Soaring healthcare premiums are taxing workers, and skyrocketing drug prices are causing financial insecurity for retirees. Is there anything Americans can do to curb their healthcare spending?
In this episode of The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes is joined by contributor Todd Campbell to discuss how employees and retirees can lower their healthcare bills.
A full transcript follows the video.
This podcast was recorded on Sept. 28, 2016.
Kristine Harjes: Welcome to Industry Focus, the podcast the dives into a different sector of the stock market every day. It's Sept. 28. I'm your host, Kristine Harjes, and calling in to rainy Fool HQ in Alexandria, Va., is Motley Fool healthcare writer, Todd Campbell. Welcome, Todd!
Todd Campbell: Hi! I'm calling in from rainy New Hampshire. It's a gloomy, gray day everywhere.
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Today, we want to do a very practical episode about how to save money on healthcare costs. It's somewhat of an intersection between personal finance and healthcare. I figured we would start with some general tips on lowering expenses, and then go into talking about some different insurance strategies, whether you're still working or you're retired. Let's start with the most basic question -- why talk about healthcare expenses and saving money there?
Campbell: I'm really excited about this show, because I think, we tend to dive into different drugs and medications and the business end of things on this show, and this is an opportunity for us to reach out to our listeners and say, "Listen, we recognize how expensive healthcare is, in terms of insurance, premiums, the cost of care, drugs, etc. We want to make sure we're offering to you whatever tips we can to help you stretch your dollar further, so you don't face issues of financial security once you've reached your golden years." In preparation for this show, I went back and took a look at basic statistics. They're pretty scary, Kristine.
Harjes: I bet. What did you find?
Campbell: For one, the average person is running into retirement with just barely over $100,000. But averages can be very misleading, because maybe you have very few people with a lot of money, and maybe that's skewing that number higher. You have to remember that a significant percentage of people are heading into retirement with less than $20,000. That's just simply not going to be enough if you suffer an injury, or you face some sort of healthcare crisis, like cancer, for example. If you look at bankruptcy statistics, 3% of all bankruptcies are from cancer alone. But three of five bankruptcies are caused by medical bills. So, Americans are having to pay more and more money every year for healthcare. How do you prepare for that?
Harjes: Exactly. One of the things I saw in my research is that the average couple turning 65 today will spend $250,000 on healthcare in their retirement, which sounds like a lot, and it is, but the statistic that startled me even more is that the average person that's 10 years away from retirement will spend an estimated $464,000 on healthcare in retirement.
Campbell: Right. We'll talk about this later on, but that doesn't even include long-term care.
Harjes: Exactly, yeah. There are so many different things to consider. And while, as you pointed out earlier, a lot of times on this show we talk about blockbuster drugs bringing in so much revenue, we're kind of putting ourselves on the opposite side of the table today, and saying, as a consumer of these potentially very expensive drugs and insurance plans and everything that goes along with healthcare, how can you save more money and hopefully be able to use that money to invest in some of the companies that come up on this show?
Getting into the nitty-gritty, the first thing I want to start with is shopping around. This is so important for every single aspect of healthcare. We'll talk later about shopping around for insurance options, but let's start with shopping around for the medications and drugs you need.
Campbell: Yeah. People are probably going to be pretty surprised, but there's a very wide range of prices that you can pay for prescription medicine depending on where you get it filled. The price that you might pay at a CVS might be very different, for example, than the price that you could pay or a Costco or a Wal-Mart, depending upon that drug. So, it's very important for consumers to think about what medications they're regularly getting filled, are they generics or brand-name drugs, and if they're generics, especially, make sure you check out those big-box retail stores. Places like Wal-Mart and Target and even some supermarkets have deals where they offer prescriptions for less than $5 on many generic drugs. So, there's some significant savings that can be accomplished that way. There's a website, actually, called GoodRx, which allows you to search by where you live and find out different prices of medications with in your area. That can be helpful as well. Sometimes they have coupons, too, on that site.
Harjes: And if you're not taking a brand name, find out if there is a generic. That's step one.
Campbell: Yeah, ask the question. If you've been on a certain brand of medication for a long time, there's a potential that there's going to be a generic out there.
Harjes: Right, it could have come off patent.
Campbell: Yeah. The price savings alone could be tremendous -- 80% to90% for typical generic drugs. If you take a high-cost biologic medicine, too, you may soon be able to request a biosimilar. They're not exact replicas of those brand-name drugs, but they work very similarly to them. The FDA is getting much more willing to approve those drugs. Those could offer savings, too, I think 30% to 40%.
Harjes: Right, that's what they're estimating. You mentioned Costco. Before we totally abandon that name, I just found this out -- apparently Costco's pharmacy is open to non-members.
Campbell: Anybody can go.
Harjes: That is pretty awesome. I know for a fact that most of my family gets their prescription medications from Costco because it is significantly cheaper. And I always thought, it's because they're members. But no, anybody can go in there.
Campbell: Yeah, anybody can go in there. Call around, you can reach the pharmacies and say, "I need to get this filled, how much will it cost me?" They'll tell you. There's other things that you can do to reduce your costs of prescription drugs as well. You can get a 90-day prescriptions instead of 30 day prescriptions, which can sometimes save you money on copays. Also, if you're on a plan like mine that maybe doesn't have the best drug coverage, ask your pharmacy how much the cash price is rather than running it through your insurance. You might find that the cash price is cheaper than it would be if you run it through your insurance. I think that's a good pro tip.
Harjes: Another thing you can look into is a mail-order pharmacy -- sometimes offer you three-month supplies for the price of one. That can be a pretty big money saver as well.
The next topic I thought we should bring up is preventative care. There are so many free screenings and vaccine and things that you can get through your health plan or work that are so important toward saving you money in the long run.
Campbell: Have you gotten your flu shot yet, Kristine?
Harjes: I am scheduled to get one in a few weeks.
Campbell: Yeah. You can walk right in to your primary care, or a pharmacy, I go to Rite Aid, I sit there for five minutes, they come over and give me the shot, and it doesn't cost me a dime. For me, that keeps me healthy and I'm able to work more. The other part of this is that you don't want to miss days of work because you're not feeling well. So you have preventative care, you can go to your primary care physician and get a checkup every year, you have these different options. One thing I just did recently that I didn't even know about until I asked my doctor was that the local hospital in my area provides, one day per week, a very big discount on getting ultrasounds for your carotid arteries. I have carotid artery disease in my family history, and I was able to go in and get thousands of dollars' worth of testing for $75. So, it does help to talk very openly and honestly with your primary care physician and just ask different questions, what kind of options are out there that could save me money?
Harjes: Another thing to look into is your workplace wellness. Forty percent of large employers offer some sort of discount for participating in a workplace wellness program. And it makes sense from the employer's standpoint. Apparently every $1 of workplace wellness program cost saves approximately $3.27 on medical costs. So, it's quite likely that you can get money back through your employer, or you can find things -- I'm actually getting my flu shot through The Motley Fool's annual Wellness Fair. It's a good thing to look into that sort of benefit, and see what's available to you.
Campbell: Larger employers will often times do these kinds of things. It's important to make sure you're checking your human resource newsletter to find out what kind of things are available to you and making the most of them. I also don't want to forget, if an emergency strikes that is not a life-threatening emergency, there are more and more options popping up in local communities rather than the emergency room. We have urgent-care centers all over our area, for example. My son actually just fell off his bike and needed some care, and we were able to go in, and in less than an hour and with a $60 co-pay, and make sure he didn't have any broken bones.
Harjes: And that would be way cheaper than the hospital, I'm assuming.
Harjes: Another thing along that vein is to make sure you know which hospitals are in network in case you need to go to a hospital. It's good to have done that research beforehand.
Campbell: It gets so confusing. We're going to talk about insurance, and we're moving that way already. There's so many different moving pieces. Having a little bit of education ahead of time can be very helpful, not only for those emergency situations, but even things like lab work, there could be very drastic difference is in terms of how much you're going to have to pay out of pocket depending on whether or not your insurer has a preferred lab that they'd rather you use, and you end up using something else.
Harjes: Right. So, let's talk a little bit more about insurance. One of the things you were hinting at is that there's so many moving parts to consider when you look at what you'll actually pay, even with an insurance plan. It's very easy to focus just on your premiums, but there are so many other costs that end up coming out of your pocket.
Campbell: Yeah, it's tremendous. I think, most of us tend to look at our healthcare costs, when we're healthy, as simply, "Oh my god, my premiums, I have to pay these monthly premiums," and that's 100% of your focus, how expensive are your premiums. The problem with focusing too much on your premiums is, how does that saying go? A penny wise, a pound foolish? Is that it?
Campbell: Yeah, sure. What happens is, you may be saving money on the premium side of things, but if you do end up requiring healthcare, you could end up getting stung by going to the low-premium health plan that ends up having a higher deductible or higher co-pays or higher co-insurance or higher out-of-pocket maximum.
Harjes: Yes, that is absolutely true. You mentioned deductibles. This is the amount of money that you have to pay toward your plan, out of pocket, before the plan starts to kick in. There is one really good option for plans that have high deductibles. This is to set up a health savings account, or an HSA. Todd, do you want to talk a little bit about this?
Campbell: This is one of the single best money-saving strategies that anybody who has access to a high-deductible plan should take advantage of. HSAs are wonderful. Can you tell I like them?
Harjes: Just a little bit. I do, too. They actually are wonderful.
Campbell: They allow you to take pre-tax dollars and set them aside in an account. Oftentimes, you can invest in that account and earn interest on it. So, set it aside in an account, and then use it -- oftentimes they'll issue you a debit card -- to pay for your co-pays, your co-insurance, your dental visits, your vision care, your kids' braces, healthcare costs that you would otherwise be paying for with after-tax dollars. There are some restrictions. HSAs, as we've already said, are only available with high-deductible health insurance plans, which means a lot of people who have employer-sponsored health insurance won't have access to HSAs. You never know until you ask, though. It's very important to take a look and make sure you qualify for an HSA before setting up. Find out if you can, because if you can, it's a great way to sock away thousands of dollars in pre-tax money that can be used to cover healthcare expenses.
Harjes: And all of the details on qualification can be found on the IRS website. The important one to note is the deductible number you have to meet. It has to be $1,300 for an individual, or $2,600 for a family. One of the really great things about HSAs is, it's not use-it-or-lose it. Meaning, you put that money in year and year out, and you don't have to use it in a given year. This is important because it directly contrasts to an FSA, which is a flexible spending account. This is also something that goes through your employer, and it's also a good tax-saving mechanism, it's money you contribute pre-tax. And you can use it throughout the year, but you can only really use it in the year that you contributed it. Sometimes you can carry over $500 from one year to the next, but in general, you need to spend it during that year.
Campbell: Right. What's great about FSAs, and I love these just as much as HSAs, is that if you don't qualify for a high-deductible plan, you do qualify for a flex spending account. So, you may not be able to contribute to the HSA because your health insurance doesn't qualify, but if you have very good health insurance and a low deductible, then you can do the FSA. In 2017, you can put $2,550 in pre-tax money into this account. If you have a family of four, you may be spending $1,000 alone on just dentist visits. So, there's a pretty good likelihood of being able to use $2,500 in a given year on out-of-pocket expenses that otherwise would be covered by insurance.
Harjes: And yet, surveys show that about 80% of employees that have this available to them ignore the benefit. I can sort of see why. It's kind of daunting to put this money in, and if you don't spend it, you lose it. But, if you look at the list of things that count as a qualified healthcare expenditure, you can spend that money on sunscreen, shoe inserts, first aid kits, there are so many thing that, if you actually make it to the end of the year and have too much yet, you can spend that money on useful things.
Campbell: Yeah. Also, you have elective procedures. If you have a lot of extra money kicking around at the end of the year with your FSA, you could pull a procedure forward, and maybe take care of that. FSAs are a great way to lower your taxable income, to get a tax benefit, to get a discount on all the healthcare services that you're buying throughout the year. If you're in the 25% tax bracket, that's an extra $100-500 per year in savings, depending on if we're talking about the FSA or HSA. It could be even more.
Harjes: Right. And speaking of taxes, you can use some medical expenses to save on taxes. Want to explain how?
Campbell: Before I get to that, I don't think we mentioned the HSA contribution limits. The HSA, you can contribute $3,400 in 2017 if you're an individual, $6,750 if you're a family. There's a lot of money that you can sock away in those HSAs.
Harjes: Good to know.
Campbell: As far as the tax advantages are concerned, it really only comes into play, as far as your medical costs, if you itemize your deductions on your taxes. Many Motley Fool listeners probably do, but nationwide, I think it's one in three that actually itemize. If you do itemize, then if your medical expenses are more than 10% of your adjusted gross income, then you can take a deduction for those expenses. So, make sure you're keeping very close track of what you're spending throughout the course of the year. At the end of the year, you total everything up. The mileage of driving to the doctor, you name it. Total it all up, and see whether or not you qualify for this deduction. If you do, even if you give up a couple thousand dollars, that's extra money that can end up in your pocket rather than in Uncle Sam's.
Harjes: This could be a particularly good tip if you are about to retire in that year. If you end up retiring part of the way through the year, you will have lower income for that year as a whole, so you might be able to deduct more of those medical expenses than you otherwise would have been able to.
Campbell: Right, think about thinks like joint replacement. You get into your 50s and early 60s, and maybe you're contemplating whether or not you need to have a knee replacement. Maybe it's late in the year and you want to push it off until the year you retire, so you're only showing your Social Security income, and therefore more of it, theoretically, can be deducted.
Harjes: Right. Do we want to move on to saving money on healthcare in retirement? Or is there more to say on employer-type coverage?
Campbell: There are a couple things, probably, that everybody should know about HSAs before we totally leave them alone.
Harjes: You really do love them.
Campbell: I do. There are a lot of ways to stash money into these. If you're over 55 years old, you can do a catch-up contribution and throw an additional $1,000 into this plan. You mentioned earlier that it's not use-it-or-lose-it with HSAs. So, you might want to look at it and say, "If I'm going to max out my retirement plan for work, my 401K, for taxes, then why wouldn't I also max out my contribution to the HSA to further lower my tax bill? And then, consider my HSA contributions as a savings account totally for my healthcare?" Because, as we move later into life, we can then tap all that money that's been rolled over to pay for some of these expenses.
Harjes: You can't contribute post-Medicare, but you can still use the money.
Campbell: Exactly. You will not be able to continue to contribute to the HSA program. There's another pro tip we'll get to in a second on that. But, yeah, you can still tap into it and use that money. You can even use it to pay your Medicare part B and D premiums.
Harjes: What was the pro tip you were about to share?
Campbell: If you have a spouse who isn't on Medicare -- let's say you had a high-deductible plan and you've been contributing to your HSA all along. You turn 65 and you now qualify for Medicare. Your employer will not be able to make contributions on your behalf to an HSA. However, your spouse could open up your own HSA, as long as they're still covered by that same insurance plan, can contribute the family about to an HSA that's now in their name. And that HSA, with money, could then be used to cover both you, even though you're on Medicare, and your spouse's expenses.
Harjes: Which is pretty awesome. We just did an entire show about Medicare. Something that we missed in that show was MediGap. If you're on Medicare, you can consider getting MediGap coverage, which is supplemental insurance to help you pay for some of the expenses that original Medicare does not cover. This would be your co-pays, co-insurance, deductibles. It pretty much gives you a cap on your out-of-pocket maximum spending, which can be enormously comforting.
Campbell: Right. I think a lot of people forget that there is no cap to your Medicare spending. Part A, which will cover hospitalizations, after you reach a certain number of days in the hospital, you're going to be on the hook for the cost. Part B, you have to pay 20% co-insurance for Part B coverage after you've met your deductible. And that also is not capped. MediGap plans are great because they help you better understand how much you're spending in any given year on your healthcare. There are 10 different plan types. The most common of those types is Plan F. Plan F is most common because it covers all of the out-of-pocket costs that you might have otherwise been on the hook for in Part A and Part B. The plans aren't necessarily cheap. They're going to run you between $100 and $300 a month. But they will at least allow you to know what your healthcare spending could be in any given year.
Let me give you a real-time example of why that's important. In 2015, my mother was diagnosed surprisingly with a rare form of lymphoma, a fast-moving rare form of lymphoma. She, fortunately, ended up having Medicare and MediGap. Her out-of-pockets were virtually nil. And because you're getting care from Medicare, you can go to any doctor, wherever you want to go, as long as they accept Medicare. So MediGap can provide a very important safety net for a surprise diagnosis. And with 76 million baby boomers getting older every day, the incidence rates of things like Alzheimer's disease and cancer and those kinds of things, the likelihood of getting a diagnosis like that is increasing.
Harjes: I think it's really hard for people approaching retirement age to truly estimate their retirement costs. It's tough to look at the numbers and the incidence rates and plan for that properly. I think one of the things that people forget about the most is the cost of long-term care. Seventy percent of people turning 65 this year will require long-term care.
Campbell: Long-term care is another way that you can prepare, or at least know what you're spending in any given year. Unfortunately, you have conditions like Alzheimer's that, because we're living longer, more and more millions and millions of people are suffering from. And while we may think that our families are going to take care of us, we have to ask the question, do we really want them to have to do things like bathe us and take care of our bathroom activities and the things of daily life then maybe we won't be able to take care of on our own. The cost of long-term care is very high.
Harjes: It's huge.
Campbell: If you have an in-home aid, it's going to cost you $3,000 a month. If you have to go into assisted living, it's going to cost even more than that. If, eventually, you end up in a nursing home, it could cost you $7,000 or $8,000 a month for that care. And with retirement savings being so small, I think a lot of people think that Medicare will take care of the cost for them, or that Medicaid will take care of that cost for them. The reality is that Medicare has a very limited amount of care that they will take care of for you, and that Medicaid will force you to draw down all of your assets to about $2,000 -- some states are little bit different -- before you qualify for coverage. And even if you qualify for coverage, Medicaid can go out and attach a lien to your house to recoup the money after you pass away.
Harjes: So, you're still worrying about your medical care and your expenses at that point. That's crazy.
Campbell: Right. Long-term care is expensive, it's going to cost a few thousand dollars. A pro tip here is to apply for it when you're in your 50s. Very few people, percentage wise, get rejected when they apply for this in their 50s. And once you have it, you can continue to have it. But if you wait until you're 70 and your health isn't good, there's a good likelihood that they won't even underwrite you.
Harjes: Right. This has already been a longer episode, so I'm going to close us out soon. Is there anything else we may have missed along the way?
Campbell: I'm sure there are.
Harjes: That's true. I'll phrase it differently. What's the most important thing we missed?
Campbell: I'm hoping that maybe our listeners will reach out to us and maybe tell us some of their money-saving tips for healthcare, and we can put that out there at a later date. I think everybody should always be asking questions about their healthcare. Are these tests necessary? Is this lab work necessary? They should be considering unique provider options. Does it make sense to go to a minute clinic if you're having flu symptoms, rather than my primary care doctor? Should you consider a telehealth visit offered through my insurance company, where my doctor can discuss flu symptoms with me, and maybe you can save some money that way? There are a lot of different considerations and a lot of different tips. I'm sure we've barely scratched the surface.
Harjes: Last question for you, Todd, and it might seem like a kind of random one. When's your birthday?
Campbell: Dec. 8.
Harjes: All right. Listeners, if your birthday is also on Dec. 8, it is a sign that you should review us. Please leave us a rating on iTunes or wherever it is that you listen. It'll take just a few minutes, and it's super helpful. It helps us get some feedback on the show, and it also allows us to reach more and more Foolish investors who can hopefully get tips on saving on their medical bills and all of the other things that we talked about on this show.
One last fun tidbit before we sign off -- if you're interested in punching "Pharma Bro" Martin Shkreli, remember that name, in the face, here is your opportunity. Martin Shkreli tweeted earlier this week that he is auctioning one slap or punch in the face to benefit the surviving family of his former public-relations consultant, who recently passed away. Check out his Twitter page; there's a link on there. This is an actual thing, as far as I can tell. While you're on Twitter, you can follow us, @MFIndustryFocus.
As usual, you can email us at email@example.com if you have any health pro tips we may have missed. Maybe we can share them on a future show. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks for listening and Fool on!