Finance 101: Planning for healthcare costs

Preparation might help you avoid some pain.


Since the presidential election, the topic of healthcare costs has been front and center in our national discussion. While President Trump’s agenda was recently defeated, this topic will not go away anytime soon. And why should it? With healthcare costs continuing to rise and life expectancies continuing to grow, it will only become a more pressing issue in the years and decades ahead.

Most of that healthcare debate concerns the role and costs of government programs like Medicaid and Medicare. And while those discussions will continue, we also don’t really know what the effect to costs and healthcare coverage will look like. There is just no way to know.

What many people don’t fully appreciate about healthcare costs is the extent to which government programs do not provide for all of those costs. I think it is safe to assume most people understand that they will share in those costs via copays, deductibles, and out-of-pocket prescription drug costs, along with other costs for treatments and procedures that aren’t covered 100 percent by Medicare. So while people know those expenses are out there waiting, they probably don’t have a reasonable idea what they should budget for. They simply have no idea what the true costs will be.

Fidelity Investments does an annual study on these uncovered costs, and it is illuminating. This study is well known in the financial services and financial planning arenas, but the average person may not get this information. So without further ado, let me give you their estimate based on their 2016 study (which you can see at



Two hundred sixty thousand dollars. Yes, that’s $260,000. That cost is based on an average retired couple in the U.S., with life expectancies of 85 for men and 87 for women. It should be noted that those dollars are in today’s dollars, meaning they are adjusted for inflation. But that’s still a lot of money to pay from income and retirement savings over 20 to 25 years.

Then there is the cost of long-term care, or LTC. This is when you can no longer be cared for in your own home, and must move to a care facility. The costs for this vary depending on where you live and a host of other factors. Long story short, it can also be very expensive, averaging between $5,000 and $8,000 per month. In that same Fidelity study, they cite an estimate that 7 in 10 adults turning age 65 in the next five years will face long-term care costs at some point in their lives. That’s a lot of people. And an extended LTC event can easily torpedo an otherwise reasonable plan for retirement.

For many, this is going to be a daunting problem. Even those people who have what they believe are ample resources may find themselves in a tough situation. So what can you do to prepare for this challenge? I have a couple of suggestions.

First, you should start a written comprehensive financial plan. This will help you understand whether you are saving enough, how you should be invested, and whether you can retire when you want to. I would suggest you use a professional planner who will have the type of planning software that will give you the most reliable results. If you do so, make sure that the software recognizes these additional costs. It should also let you look at whether buying long-term care insurance (LTC) improves your situation.

The next step would be to consider using an HSA. An HSA stands for “health savings account,” and is one of the most beneficial tools you can use to deal with this looming problem and more. These programs are available to people who are covered by a high-deductible health plan (HDHP) through their employer. It allows people to contribute up to $6,750 for a couple, and $3,400 for individuals. Employers can also contribute to these on your behalf. These accounts allow you to use the money to pay for all kinds of medicals costs. And there are immense tax benefits: The contributions are tax-deductible, the money grows tax-deferred, and there are no taxes when you take the money out. But how you use them will make all the difference.


A powerful way to use an HSA to deal with healthcare costs in retirement is as follows.

  • Max out contributions to the HSA each year
  • If you can’t do that, try to set aside the savings you realize by electing a high-deductible plan
  • Now try to cover your deductibles and other costs from your income, leaving the balance untouched in the HSA. This may be challenging, but yields powerful results because …
  • You can take and invest the majority of the balance (check with an HSA provider to understand their policy) in market investments, to grow over a long period of time.
  • And perhaps the best part? You can use the funds in an HSA to pay for LTC insurance prior to or at retirement, which could help cover a huge potential liability and a boatload of problems.

Concerns about how to pay for healthcare as we age will always be with us. But taking a couple of basic steps can greatly alleviate our worries. Get a professional financial plan in place to see how you can best deal with the inevitable high costs of healthcare in retirement. Understand how an HSA can help, and see whether LTC insurance improves your odds of not outliving your assets. Then move forward with added confidence and have less to worry about.


John Kageleiry is a business writer and financial planner. Read more finance columns at Have a question for “Finance 101”? Email it to