Charlie Baker had one simple message for investment advisors at the Retirement Income Industry Association spring conference in Chicago: health care costs are going up, up, up.
And that means, as trusted retirement guides, investment advisors should plan with their clients for the eventuality that they will need far more in savings to pay for health care in retirement than previous generations.
“I do think one way or the other, people will have to figure out a way to talk about health and wealth in the same conversation,” said Baker, entrepreneur in residence at General Catalyst Partners.
Baker’s keynote address, entitled “Healthcare and Retirement,” featured just one slide presentation, which remained visible throughout his talk. It was a chart showing the steady climb of health care versus U.S. gross domestic product since 1960.
By 2020, predictions are that health care will account for nearly 15% of GDP, a figure that would have shocked previous generations.
“The problem we have now is that 10,000 baby boomers are retiring every day,” Baker explained. “So this problem is only going to get harder to solve.”
Tackling the health care fiasco would mean taking on one of the largest cohorts in American history — baby boomers — who, as they age, will be more likely to vote. Still, Baker said, “the trend can’t continue.”
Baker, who ran on the Republican gubernatorial ticket in Massachusetts and once led Harvard Pilgrim Healthcare, said addressing health care costs will require policy makers to take a long look at Medicare, which he described as the “chassis” on which the health care system is organized.
Right now, he said, Medicare pays more for expensive procedures and less for routine care, so health care companies have adapted their business plans accordingly. “The big money is trying things that might work,” he said.
“Basically that’s what drives spending.”
He told the investment advisors attending the 2011 Retirement Income Industry Associationspring conference in Chicagothat present-day retirees should put away at least $250,000 to pay for health care costs — and that number will only rise. “People need to understand that people need to start putting away money for health care now,” he advised.
Baker concluded his talk by considering how President Obama’s health care reform might affect future health care spending. First, he explained, it’s not at all certain that the bill will be implemented. Various legal challenges could stop it and state governments might not have the funds necessary to implement parts of the legislation that require them to absorb certain costs associated with Medicaid beneficiaries.
Whatever the results of the legal challenges to health care reforms, Baker maintained that people will have to work longer and harder to pay for their retirements. “People will work into their late 60s and early 70s,” he said. “I think people are going to work a long time.”