How much do you know about the three largest learning curves that most retirees must face? In dealing with health care costs, Social Security, and Medicare, there are hurdles that can entangle even the savviest retirement-planner, especially when it comes to tracking rules and yearly changes.
Some changes are at the top level, while others occur deep down in the guts of these systems. And with the advent of the Affordable Care Act, early retirement for many is a whole new landscape yet again.
The start of 2014 is a perfect time to look at the new issues. We'll highlight the changes, breaking out their effects on those who are either part of, or preparing to join, life after work. We'll be guided in part by insights from Daniel Beland, a professor of public policy at the University of Saskatchewan, Canada, and an expert on the U.S. Social Security and Medicare systems.
Impact watch: ACA and retirees
It's still too early to forecast all of the long-term effects of the ACA, and there's still enough political energy crackling around the subject to make it more than a little bit bewildering. While most Medicare recipients won't interact with the law directly, early retirees may when it comes to setting up health insurance plans.
For those people, here some of the key points about the Affordable Care Act:
- Typical problems that older individuals experience with getting accepted into a new health care plan -- challenges often based on age and the likelihood they'll need age-related medical care -- could ease with the advent of the ACA's new insurance exchanges. Early retirees who can take health insurance from a previous employer, however, may find the exchange-based plans out of reach.
- Premiums should dip lower than those for plans that previously accepted older participants for higher-than-average fees. That's because, theoretically, plans' pools will now be composed of many age groups under the ACA, as opposed to just segments that represent a more frequent demand for services.
- Subsidies should also play a significant role in how much you pay for your health care. In some cases the aid available could help cut your premiums by almost 50%. Early retirees -- those under 65 -- can use this online calculator to get an idea of what subsidies can do for your coverage costs.
Social Security changes to note in 2014
There haven't been significant Social Security reforms introduced since 1983. Still, early retirees especially will see some differences this year. And everyone gets a cost-of-living increase to his or her Social Security check this time around. It's a small one, but upticks haven't always happened in recent years.
Here's what you need to know:
- If you're under age 65 and collecting benefits, expect to see a dip of $1 for every $2 of wage- or salary-based income you earn beyond $15,480. For those reaching full retirement age in 2014, the dip will be $1 for every $3 earned until the month of your birthday.
- The cost-of-living increase to Social Security checks will be a modest 1.5%. If you were expecting about $2,000 per month, you can now look for approximately $2,030.
In news for those who haven't yet retired, the federal government has this year adjusted what you can expect to pay into the Social Security system as well. The cap on the earning maximum, in terms of what gets taxed for Social Security, increases 3% from $113,700 to $117,000.
You can see a comprehensive list of 2014 Social Security changes here.
Medicare: ACA impacts and inpatient increases
Key changes to Medicare this year come under the category of ACA impacts. There are also new developments in the area of deductibles and co-pays for patients staying at hospitals.
- Medicare under the ACA should now cover certain procedures such as mammograms and colonoscopies. No Part B deductibles for these. No Part B co-pays either.
- Brand-name drugs covered by Medicare Part D should come with a 50% discount.
- Those without a premium-free Part A plan will see their deductible increase to $1,216 from $1,184.
- Co-pays for beneficiaries for inpatient care increase to $304 per day for 61 to 90 days, then $608 for days beyond that. That's an $8 and $16 bump, respectively.
On a larger scale, the federal government says the good news about Medicare is that the ACA's cost savings and loss-reduction measures will ensure that the trust fund fueling the system can be sustained until at least 2029.
Changes to come
Apart from the ACA changes, don't let the appearance of incremental shifts in other areas lull you into a false sense of permanency. Experts such as Beland say that additional transformations of these three systems could well come sooner than later.
The U.S. population is aging -- the number of citizens age 65 and older is expected to double to 89 million by 2050. And the long-term fiscal challenges that an older citizenry presents stands to prompt Capitol Hill lawmakers in ways that tend to get their attention -- on their line items, in their budgets.
However that plays out, it will likely mean the most to upcoming retirees. Now is the time to start paying attention to these yearly changes to health care, Social Security, and Medicare. They can add up, and noting the flow of that addition will help protect you against surprises down the road.
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James O'Brien is a contributor to WiserAdvisor.