A 65–year–old couple who retire today and live to life expectancy can expect to spend almost $300,000, on average, for health insurance premiums and out–of–pocket expenses, assuming they have access to retiree health benefits from a former employer and pay the entire premium. (1)

But employer–sponsored retiree health benefits are becoming rare, and the outlook for retirees who will need to rely on Medicare is also dire. Medicare is facing insolvency in 2018, and experts are predicting that benefits will be reduced in the future. Medicare benefits currently cover only about half the cost of health-care services. If benefits are reduced, today’s average 65–year–old couple could need much more than $300,000 for health care. (2)

The coming health-care squeeze will affect most Americans regardless of age, net worth, or health. Given the history of American innovation, the question is not whether the country will solve its health-care-cost crisis, but how it will solve it.

When, Not If

“We are continually faced with a series of great opportunities brilliantly disguised as insoluble problems,” John W. Gardner, Lyndon Johnson’s Secretary of Health, Education, and Welfare, once said. (3)

Part of the bad news is actually good — and could help alleviate the problem. Medical progress has greatly extended U.S. life expectancies and helped reduce the types of ailments, such as heart disease and arthritis, that forced people to retire before they were ready. So rather than living in a society that is saddled with an aging and infirm population, we could be moving into an era in which older American workers remain viable, in demand, and earning income for a longer period.

The health–care and social–assistance sector already accounts for about 10% of total U.S. employment. (4) The Bureau of Labor Statistics is projecting that between 2004 and 2014, employment in this sector will grow more than twice as fast as total employment. (5) One of the characteristics of a free market is that capital tends to gravitate to problem areas because that’s where breakthroughs — and potentially winning investments — typically occur.

The way in which our society grapples with the cost of caring for a graying population will not be painless or easy. Keeping an eye on how the problem is addressed may help you decide how to react.

1–2 ) Employee Benefit Research Institute, 2006
3) quotationspage.com, 2005
4–5) Bureau of Labor Statistics, 2006

Watching the Health–Care Squeeze