Out-of-pocket health care costs continue to take a sizable bite out of retirees’ finances — even as Medicare coverage expands and recent policy changes aim to reduce drug costs, according to a new brief published by the Center for Retirement Research at Boston College.
Using data from the 2018-2022 versions of its Health and Retirement Study, the center’s analysis found that for the median retiree, only 71% of Social Security benefits and 88% of total income remain available for non-medical spending after accounting for premiums, cost sharing and services not covered by Medicare.
These figures remained largely unchanged over the four-year period, despite the COVID-19 pandemic, rising inflation and shifts in Medicare coverage.
Even with Medicare, retirees face meaningful expenses.
Medicare Part A includes cost sharing, while Parts B and D require premiums and additional out-of-pocket payments. Many services — including dental, vision and hearing care — are not covered at all.
To manage these costs, many beneficiaries purchase supplemental coverage.
Medicare Advantage has become the dominant option, enrolling about 48% of beneficiaries in 2022, up from 37% in 2018, according to KFF. Many of these plans now charge no additional premium beyond Part B, although they often rely on narrower provider networks.
Still, premiums remain the largest component of out-of-pocket spending for most retirees. In 2022, the median retiree spent $5,444 on medical costs, with spending at the 95th percentile more than double that amount, according to the brief.
Who is most affected?
Out-of-pocket burdens vary widely across the retiree population.
At the bottom of the distribution ladder, 5% of retirees had essentially none of their Social Security benefit left after medical spending. Even at the 10th percentile, retirees spent roughly three-quarters of their benefit on health costs.
Age alone made little difference. The share of income remaining after medical spending declined only slightly as retirees grew older and remained stable throughout the study period.
Health status mattered more. Retirees who never reported a chronic condition had 91% of total income remaining after medical costs, largely because their overall retirement income was higher.
Income differences were more pronounced. The highest income quintile retained about 94% of total income after medical spending, even after accounting for income-related Part B surcharges. The lowest quintile retained 82%, aided by Medicaid coverage. Excluding Medicaid recipients, the share fell to 76%.
Supplemental insurance shapes outcomes
The type of supplemental insurance also played a key role. Medicaid enrollees had the highest share of both Social Security benefits and total income remaining after medical spending — reflecting minimal premiums and cost sharing.
Among retirees without Medicaid, those relying solely on traditional Medicare retained a slightly larger share of Social Security benefits than those with Medicare Advantage or retiree health insurance.
Researchers said that was largely because they paid lower premiums. Differences narrowed when measured against total income, since retirees with employer-sponsored coverage tended to have higher incomes overall.
The analysis predates several provisions of the Inflation Reduction Act — including the $2,000 annual cap on Medicare Part D out-of-pocket drug spending that took effect in 2025 and the start of Medicare drug price negotiations in 2026, the Centers for Medicare & Medicaid Services said.
Even so, the authors conclude that medical costs already make retirees’ finances more precarious than Social Security benefit levels alone suggest. This concern is amplified by uncertainty over future health policy and the projected depletion of Social Security trust funds in the mid-2030s.
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