Getting old isn’t for cowards. That’s an old cliché, but why does the government have to pile on? It’s tough enough to deal with the challenges of getting old without the government making it even harder.
John C. Goodman, healthcare economist writing in Forbes, says the federal government spends an enormous amount of money on the elderly – far more than it spends on children. But at the same time, rules, regulations, taxes, and penalties create enormous burdens for senior citizens when they do such ordinary things as work for wages, withdraw funds from an IRA or even try to insure for medical expenses.
Social security was set up by the Roosevelt Administration to protect the elderly. But seniors who claim early retirement under Social Security face the highest tax rates in the nation when they earn more than a modest amount of wage income. These taxes can exceed 90 percent, and they are far higher than the rates faced by Warren Buffet or Jeff Bezos, two of the richest men in the world. Some seniors face higher tax rates on capital gains and pension fund income than younger people at the same income level. Some are even taxed on their tax-exempt income!
You probably believe your accountant is aware of these issues and takes the necessary steps to minimize the damage. But Goodman says even well-trained CPAs tend to be unaware of the problems seniors encounter when they try to insure against unexpected medical expenses – not to mention those seniors who file their own taxes.
Health Savings Accounts
A good example is Health Savings Accounts (HSAs). Goodman is the founder of this extremely popular program which allows nonseniors to self-insure for medical expenses not paid for by third-party health insurance. People can put pre-tax dollars in their HSA and employers can contribute as well. Funds can be invested at the owner’s discretion and the accounts are completely portable – you can change jobs and take your HSA with you. About 30 million Americans have an HSA with an accumulated $82 billion in these plans. Some financial experts have called these plans the most attractive way there is to save – even better than an IRA or a 401(k) plan.
But seniors can’t have an HSA. I had one until I reached age 65 and then I had to give it up. Once you become eligible for Medicare, you can no longer open and contribute to an HSA. You can use the existent funds, but when they’re gone, they’re gone.
Prescription Drug Costs
This is especially bad for seniors who face all kinds of out-of-pocket expenses when it comes to healthcare. Prescription drugs is a good example. A senior who enrolls in Medicare Part A (hospital services), Medicare Part B (doctor services) and Medicare Part D (drugs) can face considerable costs for drugs, even after paying premiums. I take 12 pills a day and my wife takes even more. You can almost bet that the older you get the more pills you’ll be taking! You’d think that Medigap insurance would pick up the slack for these expenses, but it doesn’t. For some strange reason, the law doesn’t allow Medigap to pay for the patient’s share of drug costs.
A study of 28 expensive specialty drugs found that among Medicare enrollees covered by Part D drug insurance, the out-of-pocket spending by patients ranged from $2,622 to $16,551 annually! No wonder the drug discount coupons (GoodRx, SingleCare) are so popular.
Here is how Medicare drug coverage is working in 2022. After a deductible of $445, Medicare pays 75 cents of the next dollar of cost. And it pays 75 cents of the dollar after that. It keeps on doing this until the patient’s out-of-pocket expenses reach a limit of $6,550. Above that amount, in the “catastrophic phase,” the patient is responsible for 5 percent of any additional costs. For the 28 drugs mentioned above, more than half (61 percent) would require an average cost of $5,444 a year in out-of-pocket costs in the catastrophic phase alone.
What can be done about this?
Congress could change the laws governing Medicare. There are also market-based alternatives. Goodman mentions a Houston-based firm called Health Matching Account Services (HMA) which has been offering young people a way of insuring out-of-pocket medical costs that is intriguing. In recent years it has been expanding to the senior market as well.
Under a standard plan, seniors make a monthly contribution of $140 to an HMA. After 12 months, they will have paid $1,680. For that amount, they will have coverage for the first $1,980 of medical expenses. That means they are getting $1.17 of coverage for every dollar they contribute in the first year. But it gets better. In year two you get $2 of coverage for every dollar contributed. In year three it goes up to almost $3 per dollar. After 35 months of payments, people who have had no medical bills will have $10,000 of coverage in return for monthly payments of less than half that amount. When you draw down your account, you can replenish it by resuming the $140 monthly payments.
Goodman says what’s needed even more is deregulation. He says, “Seniors deserve real catastrophic coverage and they deserve the opportunity to save and manage their own health care dollars for noncatastrophic expenses.” The market is capable of providing these needs if the government would just get out of the way.