The Hidden Truth About Medical Costs in Retirement: What Washington Public Employees Need to Know

​When public employees in Washington State approach retirement planning, healthcare costs often remain the most underestimated expense. Many are shocked when they discover the real numbers.Here's a figure that often stops people in their tracks: $165,000 [1].
That's what the average retiree needs just to cover medical expenses throughout retirement. And that number keeps climbing every year [2].
The Traditional Approach Isn't Working AnymoreFor years, the conventional wisdom about healthcare in retirement was fairly simple:
·       Sign up for Medicare at 65
·       Maybe get a supplemental plan
·       Hope for the best
For Washington public employees, there's often an assumption that your PEBB benefits will handle everything. But this approach leaves significant gaps that can derail even the most carefully planned retirement.
Here's what many don't realize: Medicare premiums are just the beginning. They typically consume 73-81% of your annual healthcare costs—and that's only the predictable part [3].
The Critical Gaps in Healthcare PlanningThe most dangerous healthcare costs in retirement are often the ones you don't see coming:
·       Dental work not covered by Medicare
·       Specialized treatments with high out-of-pocket costs
·       Prescription drugs that fall into Medicare coverage gaps
·       Long-term care needs
These unexpected expenses can add up quickly. Consider this reality: many retirees face surprise medical bills of $2,000 or more in a single month for services not fully covered by Medicare or supplemental plans [3].
This is the new reality of retirement healthcare costs. For Washington public employees, the traditional planning methods aren't sufficient anymore.
Where Washington Public Employees Have an AdvantageAs a state or local government employee in Washington, you do have some advantages when planning for healthcare costs:
·       Access to PEBB retiree medical benefits
·       Possible participation in an HSA program (if you're in a qualifying high-deductible health plan)
·       DCP contributions that can be used for healthcare expenses
·       Potentially more stable retirement income through your defined benefit pension
However, these advantages only help if you strategically incorporate them into a comprehensive healthcare funding plan.
A New Approach to Healthcare PlanningThe best defense against healthcare costs isn't just saving more money—it's building multiple layers of protection tailored to your specific situation as a Washington public employee.
Here's what's proving effective:
Health Savings Accounts (HSAs): The Triple-Tax AdvantageIf you're eligible through a high-deductible health plan, HSAs offer triple tax advantages—something even your DCP can't match:
1.        Tax-deductible contributions
2.        Tax-free growth
3.        Tax-free withdrawals for qualified medical expenses
What many public employees miss: You can submit for reimbursement at any time. This means that you can pay for medical expenses today out of pocket and save the receipts letting the investments grow tax free until you want to submit for reimbursement.  For example, if you’ve incurred $10,000 in unreimbursed medical expenses since your HSA was established say 10 years ago, you can now take $10,000 from your HSA and use it for any purpose.
HSAs can function as specialized retirement accounts. After age 65, you can withdraw HSA funds for non-medical expenses by simply paying ordinary income tax, like your traditional retirement accounts.
Long-Term Care Planning Is CriticalThe median cost for a private nursing home room reached $116,800 annually in 2023 [2]. That's not a typo. And these costs are growing faster than general inflation.
Washington's Long-Term Care Trust Act provides some support, but with a lifetime benefit of just $36,500 (adjusted for inflation), it covers less than four months in a nursing home. Creating a supplemental long-term care strategy remains essential.
A Multi-Layered Healthcare Strategy for Public EmployeesA more effective approach to healthcare planning involves creating multiple defensive layers:
1.        Build a dedicated healthcare emergency fund
o   Aim for $5,000-$10,000 specifically earmarked for unexpected medical costs
o   Keep this separate from your general emergency fund
2.        Maximize HSA contributions if eligible
o   Contribute the maximum allowed ($4,150 for individuals, $8,300 for families in 2025, plus catch-up contributions if you're 55+)
o   Invest these funds for long-term growth rather than spending them on current healthcare expenses if possible
3.        Consider supplemental insurance options
o   Explore Medigap or Medicare Advantage plans beyond basic Medicare
o   Investigate hybrid policies that combine life insurance with long-term care benefits
o   Review PEBB retiree supplemental plans carefully to understand coverage gaps
4.        Create a prescription drug strategy
o   Research Medicare Part D plans that best cover your specific medications
o   Consider GoodRx and other discount programs for medications with poor coverage
o   Investigate Washington's prescription assistance programs
Traditional retirement planning often fails when it comes to healthcare costs. The "save and hope" strategy isn't enough anymore, even for Washington public employees with pension benefits.
But there's good news: once you understand the real numbers and build the right protection layers, you can create a robust healthcare funding plan. It might look different than what you expected, but it can provide the security you need.
For Washington public employees, leveraging your unique benefits while implementing these additional strategies can help ensure healthcare costs don't derail your retirement plans.
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Sources:
[1]https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2024-retiree-health-care-cost-estimate-as-americans-seek-clarity-arou/s/7322cc17-0b90-46c4-ba49-38d6e91c3961
[2] https://www.bankrate.com/retirement/healthcare-costs-in-retirement/
[3]https://www.troweprice.com/personal-investing/resources/insights/breaking-down-health-care-expenses-in-retirement.html

-Seth Deal