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Shelley L. Nadel, CFP®, ADPA®, CLTC®, LUTCF

JUL
06
How Does The Healthcare Debate in Washington Affect Your Retirement?

Welcome to the first edition of my blog, "Out of the Box Strategies for Financial Success."  Over the coming months, I hope to offer valuable insights into how world events affect your own financial success and to give you practical tips on how to help you achieve whatever financial success means to you.

Today's topic is the healthcare debate happening in Washington.  Fortunately, Congress has taken a break from the chaos and never-ending news cycle, which gives us a chance to get caught up on what exactly everyone is disagreeing about and how the ultimate legislative outcome can impact your personal financial position.

First, let me state clearly that this is not going to be a political discussion. Regardless of party affiliation, healthcare affects all of us, and the costs do not discriminate.    Furthermore, like it or not we do have a system where the Federal government pays many of the costs of healthcare, along with states and private insurers. So here is your primer on the healthcare bills on the House and Senate side, and how they can directly impact your financial health.

BACKGROUND

The two principal public-sector healthcare programs are Medicare and Medicaid.  Both are labeled "entitlement" programs, meaning if you meet certain criteria, you will automatically receive care.

• MEDICARE, which is exclusively a Federal program, provides medical and related services to people over 65 or disabled.  There are four parts to Medicare: 

o A (in-patient care, such as hospital visits and hospice care);
o B (out-patient care, such as visits to your doctor and physical/occupational therapy);
o C (a managed care option, similar to an HMO); and
o D (prescription drugs). 

• MEDICAID is medical care for very poor people, paid for both by states and the Federal government.  Most Medicaid clients are poor women and their children, but during the expansion of Medicaid resulting from the Affordable Health Care Act, many more adults without children were able to enroll in Medicaid.  Besides basic healthcare, Medicaid has gradually become the funder of last resort for nursing home care for elderly Americans who cannot perform activities of daily living such as dressing or eating or who have cognitive disorders such as Alzheimers.

CURRENT PROPOSED LEGISLATION
To avoid a five-hour discourse on the House and Senate bills, let me summarize the main points that the Congressmen and women are arguing about (no judgement – just facts):

Taxes:  Republicans want to eliminate the surcharge taxes on investment gains and income implemented under the Affordable Care Act (ACA) that target wealthier Americans. Democrats want to keep them.

Regulations:  Republicans want to eliminate the individual mandate that everyone get health insurance.  Democrats and insurance companies say the mandate for healthy people to get coverage is critical to the survival of the insurance markets.

Expansion of government funded health care vs. increasing private health insurance:  Democrats want to continue the expansion of Medicaid to more states and more uninsured people.  Republicans want the free market to prevail and let people buy their own insurance and only the benefits they need/want, with Federal assistance for lower income people.

WHY SHOULD YOU CARE?
With all of the partisan bickering and infighting, it is tempting to throw your hands up in disgust and stop paying attention.  However, if you want to establish a solid financial defense against the increasing costs of healthcare, here is what you need to understand:

• Long Term Care and Medicaid:  According to the Social Security Administration, 70% of us will need long term care of some kind.  That could be home care, assisted living, skilled nursing, respite, hospice, or adult day care.  No one I know wants to think about being helpless like that, but ignoring the problem doesn't solve anything.  I tell my clients that long term care expenses are a bigger risk to their retirement than a volatile stock market.  If your plan is to let Medicaid pay for your care, then you should be very concerned about the health care legislation under consideration.  Right now, Medicaid pays for 40% of nursing home beds.  If Congress succeeds in reducing the amount of Medicaid funding over time (over $800 million), then it is inevitable that states will need to cut their funding for nursing homes.   If the law passes, that means you will need to set aside an estimated $72,000 in today's dollars for each year of potential care.  Start saving!

• Taxes: If the ACA taxes are repealed, then those of you who make more than $250,000 as a couple ($200,000 for individuals) will see your federal tax rate go down, which means more money in your pocket.  Don't go spending it, however, because if the number of uninsured people shoots up like the CBO is predicting, then tax rates for public hospital districts are bound to skyrocket to pay for the extra care costs.

• Cost of Health Insurance:  If the individual mandate goes away, then younger, healthier people will likely drop  coverage, which will lead to a higher percentage of sicker enrollees, which in turn will raise policy costs for the rest of us.  It's how insurance works – you need a broad risk pool to keep rates reasonable.

Obviously, there is much more to this subject, but I've already gone too long.  Check back in a few weeks for our next discussion, which will center on specific strategies you can use to extend your retirement dollars.  Have a successful day - Shelley



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