Retirement Super Villain – Medical Costs
Superman had Lex Luthor. Batman had the Joker. Spider Man had Doc Octopus. Retirees have health care costs.
Medicare For All? Watch Out What You Ask For1
Here is a summary of the financial features today’s retirees encounter in their health care coverage:
2019 Hospital Coverage:
- Point of enrollment (premium) per covered individual: $437/month, $5,244/year2
- Deductible (each benefit period admittance): $1,364 (for up to a 60 day benefit period)
- Copayment (days 61 – 90 in a benefit period): $341 per day for up to 30 days
- Copayment (lifetime reserve days, after 90 day benefit period): $682/day, maximum 60 days lifetime
2019 Physician/Outpatient Coverage:
- Point of enrollment (premium) per covered individual (plus income surcharge where applicable):3
o Paid by individual4: $135.50/month, $1,626/year
o Paid by taxpayers (approximate): $406.50/month, $4,878/year
o Total: $542/month, $6,504/year
- Deductible per person: $185/year
- Your coinsurance: 20% of Medicare allowable expenses
2019 Prescription Drug Coverage:
- Point of enrollment (premium) per covered individual (plus income surcharge where applicable):5
o Paid by individual: $33.19/month, $398.28/year
o Paid by taxpayers (approximate): $99.57/month, $1,194/year
o Total: $132.76/month, $1,593.12/year
- Deductible per person6: $415/year
o 25% of costs until total Rx spend is $3,820 (you pay $955, the plan pays $2,865)
o “Doughnut Hole”: 25% or 37% of next $1,280 (you pay as little as $320, plan pays $960)
o Copayments after spending $5,100 per person: $3.40 (generic), $8.50 (brand)
2019 Medicare Supplement – Plan F:7
- Point of enrollment (premium) per covered individual: $326/month, $3,912/year
So, assuming the combination of Medicare and a supplement creates coverage approaching 100% (no deductible, coinsurance or copayments), we are talking about a total cost of $1,437.76/month, $17,253.12/year per person, age 65; $2,875.52/month, $34,506.24/year for a couple, both age 65. Most retirees qualify for non-contributory Medicare Part A Hospital coverage (by paying Medicare hospital insurance taxes or FICA-Med) and most won’t be subject to the income-based contributions for Medicare Part B and Medicare Part D. So, a retiree’s cost may be $494.69/month, $5,936.28/year; $989.38/month, $11,872.56/year for a couple, both age 65.
2018 Medicare enrollment was 59.7 million Americans, 51 million covered due to age, 8.7 million covered due to disability.8 About 12 million are dual eligible, covered by both Medicare and Medicaid.9 Dual eligibles receive significant subsidies that may eliminate all premiums and point of purchase cost sharing.10 To qualify under current rules, most seniors must meet both an income (100% to 200% of the federal poverty level (FPL)) and asset test. For seniors with incomes over 100% of FPL, the asset test is typically $2,000 of “countable” assets.
In 2017, only 9.2% (4.7 million of 51.1 million) of Americans age 65+ live in poverty (have incomes below FPL).11 So, generally speaking, in 2019 and in the future, most middle-class or higher income retirees will not qualify as dual eligible – even if they spend down all their retirement savings.
My bet is that this information would be a surprise to almost all working Americans. What have you told your workers, if anything, about the cost of coverage as a retiree? How are you helping your workers prepare?
PSCA will conduct a webinar on July 25th to review the results of our Health Savings Account (HSA) survey. The HSA is the most valuable benefits tax preference offered in the Internal Revenue Code – a worker’s most tax-efficient opportunity to accumulate assets for funding medical costs in retirement!
1Abigail Abrams, Where The 2020 Democratic Candidates Stand On Medicare For All, Time, 6/28/19, Accessed 7/3/19 at: https://time.com/5616864/2020-democratic-candidates-health-care/
2Most workers avoid this premium by paying 2.9% of wages throughout their entire lifetime, minimum 40 quarters. During the period 1966 through 1985, the Medicare Hospital Insurance (HI) tax rate increased gradually from .35% to 1.35%. In 1986 and subsequently, the HI tax rate has been 1.45% for employees and employers. The wage base maximum was the same as for Social Security during the period 1966 – 1990. The taxable wage base was $51,300 (1990, maximum tax of $1,487.70). Separate HI taxable wage base maximums applied in 1991 – 1993:
• 1991: Social Security - $53,400, Medicare - $125,000 (maximum tax of $3,625, a 153% increase)
• 1992: Social Security - $55,500, Medicare - $130,000 ($3,770)
• 1993: Social Security - $57,600, Medicare - $135,000 ($3,915)
After 1993, there has been no limitation on HI-taxable earnings. The Patient Protection and Affordable Care Act of 2010 (Health Reform) added a .9% Medicare surcharge for wages in excess of $200,000 in a calendar year, without regard to tax filing status.
3For single filers with incomes of less than $85,000, joint filers with incomes of less than $170,000. For higher incomes, there is a supplemental premium (Income Related Monthly Adjustment Amount (IRMAA)) ranging from $135.50 to $460.50 per month.
4J. Cubanski, T. Neuman, The Facts on Medicare Spending and Financing, Kaiser Family Foundation, 6/22/18. 27% of Part B costs are paid by participant premiums, the monthly premium everyone pays is targeted to fund 25% of the cost of coverage. Accessed 7/3/19 at: https://www.kff.org/medicare/issue-brief/the-facts-on-medicare-spending-... 5Note v, supra. Only 15% of the funding for Medicare Part D actually comes from retiree-paid premiums. Taxpayers fund approximately 75% of the cost of coverage.
6Most Americans do not enroll in the Standard Part D coverage shown here; costs, coverage vary significantly by insurer and location.
7What Is the Cost of Supplemental Health Insurance for Seniors? 9/26/18, Accessed 7/3/19 at: https://www.healthmarkets.com/resources/medicare/cost-of-supplemental-he...
8CMS Fast Facts, Accessed 7/4/19 at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Tren...
9CMS, Accessed 7/4/19 at: https://www.medicaid.gov/medicaid/eligibility/medicaid-enrollees
10CMS, Dual Eligible Beneficiaries Under Medicare and Medicaid, Accessed 7/4/19 at: https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN...
11Census Bureau, Accessed 7/4/19 at: https://www.census.gov/library/publications/2018/demo/p60-263.html