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Killer Out-of-Pocket Health Expenses Loom in the Future

David Callahan

Even as the politicians in Washington -- of both parties, alas -- talk about cutting Social Security benefits, more evidence keeps piling up that tomorrow's retirees will have higher financial needs than today's seniors. While nobody wants to admit it, the truth is that we should be talking about how to increase Social Security benefits in coming years, not decrease them. 

The latest grim data comes from a new report by the Rand Corporation, which estimates that the cost of caring for Americans with dementia will double by 2040, imposing a catastrophic financial burden on the nation's healthcare system, as well as seniors and their families -- costs that may be even greater than cancer or heart disease. Today, some 3.8 million seniors have dementia, a number that will rise to 9.1 million.

Dementia tends to involve high out-of-pocket costs because it often requires long-term care at nursing homes that is not covered by Medicare or Medicaid. The coming surge of dementia will not only strap those seniors who suffer from it, but also their middle-aged or even elderly children who will pick up the tab for out-of-pocket costs even as they try to save for, or pay for, their own retirement. 

Worse, dementia cases will explode just as another costly healthcare problem balloons: diabetes. The number of Americans living with diabetes has already doubled since 1995, and is expected to double again in the next twenty years. Diabetics also face substantial out-of-pocket expenses, which is particularly problematic since this disease affects many low-income people with few savings. As many as one in three Americans may suffer from diabetes by 2050 -- in part as a consequence of today's epidemic levels of obesity.

And this problem will grow rapidly among seniors: a quarter of Americans over 65 have diabetes and 50 percent have pre-diabetes -- costing over $100 billion in healthcare annually. Those numbers are set to soar in the next decade, to the point that 17 million will seniors have diabetes by 2025.

What's coming is a perfect storm: more seniors with inadequate retirement savings facing a surge of chronic medical problems and growing out-of-pocket costs. Quite apart from the question of whether entitlements should be on the table in budget discussions -- as opposed to reducing deficits through higher taxes -- it's hard to see how benefits for seniors can be cut given the challenges that lie ahead. 

One last point: the ominous news about rising dementia gives new urgency to President Obama's initiative, announced earlier this week, to map the human brain and figure out ways to combat diseases that affect our mental capacities. We are in a race against time here.