Retirees (and those contemplating retirement) have only one fear (and it is a big thing) that keeps them awake at night, health: their health in old age and the never ending increases in health care costs.

They know that eventually (in very old age) their own lifestyle will reach an inevitable decline. They plan for that, but the cost of insuring themselves against unforeseen medical disasters is becoming less and less predictable.

They can practise remaining the healthiest people on the planet, but placed in an insurance pool of a similar age group, some of whom have been careless about themselves, or others who have been simply totally unlucky, everyone will share in the cost of care for the sickest among them.

Why are health costs rising?

The industry of caring for sick (and healthy) people is a massive all encompassing conglomerate of businesses, each of which operates with focused efficiency (it is hoped) to maximise returns to shareholders. While many cost influences are often cited for the inflationary upward spiral of medical costs, there never seems to be one distinguishing factor that can be isolated as the causative culprit. Perhaps, we've just become entitled to thinking that every medical situation is solvable, every minor ailment needs a major medical Band-Aid, every poor lifestyle choice can be rescued later on by utilising a generous medical buffet of care choices.

In one study, way back in 1994, "Why Health Care Costs Too Much", by Stan Liebowitz, the patient is placed squarely in play. The major culprit in the seemingly endless rise in health care costs is found to be the removal of the patient as a major participant in the financial and medical choices that are currently being made by others in the name of the patient.

The increasing share of medical bills paid by third-party payers (insurance companies and governments) and the disastrous consequences are documented. Patients overuse medical resources since those resources appear to be free or almost free. Attempts to rein in those costs have led to a blizzard of paperwork but proven ineffective in controlling costs.

The cure for the present problems is straightforward: the patient must once again be made the central actor in the medical marketplace. Patients need to be given the same motivations to economise on medical care that they have to economise in other markets. Tax laws need to be rewritten. The use of medical savings accounts needs to be promoted. High-deductible health insurance should be encouraged.

Sixteen years later, we haven't reached the point — yet — where cost discrimination enforced against poor lifestyle choices — has become an implement in a major monetary control effect. Could that be on the horizon?

Understanding these facts and living on a fixed income brings out the retiree pencil sharpeners and pocket calculators. Contrary to some popular opinion, retirees who have worked to save all of their lives to accumulate a retirement cushion, know exactly what, where, how and by whom their dollars are being spent.

They have time to research and network on their side to compare, discuss and anticipate the cost to their personal budgets while monitoring the public purse, and how the effect of overspending will impact their private pocketbook.

Amazingly, too, that mature individuals can add, subtract, divide, and conquer while figuring out the real story behind every story.

Inflationary pressure on heath costs will continue. Individuals can only control themselves when budgeting for retirement. It is not terribly difficult to project how much a personal budget will increase year on year.

Using an estimated five percent inflation rate, simply multiply a retiree total budget by 1.05 each year — not perfect, but a good guideline for tracking costs. Health care costs and long-term care are another matter. Annual inflation increases have almost always been understated, even by planning professionals. The costs have been collated within the budget or the projections used an inflation rate based on average brought down by a younger healthier insurance pool norm.

Retirement projections won't be anything close to reality without inputting these higher health care inflation factors. American Association of Retired Persons recently published a study of 12 well-known commercially available online retirement calculators tools used commonly in the retirement planning industry.

Only two actually accounted for these higher costs (see source below). In reality, the high cost of health care can swiftly surpass all other individual living costs.

In the chart, health costs running at 20 percent a year outstrip living costs at four percent inflation rate a year in less than 11 years. Simply, health costs will quadruple in 11 years!

It was ironic and discouraging to see a media report this week reinforcing these same old facts. Health costs are rising at a far faster rate than regular inflation. This is not new information. Health costs have been rising steadily in the neighbourhood of 12-20 percent for more than 20 years, according to the American Association of Retired Persons (an organisation of more than 35 million Americans) who have produced studies, lobby, and advocate for retired persons from all walks of life.

Our health cost increases on a smaller island in a tiny microcosm of a demographic pool compared to the AARP group are at least that, if not more.

Retirees living on a fixed income need to have all the facts to make informed decisions. Government, the industry and the public need to rethink and reformulate what constitutes a good health care plan at an affordable cost. It may not be what you feel you should have.

The responsibility is on all parties, the consumer, the industry, and government to contribute to a healthy population, financially and physically.

Failure to acknowledge this freight train will mean that instead of seniors means testing out of Future Care, they will be means testing back in as they run out of money.

Those projected numbers won't begin to match anything put on the table today. We can't have it all, anymore.

Sources: 1994, The Cato Institute, Policy Analysis, "Why Health Care Costs so Much", Stan Liebowitz, professor of managerial economics in the Management School of the University of Texas at Dallas.

2008, "In Brief: Planning for Retirement" Web Calculators Weak on Health Costs By Bryan E. Dowd, Ph.D, University of Minnesota; Adam Atherly, Ph.D., School of Public Health, Emory University; Robert Town, Ph.D., School of Public Health, University of Minnesota | Source: AARP Public Policy Institute

Martha Harris Myron, CPA, CFP (US) TEP (UK) JP- Bermuda is an international Certified Financial Planner™ practitioner in private wealth management. She specialises in independent fee-only cross border investment, tax, estate, and strategic retirement planning services for Bermuda residents with cross-border and multi-national connections, internationally mobile people and US citizens living abroad. For more information, contact martha.myron@gmail.com or 296 3528 Patterson Partners Ltd.