How to Reduce Health Care Costs in Retirement

On the surface, it would appear a foregone conclusion. Health-care costs will eat up most if not all current and future retirees' nest eggs.

Consider, for instance, that a 65-year-old couple retiring today will spend an estimated $200,000 if not more on health-care bills in retirement. Meanwhile, the average worker in their 60s had on average just $140,957 in a 401(k) plan at year-end 2005. Yes, many workers in their 60s and most retirees have other assets to draw upon to fund their retirement years, but the bottom line is this: future retirees will likely have to use the entire balance in their 401(k) plans just to pay for health-care costs and then depend on other sources of income — Social Security, IRAs, home equity — to pay for daily living expenses.

Click here to visit's Retirement Center.

Click here to visit's Health Care Center.

And that's not the worst of it. Bill Novelli, CEO of AARP and co-author the just-published "50+ — Igniting a Revolution to Reinvent America," sees other dangerous trends. The population of uninsured and inadequately insured Americans is expanding; the quality of care is inefficient and sometimes poor; health-care costs are being shifted to the individual; and the incidence of behavioral and lifestyle-related disease is growing.

Dire as that may sound, Novelli says it doesn't have to be that way. There are things that America and Americans can do to mitigate health-care costs in retirement, to fix the roof even while though it's already started to rain.

"It's not a foregone conclusion that health-care costs continue to rise above the rate of inflation" making it harder and harder for retirees to enjoy a normal standard of living, says Novelli.

Fixing the problem, however, will require nothing short of a "national commitment to a transformative vision," writes Novelli in his book. And to bring the dream to life, "all of us ... have to think differently about health and take on new responsibilities to bring about the change."

Here's a recap of the seven steps that America and Americans should take to mitigate health-care costs in and before retirement, according to Novelli's book:

Improve the use of information technology to cut waste and achieve efficiencies. "Health care is the only industry that doesn't have adequate IT," says Novelli. "And the key to this information is making it portable." In the book, Novelli notes the benefits of the sweeping project to create a complete electronic record of every American's health care and to link all the records into a giant medical server called the National Health Insurance Information Network. That network, slated to be up and running in 2014, has the potential, according to Novelli, to save tens of thousands of lives every year and, by some estimates, cut up to $120 billion a year, perhaps even $600 billion, from health-care costs by eliminating duplicate tests, shortening hospital stays and improving care for chronically ill patients.

Reduce the toll of medical errors. According to Novelli, improving the use of information technology is only part of a solution that is needed to reduce the number of medical errors, which now cause an estimated 195,000 deaths a year. Novelli notes that new processes, better communication and teamwork, patient and family involvement, and a culture that gives patient safety and well-being top priority are needed as well. For instance, Novelli takes note of several steps that hospital professionals can take to reduce patient deaths, including the simplest act of hand washing before surgery. Other ways to reduce errors, he says, are to change the incentives built into American health care, adopting a pay-for performance system and adopting more quickly and more widely the use of evidence-based care.

Promote health and healthy behavior from infancy through old age. Individuals can also do plenty to mitigate the cost of health care. Specifically, Americans eat too much and exercise too little and that "we can affect the majority of health outcomes by taking responsibility for our own health," Novelli writes. Indeed, he notes that obesity is a major killer and that the most accurate predictor of premature death is poor physical health. The remedy, he says, is both simple and complicated. For instance, Novelli notes that walking, the best all-round exercise for most people, should be done for 90 minutes a day, most days a week. Trouble is many American don't walk that much. More could be done to build walking, as a form of exercise, into daily life.

Prevent disease; not just cure it. An ounce of prevention is worth a pound of cure. It's as true today as when Ben Franklin first uttered those words more then two hundred years ago. Making prevention instead of acute care the focus of the health-care system might require turning over an apple cart or two, including the compensation system. For instance, Novelli says one way to shift the focus to prevention is to give health-care professionals salaries and bonuses based on how many of their patients remain healthy.

Sharpen our focus on the growing problem of chronic diseases. "People using the most health care have multiple diseases, such as heart disease, obesity and diabetes" Novelli says. And oftentimes, those patients show up in a medical facility only after their problems become critical and require the costliest care. "To change the health-care system for the better, we must stop that cycle," he writes. In addition, health-care firms might also consider reaching into the medical bag for an old remedy — the house call. Novelli says house calls are cheaper than having a chronically ill patient go a doctor's office and certainly cheaper than emergency room visits.

Deal with the escalating cost of prescription drugs. "There are areas where Americans can do something," Novelli says. "We can be smarter consumers." For instance, he says Americans should, if they aren't already, ask their physicians if there is a generic equivalent for the prescription drugs they are taking. In addition, innovative strategies such as group purchasing among states should be encouraged and, though controversial, the importing of safe prescription drugs from Canada and elsewhere should be allowed.

Make sure that all Americans have access to the health-care system. The last and absolutely essential step needed is figuring out a way to provide health insurance to the more than 46 million Americans who presently don't have any health insurance at all. That group, Novelli writes, tend to avoid doctors until an ailment becomes serious or life-threatening and then they go to the emergency room — the most expensive and least efficient way to deliver medical care.

Novelli says the steps required to mitigate health-care costs are obvious. Unfortunately, there is much inertia built into the system. And that's why Novelli has also proposed the ways to overcome the roadblocks. For instance, he says Americans have to build public demand, create more pressure from corporations and keep pressing politicians and policy makers.

In short, "we have to demand change," says Novelli.

Click here to visit's Retirement Center.

Click here to visit's Health Care Center.

Copyright (c) 2006 MarketWatch, Inc.