Medicare Board of Trustees Report: Planning for health costs in retirement is a must!

  • Medicare Board of Trustees Report: Planning for health costs in retirement is a must!

    Recently, the Medicare Board of Trustees released its 2018 Annual Report. Unfortunately, the news within the report is nothing to jump for joy over.

    First, the bad news. The Medicare Board of Trustees is expecting that the hospital insurance trust fund (HI) that pays for services covered by Medicare Part A, which include hospitals stays, skilled nursing facilities, and hospice, will run out of money three (3) years earlier than originally projected.

    The main reason for this projected depletion three years earlier is the HI trust fund relies on payroll taxes and income from the taxation of Social Security benefits as its primary source of revenue. According to the report, over the next 10 years “HI income is projected to be lower than last year’s estimates, while expenditures during this same period will exceed the revenue being brought in.”

    The result is that the “Trustees project deficits in all future years until the trust fund becomes depleted in 2026.”

    The main solution to this problem is probably obvious, and it not pretty. First, lower the amount of expenditures that are paid to healthcare professionals. Second, increase the tax on payrolls for those are still working. This is terrible news.

    It gets worse. “Trustees project an average annual Part B growth rate of 8.2 percent over the next 5 years.” This is up from the previous 5 years where Medicare Part B only increased by 5.5 percent.

    The silver lining, which isn’t silver at all, is that for Medicare Part D premiums, which have also inflated by 5.5 percent over the last 5 years, are only expected to inflate by 6 percent over the next 5 years.

    In a nut shell, the report is stating that: 
    • Medicare Part A is going broke in the next 8 years.
    • Premiums for Medicare Part B will inflate by 8.2 percent annually for the next 5 years.
    • Part D premiums will inflate by 6 percent annually the next 5 years.

    With Medicare enrollment being mandatory to collect Social Security benefits, those in and nearing retirement must start planning for these increased costs if they want to maintain their lifestyle.

    In 2018 the Medicare Part B premium is $134.00 a month, while Medicare Part D, on a national average, is $52.52 a month. This is an average, annual total of $2,238.24.

    If this report’s projections remain constant, a 65-year-old couple planning to live to age 85 and assuming they remain under Medicare’s Income Related Adjustment Amount (IRMMA) income level, should expect to pay over $220,000 in premiums for just Medicare Part B and Part D.

    To be fully insured under Original Medicare, meaning they purchase supplemental Medigap Plan F policy, the expected cost may balloon to just over $490,000 in premiums throughout their retirement.

    Medicare means testing through IRMAA, as well as the bulk of Medicare premiums being deducted automatically from Social Security benefits, may put the dreams of a comfortable retirement in jeopardy.

    The time to start planning for this expense is now.

    Dan McGrath

    Dan McGrath is considered to be a leading authority on the subject of how health related costs in retirement will affect both retirement as well as the overall the financial planning process. Mr. McGrath has also authored the bestselling retirement planning book “What you don’t know about retirement will hurt you” as well as “Medicare: A Practical Guide to Understanding Your Health Coverage in Retirement”. http://www.jesterfinancial.com

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