MONEY Health Care

You Can Now Use a Yelp-Like Star System to Check Out a Hospital

hotel sign with stars
Agencja Fotograficzna Caro—Alamy

The federal government's new ratings show you how satisfied patients have been with their care.

In an effort to make comparing hospitals more like shopping for refrigerators and restaurants, the federal government has awarded its first star ratings to hospitals based on patients’ appraisals.

Many of the nation’s leading hospitals received middling ratings, while comparatively obscure local hospitals and others that specialized in lucrative surgeries frequently received the most stars.

Evaluating hospitals is becoming increasingly important as more insurance plans offer patients limited choices. Medicare already uses stars to rate nursing homes, dialysis centers, and private Medicare Advantage insurance plans. While Medicare publishes more than 100 quality measures about hospitals on its Hospital Compare website, many are hard to decipher, and there is little evidence consumers use the site very much.

Many in the hospital industry fear Medicare’s five-star scale won’t accurately reflect quality and may place too much weight on patient reviews, which are just one measurement of hospital quality. Medicare also reports the results of hospital care, such as how many died or got infections during their stay, but those are not yet assigned stars.

“There’s a risk of oversimplifying the complexity of quality care or misinterpreting what is important to a particular patient, especially since patients seek care for many different reasons,” the American Hospital Association said in a statement.

Medicare’s new summary star rating, posted Thursday on its Hospital Compare website, is based on 11 facets of patient experience, including how well doctors and nurses communicated, how well patients believed their pain was addressed, and whether they would recommend the hospital to others. Hospitals collect the reviews by randomly surveying adult patients–not just those on Medicare—after they leave the facility.

In assigning stars, Medicare compared hospital against each other, essentially grading on a curve. It noted on its Hospital Compare website that “a 1-star rating does not mean that you will receive poor care from a hospital” and that “we suggest that you use the star rating along with other quality information when making decisions about choosing a hospital.”

Nationally, Medicare awarded the top rating of five stars to 251 hospitals, about 7% of all the hospitals Medicare judged, a Kaiser Health News analysis found. Many are small specialty hospitals that focus on lucrative elective operations such as spine, heart or knee surgeries. They have traditionally received more positive patient reviews than have general hospitals, where a diversity of sicknesses and chaotic emergency rooms make it more likely patients will have a bad experience.

A few five-star hospitals are part of well-respected systems, such as the Mayo Clinic’s hospitals in Phoenix, Jacksonville, Fla., and New Prague, Minn. Mayo’s flagship hospital in Rochester, Minn., received four stars.

Medicare awarded three stars to some of the nation’s most esteemed hospitals, including Cedars-Sinai Medical Center in Los Angeles, NewYork-Presbyterian Hospital in Manhattan, and Northwestern Memorial Hospital in Chicago. The government gave its lowest rating of one star to 101 hospitals, or 3%.

On average, hospitals scored highest in Maine, Nebraska, South Dakota, Wisconsin, and Minnesota, KHN found. Thirty-four states had zero one-star hospitals.

Hospitals in Maryland, Nevada, New York, New Jersey, Florida, California, and the District of Columbia scored lowest on average. Thirteen states and the District of Columbia did not have a single five-star hospital.

In total, Medicare assigned star ratings to 3,553 hospitals based on the experiences of patients who were admitted between July 2013 and June 2014. Medicare gave out four stars to 1,205 hospitals, or 34% of those it evaluated. Another 1,414 hospitals—40%— received three stars, and 582 hospitals, or 16%, received two stars. Medicare did not assign stars to 1,102 hospitals, primarily because not enough patients completed surveys during that period.

While the stars are new, the results of the patient satisfaction surveys are not. They are presented on Hospital Compare as percentages, such as the percentage of patients who said their room was always quiet at night. Often, hospitals can differ by just a percentage point or two, and until now Medicare did not indicate what differences it considered significant. The Centers for Medicare & Medicaid Services (CMS) also uses patient reviews in doling out bonuses or penalties to hospitals based on their quality each year.

Some groups that do their own efforts to evaluate hospital quality questioned whether the new star ratings would help consumers. Evan Marks, an executive at Healthgrades, which publishes lists of top hospitals, said it was unlikely consumers would flock to the government’s rating without an aggressive effort to make them aware of it.

“It’s nice they’re going to trying to be more consumer friendly,” he said. “I don’t see that the new star rating itself is going to drive consumer adoption. Ultimately, you can put the best content up on the Web, but consumers aren’t going to just wake up one day and go to it.”

Jean Chenoweth, an executive at Truven Health Analytics, which also publishes its own list of top hospitals, said she feared hospital marketing departments would oversell the meaning of the stars. “It would be very unfortunate and misleading if a hospital marketing department could claim to be a CMS five-star hospital and fail to mention it only reflected a patients’ perception of care,” she said.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

MONEY Medicare

Congress Just Passed a Medicare ‘Doc Fix.’ Here’s What That Means to You

doctor with money in his lab coat pocket
Peter Dazeley—Getty Images

Both houses have approved an overhaul to how Medicare reimburses doctors. Will that mean higher costs for seniors?

Medicare’s troubled physician payment formula will soon be history.

As expected, the Senate Tuesday night easily passed legislation to scrap the formula, accepting a bipartisan plan muscled through the House last month by Speaker John Boehner and Democratic leader Nancy Pelosi. The Senate vote came just hours before doctors faced a 21% Medicare pay cut.

Under the bill, the current reimbursement schedule would be replaced with payment increases for doctors for the next five years as Medicare transitions to a new system focused “on quality, value and accountability.” Existing payment incentive programs would be combined into a new “Merit-Based Incentive Payment System” while other alternative payment models would also be created.

“Passage of this historic legislation finally brings an end to an era of uncertainty for Medicare beneficiaries and their physicians—facilitating the implementation of innovative care models that will improve care quality and lower costs,” said Dr. James L. Madara, chief executive officer of the American Medical Association. “Patients will be able to get the care they need and deserve.”

The Senate voted 92 to 8 to approve the legislation, which the House passed 392-37.

It now moves to President Barack Obama, who—shortly after the Senate vote—said he would sign the bill, calling it “a milestone for physicians, and for the seniors and people with disabilities who rely on Medicare for their health care needs.”

There’s enough in the wide-ranging measure for both sides to love or hate. “Like any large bill it’s a mixed bag in some respects, but I think on the whole it’s a bill well worth supporting,” Senate Majority Leader Mitch McConnell, R-Ky., said Tuesday.

The bill includes two years of funding for an unrelated program, the Children’s Health Insurance Program, or CHIP. GOP conservatives and Democrats are unhappy that the package isn’t fully paid for, with policy changes governing Medicare beneficiaries and providers paying for only about $70 billion of the approximately $210 billion package. The Congressional Budget Office has said the bill would add $141 billion to the federal deficit.

Consumer and aging organizations also have expressed concerns that beneficiaries will face greater out-of-pocket expenses on top of higher Part B premiums to help finance the way Medicare pays physicians.

But lawmakers said they had struck a good balance in their quest to get rid of the old system. “I think tonight is a milestone for the Medicare program, a lifeline for millions of older people,” said Sen. Ron Wyden, D-Ore. “That’s because tonight the Senate is voting to retire the outdated, inefficiency rewarding, common sense-defying Medicare reimbursement system.”

For doctors, the passage is an end to a familiar but frustrating rite. Lawmakers have invariably deferred the cuts prescribed by a 1997 reimbursement formula, which everyone agreed was broken beyond repair. But the deferrals have always been temporary because Congress has not agreed to offsetting cuts to pay for a permanent fix. In 2010, Congress delayed scheduled cuts five times.

Here are some answers to frequently asked questions about the legislation and the congressional ritual known as the doc fix.

Q: How would the bill change the way Medicare pays doctors?

The House package would scrap the old Medicare physician payment rates, which were set through a formula based on economic growth, known as the “sustainable growth rate” (SGR). Instead, it would give doctors an 0.5% bump in each of the next five years as Medicare transitions to a payment system designed to reward physicians based on the quality of care provided, rather than the quantity of procedures performed, as the current payment formula does. That transition follows similar efforts in the federal health law to link Medicare reimbursements to quality metrics.

The measure, which builds upon last year’s legislation from the House Energy and Commerce and Ways and Means committees and the Senate Finance Committee, would encourage better care coordination and chronic care management, ideas that experts have said are needed in the Medicare program. It would reward providers who receive a “significant portion” of their revenue from an “alternative payment model” or patient-centered medical home with a 5% payment bonus. It would also allow broader use of Medicare data for “transparency and quality improvement” purposes.

House Energy and Commerce Committee Chairman Fred Upton, R-Mich., one of the bill’s drafters, has called it a “historic opportunity to finally move to a system that promotes quality over quantity and begins the important work of addressing Medicare’s structural issues.”

A “technical advisory committee” will review and recommend how to develop alternative payment models. Measures will be developed to judge the quality of care provided and how physicians will be rewarded or penalized based on their performance. While the law lays out a structure on how to move to these new payment models, much of their development will be left to future administrations and federal regulators. Expect heavy lobbying from the physician community on every element of implementation.

Q. Will seniors have to help pay for the plan?

Starting in 2018, wealthier Medicare beneficiaries (individuals with incomes above $133,500, with thresholds higher for couples), would pay more for their Medicare coverage, a provision expected to impact 2% of beneficiaries.

In addition, starting in 2020, “first-dollar” supplemental Medicare insurance known as “Medigap” policies would not be able to cover the Part B deductible for new beneficiaries, which is currently $147 per year but has increased in past years. If the policy had been implemented in 2010, it would have affected Medigap coverage for roughly 10% of all 65-year-olds on Medicare, according to an analysis from the Kaiser Family Foundation. Based on declining Medigap enrollment trends among 65-year-olds, expect this policy to impact a smaller share of new Medicare beneficiaries in the future, according to the study. (KHN is an editorially independent program of the foundation.)

Experts contend that the “first-dollar” plans, which cover nearly all deductibles and co-payments, keep beneficiaries from being judicious when making medical decisions because they are not paying anything out-of-pocket and those decisions can help drive up costs for Medicare.

The bill also includes other health measures — known as extenders — that Congress has renewed each year during the SGR debate. The list includes funding for therapy services, ambulance services and rural hospitals, as well as continuing a program that allows low-income people to keep their Medicaid coverage as they transition into employment and earn more money. The deal also would permanently extend the Qualifying Individual, or QI program, which helps low-income seniors pay their Medicare premiums.

AARP, a seniors’ lobby group, sought to repeal a cap on the amount of therapy services Medicare beneficiaries could receive, telling senators that it would be a “key vote” for the organization.

“Similar to the SGR debate, an extension of the therapy cap — rather than full repeal — is short-sighted and puts beneficiaries in a dire situation when the extension expires,” AARP Executive Vice President Nancy LeaMond wrote in a letter to senators. “This amendment is important to the overall success of the Medicare program and the health and well-being of Medicare’s beneficiaries.” The amendment failed.

Q. What about other facilities that provide care to Medicare beneficiaries?

Post-acute providers, such as long-term care and inpatient rehabilitation hospitals, skilled nursing facilities and home health and hospice organizations, would help finance the repeal, receiving base pay increases of 1% in 2018, about half of what was previously expected.

Other changes include phasing in a one-time 3.2 percentage-point boost in the base payment rate for hospitals currently scheduled to take effect in fiscal 2018.

Scheduled reductions in Medicaid “disproportionate share” payments to hospitals that care for large numbers of people who are uninsured or covered by Medicaid would be delayed by one year to fiscal 2018, but extended for an additional year to fiscal 2025.

Q. What is the plan for CHIP?

The bill adds two years of funding for CHIP, a federal-state program that provides insurance for low-income children whose families earned too much money to qualify for Medicaid. While the health law continues CHIP authorization through 2019, funding for the program had not been extended beyond the end of September.

The length of the proposed extension was problematic for Democrats, especially in the Senate. In February, the Senate Democratic caucus signed on to legislation from Sen. Sherrod Brown, D-Ohio, calling for a four-year extension of the current CHIP program. A Senate amendment to extend CHIP funding for four years failed.

Q. What else is in the SGR deal?

The package, which Boehner, R-Ohio, and Pelosi, D-Calif., began negotiating in March, also includes an additional $7.2 billion for community health centers over the next two years. NARAL Pro-Choice America and Planned Parenthood have criticized the provision because the health center funding would be subject to the Hyde Amendment, a common legislative provision that says federal money can be used for abortions only when a pregnancy is the result of rape, incest or to save the life of the mother.

In a letter to Democratic colleagues before the House vote, Pelosi has said that the funding would occur “under the same terms that Members have previously supported and voted on almost every year since 1979.” In a statement, the National Association of Community Health Centers said the proposal “represents no change in current policy for Health Centers, and would not change anything about how Health Centers operate today.”

Q. How did the doctor payment formula become an issue?

Today’s problem is a result of efforts years ago to control federal spending — a 1997 deficit reduction law that set the SGR formula. For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases. But in 2002, doctors were furious when their payments were reduced by 4.8%. Every year since, Congress has staved off the scheduled cuts. But each deferral just increased the size of the fix needed the next time.

The Medicare Payment Advisory Commission (MedPAC), which advises Congress, says the SGR is “fundamentally flawed” and has called for its repeal. The SGR provides “no incentive for providers to restrain volume,” the agency said.

Q. Why haven’t lawmakers simply eliminated the formula before?

Money was the biggest problem. An earlier bipartisan, bicameral SGR overhaul plan produced jointly by three key congressional committees would cost $175 billion over the next decade, according to the Congressional Budget Office, and lawmakers could not agree on how to pay for the plan.

This time Congress took a different path. The measure both chambers approved is not fully paid for. That is a major departure from the GOP’s mantra that all legislation must be financed. Tired of the yearly SGR battle, veteran members in both chambers appeared willing to repeal the SGR on the basis that it’s a budget gimmick – the cuts are never made – and therefore financing is unnecessary.

But some senators objected. In remarks on the Senate floor, Sen. Jeff Sessions, R-Ala., said any repeal of the SGR “should be done in a way that should be financially sound.”

Most lawmakers felt full financing for the Medicare extenders, the CHIP extension and any increase in physician payments over the current pay schedule was needed. Those items account for about $70 billion of financing in the approximately $210 billion package.

Conservative groups urged Republicans to fully finance any SGR repeal and said they would be watching senators’ actions closely. For example, the group Heritage Action for America promised to “key vote” an amendment that the measure be fully financed. That amendment failed.

Some members of Congress seemed pleased to have this recurring debate behind them. “Stick a fork in it,” said Rep. Upton. “It’s finally done.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

MONEY health

We’re Spending Much, Much More on Prescription Drugs

Americans spent nearly $374 billion on prescription drugs in 2014, thanks in part to some shockingly expensive new medicines.

TIME Chris Christie

Chris Christie to Propose Changes to Social Security, Medicare

Chris Christie
Mel Evans—AP In this April 8, 2015 file photo, New Jersey Gov. Chris Christie addresses a gathering as he announces a $202 million flood control project for Union Beach, N.J.

He'd raise the retirement age and means-test benefits

New Jersey Gov. Chris Christie will unveil a proposal to change Social Security and Medicare Tuesday in a speech in New Hampshire, as he seeks to inject new life into his presidential ambitions.

The outspoken Republican’s political fortunes soured after last year’s controversy over the political closure of approach lanes to the George Washington Bridge and a tough fiscal picture at home. But Christie is hoping that by embracing the third rail of American politics with two hands he can bolster his credentials as a truth-teller.

“Washington is afraid to have an honest conversation about Social Security, Medicare and Medicaid with the people of our country,” Christie will say in a speech at New Hampshire’s St. Anselm College Institute of Politics. “I am not.”

Christie will propose raising the retirement age for Medicare to 67 and for Social Security to 69, arguing that entitlement programs must be fair for all Americans, including the next generation that is paying into the programs while questioning whether they will ever see benefits.

In a controversial move, Christie would means-test Social Security, reducing or cutting payments entirely for those who continue to earn income in retirement. He will argue that he wants to return the program being a social insurance program, where only those who need the outlays will receive them.

“Do we really believe that the wealthiest Americans need to take from younger, hard-working Americans to receive what, for most of them, is a modest monthly Social Security check,” Christie will say. “I propose a modest means test that only affects those with non-Social Security income of over $80,000 per year, and phases out Social Security payments entirely for those that have $200,000 a year of other income.”

To incentivize work as more Americans continue to hold jobs later into life, Christie would eliminate the payroll tax at 62.

Christie’s political identity stems from his willingness to take on powerful interests, such as his home state’s teachers unions, altering the calculus in favor of what for most other politicians would be an undeniably risky move. But Christie’s proposals stop short of radically altering either Medicaid or Social Security as some conservatives have proposed, staying away from the 2000s-era privatization debates.

MONEY Viewpoint

Why the Medicare “Doc Fix” Bill Isn’t a Fix for the Rest of Us

The problem it tries to address is real—but this isn't the right solution.

The “doc fix” bill that passed the House last week on a 392-37 vote is a piece of cheese that could smell really, really bad by the time the Senate comes back from its spring break to consider the measure.

If signed into law, the bill would halt a scheduled 21% cut in the fees that doctors get for treating Medicare patients. The fear is that if their pay is reduced—and especially if reduced this drastically—many doctors would simply choose to stop treating Medicare patients.

So who proposed the 21% cut in the first place? It stems from a 1997 law that automatically trims physician reimbursement rates if and when medical costs rise faster than overall economic growth. That’s happened so often in recent years that cuts were scheduled 17 times—but each time Congress voted to override the cut. So when the latest scheduled cuts came around, lots of folks expected Congress to kick the can down the road yet again.

All of sudden, however, Congressional leaders of both parties decided they’d had enough short-term fixes and the “doc fix” bill was born.

Here’s what everyone should know about it:

It’s got a real shot of passing

Before leaving town, a solid majority of Senators seemed to be in favor of the measure, even if some liberals and fiscal hawks are holding their noses. And the Obama White House has already signaled support.

It’s a fix, but a very expensive one

The stated price tag is more than $200 billion over 10 years, $140 million of which would hit the federal budget with no compensating spending offsets.

The 17 earlier short-term fixes were funded with $165 billion in offsetting savings from other parts of Medicare. But the bill approved by the House does not provide such offsets, which is why it will raise federal deficits so much.

How much? The Committee for a Responsible Federal Budget, a nonprofit Washington watchdog group, estimates that it will lead to more than half a trillion dollars of additional debt by 2035.

On top of that, affluent seniors will pay more for Medicare; everyone with a Medicare Supplement policy will get nicked with a higher price tag; and health care providers—other than doctors, of course—would be dinged with higher costs.

It could change everything about the way health care is delivered

This is where Messrs. Limburger and Roquefort enter the room. The bill could become a powerful enabler to drastically change, if not end, the traditional fee-for-service model of Medicare.

That’s because the law would create—get ready for two more healthcare acronyms—MIPS and APM. MIPS stands for the Merit-Based Incentive Payment System, which would reward or penalize doctors based on patient health outcomes compared with performance thresholds. APM is short for Alternative Payment Model programs, which provide different rates and incentives for doctor payments. These programs could trigger big changes in how Medicare works and in how doctors perform medicine.

There’s a better solution

A better approach would be an 18th year-long fix. It wouldn’t cost much and thus won’t worsen federal deficits. Rethinking the way we deliver healthcare to Medicare beneficiaries absolutely needs to be done, but not in such a hurry. Take the next year to do this very important but complicated piece of work, and then come back with a true fix worthy of the name.

Of course, this won’t happen. It’s hard enough to get one Congressional consensus these days, let alone two. And we pick a new President next year, which also argues against expecting Congress to again be in a cooperative mood.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Health Care

Proposed Medicare ‘Doc Fix’ Comes at a Cost to Seniors

A measure designed to head off big cuts in payments to doctors asks Medicare recipients to foot part of the bill.

Congress is headed toward a bipartisan solution to fix a Medicare formula that threatens to slash payments to doctors every year. The so-called “doc fix” would replace the cuts with a multipronged approach that will be expensive and will have Medicare beneficiaries pay part of the bill.

Congress has repeatedly overridden the payment cuts, which are mandated under a formula called the Sustainable Growth Rate (SGR), which became law in 1997, that is a way of keeping growth in physician payments in line with the economy’s overall growth. This year, unless Congress acts, rates will automatically be slashed 21 percent.

In a rare instance of bipartisan collaboration, House Speaker John Boehner and Minority Leader Nancy Pelosi are pushing a plan to replace the SGR with a new formula that rewards physicians who meet certain government standards for providing high quality, cost-effective care. If they can get the plan through Congress, President Barack Obama has said he will sign it.

The fix will cost an estimated $200 billion over 10 years. Although Congress has not figured out how to pay the full tab, $70 billion will come from the pocketbooks of seniors.

There are better places to go for the money, such as allowing Medicare to negotiate drug prices with pharmaceutical companies and tightening up reimbursements to Medicare Advantage plans. But there’s no political will in Congress for that approach.

And the doc fix needs to be done. Eliminating the SGR will greatly reduce the risk that physicians will get fed up with the ongoing threat of reduced payments and stop accepting Medicare patients. “Access to physicians hasn’t been a big problem, but if doctors received a 21 percent cut in fees, that might change the picture,” says Tricia Neuman, senior vice president and director of the Program on Medicare Policy at the Kaiser Family Foundation.

Here’s what the plan would cost seniors:

Medigap reform

Many Medicare enrollees buy private Medigap policies that supplement their government-funded coverage (average annual cost: $2,166, according to Kaiser). The policies typically cover the deductible in Part B (outpatient services), which is $147 this year, and put a cap on out-of-pocket hospitalization costs.

Under the bipartisan plan, Medigap plans would no longer cover the annual Part B deductible for new enrollees, starting in 2020, so seniors would have to pay it themselves. Current Medigap policyholders and new enrollees up to 2020 would be protected.

The goal would be to make seniors put more “skin in the game,” which conservatives have long argued would lower costs by making patients think twice about using medical services if they know they must pay something for all services they use.

Plenty of research confirms that higher out-of-pocket expense will reduce utilization, but that doesn’t mean the reform will actually save money for Medicare.

Numerous studies show that exposure to higher out-of-pocket costs results in people using fewer services, Neuman says. If seniors forgo care because of the deductible, Medicare would achieve some savings. “The hope is people will be more sensitive to costs and go without unnecessary care,” she says. “But if instead, some forgo medical care that they need, they may require expensive care down the road, potentially raising costs for Medicare over time.”

High-income premium surcharges

Affluent enrollees already pay more for Medicare. Individuals with modified adjusted gross income (MAGI) starting at $85,000 ($170,000 for joint filers) pay a higher share of the government’s full cost of coverage in Medicare Part B and Part D for prescription drug coverage. This year, for example, seniors with incomes at or below $85,0000 pay $104.90 per month in Part B premiums, but higher income seniors pay between $146.90 and $335.70, depending on their income.

The new plan will shift a higher percentage of costs to higher-income seniors starting in 2018 for those with MAGI between $133,500 and $214,000 (twice that for couples). Seniors with income of $133,000 to $160,000 would pay 65 percent of total premium costs, rather than 50 percent today. Seniors with incomes between $160,000 and $214,000 would pay 80 percent rather than 65 percent, as they do today.

Everyone pays more for Part B

Under current law, enrollee premiums are set to cover 25 percent of Medicare Part B spending, so some of the doc fix’s increased costs will be allocated to them automatically. Neuman says a freeze in physician fees is already baked into the monthly Part B premium for this year, so she expects the doc fix to result in a relatively modest increase in premiums for next year, although it’s difficult to say how much because so many other factors drive the numbers.

MONEY Health Care

This Scary Retirement Expense Just Got Even Scarier

150326_RET_SCARIERCOSTS
GIPhotoStock—Getty Images/Cultura RF

The estimated tab for health care costs in retirement is huge—and getting bigger every year, according to a new study.

If you’re worried about paying for your health care in retirement, get ready to worry more.

A healthy couple retiring this year at age 65 will pay $266,589 for health care in retirement, according to the 2015 Retirement Healthcare Costs Data Report by health data provider HealthView Services. That’s a 6.5% jump from HealthView’s projections a year ago.

If medical costs continue their rapid rise, the tab will be even larger in the near future: Expected lifetime health care expenses will rise to $320,996 for a couple retiring in 10 years at age 65, the study found.

And that’s just what you’ll pay for Medicare Parts B and D, which cover routine medical care and prescription drugs, and a Medicare supplemental insurance policy, which most Medicare recipients buy to help with co-pays and deductibles. It doesn’t include all the out-of-pocket costs that traditional Medicare doesn’t cover, including dental, vision, and hearing services, and co-pays.

When you factor in those expenses, projected retirement health care costs rise to $394,954 for a couple retiring this year at age 65 and $463,849 for a couple retiring in 10 years. And those numbers don’t even count long-term care, which can add tens of thousands of dollars if you need extensive help at home or in a nursing home.

To put those costs in perspective, HealthViews estimates that a couple retiring today will spend 67% of their Social Security benefits on health care costs over their lifetimes. For a couple retiring in 10 years at age 65, medical care will suck up 90% of their Social Security income. That’s troubling considering that for many, Social Security makes up the majority of their retirement income. Even for middle income and wealthier families, Social Security accounts for about one-third of retirement income.

But Social Security benefits won’t be able to keep up with health care inflation. Social Security benefits have averaged a 2.6% annual cost of living increase over the past decade (and just 1.4% the past four years), while health care costs have risen more sharply. According to the Centers for Medicare and Medicaid, health care costs will rise 5% to 7% over the next eight years.

HealthView numbers are higher than other surveys on health care retirement costs. In Fidelity Benefits Consulting’s annual retirement health care costs report for 2014, a 65-year-old couple retiring today will need an average of $220,000 to cover medical expenses throughout retirement.

Counterintuitively, estimates of total lifetime health care costs are lower for people in poor health at retirement. HealthView’s estimates show that total retirement health care costs will be lower on average for someone with diabetes because of a shorter life expectancy. The total health care costs for a typical 55-year-old male with Type II diabetes will be approximately $118,000, compared to $223,000 for his healthy counterpart, primarily because the 55-year-old with diabetes has an expected longevity of 76, vs. 86 for a healthy male.

Of course, these are just averages. You can’t know exactly what your health will be after you retire, how much medical treatments will cost you, or how long you will live.

That said, even a rough guide can be a useful planning tool. So take a look at your insurance coverage. Consider the likelihood for each type of expense, as well as the average Medicare costs by age, to come up with an estimate of the savings you’ll need to fund these costs. Kaiser recently published a study on Medicare costs by age, which breaks down Medicare spending into its main components—hospitals, doctors, and drugs—and measures how much Americans spend on these services at different ages.

To prepare for that spending in advance, take a look at your sources of your retirement income. If you have a health savings account, do everything you can not to touch it now but let it grow tax free. It is an excellent vehicle for funding future medical expenses. Ditto for a Roth IRA, which lets your money grow tax free. For more tips on planning for retirement health care costs, check out MONEY’s stories here, here, and here.

MONEY Medicare

Why the Bill to Fix Medicare Keeps Soaring

150311_RET_MedicareCosts
Getty Images

Congress must act to prevent a big cut in fees to Medicare doctors. But a short-term solution now will mean soaring costs for older Americans later.

A perennial congressional battle over Medicare is about to erupt. And the result is likely to be a steep increase in the program’s long-term costs—with older Americans eventually paying many of those bills.

As of April 1 fees paid by Medicare to participating doctors will be slashed by a steep 21%. This cut is the result of a 1997 budget formula, called the Sustainable Growth Rate (SGR), which should have been junked years ago. Physicians have already been complaining about Medicare’s low level of reimbursement, and if the cut happens, there could be a mass exodus of physicians from the program.

Congress has had plenty of opportunities to reset the the SGR formula to permit fair fees and annual adjustments but instead has opted for short-term fixes 17 times. Last year lawmakers agreed on a long-term plan to set physician rates—a so-called “doc fix”—and this consensus proposal has been reintroduced in the new Congress. But the long-term price tag for the adjustment threatens to make it a non-starter.

How much would a long-term doc fix cost? The Congressional Budget Office (CBO) estimated the 10-year budget hit of a permanent reform at $138 billion in early 2014. A year later, the 10-year bill has risen to nearly $175 billion. For perspective, the agency’s latest 10-year price tag for the Affordable Care Act is “only” $142 billion.

It’s hard to believe that Congress will be able to find $175 billion in spending offsets in the next couple of weeks, or that Republicans would agree to boost the deficit in order to pay the long-term tab. So expect another one-year fix—number 18. It would cost an estimated $6 billion, which would not have much of an immediate impact on consumers.

If Congress doesn’t vote in a fix, higher Medicare costs would slam older Americans and their families. As a new Kaiser Family Foundation analysis points out, under current law beneficiaries would automatically absorb their share of Part B Medicare costs if the formula is changed. That out-of-pocket price tag would be nearly $60 billion over 10 years, Kaiser estimates.

That’s just for physician fees. Consumer out-of-pocket costs are likely to rise even higher once other effects of the change are factored into Part B premiums and co-insurance payments. “One option under discussion would require beneficiaries to assume a portion of the $175 billion federal price tax, above what they will automatically pay in premiums and cost-sharing,” the Kaiser analysis says.

Other major Medicare service providers, including insurers and drug companies, could also be asked to take a haircut to finance high doctor payments. Of course, those costs are likely to be passed along to consumers eventually.

Paying higher Medicare costs is asking a lot of most older Americans. Half of all Medicare recipients live on incomes of about $23,500 or less. And seniors already spend triple the amount of money on health care, as a percentage of their household budgets, compared with younger households.

Still, a permanent doc fix has to happen at some point. And Kaiser’s report notes that Congress has been getting closer to a serious response to the problem.

So if you depend on Medicare, you would do well to set aside what savings you can to meet those inevitable health care bills. And at the very least, expect a big increase in Washington rhetoric over Medicare.

Philip Moeller is an expert on retirement, aging, and health. He is the co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: The New Rules for Making Your Money Last in Retirement

TIME Spending & Saving

This Is What Keeps Rich People Up at Night

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This is what keeps high earners up at night

When it comes to retirement, Americans’ biggest fears are that they’ll run up huge medical bills, or that they’ll outlive their savings and run out of money. But what’s surprising is which Americans worry about these things the most.

According to a new Bankrate survey, people who earn more than $75,000 a year worry more about healthcare costs in retirement than the population overall. Perhaps surprisingly, they also worry more than those who earn less than $30,000 a year.

That’s probably because while people at the low end of the income spectrum might expect to fall back on Medicaid as a safety net, this isn’t an option for more affluent Americans, points out Bankrate senior investing analyst Sheyna Steiner. “The more assets and savings one has, the more difficult it will be to qualify for government assistance,” she says. “Certainly, the thought that your entire nest egg could be wiped out due to illness or injury is chilling.”

Rich Americans don’t think they’ll be getting much help from Uncle Sam, either: More than three-quarters say they think Social Security will provide less than half — or none at all — of their income in retirement, the highest percentage of any income bracket and higher than the 66% overall who share this view.

People who earn more than $75,000 also have a greater fear that they’ll run out of money in retirement. Overall, 23% of survey respondents say their top worry is that their savings will run out, but 29% of those in the $75,000-and-up income bracket say the same.

Some of this is just a fear of the unknown — and possibly the realization that they have further to fall if they outlive their savings. “A major change of life like retirement is especially daunting,” Steiner says. “People with high incomes have the opportunity to save more but they can also spend more as well which is a trap too many people fall into.”

These fears persist despite the fact that about half of high-income Americans say they’re happy with the amount they’re socking away for retirement, compared to the 29% overall who say they’re happy with their current retirement savings. And even among those earning more than $75,000 a year, more than a quarter say just keeping up with basic living expenses is hampering their retirement savings.

“There’s definitely a contingent of high earners who are not saving enough for retirement,” Steiner warns. “Their current lifestyle may not allow them to save much which may force them to cut back as they get older.”

Steiner says that’s because the people who do have disposable income might not be able to resist spending it today rather than banking it for retirement. “People often spend above their means or right up to the limit,” she points out. “People who maximize their lifestyle without saving for the future run the risk of severely downsizing in retirement or running out of money.”

 

MONEY long term care

Why Long-term Care Insurance May Be a Better Deal Than You Think

The costs of long-term care insurance keep rising. But the coverage is still well worth considering.

Long-term care costs are the black hole of retirement planning.

With the fees for nursing home care averaging $212 a day, an extended stay can devastate the retirement savings of a typical household. Children of aging parents can see their own finances, and even their own children’s futures, undermined by their natural desire to help out Mom and Dad.

Private long-term care insurance can help, but only about one in eight Americans buy it, since the costs are high. Even so, I would argue that this coverage is well worth considering—especially if you have assets to protect, but can’t afford to pay for years of long-term care out of pocket.

Of course, it’s not an easy decision. Here are two key points to help you decide:

It’s Insurance, not an Investment

You’ve probably been hearing that buying long-term care coverage is a bad financial move for most people. Recently a study from the well-regarded Center for Retirement Research at Boston College found that fewer people will need long-term care— some 44% of men and 58% of women will need long-term care vs. estimates of 70%—and that those expenses may be less than previously thought.

One key reason for the lower costs, according to the Center, is that half of men and 39% women who enter nursing homes stay for less than three months—relatively short periods that are potentially covered by Medicare. (Contrary to what many people believe, Medicare does not cover long-term care expenses but will pay for up to 100 days of institutional care following a qualifying hospital stay.) Most Americans end up relying on Medicaid to pay for longer stays, although that program kicks in only after families have mostly spent down their savings.

Given these shorter stays and the availability of those safety nets, only 20% to 30% Americans were found to be economically better off buying long-term care coverage. “Few individuals would choose to buy insurance even if they were rational, far-sighted, and well-informed,” the Center concluded

These findings may very well be true, but they miss a bigger point. Insurance is not about optimizing your finances—it’s about protection against a catastrophic event. The odds of your house burning down are very, very small, but you have home insurance nonetheless. And even if your mortgage lender didn’t require it, I bet you’d still have home insurance.

The same case could be made for owning long-term care insurance. It offers valuable coverage that preserves choice and financial resources in the event you can no longer manage on your own.

Smart Shopping Lowers Costs

Of course, more people would probably own these policies if the premiums weren’t so steep and price hikes so frequent. Rates jumped another 8.6% last year, according to a recent report from the American Association for Long-Term Care Insurance, largely due to unexpectedly high claim expenses, which caused several insurers to leave the market.

Today a 60-year old couple buying coverage with a lifetime benefits cap of $328,000 might pay an annual premium of $2,170 a year, the association said. And if they bought inflation protection that boosted the value of their coverage to $730,000 at age 85, their annual premium would rise to $3,930.

Even so, wide price variances have become more common. “In some situations the difference between the lowest-cost policy and the highest-cost was 34%, but it could be as much as 119%,” association director Jesse Slome said. (The state of Texas has a helpful range of premiums for different coverage situations; your state insurance department may offer similar information.)

Clearly, smart shopping is crucial. Here’s what will influence the price you pay:

  • Your age. It’s the biggest determinant of costs. Younger buyers get lower premiums because their insurers usually have many years to invest that money before paying out any claims.
  • The level of coverage. The variables include the amount of allowable daily benefits, the number of years the coverage will last, and the number of days that expenses must be self-insured before benefits kick in (the so-called the elimination period). You can also add inflation protection to maintain the real value of coverage limits.
  • Your health. Expect to get grilled about your physical condition. Bluntly put, insurers prefer really healthy customers for long-term care insurance. And it’s not just your health being reviewed here, but the health of your parents and siblings as well, since family history is used to forecast future claims.

Look to see how adjusting the major coverage variables will affect your premiums. Choosing a longer elimination period than the standard 90 days, for example, can bring down the cost.

In the end, you’ll have to weigh the costs against your own assessment of the risks. Personally, I have long-term care insurance to protect my family from catastrophic health care expenses in my later years. And, yes, it is more expensive than I’d like. But if I never use it, and wind up paying more than $100,000 in premiums during my lifetime, I will have one reaction:

Whew!

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Simple Steps to Avoid Outliving Your Money in Retirement

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