No one ever said retirement was going to be easy. As more and more Americans have marched toward the proverbial finish line, we're seeing on a greater scale that many are unprepared for the rising costs of being retired.
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According to the Social Security Administration, 61% of retired workers currently receiving benefits rely on their monthly check to comprise at least half of their monthly income. What's more, a September 2016 GoBankingRates study found that a third of seniors aged 65 and up had nothing in savings, with another 29% having less than $1,000. This means more than three in five seniors could be in very deep trouble if an emergency were to arise.
Retirement programs are designed to help take some of the financial weight off retirees' shoulders. The aforementioned Social Security program pays out an average of $1,367.58 a month to retired workers as of May 2017, or about $16,411 annually. It may not sound like a lot, but this money has been critical in keeping millions of elderly persons out of poverty.
We also can't overlook the Medicare program, which provides financial protections to those aged 65 and up by helping to cover a good chunk of their eligible medical expenses. Without Medicare, we'd probably see many elderly Americans struggling to pay exorbitant medical bills.
Unfortunately, due to the dynamics of the healthcare industry, the makeup of the Medicare program, and the pricing power of drug developers, some seniors enrolled in Medicare are at a high risk of having their life savings completely wiped out. Allow me to explain why.
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Medicare is divided into three components:
- Part A: This covers in-patient hospital stays, surgical procedures, and long-term skilled nursing care.
- Part B: This covers service expenses and medical equipment costs incurred in the outpatient setting.
- Part D: This is your prescription drug plan.
As a generalization, Medicare tends to cover around 80% of your eligible medical expenses, putting you on the line for the remaining 20%. But it's important to note that there is no annual out-of-pocket limit for this 20% component.
Things are a bit different for your prescription drug plan, Part D. As of 2017, once you've spent $4,950 out of pocket, which doesn't include monthly premium costs, you automatically qualify for catastrophic coverage. This catastrophic coverage lowers what you'll owe in copayments and coinsurance for the remainder of the year to a small percentage. There's still no annual out-of-pocket limit on prescription drug expenses, but the percentage of what you'll owe is substantially reduced under Part D.
Cancer immunotherapies could wreak havoc on seniors' savings
However, not all drugs necessarily fall under the protections provided by a Part D plan. Certain intravenously administered drugs, such as cancer drugs, or more precisely cancer immunotherapies, can be administered in an outpatient setting with Medicare-approved equipment under Part B. There's little argument that the administration of cancer drugs in an outpatient setting is fantastic for patient quality of life -- but it's a potential stake in the heart to their life savings. And according to the National Cancer Institute, about two in five people will develop cancer at some point in their lifetime.
Cancer immunotherapies traditionally cost right around $150,000 annually. Merck's Keytruda, which is approved to treat a number of advanced cancer types and recently became the first drug in history to be approved to treat a genetic cancer mutation regardless of cancer location in the body, can run $156,000 a year. Bristol-Myers Squibb's Opdivo, which is a core second-line treatment in non-small cell lung cancer and second-line advanced renal cell carcinoma, can run $143,000 annually. As a Medicare patient, if these costs fall under Part B, you're responsible for approximately 20%, or around $30,000 annually if there are no list price reductions.
But that's not the end of it. Cancer immunotherapies aren't always administered as monotherapies. In many instances they've been shown to be most effective with existing cancer therapies. In short, you could be administered two drugs that each cost north of $100,000, and you might be on the line for 20% of those combined costs. These types of costs could make quick work of savings accounts and nest eggs even with the traditional protections provided by Medicare.
Here are two smart considerations
Thankfully, there are two considerations that could reduce what you'll owe should you get hit by drug costs under Part B.
The first option is to consider whether a Medigap plan is right for you. A Medigap plan is added insurance that traditional Medicare enrollees can choose to purchase that helps to cover their out-of-pocket expenses. As you might imagine, the extra monthly premium being spent on a Medigap plan is something seniors will have to take into account, but it could be a potential financial lifesaver if you do receive I.V. cancer drugs in an outpatient setting that's billed under Part B.
A second idea is to look beyond traditional Medicare and consider a Medicare Advantage plan. Medicare Advantage plans take all of the basic services you'd receive under original Medicare and roll it into a single plan run by an approved private insurance company. Best of all, Medicare Advantage plans can allow you to add vision, dental, and hearing, which is not an option with original Medicare, and they also come with annual out-of-pocket limits on what would traditionally be Part's A and B. In 2017, this maximum out-of-pocket limit is $6,700. Though Medicare Advantage plans are far from perfect, for some seniors it may provide more peace of mind, at least financially.
The $16,122 Social Security bonus most retirees completely overlook
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