Health costs drop, but don't get excited

The magic number for health care costs for a 65-year-old couple leaving the workplace this year is $220,000, down from $240,000 last year. In its annual estimate of health care expenses for retirees, Fidelity Investments found a number of factors behind the decline in estimated health care costs, according to Sunit Patel, senior vice president. For instance, a less-than-stellar economy tends to discourage people from spending money on health care. “There's a close relationship between the economy and the use of health care services,” Mr. Patel said. “What's surprising is that even as the economy has recovered, the trend [of sharply rising health care costs] didn't start to accelerate until the end of 2012.” Medicare spending hasn't risen by much, either. Last year, Medicare per-enrollee spending rose at a rate of 0.4%. That is partly tied to the fact that the wave of boomers means young retirees with lower health care expenses, according to Fidelity. Increases in Medicare spending per enrollee averaged 7% annually from 1985 to 2009. This is only the second time in the last 10 years that Fidelity's health care cost estimate has decreased. The first time was in 2011 due to Medicare changes that cut out-of-pocket costs for prescription drugs. Advisers shouldn't expect the trend of lower costs to continue. “This is a temporary phenomenon driven in some part by the economy,” Mr. Patel said. In addition, the estimate doesn't include long-term-care expenses.