June 29, 2005
Older Americans Fret About Health Insurance
Many favor concept of savings accounts to offset later expenses, survey finds
Nearly 70 percent of older Americans endorse the concept of individual health savings accounts to help cover medical expenses in their later years, a new survey finds.
The accounts would involve setting aside 1 percent of income to handle expenses not covered by Medicare, the federal health insurance program for people aged 65 or older.
"We can look at this as kind of a teaser," John Rother, AARP's director of policy and strategy, said at a press conference in Washington, D.C., Tuesday. "Such a strong response from survey participants indicates that this is an idea with legs that is worth developing."
The survey also found that a majority of those interviewed expressed support for being able to buy into Medicare before they turn 65.
The survey, called Will You Still Need Me? The Health and Financial Security of Older Americans, was conducted by the Commonwealth Fund.
Many older Americans are facing a bleak picture as they enter retirement. Not only do they often struggle with chronic health problems, but their wages are stagnant, health costs are rising and retiree health benefits are declining.
The gravity of the situation was not lost on the 2,000 adults aged 50 to 70 who were interviewed for this survey.
Fifty-three percent of respondents who worked or had a working spouse said they would not have job-based health benefits when they retired. According to the researchers, 12 million older adults are currently uninsured or have had histories of unstable coverage. About a quarter of Medicare beneficiaries in the sample reported that they were uninsured before entering Medicare.
Twenty-four percent of adults aged 50 to 64 said they had not filled a prescription, seen a doctor or specialist, or gotten a medical test or follow-up treatment due to the costs involved. More than one-third (35 percent) said they had had a problem paying medical bills in the past year, or were still paying off medical debt from the last three years.
All of this is taking a toll on confidence. Only 15 percent of respondents aged 50 to 64 and 22 percent of those aged 65 to 70 felt they would have enough income and savings for retirement. Almost two-thirds (63 percent) worried they would not be able to afford medical care in their later years.
Indeed, financial reserves needed to cover medical expenses are high.
"An individual who only expected to live to 80 would need about $108,000 in savings in order to cover all Medigap premiums," said Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. "For somebody living to 95, that would now be about $300,000 -- and that doesn't include potential long-term care expenditures. Individuals are increasingly facing the prospect of non-coverage."
"The survey shows real grounds for alarm," Rother added.
Nearly half (48 percent) of respondents had retirement savings of less than $50,000, while 38 percent had savings of less than $25,000.
Sixty-nine percent of the respondents favored devoting 1 percent of their earnings to a Medicare health account to bridge insurance gaps in the future. This arrangement would not be the same as the proposed private investment accounts for Social Security.
"Medicare would manage it so it would not be privately invested," said Karen Davis, president of The Commonwealth Fund. "It would be invested in government bonds, but it would be an individual account so that money you set aside would be available for you."
Support for such a program was popular among respondents, regardless of income, geographical region, health status and political affiliation.
In addition, 73 percent of adults aged 50 to 64 said they would be interested in buying into Medicare before their 65th birthday. Two-thirds of people in this age group suffer from at least one chronic health condition and many lack adequate insurance, the researchers said.
But the picture may be even gloomier, Rother pointed out. "This [survey] excludes the 70-plus population, which is a high-risk and high-use population in Medicare, so many of the findings here are really understating problems," he said.
"We're seeing people searching for some solution that's going to let them feel greater economic security and address higher and higher health costs," Rother added. "As Medicare becomes a high-deductible plan with cost-sharing now in the thousands of dollars per year, we've got to be more flexible and find more creative ways to deal with that, by allowing people to enroll early, to protect assets or by allowing them to save an extra 1 percent in add-on accounts."
For more on the survey, visit The Commonwealth Fund.