ARBOR WEALTH: Health care and plight of older Americans

Editors’ Note: This is the second in a two-part series on the declining purchasing power of older Americans.

“I never shall have that Park Avenue aire … But I’m in such health, why should I care?” — from “I’ve Still Got My Health” written by Cole Porter

The creation of a retiree CPI-E (Consumer Price Index-Elderly) is long overdue. The cost of certain goods and services for older Americans consumes a far greater percentage of their income than it does for their younger counterparts. In addition, the inflation numbers that are calculated don’t reflect what the average 65 year-old spends money on. As you might imagine, health care costs such as insurance coverage and medication are at the heart of this conundrum.

My husband and I received notice recently that our health care plan will be discontinued later this summer, as it is not Affordable Care Act compliant. To purchase the same level of coverage in an approved plan will require a 69 percent increase in annual premiums.

That this kind of rate increase is a common occurrence tells us all we need to know about escalating health care costs and the declining purchasing power of older Americans. This high deductible plan is basically catastrophic health care insurance, because there’s a cap on what you will have to pay if you have major surgery or face extended hospitalization.

Rising health care costs are at the vanguard of purchasing power issues for those 65 and older, but by no means is health care the only problematic sector. But it is also interesting to note that those 65 and older who have Medicare coverage, compared to those aged 55-64 who do not, still pay four percent more in health care costs than do those of a slightly younger age.

“Older Americans experience a higher degree of inflation than both urban consumers and the inflation measure used to adjust Social Security benefits,” states a recent report. “Inflation disproportionately affects older Americans due to differences in spending habits and price increases in (some) categories.”

If those 65 and older spend a quarter of their income on health care, five percent inflation in that sector impacts them far more dramatically than it does other age groups. Thus, their real inflation level might be closer to four percent rather than the one to two percent that is frequently reported.

Health care companies complied with new federal regulations, many of which were originated with good intent. Not being refused coverage because of a pre-existing condition is a laudable aspect of current health care law. What proponents of the new measures may not have foreseen is that health care companies would absorb the cost of compliance by simply raising rates exponentially and passing on costs to existing customers. For many older Americans, the outcome is a frightening decline in purchasing power.

Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.