Health Care Costs Are Set to Skyrocket: Steps You Can Take Today To Prepare

A big part of enjoying a stress-free retirement is minimizing the amount of time you spend worrying about money. But with rumors of healthcare cost hikes on the horizon, it's about to get even harder for seniors to budget and ensure their retirement savings last the rest of their lives.

Fortunately, the more you know about minimizing healthcare costs now, the better prepared you'll be to manage spending going forward.

Keep reading to learn more about why healthcare costs are set to skyrocket and what you can do to prepare for these potential price increases.

Why might healthcare costs be rising?

According to Mercer, a healthcare benefits consulting group, employer healthcare costs are set to go up by 9% per employee over the next year. If you're still working and on an employer-sponsored plan, your company will likely pass some of those costs on to you, making it harder to save for retirement and increasing what you pay for care.

Meanwhile, above-average inflation in recent years has pushed prices up across the board. Per research from Fidelity, healthcare expenses for retirees went up 4% last year. This means that if you retired today, you can expect to spend $172,500 on healthcare throughout the rest of your life.

The following tips can help you keep those costs as low as possible during your retirement.

Know what's covered by Medicare (and what isn't)

Medicare is intended to help seniors like you afford doctors' visits, short-term hospital stays, and prescription medications once you've left the workforce and no longer have employer-sponsored insurance.

However, Medicare doesn't cover everything, and misunderstanding what you will and won't pay for out of pocket can lead you to misjudge how much you should save. For instance, Medicare Part A helps you pay for short-term hospital visits, but it doesn't pay for long-term nursing home care or assisted living facilities.

Plus, Medicare Part B has a premium of $185 per month, which usually increases each year to account for inflation. Budgeting for these expenses ahead of time can save you a lot of pain once you leave the workforce.

Track your annual healthcare expenses

If you're not sure how to budget for healthcare costs, start by taking a look at your current health-related expenses. Bear in mind that you're likely to spend more on healthcare as you age, so whatever you're spending per year now, know that it's likely to increase over time.

Compare Medicare Advantage plans to get the best price

If you don't want traditional Medicare, you can sign up for a Medicare plan administered by a private insurer.

These plans, called Medicare Advantage, offer different benefits for different prices and within different networks. If you're interested in Medicare Advantage, make sure you thoroughly research each plan before signing up to ensure you're getting a good deal.

Don't be afraid to switch plans as needed

Once a year, you have the opportunity to compare and switch Medicare Advantage plans. Even if you're happy with your plan, check the marketplace and compare similar plans in your area.

You could find that another plan now meets your medical needs — and your budget needs — better than the old plan.

Consider an HSA before retirement

A health savings account (HSA) is a tax-advantaged account for medical expenses. While you can't contribute to an HSA once you're on Medicare, you can continue to withdraw remaining funds to cover medical costs, including Medicare premiums.

Take advantage of HSA catch-up contributions

Because they're tax-advantaged accounts, HSA contributions are limited to a certain amount per year.

However, once you're 55, you can start contributing an extra $1,000 per year to your HSA. If you aren't already maxing out your contributions, scan your budget for small ways to save, then funnel those funds toward your HSA so you can cover expenses more comfortably in retirement.

Keep a close eye on your health

Being healthy now isn't a guarantee that you'll be healthy in the future, but going in for regular checkups, staying physically fit, and eating well can keep you active and on your feet for longer, which in turn keeps more cash in your pocket as you age.

Sign up for free wellness programs

Instead of signing up for a gym membership, check whether any free options are available. If you're still working, your company might offer wellness programs or fee waivers. Alternatively, check out your local community, recreation, or senior center to learn about classes for older residents with reduced (or no) fees.

Plan ahead with long-term care insurance

In 2024, Americans paid an average of $305 per day for long-term care facilities with shared rooms. Costs that high are extremely hard to cover out of pocket, but since you won't get any financial help from Medicare, you need to start budgeting for these costs well in advance.

Long-term care insurance can help, but it's costly. Make sure to carefully compare plan costs and find insurance that protects your bottom line both now and in the future.

Bottom line

Preparing in advance for high healthcare costs is an incredibly smart money move for seniors and even pre-retirees. However, you need to consider plenty of other financial moves to enjoy a happy, healthy retirement.

Our tips above are a great start, but if you're looking for more extensive, more personal advice, now is a great time to schedule a consultation with a retirement planner or financial advisor. They can review your finances and help you create a plan that aligns with your lifestyle, goals, and retirement aspirations.

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