What does the Debt-Limit Deal mean to New Jersey Seniors?

Besides the negative effect we are seeing in the market today from the S&P downgrade of the US credit rating, the debt deal may have far reaching consequences to seniors.  Medicare, Medicaid and Social Security are a huge proportion of the US budget.  Elderlawanswers.com has provided a summary of what seniors need to pay attention to:

Congress has agreed to allow the President to raise the debt ceiling in exchange for $2.4 trillion in budget cuts over 10 years. How this deal will affect the three major programs crucial to the elderly -- Medicare, Medicaid and Social Security -- may not be known until almost year's end, but the impact could be significant.

The agreement calls for two stages of spending reductions. In the first stage, which will pare $917 billion from the budget, "entitlement" programs like Medicare, Social Security and Medicaid are spared. Instead, the cuts are evenly divided between defense and non-defense "discretionary" programs. Some aging and poverty programs that the elderly rely on, such as heating assistance, could be hit with budget reductions, but so will defense programs.

In the second stage, a 12-member Congressional committee - six members from each party -- must agree on an additional $1.5 trillion in cuts by Thanksgiving, and Congress must vote on their proposal (with no modifications) by December 23. Here, Medicare, Medicaid, and Social Security will all be back on the table. In the case of Medicare, the powerful panel will be looking at changes like raising the eligibility age, increasing premiums for wealthy recipients, hiking deductibles and co-pays, and slashing payments to providers and drug companies.

To cut Medicaid, this joint committee will consider giving states more flexibility to reduce eligibility and benefits, meaning that it might become even tougher for elderly nursing home residents to qualify for Medicaid. The committee will also be looking at cutting payments to nursing homes, which just got hit with a more than 11 percent reduction. Nursing home residents could feel the impact in the form of reduced services and compromised care.

For Social Security, one thing the panel will undoubtedly consider changing is how the program's cost of living increase is calculated, which will result in lower benefits. Pushing back the eligibility age for future retirees could also be on the table.

Although President Obama will be pressing the joint committee to not just cut programs but to increase revenues by raising taxes on the wealthy and corporations, it is anybody's guess whether the panel's Republican members will agree to this.

"The future of the programs really hangs in the balance," said Joe Baker, president of the Medicare Rights Center, an advocacy group. "It could lead to deep cuts and irreversible changes to Medicare and Medicaid that shift costs to beneficiaries."

If the 12-member panel can't agree on a plan to pare at least $1.2 trillion from the budget -- or Congress votes down its proposal or President Obama vetoes it -- automatic spending cuts totaling that amount would kick in beginning in 2013. Medicaid, Social Security and veterans programs are among the programs that will be exempt from these mandatory cuts, but Medicare is not exempt. There would be a 2 percent cut to Medicare, although the savings would have to come from payments to providers like doctors and hospitals, not from beneficiaries. Such a reduction to providers would be on top of a 6 percent drop in provider payments already enacted to help finance health care reform. Doctors and hospitals would feel the impact initially, but Medicare beneficiaries would experience it soon enough as more providers refuse to treat Medicare patients, reduce services or go out of business.

There is, however, a strong incentive for the joint committee to avoid these automatic cuts and instead agree on a plan that Congress can pass and the President can sign: Along with the 2 percent automatic Medicare cut would be an automatic 8 percent reduction in defense spending, or nearly $500 billion. The thinking is that both Democrats and Republicans would view defense cuts of this magnitude as too damaging to their parties to contemplate.

Further reading:

"Five cuts the debt commission might make to Medicare, Medicaid" (Washington Post blog)

"FAQ: Debt Deal 'Super' Committee's Impact On Health Spending Explained" (Kaiser Family Foundation Health News)

"Tea Party groups see Medicare overhaul chance" (Reuters)

"Social Security, Medicare dodge bullet, but cuts loom" (Reuters blog)

"Debt Deal Triggers Nerves In Health Industry; Providers Brace For Cuts" (Kaiser Family Foundation Health News)

"What Does the Debt Ceiling Agreement Mean for Medicare?" (Center for Medicare Advocacy, Inc.)


New Incentives to Retire Early - Government will offset Employers Paying Continued Health Care Costs

The Obama Administration reports today that they will subsidize employers who are providing medical benefits to "early retirees".  The issue is that Medicare kicks in at age 65.  Given the costs of private health insurance, older, and sometimes most highly compensated, employees are delaying their retirement because they can't afford to fully privately pay health care until age 65.  In order to incentivize these employees to retire early, a practice had been for an employer to continue medical coverage until age 65.  However, upward spiraling premiums have made this practice potentially uneconomic.  So here we are, employees can't afford to retire due to health care costs, and employers can't afford to offer retirement packages due to health care costs. 

The proposed solution is that is employers will now have an opportunity to be reimbursed for some of the health care premiums they add to retirement packages.  At its heart then, this is a job stimulus measure.  If older more experienced employees retire, it creates room for mid-level employees to move into new jobs (presumably at a lower salary) and frees up lower end opportunities for those out of work or moving into the workforce.

Effective next month, federal subsidies will allow employers to recoup a big chunk of the cost of medical claims for retirees ages 55 to 64 not yet eligible for Medicare, according to a White House official who spoke on condition of anonymity ahead of the official announcement expected Tuesday.


Could an Illness Wipe You Out? Bankuptcy Might Need to be Planned For

http://www.freedigitalphotos.net/images/view_photog.php?photogid=721 Christine Wilton has an insightful post "Are We Just One Injury or Illness Away From Bankruptcy?"  In it, she highlights the issue of what happens if you get ill, become disabled, and the insurance just isn't there.  If there bills are enough to completely wipe you out, what should you do?

This is particularly relevant to the retired.  This past week I got 2 separate inquiries about someone who either (1) did not sign up for Medicare at 65, or (2) didn't get a Medigap policy, all based on affordability issues.  They got sick, and now want coverage, but the coverage isn't there.  Both situations were not life threatening, but could wipe out the finances they had to provide for the rest of their lives.

First, what not to do.  Christine cautions against using credit cards or drawing down a home equity line to pay your medical bills.

If you're faced with medical debt, do not use your credit cards or home equity or any other financing to pay that debt. You're only adding interest to that debt and avoiding the most likely inevitable bankruptcy. What's worse is that if you use home equity, you could lose your home later if you fall behind on your mortgage."

Some things to do:

  1. Read your medical coverage and understand its limitations.  
  2. Use pre-tax dollars when possible to pay for care (at a 25% tax rate, this mean for every $100 you are spending the government is essentially kicking in $25 because you don't have to use the $25 for taxes).
  3. Try to settle your debt - the head in the sand approach won't make it go away.
  4. Speak to a qualified bankruptcy attorney to determine if that might be your best option, as well as all the drawbacks of going that route.

 Image courtesy of: http://www.freedigitalphotos.net/images/view_photog.php?photogid=721