What to Do If Medicare Goes Under

Medicare is running out of money.

Earlier this week, the federal government announced that Medicare's Hospital Insurance Trust Fund will run out of money by 2029. This is one of two trust funds set up to pay the growing costs of Medicare, specifically Medicare Part A benefits and administration costs.

That's only 12 years away.

This isn't the first time we've heard threats of Medicare or Medicaid losing funding. But with budget cuts looming and an unprecedented number of Baby Boomers turning 65 each year, we could see major hits and increased premiums.

If you're depending on Medicare, that means a lot more money out of your pocket.

In fact, Medicare premiums rose in 2017. For about 70% of seniors, the premiums for Part B rose almost 4% despite a cost of living increase in Social Security of only 0.3%.

But for the other 30%, the spike was much higher – 10%. These folks include those who are on Medicare but not yet collecting Social Security, those with higher incomes in retirement, and those who enrolled in Part B for the first time.

Worse, deductibles for all Medicare participants increased by at least 2% as well. That includes deductibles on Part A, Part B, and coinsurance amounts for longer hospitalization or nursing care.

Regardless of what happens to Medicare or any other health plans, you need to look out for yourself. It's what I've always said: You can't trust the government to take care of you.

Instead, consider enrolling in a health savings account, or "HSA."

An HSA is an account where you put in pre-tax dollars for future expenses. You can withdraw funds at any time, also tax-free, for qualified medical expenses such as:

  • Ambulance services
  • Eye exams
  • Hospital services
  • Long-term care
  • Nursing care
  • X-rays

After age 65, you can withdraw funds for any use. If it's not for a covered medical expense, you'll pay taxes on what you take out. And best of all, it's not a use-it-or-lose-it policy.

Some employers offer HSA plans and will even make a contribution based on what you put in. Don't turn down this free offer.

Now, you can only get an HSA if you have a qualifying health insurance plan called a "high-deductible health plan," or HDHP. These plans work by offering low baseline coverage. That means your doctor won't be able to overtreat you with tests and procedures you probably won't need. But they come with high deductibles plus out-of-pocket expenses... The deductible minimum for individuals this year is $1,300 and $2,600 for families.

I recommend making the maximum contribution to your HSA ($3,400 for individuals and $6,750 for a family). If you can't afford that, try taking your deductible amount and dividing it by the number of paychecks you earn each year. That way, after one year, you know you'll be able to cover the full deductible of $1,300 if any emergencies crop up.

What's more, if you're 55 or older, you can sack away an additional $1,000 a year.

Even better... when you hit a specific limit (usually about $1,000), you can choose investments for your HSA, just like an IRA. Although investment choices for HSAs improve every year, services like Morningstar predict a conservative 4% return right now.

So two people aged 55 could put away $7,750 a year in tax-free money. If they stay relatively healthy, they could easily amass a nest egg of more than $96,000 in tax-free money by the time they retire at 65. At 70, that value would rise to $161,390. That will certainly help with future health care costs.

If your employer doesn't offer an HSA plan, shop around. Several brokerage firms offer the plans, including TD Ameritrade, T. Rowe Price, and Vanguard. In addition, your bank may also offer plans. Bank of America, in fact, offers an FDIC-insured HSA plan. You will still need to provide proof of a high-deductible health insurance plan.

Whatever you do, make sure you understand the management fees for each account. HSAs may charge a monthly or annual fee, plus transaction fees, minimum balance fees, and more... that could cost you thousands over time.

Investment firm Devenir put together a comparison tool for 403 HSA providers... just keep in mind their own products are included as well. It's still a good starting point for research. Check it out here.

What We're Reading...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Retirement Millionaire Daily Research Team
July 20, 2017

P.S. If you're already on Medicare, make sure you understand the rules regarding things like hospital admission and the right kind of bill to ask for when you're there. Tips like these will save you hundreds, if not thousands, of dollars.

You can find them in our report, "Secrets of the Health Care System," exclusive to Retirement Millionaire subscribers. If you already subscribe, you can access it right now here. If you aren't a subscriber, get started with a subscription today and access all of my in-depth special reports immediately. Click here to learn more.