Healthcare costs are one of the biggest threats to your finances after you retire, and retirees rely on the Medicare program to help them cover the bulk of those costs. Yet Medicare has a huge financial time bomb that constantly looms over the program, and as lawmakers finally try to address the problem, the solutions they've come up with could make it impossible for you to retire as early as you want, instead adding years to your career just to ensure you can cover any unexpected healthcare expenses.

The Sustainable Growth Rate formula and your retirement
The latest Medicare controversy centers on what's known as the Medicare Sustainable Growth Rate formula. Medicare uses the SGR formula, which lawmakers established in 1997, to set the amounts that participating physicians get paid for offering healthcare services under the program.

The problem is that lawmakers quickly lost the discipline that the SGR formula would have imposed on Medicare costs. Because healthcare costs rose at a faster rate than the overall economy, the SGR formula produced amounts that weren't competitive with what medical professionals received for their services from private sources. As a result, for more than a decade, Congress has passed temporary measures to avoid the dramatic cuts that using the SGR formula would create, with the most recent step in March 2014 marking the 17th time lawmakers delayed those cuts. With that measure expiring on March 31, reimbursement rates are set to plunge 21%, using the SGR formula, unless lawmakers once again act.

Source: WhiteHouse on Flickr.

The impediment to realistic Medicare policy
Most policymakers agree that the best course is to come up with a permanent solution to the SGR problem rather than using year-by-year quick fixes. Yet budget concerns are a major problem, as a permanent increase in physician reimbursement could cost between $144 billion and $204 billion over the next 10 years according to figures from the Congressional Budget Office, depending on which specific provisions lawmakers adopt. Many lawmakers are uncomfortable with such huge spending increases without taking steps to offset those costs with permanent savings, and so Congress has held hearings recently to discuss various proposals to shore up Medicare's financial viability.

Some of those proposals involve fundamental changes to Medicare that will dramatically affect the financial planning and career planning that Americans have done. For instance, the Heritage Foundation suggested four possible bipartisan solutions to the Medicare financing crisis, each of which could have huge repercussions across the nation.

The most controversial of the proposals is to raise the Medicare eligibility age from its current age of 65. Pointing to Social Security's gradual pushback of its full retirement age, the proposal would immediately reset eligibility to age 67 and then implement further increases to 68 and beyond, based on changes in life expectancy. An increase to 67 would save Medicare about $63.5 billion over the next decade, according to the CBO.

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Other proposals would be more targeted but potentially have even greater impacts. For instance, imposing greater means-testing for Medicare by reducing the income thresholds at which Medicare premiums rise could yield as much as half a trillion dollars between 2016 and 2025. Consolidating Medicare Parts A and B and encouraging more cost-sharing from beneficiaries in exchange for better catastrophic-care coverage could save $114 billion according to CBO figures, and competitive bidding for Medicare Advantage providers could also see substantial cost reductions to the Medicare program.

A near-insurmountable barrier to retirement
Most people agree that Medicare reform is necessary. But pushing up the eligibility age by two to three years or more will force millions of workers to delay their retirement plans at least that long. Because health insurance for those in their 60s is far more expensive than what younger workers pay, many of those nearing retirement age have to keep working to keep their employer-provided health insurance coverage in place. Even under COBRA laws that allow you to keep your health insurance after you quit your job, you're still on the hook for paying premium costs.

One alternative might be to adopt a similar policy to Social Security, which offers full benefits at the current retirement age of 66, but also allows reduced benefits to those who claim Social Security as early as age 62. Making partial eligibility for Medicare available to early retirees would greatly increase the complexity of the system, but it would also make it easier to deal with rising ages for full Medicare eligibility.

Unfortunately, policymakers don't have that sort of compromise proposal on their radar screens. As a result, workers nearing retirement should keep a close eye on Washington as legislators debate and decide on whether to implement game-changing proposals for Medicare in the coming months.