Decreasing Benefits Contribute to Retiree Bankruptcy
For most of the 20th century, it was common for employers and unions to sponsor health care insurance for retired workers, which helped pay for some or all of Medicare’s cost-sharing requirements and deductibles. However, this trend reversed sharply in the mid-1990s. A survey by the Society for Human Resource Management found that only 19 percent of U.S. employers still offer retiree health benefits.1
Many companies that do continue to offer retiree health coverage have curbed cost-sharing and benefits by charging higher premiums or requiring higher deductibles and copays. This cutback in benefits for retirees contributes to the current retirement crisis as cost burdens increasingly shift to retirees.
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A recent report revealed individuals 65 and older are filing for bankruptcy at a rate nearly three times higher than in the early 1990s. Those 75 and older are filing at a rate of nearly 10 times more. This recent surge in retiree bankruptcy filings is being driven primarily by the greater burden of providing for one’s own income and paying more health care bills during retirement.2
Retirees who are not eligible for an employer-subsidized retiree health plan typically enroll in original Medicare or a Medicare Advantage plan.However, among the greatest health care costs for retirees is the rising price of prescription drugs. Medicare Part D plans, which cover prescription drugs, are sold by private insurers. Premiums vary based on the level and extent of coverage, but the average monthly premium in 2019 is $32.50. The average annual deductible is $415.3
The Bipartisan Budget Act of 2018 reduced the cost of brand-name medications during the coverage gap starting in 2019. That means Medicare beneficiaries are now responsible for paying their deductible, if applicable, and then any copays or coinsurance until they reach a total of $3,820 in prescription drug outlay. After that, the beneficiary will pay 25 percent of the cost of name-brand prescription drugs (37 percent of the cost of generic drugs) until reaching an annual out-of-pocket total of $5,100, after which he or she will pay 5 percent of all drug costs until the end of the plan year.4
When Part D plans were first established in 2006, beneficiaries paid 100 percent of the cost of their brand-name drugs. Under the Affordable Care Act (ACA), the coverage-gap cost was slowly reduced each year. However, it’s worth noting a U.S. District Court in Texas recently ruled to reverse the ACA drug plan provision. If the ruling holds up after appeal, beneficiaries would go back to paying 100 percent of drug costs when they fall into the coverage gap.5
Content prepared by Kara Stefan Communications.
1 Society for Human Resource Management. June 2018. “2018 Employee Benefits.” https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/pages/2018-employee-benefits.aspx. Accessed Dec. 30, 2018.
2 Darwin Bayston. Wealth Management. Oct. 1, 2018. “Taking on the Ugliest Trend in Retirement.” https://www.wealthmanagement.com/retirement-planning/taking-ugliest-trend-retirement. Accessed Dec. 30, 2018.
3 National Council on Aging. 2018. “What Is Medicare Part D?” https://www.ncoa.org/economic-security/benefits/prescriptions/part-d/. Accessed Dec. 30, 2018.
4 MedicareFAQ. 2018. “Medicare Part D Donut Hole will End in 2019.” https://www.medicarefaq.com/faqs/medicare-part-d-donut-hole-will-end-in-2019/?eiid=1448063140.1546215654. Accessed Dec. 30, 2018.
5 Howard Gleckman. Forbes. Dec. 17, 2018. “What Striking Down The Affordable Care Act Would Mean For Seniors.” https://www.forbes.com/sites/howardgleckman/2018/12/17/what-striking-down-the-affordable-care-act-would-mean-for-seniors/. Accessed Dec. 30, 2018.
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