Learn more about our methodology
Methodology
Using a standard actuarial forecasting approach, the Vanguard-Mercer model that powers this proprietary tool matches a client’s demographics, with claims information taken from an annual Mercer survey of people with similar demographics to generate out-of-pocket expense estimates.
The inputs entered in the tool can affect the cost estimates, including:
Health status: A high-risk health status can increase costs.
Geographic location: There is a difference in health care costs and plan availability depending on the zip code of your client.
Sex assigned at birth: There are small differences in overall health care costs depending on gender. If you choose “prefer not to say," the “female” pricing will be displayed.
Date of birth and retirement age: Displays Medicare costs as "your age 65" starting annual cost. "Retiring earlier than 65" means that you must bridge the health care coverage until Medicare eligibility. The Pre-Medicare costs are displayed as an annual cost in the first year of retirement.
Inflation: Outputs of the tool are displayed in real dollars and do not account for any Consumer Price Increase (CPI) over the time period. The Medicare, Pre-Medicare, and dental costs include health care inflation, based on a proprietary cost trend model developed by Mercer. Vision costs are not inflated. Long-term care costs do not include any inflation adjustments and are priced as a lifetime lump sum dollar amount based on today’s costs of care.
Household income at retirement: Medicare premiums are based on the income from your tax return from two years ago, therefore the income input in the tool is reduced by an annual CPI percentage for the prior two years. High income households will pay more in premiums due to Medicare’s Income Related Monthly Adjustment Amount (IRMAA). This field is not used to compute any subsidies for the Affordable Care Act plans.
Pre-Medicare plan: Cost sharing reductions and premium tax credit subsidies are not taken into account when pricing the Affordable Care Act plans. Your costs may be lower if your income is under certain thresholds because of potential subsidies. Pre-Medicare medical costs include premium, medical out-of-pocket, and prescription out-of-pocket expenses.
Medicare plan: Medicare supplement plans (Medigap) and Medicare Advantage plans have different premium and out-of-pocket expense tradeoffs. The calculator assumes participants would select the lowest cost plan available in their region. Depending on plan type and income level, Medicare medical costs could include medical cost share, prescription cost share, medical out-of-pocket, prescription out-of-pocket, Part B premiums, and/or Part D premiums.
- The standardized Medigap plans are not available in the states of Wisconsin, Minnesota, and Massachusetts: The tool is pricing the most comparable state specific Medicare supplement plans with insurance riders that would offer similar benefits to Medigap G and Medigap N.
- Data used for medical and prescription drug insurance costs: The calculator assumes participants will choose the lowest cost Gold, Silver, Bronze Affordable Care Act plans, lowest cost Medicare Advantage and lowest cost Medigap supplement plans available in their region.
Lifetime long-term care costs: Figures are based on the Genworth Cost of Care Survey and Urban Institute study on Long-Term Services and Supports for Older Americans. Estimates are in “today’s dollars” and take into account location, income, gender, health risk category, and marital status. Current age does not affect the output since this is in today’s dollars and is a lifetime lump sum.
Dental: Outputs of the tool are pricing the average annual premium and out-of-pocket dental costs, which include a percentage of the population that does not utilize oral health care services in a given year. Health risk is the only field that can change this output as location, income, gender, and marital status are not taken into account.
Vision: The Mercer model assumes that the combined cost of vision premiums and out-of-pocket costs for someone with vision insurance is similar to the total out-of-pocket cost for someone without vision insurance. Therefore, this model assumption validates why vision costs are the same for active employees, pre-Medicare retirees, and Medicare eligible retirees. Vision costs will be the same regardless of the health risk selected.
