider, purchased with a single lump sum. Unlike a traditional long-term-care policy, a hybrid allows you to tap the assets for other needs.
As you compare long-term-care options, your financial advisor can help you consider such questions as the range of services the policy includes, whether it pays for in-home care, assisted living, adult day care or nursing home stays, and what level of daily benefits will be paid based on the type of care you receive.
Whether you're married or single, it makes sense to talk with your financial advisor about these and other strategies to help factor health care cost strategies into your retirement planning.
3 Questions to Ask Your Financial Advisor
- How do projected health care expenses fit into my overall retirement strategy?
- What strategies can I use to help prepare for rising health care costs?
- Could this be the right time for me to consider long-term-care insurance?
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1 National Center for Health Statistics, "Health, United States, 2014: With Special Feature on Adults Aged 55–64," 2015.
2 American Association for Long-Term Care Insurance, "Average Costs For Long Term Care Insurance Rise 8.6 Percent,” January 27th, 2015
3 "Long-Term Care Over an Uncertain Future: What Can Current Retirees Expect?” Peter Kemper et al., Inquiry 42: 335–350 (Winter 2005/2006). p342.
4 "Cost of Care." LongTermCare.gov, 2010.
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