Health Care Reform's Impact on Retirees

by Ryan Franklin, Senior Financial Advisor

Whatever your thoughts on its merits, in the relatively short time since its implementation, the Affordable Care Act (ACA) has already had a huge impact on health care in the United States—on insurers, hospitals, and physicians, of course, but also on patients and taxpayers.

How the ACA affects you personally, though, is largely determined by the segment of the population you belong to. Lower-income people may gain expanded access to Medicaid, for example, while those near the top of the range may see an added tax burden to help pay for the legislation’s provisions. Those with preexisting conditions can no longer be denied insurance coverage, but many who previously had covered access to a large network of physicians and specialists may see that network shrink, limiting their choices.

All of which could have a profound effect on retirees, whose demographics cut across income brackets, health status, and age, to name just a few criteria. While many of the ACA’s provisions could bring decisions to bear on retirees, it’s worth looking at four in particular.

Impact on Medicare

The ACA will have both short- and long-term implications for Medicare consumers. In the short term, there isn’t likely to be a great deal of direct impact felt by retirees who are enrolled in Medicare and use it as their primary form of health insurance. The premiums paid, coverage options, and process for receiving care will all remain essentially the same. The most immediate impact will be felt by health care providers who will likely see a reduction in reimbursement amounts for the services they provide.

Over the long term this reduction in reimbursement may cause some providers to reduce or eliminate their willingness to provide services to Medicare patients simply because they can earn more by serving other patients. In time this may make it more difficult for Medicare enrollees to find a health care provider in their area.

The projected future cost of Medicare premiums is also a topic of great debate. To be fair, this issue existed before the ACA was passed as the overall US population continues to age and put added financial strain on the program. Eventually some changes will likely need to be made to Medicare to either increase cost (premiums) or reduce the coverage provided. This could come in the form of a higher eligibility age, reduced reimbursement levels, reduction in covered procedures, or some combination of all of these.

Impact on Supplemental Insurance Policies

Neither Medicare nor “Medigap” policies are a part of the federal health care exchange program or the ACA. Consumers will continue to be able to buy supplemental insurance the same way as before.

One of the main differences you may notice is that all health insurance plans are now required to cover free preventive care, such as annual wellness checks or some cancer screenings, so you’ll see some policies change to provide these new benefits if they didn’t already. Medicare and Medigap annual enrollment runs from October 15 through December 7, 2014; it’s a good idea to review the policies available to make sure the plan you’re selecting fits your needs.

Retired but Not Yet Eligible for Medicare

Many retirees are under age 65. They’re no longer covered by an employer plan but aren’t yet able to file for Medicare coverage. For this group, the primary impact of the ACA is that beginning in 2014 they’ll be required to purchase health insurance coverage on their own or be subject to a penalty.

Most people in this situation will obtain insurance via one of the new health care exchanges that have been established. Depending on where you live, this exchange may be run by either your state or the federal government.

To avoid the penalty for noncoverage, you must obtain insurance coverage that meets the “bronze” level of benefits (the lowest approved amount available). The Congressional Budget Office estimates that premiums for this level of coverage will average $4,500–$5,000 for an individual and $12,000–$12,500 for family coverage. If your family’s income falls under 400 percent of the federal poverty level, you may also be eligible for tax credits or other subsidies that could help offset the cost of coverage.

Net Investment Income Tax

One additional way in which the ACA will impact retirees, as well as all investors, is the new 3.8 percent tax on net investment income that may apply to people whose modified adjusted gross income exceeds $200,000 (for single filers) or $250,000 (for married couples who file jointly). Net investment income includes things like interest, dividends, capital gains, rents and royalties, and some other passive income. The tax is assessed in addition to the regular income tax that would normally be owed on those income sources.

We're Here to Help

The health insurance industry will continue to evolve in part as a result of the ACA and in part as a result of our society’s changing demographics. For many people, the short-term impact is going to be minimal, but it’s a good idea to be a smarter consumer today and consider all your options for coverage each year.

It’s also worthwhile to have a conversation with your health care providers to understand how they plan to implement changes so you’ll be prepared if you need to begin searching for alternate providers and to understand how your insurance coverage needs will change in the future. You can find additional health care reform information and resources from the AARP, the Department of Health and Human Services, and the Kaiser Family Foundation.

In the meantime, for help evaluating how your personal financial situation may be affected by the ACA or for assistance planning your financial future, contact your Moss Adams Wealth Advisor.

Ryan Franklin helps business owners and individuals develop their financial plans, manage their assets, and achieve their investment and business goals since 1998. A certified public accountant as well as a Certified Financial Planner™, he helps his clients integrate their financial planning, estate planning, and tax strategies with their investment portfolios. You can reach him at (509) 834-2458 or

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