The
Coming Medicare Insolvency
The
total federal debt is now over $10 trillion. But if
you also include the current unfunded liabilities of social
security, Medicare, and other programs, the total federal
debt is at least $54 trillion. This
number has been confirmed in three separate studies - by
the American Enterprise Institute, the National Center for
Policy Analysis, and the Brookings Institution.
It
is difficult to get a grasp of a number that big.
That’s $180,000 per person currently living in the
United States. It is four times the U.S. Gross Domestic
Product, the measure of the final value of all goods and
services produced in this country in the course of a year.
As
the program is currently structured it is unsustainable,
and the fund is expected to be depleted by 2018.
That is a mere 11 years from now. The shortfall in
Social Security and Medicare revenues will continue to increase
as the years go by - it will exceed $2 trillion by 2030.
At that point, half of all tax dollars will have to go to
Social Security and Medicare.
That
clearly can't happen. Instead, the system will face
massive cuts in benefits, probably in addition to large
tax increases.
Who
Will Pay Your Medical Expenses During Retirement?
So
will Medicare be there for you? It depends on how
old you are, but unless you are retiring in the next couple
years, I certainly wouldn't count on it. Particularly
if you want to insure that you have access to high quality
medical care during your retirement years.
Last
year Fidelity Investments reported that the average
couple retiring in 2006 would need $200,000 just to cover
medical expenses during retirement. That
estimate did not include the cost of over-the-counter medications,
most dental services and, if needed, long-term care.
And it did not include the charges that are currently paid
by Medicare.
If
you cannot depend on Medicare to be there for you, the only
smart solution is to save as much money as possible, so
you can obtain the care and the quality of care you need.
If you are not currently putting as much money as possible
aside to pay for these expenses yourself, you are making
a serious mistake.
What
Is Your Solution?
As
most readers already know, the very best tool for accumulating
funds for future medical expenses is a health savings account.
An HSA is the only investment that provides a tax deduction
when you deposit the money, yet never taxes the money if
it is used to pay for qualified medical expenses.
Therefore,
you should put as much money as possible into your HSA,
and withdraw as little as possible. The contribution
limit for 2007 is $2,850 for an individual, and $5,650 for
families. Those over 55 can also contribute an $800
catch-up contribution. Making the maximum contribution
each year will help you build a medical retirement fund
that can be used to pay future medical expenses, tax-free.
Rather
than withdrawing money from your account to pay for medical
expenses as they occur, you should pay for medical expenses
that are not covered by your health insurance, out of your
own pocket. Save your receipts (for doctor visits,
eye glasses, aspirin, etc), and leave your money in the
account to grow tax-deferred. There is no time limit
before you have to reimburse yourself, so you can make the
most of this tax-free investment.
As
soon as possible, you may also want to transfer some of
the money into mutual funds. While some HSA administrators
are paying interest rates as high as 5%, the only way you
are going to really grow the account is to get a much higher
return on your money. Many HSA administrators offer
a discount brokerage option, so you can place your funds
in virtually any stock or mutual fund.
For
a family that contributes the maximum contribution each
year, it is quite reasonable to assume an HSA account value
well over $1 million after 25 or 30 years. Medicare
may be broke, but at least you won't be.
"Medicare
HSAs?"
The
solution to the pending Medicare meltdown is very complicated,
but it is clear that government-run medical programs don't
work. The dismal results can be seen everywhere, from
the former soviet-bloc countries, to the broken down national
healthcare systems of Canada and Europe. Medicare
must be transformed into a program where seniors have an
ownership interest in the money they are spending.
Replacing
the government's obligation to provide benefits with a voucher
that seniors could use to purchase health insurance from
competing private insurers, and/or deposit into a "Medicare
Health Savings Account", would bring market efficiencies
and competition into the picture. This idea is endorsed
by both the American Medical Association, and the American
Hospital Association.
Retirement
HSAs may or may not ever come to fruition. But fortunately,
HSA plans are available to those under age 65. If
you do not yet have an HSA, get signed up for one now.
You will lower your health insurance premiums, and can begin
putting money aside for medical expenses you will almost
inevitably incur during your older years.
