The New Rules of Retirement

Chapter 6Handling the Medical Expense Wild Card

Medical expenses are among the greatest fears of retirees and preretirees. One survey found that medical expenses and long-term care expenses are more of a worry for retirees than death. Medical insurance and other ways to pay for the expenses are among the least understood (or most misunderstood) parts of retirement finance. It's not surprising.

People are living longer, and aging is associated with higher medical expenses. Also, many people live those longer lives with chronic diseases or conditions. Older Americans often regularly take prescription medications to control diseases or conditions such as high blood pressure, diabetes, high cholesterol, heart disease, and others. There also are treatments and procedures for other conditions that once had no real treatment. These prescription drugs and treatments are doing wonderful things. Yet, someone has to pay for them.

Paying for medical care during retirement used to be simple. Most retirees had medical care covered by their former employers or labor unions. By the 1980s, 70 percent of even early retirees still had employer-paid health care coverage. But rapidly rising health care costs—due to longer life spans, more sophisticated medical technology, and greater use of prescription drugs—caused employers and unions to cut back on retiree health coverage. Another important factor was a change in accounting rules. The rules were changed to require companies to recognize on their ...