The Future Costs of Healthcare

The Future Costs of Healthcare

From 2015 to 2016, the U.S. economy continued to keep inflation in check, with overall costs rising an average of 0.7%. During the same period, however, healthcare costs rose by a startling 7.3%. Unfortunately, this is by no means a one-time anomaly. Over the past thirty years, the overall cost of living has approximately doubled while medical costs have practically quadrupled.1

Looking ahead, there are even more ominous storm clouds on the horizon. Over the coming decade, healthcare cost increases are expected to outpace Social Security cost-of-living adjustments by more than 50%, further straining retiree wallets.2 In fact, according to Fidelity Benefits Consulting, by 2027 considerably more than 60% of an average retiree’s Social Security income will likely be consumed by annual medical costs.

Why are healthcare costs rising at such an accelerated rate and threatening to adversely impact the quality of life for millions of current and future retirees? The answer can be found in a simple examination of supply and demand.

Demand outpacing supply

By 2025, the U.S. population will have increased from 319 million to 346 million – predominantly fueled not by new births but by increasing longevity. While the population of Americans under age 18 is expected to grow by 5%, it’s anticipated that the population of those over age 65 will increase by more than 40%. Within a decade, the nation’s population of seniors will exceed 60 million.3

Conversely, the supply of caregiving professionals is struggling to keep pace. Physician demand will continue to grow faster than supply, resulting in a projected total physician shortfall of between 61,700 and 94,700 physicians by 2025.4 More than a million vacancies for registered nurses are expected to emerge, and the number of home health aides (extremely difficult positions to fill because of low wages and high burnout) will need to increase by 34% merely to keep pace with growing demand.1

The result is something of a healthcare perfect storm – with substantive cost increases all but inevitable.

Planning ahead

Far too many investors mistakenly believe that Medicare will cover all or most of their healthcare expenses; unaware of the substantial out-of-pocket premiums, deductibles, co-pays and supplemental insurance costs, not to mention the costs associated with long-term care. As a result, putting aside sufficient assets to cover your healthcare costs in retirement is a frequently overlooked aspect of financial planning.

As is typically the case with most types of planning, the earlier you start the more strategies and options will be open to you. In light of the aforementioned inflation data, however, you’ll want to give serious consideration to the questions of A) are you really saving enough; and B) are you investing too conservatively? Your SunTrust advisor can help you answer these challenging questions by working with you to estimate your annual healthcare costs (factoring in inflation), reviewing your long-term care funding options, and integrating these expenses more fully into your overall retirement plan…because protecting and preserving your wealth is just as important as acquiring it.

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1 U.S. Bureau of Labor Statistics, November 2016

2 HealthView Services’ 2016 Retirement Health Care Costs Data Report

3 U.S. Bureau of the Census, 2014

The Complexities of Physician Supply and Demand: Projections from 2014 to 2025, Association of American Medical Colleges, April 2016

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