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Plan Well, Retire Well

Saving and investing your money

What are the important issues on health care reform, and what do they mean for retirees?

Today we welcome guest blogger, Wes Sprague -- a University of Illinois student.

For retirees aged 65 and older, Medicare has been an enormous social success. It has helped to vastly reduce the level of senior poverty in America by providing most every retiree over the age of 65 with public health insurance, yet there are still many ways that it needs to be improved in order to meet the needs of post-retiree Americans that have paid into our social welfare system. As we move forward with heated health care reform in Washington, it's important to understand why these issues exist, especially in today's bi-partisan political environment, and how they will affect the health benefits of both current and future retirees.

Here is an outline of the major issues facing health care reform with regard to the special interests of retirees and what Washington needs to do in order to mend the system:

• Bridge the gap for Early Retirees.

According to the 2008 US Census, Medicare (public health insurance) covers 92.6% of people over the age of 65, making it the single largest primary health insurer of retirees (Turner, Boudreaux and Lynch). However, in 2007, more than 4 million people ages 55 – 64 (12.4% of the age cohort) were without health coverage (Jacobson, Schwartz and Neuman) suggesting that early retirees face a significant impetus to purchase health insurance between the years when employer health insurance stops and when eligibility for Medicare begins after age 65. With rising health care costs, people in this age group, especially those who are not eligible for Medicaid, want the ability to buy in to Medicare to receive preventive care when health risks are less significant and for major medical coverage.

• Fill the "Donut Hole".

During the Bush Administration, congress ruled on Medicare Part D, which created a gap of more than $3,200 in prescription drug coverage from $2,510 to $5,726 where no benefits would be paid if prescription expenses fell within that range (Hall). This created what has been dubbed the "donut hole". Approximately one in four seniors continues to pay premiums for Medicare Part D and the cost of their prescriptions (Hall). On one hand, seniors could stop paying the premium once they fall into the benefit gap; however this forfeits their right to be in the program during the next year, placing them at significant medical and financial risk (Hall). Closing the "donut hole" needs to be one of the significant talking points to Health Care Reform as it places seniors in a position to avoid prescription health treatments.

• Bring down the costs of Long-Term Care.

Serious debate about Long-Term Care has been off the table since the Pepper Commission over a decade ago, however as baby boomers age, the US will see a shift in the population distribution towards an increasing proportion of senior citizens in America (Clark, Burkhauser and Moon 318). With this shift, Long-Term Care will become increasingly more important as seniors become too disabled to handle daily activities. The cost of Long-Term Care has increased over time due to the nature of its continuous care, so the cost of Long-Term Care insurance has followed suit. This has made Long-Term Care insurance unaffordable for most middle-class Americans, placing significant pressure on state funded Medicaid programs as a source to relieve the burden that Long-Term Care raises (Clark, Burkhauser and Moon 318-340). Current legislation that should be included in the health care bill includes the CLASS Act by the late Sen. Edward Kennedy (Democrat – Massachusetts) and Rep. Frank Pallone (Democrat – New Jersey) (Easterling). Such legislation can be used to assist middle-class families with the cost of Long-Term Care

• Continue Retiree Health Benefits.

Congress has been debating whether they should reduce or eliminate the tax exclusion of employer-sponsored health insurance (ESI) in order to generate the additional tax revenue to fund expansions in health care coverage (Clemans-Cope, Zuckerman and Williams). While the current exclusion reduces revenues generated by the government, it provides a significant benefit for covered employees and retirees as Medicare often does not cover the full cost of health coverage. Decreasing the ESI exclusion will place significant pressure on employers to reduce or eliminate health care benefits in an environment where health care is already expensive. This places early retirees at significant financial risk if they lose their employer sponsored health benefits; many of whom gave up wage increases over the course of their employment in place of such promised benefits. The bottom line is this: reduction in the ESI exclusion will reduce the availability of employer sponsored health benefits for all Americans. This is not in our nation's best interest.

Create a Public Option.

There has been a lot of debate over whether a "public plan" option would place unfair pressure on private insurance companies to lower premiums and keep their business practices under control due to the low cost structure that a government plan could potentially provide. While nearly 49 million Americans are uninsured, nearly every insurance lobbyist argues that a "public plan" option would establish a monopoly in the marketplace. However, there is no evidence to support that opinion. One study, designed by the New America Foundation to measure the impact of government insurance plans offered by states nationwide, found that among 30 state governments offering both a public and private option, the private option attracted more customers than the public one (Levey). Since a government public option will most likely target the elderly and the poor, there is a high probability that there won't be a major shift to the "public plan" option as many anti-option proponents would lead Americans to believe due to the enhanced benefits of private health insurance. However, it would have the significant benefit of keeping health insurance premiums in check for the majority of Americans who have the option to give up the additional benefits of private insurance for the low costs of the "public plan" option. This will lower the cost of health care for both early retirees who cannot afford private insurance during Medicare ineligibility and retirees who require supplemental coverage over and above the cost of Medicare.

Works Cited

Clark, Robert L., et al. The Economics of an Aging Society. Malden: Blackwell Publishing, 2004.

Clemans-Cope, Lisa, Stephen Zuckerman and Roberton Williams. "Changes to the Tax Exclusion of Employer-Sponsored Health Insurance Premiums: A Potential Source of Financing for Health Reform." June 2009.

Easterling, Barbera. "What Is at Stake for Retirees in Health Care Debate?" 31 July 2009. Labor Union Bog. 8 November 2009 <>.

Hall, Mike. Prescription Drug Donut Hole: 'Sweetheart Deal' for Big Pharma. 14 July 2009. 8 November 2009 <>.

Jacobson, Gretchen, Karen Schwartz and Tricia Neuman. Health Insurance Coverage for Older Adults: Implications of a Medicare Buy-In. Menlo Park, CA: Henry J. Kaiser Family Foundation, 2008.

Levey, Noam N. "Health care debate: Will public option be viable?" Chicago Tribune 26 July 2009.

Turner, Joanna, Michel Boudreaux and Victoria Lynch. "A Preliminary Evaluation of Health Insurance Coverage in the 2008 American Community Survey." Survey. U.S. Census Bureau, 2008.

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by Sir Walter on Thursday 7/14/2011