Medicare: The Ultimate High Deductible Health Plan
by Bill West MD
There are many individuals in Congress today who are looking at ways to expand access to Medicare. We have seen a number of bills introduced on this issue ranging from “Medicare for All” to expanding age limits for Medicare eligibility. Let’s take a look at how Medicare covers healthcare expenses compared to what pre-retirees face.
The average couple retiring today will need $296,000 to cover out-of-pocket healthcare expenses in retirement. Most will spend 30% of their income in retirement on healthcare expenses alone. Those are big numbers and can be overwhelming to retirees. Many people thought Medicare covered most healthcare expenses, but that may not be the case. According to Medicare, an average person in good health will spend $7,850 in out-of-pocket healthcare expenses every year. It’s even worse if you suffer from a chronic disease. For example, those with diabetes have an average out-of-pocket cost of $10,800 and for people with heart disease it’s $12,012. Those with cancer can spend over 60% of their income on healthcare.
Retirees face many challenges with financial issues at the top of the list. According to the Social Security Administration, the average social security benefit in 2019 is $1,461 per month or $17,532 per year. While every dollar helps, it’s difficult to live on social security alone, especially if some or most of those dollars are being spent on healthcare costs. Retirees are forced to use their retirement savings to cover their expenses. This can include an IRA, 401k, 403b, Roth IRA, or pension plan. But, the problem is that when you use an IRA, 401k or 403b to pay for expenses, the income is taxable. In fact, some pensions and social security benefits can be taxable under certain circumstances.
SO, what is the solution? HSAs of course!
We are working with Congress to introduce a bill that would make all Medicare plans HSA qualified, which would allow retirees to use a health savings account (HSA) to pay for their out-of-pocket expenses using pre-tax dollars. For those who already have an HSA, they can continue to use the funds for qualified healthcare expenses and Medicare premiums (except MediGap policies) and we are proposing to allow contributions to the HSA in retirement. For those who don’t have an HSA already, the proposed legislation would allow Medicare covered retirees to open an account and fund the HSA and use it for qualified healthcare expenses and all Medicare premiums except MediGap. This will save retirees 20-40% on their out of pocket healthcare costs!
Sounds to me like it’s the right thing to do for our retirees. They’ve earned it.