How Much Does Health Spending Eat Away at Retirement Income?

The 14.5-percent increase in Medicare’s Part B premium for 2022 was a shock for many, raising a broader concern about the burden of out-of-pocket (OOP) health care spending on retirees. One way to gauge this burden is to look at how much OOP costs eat into retirees’ Social Security benefits and other income. OOP costs include Medicare premiums for Parts B and D and any supplemental coverage; cost sharing for Medicare-covered services; and the full cost of services not covered by Medicare, such as dental and vision. This brief, which updates an earlier study, looks at the extent to which OOP medical expenses affect retirees’ finances. Specifically, it uses the 2018 Health and Retirement Study to calculate the share of Social Security benefits and total income available for non-medical spending and explores how this measure differs by gender, age, health status, income, and supplemental insurance coverage. The discussion proceeds as follows. The first section provides background on OOP spending. The second section discusses the data and methodology. The third section presents the results, showing that – for the median retiree – only 75 percent of Social Security benefits and 88 percent of total income are available for non-medical spending. The final section concludes that, with such a substantial portion of their income going to medical costs, retirees’ finances are more precarious than Social Security benefit levels alone might suggest.