Why You Should Save for Health Care the Way You Save for Retirement
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Why You Should Save for Health Care the Way You Save for Retirement

iStockphoto/The Fiscal Times

Should you save for health care the way you save for retirement?

Well, the folks selling flexible spending accounts, health reimbursement arrangements and other such products wish you would. Alegeus, one of the companies doing so, issued a report noting that 20% more workers are considering health care alternatives before undergoing a major procedure. In a survey of 1,000 customers, Alegeus found that while 76% of consumers want to get the best value for their health care costs, more than 50% don't know the cost of a service or procedure until their bill arrives. Roughly 59% research procedure success rates, 54% research their doctor's quality ratings and 54% seek a second opinion.

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However, only 34% know what the annual costs of their health care will be and what their insurance will cover. Beyond that, only 23% save "aggressively" for major health care issues."It's clear that consumers will need significant education, tools and support as they assume more financial responsibility for health care costs," said Steve Auerbach, chief executive at Alegeus.

But that's from the head of a company banking on U.S. workers having just about no other options for paying their health care costs. Currently, the Centers for Disease Control and prevention put the rate of uninsured U.S. citizens at 9.1%, down from 15% in 2011. According to the Health Care Cost Institute (HCCI), a Washington-based research group of medical professionals and economists, just 43% of annual health care spending comes from services that consumers can shop for based on price. Of that, just 7% of the total cost of those services is paid for by consumers out of pocket.

"There is not that much savings to be gained from consumer shopping for many non-emergency services," says Amanda Frost, an HCCI researcher. "While we strongly believe that consumers are entitled to price information and to know what they are going to pay prior to any health care service, we shouldn't rely on price transparency as a way to create savvy shoppers to save health care dollars."

That said, it doesn't mean that consumers shouldn't shop around when possible. HCCI looked into the cost of "shoppable" items including flu shots, non-emergency hip or knee replacement, colonoscopies, urinalysis and blood and strep tests (but not prescription drugs). While shopping around could influence about 65% of all out-of-pocket payments, roughly 44% of all out-of-pockets payments boiled down to those knee and hip replacements and related care. As HCCI discovered, a knee replacement in Palm Bay Fla., for example, costs $16,822 more than the same surgery 180 miles away in Miami. The prices of those procedures also varied widely in Kentucky, Texas and Georgia. That said, the prices of the procedures that folks aren't paying for out of pocket tend to vary far more.

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"Consumers are entitled to price and quality information," says Lynn Quincy, of consumer advocacy group Consumers Union. "But we need to be realistic about how much having this kind information can drive changes in the market."

According to HCCI, health care costs grew between 3% and 4% each year since 2010. Meanwhile, the 16.3% of total health care spending currently paid for out-of-pocket is the lowest share since 2011, but still 2.2% (or $17 more) than it was in 2013. That includes a steep decrease in out-of-pocket prescription spending on both brands and generics, but a huge uptick in average spending of outpatient services and professional procedures.

Currently, the average cost of health care per person, per year is $4,967. However, that ranges from $2,660 annually for children under 18 to $9,466 a year for those between 55 and 64. If you're 19-25 ($2,760 annually, on average), 26 to 44 ($4,312) or 45 to 54 ($6,456), you can either budget about 16% of that a year and plan accordingly or roll the dice and hope for a particularly healthy year.

However, considering that annual out-of-pocket costs rise from $472 for kids to a whopping $1,300 a year for pre-Medicare adults, it may be worth taking those extra costs under consideration. It's also worth noting that those costs don't end there. According to a survey by long term care insurance provider Genworth, which also has an interest in the outcome, 70% of people over 65 will need long-term care. Yet even 77% of the wealthy investors surveyed by financial firm UBS Wealth Management have not set funds aside for future medical expenses, with just 8% receiving advice on managing future health care costs. Only 50% have factored healthcare costs into their overall financial plan, and only 23% have saved for their future care.

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The Census Bureau determined last year that the population of Americans aged 65 and older will grow to greater than 80 million by 2050. Meanwhile, the number of people likely to require long-term care is expected to more than double from 12 million today to 27 million over that time span.

"Maintaining self reliance is important to the vast majority of investors," said Paula Polito, client strategy officer at UBS Wealth Management Americas. "Having a plan in place for long-term care before they actually need it will help them avoid burdening their children."

It's also just a good idea to know what kind of hit is coming. According to Genworth, the median cost of homemaker services -- which helps with household chores that can no longer be managed alone, including cooking, cleaning and running errands -- is $20 an hour nationwide. That's 2.63% more than it was in 2014 and has jumped 1.61% in each of the last five years. If you have to hire a home health aide for various personal needs that fall just shy of medical care, the media rate charged by a non-Medicare certified, licensed agency is also $20 an hour. Even that's 1.27% more than it was in 2014 after a 1.03% bump in each of the last five years. Adult Day Health Care (ADC) -- which provides social activities and outings, but also may include personal care, transportation, medical management and meals -- clocks in at a median cost of $69 a day. Demand has increased significantly, however, driving up costs 5.94% from 2014 and hiking it 2.79% annually since 2011.

Few actually want to leave their homes, but one of the more popular options -- Assisted Living Facilities (ALF) that provide  personal care and health services just short of those offered in a nursing home -- comes at a median cost of $3,600 a month. According to a report from Caring.com, just 53% of people 65 and older would consider an assisted-living facility for their long-term care, 64% of those ages 30 to 64 are mulling the option. That's forced costs up 2.86% from 2014 and 2.48% a year for the last half decade.

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"In some cultures, senior living facilities have been seen as taboo, as in: 'I would never put Mom in a home,'" said Dayna Steele, Caring.com's chief caring expert and the author of Surviving Alzheimer's with Friends, Facebook and a Really Big Glass of Wine. "But most of today's assisted living communities are really nice and nothing like the negative stereotypes of the past."

Nursing homes provide personal care assistance, room and board, supervision, medication, therapy, rehabilitation and 24-hour on-site nursing care. They also start at a median cost of $220-a-day for a semi-private room (up 3.7% from 2014 and 3.5% a year from 2011) or $250 a day for a private room (up 4.17% from 2014 and nearly 4% a year over the last five years. That's just over $80,000 a year at its median cheapest and more than $91,000 if you want some personal space.

Yes, Medicare and Medicaid chip in, but even a reduced cost prevents roughly 18% of Caring.com survey respondents from having an overall bad impression of senior living facilities. About 41% of those who wouldn't consider a senior care facility of any kind would rather live on their own. Roughly 29% would choose to live with or be cared for by family. Of the women surveyed by Nationwide, 73% prefer to get long-term care in their own home, but only 51% think they will.

Among UBS investors who can't live alone but don't want to go into a nursing home, 15% would opt for their child's home. As for who actually provides the care, 80% of investors want their spouse to care for them and 67% want a home health aide. Just 27% want a child to care for them. However, even though 57% of those wealthy investors say long-term health care is important to them, just 48% think they'll be able to find it. About half (49%) said they are "highly concerned" about rising health care costs.

Meanwhile, 64% of women surveyed by Nationwide say they are "terrified" of what health care costs may do to their retirement plans, 47% are willing to give all their money to their children so they could be eligible for Medicaid-funded long-term care. However, while it may seem early for most workers who are covered by insurance to parse out the costs of health care, the health care savings folks are right about one thing: It never hurts to price out health care costs in advance.

"We don't pay for health care, we pay for a physical or an ER visit," said Eric Barrette, director of research at HCCI. "By drilling down into the price of individual services, we can better see where prices are higher than average and begin to unpack what is driving those higher prices."

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