Health-care-costs are projected to rise at 6% clip.

Health-care costs for retirees are on the rise again, a new study from Fidelity Investments reports.  According to the Fidelity study released in August, a 65-year-old couple retiring in 2017 will need $275,000 to cover health-care costs during their retirement years.  This cost is 6% higher than it was in Fidelity’s 2016 report.

The 6% cost increase corroborates findings by HealthView Services, a firm that makes health-care cost projection software.  For the next decade, HealthView Services forecasts a 5.5% annual inflation rate for health-care costs.  Six percent cost increases are double the historical average rate of inflation in the United States.

This is bad news for everyone, but especially for retirees.  Retirees consume health-care services at a higher rate than other age groups, and their income is less likely to keep pace with the annual increases in the cost of health-care.  HealthView Services forecasts 2.6% annual cost-of-living adjustments for Social Security benefits over the same time horizon.

It does not look like we will get any relief from skyrocketing health-care costs through government intervention anytime soon, as Republicans and Democrats wrangle over the issue with very little progress. What can consumers, and especially retirees do to tame the high cost of health-care?   Besides the obvious decision of trying to live a healthier lifestyle, here are a few strategies that may help.

Health savings accounts, also known as HSAs, are tax-advantaged savings vehicles for health-care costs.  Workers can contribute $3,400 for themselves or $6,750 for a family in 2017.  What makes HSAs so attractive is the triple tax advantage:  money goes in pretax, earnings are not taxed, and the money can be withdrawn tax-free for qualified medical expenses.

Medicare premiums for Part B and Part D supplements can be lowered by managing modified adjusted gross income (MAGI) for retirees.  It is important that retirees work with an accountant to properly manage their income thresholds, but it is helpful to remember that withdrawals from Roth IRAs/401(k)s or reverse mortgages are not included in MAGI calculations.

Avoiding gaps in health insurance coverage also helps, especially when it comes to Medicare.  You are eligible for Medicare as early as the first day of the month in which you reach age 65.  In order for coverage to begin in that birthday month, you must enroll in Medicare in the previous month.  Failure to enroll in Medicare or the supplemental policies in a timely fashion can result in gaps in coverage, and in some cases – penalties.

Health-care costs are a big concern for people of all ages, but retirees in particular are vulnerable to the higher rates of inflation we find with medical services today.  With the average 65-year-old couple expected to incur $275,000 in health-care costs during their retirement, it becomes imperative to minimize avoidable costs.  Utilizing HSAs wherever possible and enrolling in Medicare in a timely fashion can help avoid costly penalties and gaps in coverage.

Sources:  Fidelity Investments, HealthView Services, InvestmentNews