Today, we are going to discuss one of the most important government programs for seniors – Medicare. Many people are concerned about what they are hearing in political ads. Like many so-called “facts” in campaigns, both sides take things out of context and try to make themselves look better.
The temporary deferral of some payroll taxes will not make the trust fund go broke in three years. This money must be paid back after Jan. 1.
The COVID-19 pandemic has had a major negative effect. Because Medicare Part A is funded from payroll taxes, all of the job losses have greatly reduced the money paid in. You do not pay these funds on unemployment benefits.
There are actually different funding sources for different parts of Medicare. Part A covers inpatient hospital, skilled-nursing facility, home-health and hospice services. This skilled-nursing coverage is not long-term care. If you have been admitted to a hospital for at least three days, you can get coverage for up to 20 days for free if necessary. Days 21 to 100 have sizable co-pays on your part. There is no nursing care after this limited time frame.
The HI trust is funded primarily from payroll taxes. You and your employer pay these taxes, and if you have worked for 10 years, you pay no additional premiums while collecting Medicare unless you continue to have earned income.
A portion of the money the government pays to insurance companies to fund advantage plans also comes from this trust fund. In 2024, this could become insolvent, a problem that has been brewing for decades as baby boomers retire and medical cost increase. While soaring unemployment did not help the funds balance, a short delay did not cause the problem any more than moving the income tax deadline back three months until July 15.
Part B covers doctors, providers, medical equipment, lab tests and a few other things. It is paid about 25% by seniors and 75% by the government. This is what participants are currently paying $144.60 a month for. Higher-income people pay higher premiums through Income-Related Monthly Adjustment Amount charges.
There also are deductibles and co-pays that seniors pay for Medicare. These are often partially or fully insured with policies from private insurance companies.
Washington must find a way to fix the Part A issues. There have been a number of ideas floated on how to manage some of these medical costs, including proposals to negotiate drug cost, allowing drugs to be imported from other countries and other measures. The pros and cons of each need to be debated and worked on in a non-partisan way, for the good of the country.
There has been talk of expanding Medicare, but we have to remember seniors have paid into this program all of their working lives and their benefits must be protected. It is usually not a good time to expand anything when you have budget shortfalls.
Next week, we will discuss some ways to fix the Social Security situation in a fair and equitable way. This is another area where we must protect our seniors.
Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
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