Does the Senate's Health Care Bill Hurt Retirees?

When politicians want to kill any measure, the surefire trump card-used liberally by both parties over the years-is to declare, "This bill cuts Medicare benefits!" The Republicans tried it against the Senate's healthcare reform earlier this month-but for once, it didn't work. (A last minute endorsement by AARP, the 800-pound senior lobby, helped the Democrats stand their ground.) Now the Senate bill is all but certain to be approved, but the question has been raised: Does reform make things worse for retirees?

Like everything else having to do with healthcare, it all depends, says Paul Fronstin, Director of Health Research and Education Programs at the Employee Benefits Research Institute. If you look at what the bill does, the answer is: it mostly makes things better (or no worse), unless you have great coverage now through your employer. If you look at what the bill doesn't do, however, the answer is quite different.

But first, let's start with the details, right after the video:

Your Medicare benefits are safe. Republicans jumped on a report from Medicare's chief actuary that some cost-saving measures could drive doctors, hospitals and some other providers to flee Medicare. Even if that happened, it wouldn't affect what Medicare pays, though it might make the services harder to find. But it's not clear that such an exodus would really occur, and anyway, it's hard to believe Congress would have the political will to follow through on cuts that have such dire consequences. And even though nothing in the bill said anything cutting benefits, the Senators voted unanimously to preserve all guaranteed Medicare benefits. They do love their senior voters.

The donut hole will go away. The annoying and confusing gap in Medicare's drug coverage will be reduced in the Senate bill, and eliminated by 2019 in the House bill. Its removal could save you as much as $3,500.

Early retirees won't be left out in the cold. In what may be the most significant change for retirees, the career journey from age 50 to 65 will grow less harrowing. Currently, if you lose your job at that age, you could find yourself uninsurable and years away from Medicare eligibility. Under reform, you'd be able to find more or less affordable insurance through one of the new insurance exchanges. You couldn't be turned down because of age or pre-existing illnesses.

There will be a limit on how much higher your premiums could go because of your age. The Senate bill has a three-to-one limit on age rating, which means your premiums can't be more than three times as high as those charged younger people. In essence, the healthy young will subsidize the old.

On the other hand, the most generous corporate plans will wither. The Senate bill would eliminate some tax breaks and other incentives designed to keep employers providing generous health benefits. That-and the existence of alternatives through the new insurance exchanges, and a proposed tax on "Cadillac" plans-will erode company-sponsored retiree health plans, according to this report by EBRI. The House bill would actually prevent employers from changing health benefits for employees once they've retired, but watch out for unintended consequences. That rule gives employers an incentive either to cap benefits for future retirees or eliminate them altogether, to avoid being locked in to a permanent obligation.

What's missing? Just this: neither health care reform bill makes even a stab at fixing the one thing that would most improve your financial security in retirement: to fix Medicare's looming bankruptcy. How bad is it? According the Medicare trustees report, to bring the system back into balance would require either: a) an immediate 134% increase in Medicare taxes or b) an immediate 50% cut in benefits. No one is talking about anything like that. But until Congress ends its denial, health care reform, for all its political drama, is just fiddling around the edges.

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