One thing that can be difficult to predict when you’re planning your retirement is how much you’ll wind up paying for healthcare once you’re retired. The good news is new treatments and lower-cost healthcare resources are created every day. The bad news is one aspect of healthcare many retirees need most tends to cost the most: prescriptions.
Total spending on prescription medications by individuals, insurers, and governments in the United States rose 13 percent last year.1 While 2015 was a record year for spikes in prescription drug prices, with some costs rising as high as 5,000 percent, 2016 could prove to be equally difficult. The problem with these rapid, and often unpredictable, increases is that they are far more likely to affect you as you get older.
People approaching retirement make up one of the largest prescription-using markets in the industry, cited by one study as accounting for 70% of total prescription use.2 Some retirees might be forced to rely on a prescription for the rest of their lives. How can you prepare for the unpredictability of prescription drug prices? Like most things, it’s a matter of proper planning and understanding the industry.
Why Prescription Costs Spike
While just about anything in the market can affect the end cost of a prescription medication — from production costs to medical advancements — there are two common instances in which you will see large increases: 1. A prescription medication is still under patent, and 2. A generic drug maker decides to reduce or end production of a drug.
In the first case, the company that owns the patent for a medication has the exclusive right to it for 20 years.3 Of course, it can take up to eight years for the drug to even hit the market at all, and that doesn’t include how long it takes for it to achieve widespread use. But for a while, a company that creates a drug has a monopoly on it. It is the drug’s only producer, and it must recoup its research and development costs. That can mean a high cost for you, the user.
In the second case, sometimes a generic drug maker decides to cease production of a medication due to changes in regulations or the cost of production. Some drugs are expensive to make, and the pharmaceutical patent world is a litigious one. Therefore, some drugs just aren’t worth the financial risk, or are tied up in patent litigation and can’t be produced.
This is a problem, as a generic drug costs about 85% less on average than a brand-named one.4 This cost difference can cause sudden and significant spikes in price, which can be a big hit if you’re on a fixed income. If you’re mapping out your future in retirement, you must be prepared to pay more for prescriptions. One good way to ensure you’re prepared is to make a plan right now, starting with assessing your insurance needs.
Ensuring You’re Insured
Insurance is the ideal way to offset the costs of prescriptions. There are a lot of great health plans out there that will help, and supplemental insurance or annuities can provide supplemental income to help pick up the rest. If you’re over 65, you’ll also have Medicare Part D available to you. You also can buy other products, such as Medigap insurance, to further supplement your plans.
A long-term care policy is helpful to have because it can help to cover medications received at home or in a facility. When choosing a policy like that, you’ll establish a daily amount you would spend for care, say, $220. Then, you’ll estimate how many days you’ll need the coverage and purchase a plan that covers that amount. There are a variety of long-term care options available out there.
Similarly to long-term care insurance, annuities are an option that provides additional streams of income to help supplement suddenly increased costs in retirement, like a spike in the cost of prescriptions.
The key is to insulate yourself in layers of protection. A health insurance policy is a great start, but it’s not the only thing you need to manage your retirement funds and maintain your standard of living. Supplemental insurance, long-term care insurance and annuities can help you protect yourself from sudden fluctuations in prescription drug prices. This is especially important if you intend on retiring before you’re Medicare eligible, or if you have a spouse who will need insurance when you retire. Overlapping the plans you have can ensure you can get the medical care you need even if your base health plan doesn’t cover the full cost.
The Double-Edged Sword of Medical Advances
As a whole, our society is getting healthier and living longer. Advances in medicine have helped countless people live more active lives. It’s said that everything we know about medicine doubles every seven years, which is what makes the medical industry such an exciting but unpredictable one.5 Unfortunately, that’s also what makes it so expensive. But just because it isn’t predictable doesn’t mean that your financial future has to be unpredictable, too. Planning for your future now can help ensure you can pay for your healthcare costs later on.
Annuities are long-term products designed to supplement retirement income and their guarantees are backed by the financial strength and claims-paying ability of the issuing insurer.
At Retirement HQ, our financial professionals and advisors offer a large range of products to help you plan for even the most unpredictable life events. Contact us to find a financial professional to help you stay ahead of these ever-changing expenses in retirement.
By contacting RetirementHQ, you may be offered information regarding the purchase of insurance products. All of our financial professionals are licensed insurance agents. Additionally, some individuals may also be registered with a broker/dealer or as an investment advisor.
- “Seniors Vulnerable to Drug Price Spikes,” Squared Away Blog, Center for Retirement Research, Jan. 21, 2016, http://squaredawayblog.bc.edu/squared-away/seniors-vulnerable-to-drug-price-spikes. ↩
- “Health, United States, 2014,” Center for Disease Control, January 2014, http://www.cdc.gov/nchs/data/hus/hus14.pdf#085. ↩
- Matthew Herper, “Solving The Drug Patent Problem,” Forbes, May 2, 2002, http://www.forbes.com/2002/05/02/0502patents.html. ↩
- “Facts About Generic Drugs,” U.S. Food and Drug Administration, 2015, accessed Feb. 19, 2016, http://www.fda.gov/drugs/resourcesforyou/consumers/buyingusingmedicinesafely/understandinggenericdrugs/ucm167991.htm. ↩
- Peter Densen, “Challenges and Opportunities Facing Medical Education,” Transactions of the American Clinical and Climatological Association, American Clinical and Climatological Association, accessed Feb. 19, 2016, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3116346. ↩