Health care, other income issues combine to complicate life for retirees

Not long ago, the news site ProPublica published an important story about employers who, in their quest for a younger and cheaper workforce, were pushing out “older” workers – often those in their early 50s. Crunching data from the Urban Institute, reporters found that 28 percent of stable, longtime employees sustain at least one damaging layoff between turning 50 and leaving the workforce for retirement.

While the story was about the financial impacts on laid-off workers’ savings and retirement, it was also about a lot more. It was also about health care – the kind those workers would be able to afford during their forced early retirement and then during their more traditional retirement after age 65.

Health coverage presents a short- and a long-term problem. While some of those laid off workers might be offered insurance for a limited time, paying the high coinsurance, deductibles and copays – not to mention surprise bills from out-of-network providers – is challenging when salary disappears or is reduced.

The Commonwealth Fund, a New York City philanthropic organization, presented some troubling study results last fall. The fund teamed up with researchers at the Harvard School of Public Health and The New York Times and looked at a sample of seriously ill people. Even with insurance, more than one-third of respondents had used up all or most of their savings while sick. High deductibles, copayments and treatments their insurance did not cover caused them to deplete their savings.

“What’s staggering here is there is no way people could know what they would be in for,” Harvard professor Robert Blendon said. “They don’t know what their insurance covers. The consequences for people are quite extraordinary.”

People in the Commonwealth Fund study who exhausted their savings because of illness face more financial hurdles as they approach Medicare age.

“Most households with workers nearing retirement won’t be able to maintain their living standard in retirement, based on our analysis of government statistics,” Teresa Ghilarducci, professor of economics and retirement at The New School in New York City, said.

Ghilarducci runs The New School’s Retirement Equity Lab, which recently blogged about other disturbing news. Changes in the job market over the past 30 years have reduced older workers’ bargaining power. The Equity Lab found that older workers most likely would have to take money out of their 401(k) plans before retirement simply to meet living expenses. What’s more, many will have to find a new job, but that job will pay on average 25 percent less.

The Equity Lab reported if workers now between ages 50 and 60 retire at age 62, projections indicate that 8.5 million will be impoverished.

What happens when those tossed out of work early reach Medicare age? Many readers of these columns said they are just hanging on until they turn 65 when Medicare will pay their medical bills.

What they don’t realize is that in the early 2000s Congress passed legislation to make Medicare beneficiaries pay more for their benefits. It was part of the “more skin in the game” approach to controlling medical costs.

Rather than taking strong measures to curb health care inflation, Congress decided that beneficiaries who had to dig more deeply into their own pockets to pay medical bills would not use as many services. That was the theory, at least.

The 2003 law that gave seniors the drug benefit also called for income-related premiums for Medicare Part B, the benefits that pay for doctors and outpatient services. Former President Barack Obama’s healthcare law required income-related premiums for the drug benefit. The higher the income, the more they pay.

Now single people with gross incomes over $85,000 and couples with incomes over $170,000 pay higher premiums. Only wealthier beneficiaries are paying the higher premiums right now, but proposals keep popping up that would require people with incomes as low as $40,000 to pay a larger share of their monthly premiums for Medicare.

At the same time, good pension plans that would provide monthly payments in retirement have disappeared in favor of 401(k) plans, retirement savings plans that let workers save part of their paychecks before taxes are withheld.

“For people approaching retirement now, the median account balance in a 401(k) is only $15,000 for those 55 to 64,” Ghilarducci said.

The shifts in the country’s financial security arrangements and health coverage resulted from major policy changes the public knew little about. It will take major policy changes to reverse what is happening.

“There will be a lot of downward mobility,” Ghilarducci said. “It can invite a political backlash that we haven’t seen in generations.”

How has your family been affected? Write to Trudy at [email protected].