Maybe they’ll end up calling this Medicare Part E?
Americans aged 50 to 64 aren’t able to claim free, or nearly-free, health insurance courtesy of the U.S. taxpayers. At least not yet.
But we may be edging in that direction.
The new $740 billion Inflation Reduction Act, due to be signed by President Biden this week, extends for another three years a raft of lucrative health insurance subsidies that are of particular benefit to those who are over 50 but still too young for Medicare (which kicks in at 65).
The subsidies, which were first enacted as supposedly temporary measures in the $1.9 trillion March, 2021 “American Rescue Plan Act,” will cost taxpayers an estimated $21 billion a year. Many of them are directed toward those earning between 100% and 400% of the federal poverty level, in order to keep health insurance affordable. But in the form of premium tax credits they also include subsidies for those making more than 400% of the FPL, meaning an income of $111,000 a year for a family of 4.
The subsidies help those whose Obamacare insurance premiums exceed 8.5% of annual income. Analysts say this is especially important for older Americans, who typically pay much higher health insurance premiums because, as people age, their actual health costs go up.
“These subsidies are particularly important to those ages 50 to 64, who pay up to three times more for their insurance,” said the AARP in a statement, praising passage of the legislation.
Without the new legislation those benefiting from subsidies now were facing a sudden leap in health insurance premiums.
An analysis by health insurance consulting firm Avalere warned that without the new law, the 50-64 were “at greatest risk for having substantially higher exchange premiums, which could make health insurance unaffordable for many.”
According to Avalere’s calculations, someone in their 50s or early 60s earning 400% to 500% of the federal poverty level could save $4,700 in premiums as a result of the subsidies. Even for someone in that age bracket earning 100% to 150% of the federal poverty level the savings would average about $500 per person, the firm estimated.
The Kaiser family Foundation, a leading healthcare think tank, reports:
“Without a subsidy, a 60-year-old’s health insurance premium currently averages more than $11,000 per year. If that 60-year-old has an income just above $51,000 – over four times the poverty level – their ARPA subsidy covers more than half of their monthly costs. Without the ARPA, their premium would increase 165%.”
Once these subsidies have been in place for a full 5 years it will be increasingly tempting for Congress to keep extending them, with the likely eventual outcome that they will become permanent. And once federal budgets get this big — $6 trillion in spending per year, and $1.4 trillion in deficits — $20 billion is petty cash.
Once you determine how much money you need to retire, you need to figure out how you'll actually spend your time.
Brett Arends is an award-winning financial writer with many years experience writing about markets, economics and personal finance. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He has worked as an analyst at McKinsey & Co., and is a Chartered Financial Consultant. His latest book, “Storm Proof Your Money”, was published by John Wiley & Co.
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