Health-care dilemma: 10,000 boomers retiring each day

• Retiring baby boomers will more than double Medicare and Medicaid costs by 2020.
• Retired 65-year-old couples can expect to pay $275,000 in out-of-pocket expenses for health care, excluding long-term nursing care and rehabilitation — but only have a 50 percent chance of covering these costs.
• On the bright side, exorbitant health spending by baby boomers has driven innovation in health care.
• Scalable, independent solutions will be the most reliable way for the health-care industry to stay afloat.

What do you get when an abundant demographic cohort hits the 65-year mark? A wave of baby boomers retiring in excess, to the tune of 10,000 men and women a day.

That may seem like a big number, but it's accurate, according to Pew Research and the Social Security Administration. The question is: Are Americans prepared to live comfortably post-retirement? And perhaps more importantly, is the health-care industry ready for the associated medical burden?

Thomas M. Barwick | Getty Images

Health-care news and the costs associated with it are obviously on everyone's mind, and for good reason. As health care continues to take up a larger part of the overall economy, structural changes — such as the push toward paying for value, greater emphasis on care management and increased cost sharing with consumers — are taking a stronger hold, pulling back against rapid health-care spending growth.

Retiring baby boomers will more than double Medicare and Medicaid costs by 2020, according to industry data. As health-care costs increase faster than economic growth, Medicare taxes and the Trust Fund will cover less and less. By 2033, some pundits say, the Trust Fund will be bankrupt, and taxes will pay only for 48 percent of the costs.

Americans are unique in that a vast majority feel personally responsible for retirement preparation — a survey by Transamerica found that 91 percent felt very or somewhat personally responsible for post-retirement income sufficiency, versus 73 percent of workers globally. But high health-care costs in the United States make it difficult to actually be prepared. According to some industry calculations, a person with a $40,000 annual income needs $1.5 million to comfortably retire (the higher your income, the more millions you need in order to maintain your lifestyle). If that weren't steep enough, this figure doesn't include health costs.

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Since health costs rise along with age, this equation gets more problematic. The average 65-year-old couple in retirement can expect to pay $275,000 in out-of-pocket expenses for health care, according to Fidelity Investments. But by some estimates, they only have a 50 percent chance of covering these costs. According to a report by AARP, "the U.S. stands out for the high cost of health care and its failure to generate better health outcomes." So no matter how personally responsible emerging seniors may feel, half are likely to fall short when medical costs are concerned.

There's Social Security, sure, but the reserve is expected to be depleted by 2033. The limits of Medicare and Medicaid are being tested as well. According to the Congressional Budget Office, by 2035 spending for Medicare alone will reach 8 percent of gross domestic product; as of 2080, that figure may be 15 percent. And since emerging retirees will both live longer and experience higher rates of hypertension, higher cholesterol, obesity and diabetes, their strain on health and finances will be prolonged.

There's no easy solution, but as an entrepreneur in the health-care industry that works with seniors, I feel it's my obligation — and ours in the field collectively — to come up with solutions that strive for patient affordability and ways to actually lower costs behind the scenes.

If there is an upside, it's that exorbitant health spending by baby boomers has driven innovation in health care. Not all innovation leads to lowered costs, though; in fact, sometimes the opposite can occur. As new innovations, drugs and processes are created, demand for these services rise, increasing spending by an order of magnitude.

I believe smart innovations can, and should, decrease costs, too. Take, for example, the cost of latencies in medication administration, or poor coordination and collaboration between health-care providers. When services aren't streamlined or they fail to account for long-term care, health deteriorates and emergencies arise. The private sector can help by developing services and software with this in mind, filling gaps to prevent costly readmissions and cut down on waste.

To put it simply: Innovative treatment is important, absolutely, but if we want to decrease costs, we should focus on streamlining care to preempt the need for expensive treatments.

There's another side of this to take into account. As baby boomers retire, they don't just enter a new chapter — they leave big gaps in the workforce, and one many businesses aren't prepared for. To address the health-care industry alone, nearly two-thirds of baby boomer nurses are already considering retiring. This begs the question: When retirees need someone to care for them, will there be enough millennials and Gen Xers employed to do so?

Right now the health-care industry is decidedly not adequately prepared. According to The New York Times, "we already lack sufficient numbers of geriatricians and other professionals — nurses, social workers, pharmacists, aides — trained to care for the elderly, and the shortage is projected to increase."

We need to provide incentives to more young people to get into eldercare and nursing by any means possible.

Lastly, nursing homes in the private sector are already alleviating issues for seniors by providing better and more seamless care driven by innovation. In countries such as Japan, for-profit nursing homes are picking up government slack by investing in aging boomers instead of leaving them to the whim of federal funding. Seniors in the United States have the opportunity to benefit from private solutions, as well.

In the end, scalable, independent solutions will be the most reliable way for the health-care industry to stay afloat. When that wave of retirees hits — and keeps on hitting — only preparation will soften the blow.

— By Joel Landau, founder of The Allure Group