What is your plan for health care?

What do you really spend on health care?
And what’s your retirement plan for long-term care and other medical costs?

Next, write down the total federal taxes you pay for the year. Total federal spending on health care programs and services (fiscal year 2023) accounts for about 29 percent of federal outlays (considering the offsetting program revenues) including Medicare.

Close to one-third of your federal taxes pay for health care. Government spending and programs such as Obamacare are easy targets, but the fact is Medicare accounts for the largest share, followed by Medicaid.

Premium subsidies for ‘Affordable Care Act’ marketplace plans are just under 5% of mandatory federal dollars spent on health care, compared with 50% for Medicare and 37% for Medicaid. (The inconsistent percentages have to do with mandatory and discretionary spending classifications.) For Minnesota, where my family lives, health and human services account for close to half of the ten state’s budget bills, double the cost of K-12 education. Whatever percentage you select, a good amount of your state taxes pays for health care too.

Now that you’re retiring (or already retired), what’s your plan for health care?

Good data on what to expect to pay as a Medicare enrollee can be found online at Medicare.gov. What you’ll pay out-of-pocket depends on the plan you choose and of course your health. Your total costs include premiums, plus costs for services beyond what Medicare covers, plus noncovered services ─ especially long-term care, home care, and routine services not covered by your supplemental plan (if you choose one).

Medicare pays about 55 percent of health costs for enrollees; you pay the rest directly or with a supplemental (Medigap) Medicare policy. It’s a big retirement budget number. Long term care is the largest gap. Medicare pays for only about 5 percent of costs (with limited inpatient days paid). Skilled nursing or other facility care can quickly add up. Without substantial savings to pay for it, long term care can quickly wipe out your retirement savings. The odds are not in our favor: about two-thirds of us will need long term health care, and about one-third has long term care insurance.

For most retirees, it is our most glaring personal risk.

The good news? We have more and better choices today for receiving care services and paying for them.

Most folks prefer to stay in their own home. Home care services have grown by leaps and bounds. Transitional care retirement communities providing independent living and higher levels of care have expanded too.

Long term care insurance is expensive, and most policies have waiting periods to use the benefits. Concerns about paying for insurance that will never provide a benefit is valid, and my family experienced this first-hand with my parents.

This is the nature of insurance – pooling risk and paying premiums for a benefit we hope to never use. But long-term care is different: costs are very high and the probability of needing it is high too.

It’s why hybrid insurance solutions have evolved and might be much better options. Both life insurance and select annuity contracts have benefit riders that provide access to bonused benefit dollars to pay for long term care and home care services.

Benefits are leveraged in these contracts make them worth exploring. And they have more flexibility, even with qualifying activities of daily living (ADLs). They are insurance contracts, and they pool risk.

The bottom line?

Have a plan for health care. Discuss the options with your financial advisor. Advisors can and should add value to your planning for health care. Even if you’re able to self-fund $300,000 for health care, you will benefit by not feeling captive to your assets “just in case” you need long term care. And your family will thank you for planning.