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Mark Miller: Remaking Retirement

What the Election May Mean for Retirees and Healthcare

The next administration will face several healthcare-related issues. Contributor Mark Miller unpacks some of them.

Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

It's a simple fact: We tend to use more healthcare as we get older. There are more chronic conditions and illnesses to contend with as we age, and as a result, retirees spend more of their income on health insurance and out-of-pocket medical costs.

If you are retired--or have retirement in your sights--pay attention to the healthcare proposals and track records of the two major political parties when it comes time to vote this year. The next administration and Congress will need to make important decisions about the future of Medicare and the Affordable Care Act.

And government policy and action will determine the country's success or failure in dealing with one of the most critical issues of our time: the pandemic. The coronavirus has been devastating for Americans of all walks of life, but it has hit older people especially hard because of the higher risk of severe illness and death.

Morningstar is publishing a series of articles in the next few weeks examining how different election outcomes may affect the finances of American households. My last column looked at Social Security; this week, let's consider the key healthcare issues on the ballot for retirees.

The Pandemic
Older people are not at greater risk of contracting the coronavirus, but the risk of severe illness and death among this cohort is higher than average. The pandemic has been especially brutal for the very old, particularly those living in nursing homes and long-term-care facilities.

More than 67,000 Americans in long-term-care facilities have died from causes related to COVID-19, and more than 375,000 have become infected. And those figures are conservative, since assisted living facilities are not regulated by the federal government and state data reporting is uneven.

In nursing homes, deficiencies in infection prevention and control are widespread. A study published in May by the U.S. Government Accountability Office found that 82% of nursing homes had an infection prevention and control deficiency citation in one or more years from 2013 through 2017.

The Trump administration's general approach to the pandemic has been to turn over responsibility for the response to the states. Public health messaging has been erratic, with the president downplaying the threat and not emphasizing the importance of masks and social distancing.

Trump's second-term agenda relies on developing a vaccine by the end of this year, a "return to normal" in 2021, and making critical medicines and supplies for healthcare workers in the United States. Meanwhile, the Medicare program has taken some actions, including accelerated payments to hospitals and other health providers and new protections for nursing home residents.

Democratic presidential nominee Joe Biden has outlined a pandemic plan centered around a coordinated federal emergency response, including scaling up testing and contact tracing, provision and management of critical supplies, and setting strong national standards. He also wants to re-establish connections to the global public health community.

Addressing Medicare Solvency
Quick action will be needed to avert insolvency for the Hospital Insurance (HI) Trust Fund. This is the component of Medicare funded mainly through our tax payments, and it pays for hospital care.

The HI fund always has a projected insolvency date, as it balances Federal Insurance Contributions Act, or FICA, revenue receipts against hospital costs. The insolvency date fluctuates a great deal--since 1970, it has been as close as two years away or as far as 28 years into the future.

This is one of those moments that will require nearly immediate action to address looming insolvency. The HI fund is on track to be exhausted in 2024, according to a recent estimate by the Congressional Budget Office. Before the pandemic, Medicare's trustees projected that the fund would be exhausted in 2026, but the job losses stemming from the pandemic have reduced FICA revenue (otherwise known as the payroll tax).

The HI outlook also has deteriorated owing to the enactment of several laws, according to a brief on Medicare finances by the Kaiser Family Foundation:

  • The repeal of the Independent Payment Advisory Board, which was created under the ACA to monitor and control healthcare spending, and the repeal of several taxes.
  • The repeal of the ACA's tax on high-value employer health insurance plans (the "Cadillac Tax"), which had the effect of reducing payroll tax revenue by increasing projected employer-sponsored health benefits costs and, as a result, reducing wages.
  • The repeal of the ACA individual mandate, which led to a higher Medicare spending for people without health insurance.

The HI fund has never become insolvent, and the law contains no provisions indicating what would happen if it did. But the Medicare trustees estimate that at the point of insolvency, the fund would have sufficient resources to meet only 90% of its obligations, and the fund's ability to pay bills would deteriorate further from there; Congress would have to make decisions about how to address the shortfalls.

In the past, legislative fixes often have relied on reductions in payment rates to healthcare providers or by increasing payroll tax rates. The FICA rate for Medicare has been 1.45% each for employees and employers since 1986, and the cap on wages subject to tax was removed in 1994 (the cap on wages subject to Social Security FICA has remained intact). And since 2013, an additional tax of 0.9% has been assessed on earned income exceeding $200,000 for individuals and $250,000 for joint filers.

The prospects for raising taxes if the economy remains weak seem slim. Depending on who's in charge, a new revenue infusion could come from higher taxes on the wealthy or an alternative revenue source altogether.

(Medicare has a second trust fund, Supplementary Medical Insurance, which handles the accounting for Part B and Part D. The SMI fund technically cannot be exhausted because it is funded mainly through general revenue and enrollee premiums.)

An 'Obamacare' Scramble?
Republicans have been trying to topple the Affordable Care Act since its passage in 2010, and the latest salvo is a lawsuit, brought by 20 Republican-leaning states and supported by the Trump administration, that is now before the U.S. Supreme Court. The case centers around the Constitutional viability of the ACA's individual mandate. 

The Supreme Court may hear oral arguments on this case as early as this fall, just as voters are casting ballots; a decision isn't likely until sometime next year. There's no consensus among legal experts on the likely outcome: It's entirely possible that the court will leave the law intact or deadlock on a decision. The death of Justice Ruth Bader Ginsburg has increased attention focused on the case, with some observers predicting that a further shift of the court to the right boosts the odds that the ACA could be overturned.

But if the court issues a decision that invalidates the entire law, there would be wide-ranging ramifications. Discussion of the ACA often focuses on its individual insurance markets, Medicaid expansion, and guarantees of coverage for people with pre-existing conditions, but the law touches just about every corner of the U.S. healthcare system.

And there would be particular implications for the millions of older Americans too young for Medicare, who rely on the ACA's protections--especially the pre-existing condition protections, premium subsidies, and access to Medicaid in many states.

The coverage question for pre-65s is critical as the pandemic accelerates a wave of early retirements. A new Avalere Health study finds that 12 million workers are likely to lose employer-based insurance during the pandemic, with a percentage loss of coverage among people of color that is double that for white people.

The ACA has done a good job of improving coverage rates for this age group. In 2018, 8.8% of adults ages 50 to 64 were uninsured, a decline from 14.0% in 2010, according to the Commonwealth Fund. The decline would have been much greater if 14 states had not rejected the law's Medicaid expansion, according to Commonwealth. In states that expanded, the uninsured rate for this age group was 6.4%.

Anything is possible here, including a narrow court ruling that only strikes down the individual mandate--a result that likely wouldn't have much impact on the ACA marketplaces and none on expanded Medicaid eligibility. But for voters this year, it's important to consider how the two political parties might respond.

Republicans have been promising a superior replacement to the ACA but have yet to propose a solution that is credible or comprehensive. Some Democrats start from the perspective that the ACA should be improved and expanded; others favor expanding Medicare.

Biden has called for adding a public option to the ACA and retaining the law's Medicaid expansion. Policy experts generally talk about three ways to expand Medicare eligibility: lowering the eligibility age, establishing Medicare for All, and creating a Medicare buy-in. Biden favors reducing the Medicare enrollment age to 60.

Along with efforts to repeal the ACA, the Trump administration has proposed capping and limiting federal funding for Medicaid. Elsewhere, it has offered proposals to reduce prescription drug costs, including insulin. Most recently, President Trump signed an executive order that aims to reduce prescription drug costs that is facing fierce opposition from the pharmaceutical industry and an uncertain outlook.

KFF offers this handy summary of key positions and policies of the two candidates.

Long-Term Care
Finally, it's worth noting that Biden has outlined a plan for improving the nation's caregiving system centered on expanding Medicaid's home and community-based care programs. The key shortcoming here is that the plan proposes no new long-term-care funding mechanism, such as a public long-term-care insurance program.

Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to WealthManagement.com and AARP The Magazine. He publishes a weekly newsletter on news and trends in the field at Retirement Revised. The views expressed in this column do not necessarily reflect the views of Morningstar.

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