Three Strategies for Early Retirees to Reduce Health Insurance Expenses. By: Kathy Hollingsworth
/by leslie "kathy" hollingsworthUntil you are eligible for Medicare, you’ll have to get health insurance by yourself, which can be costly. Subsidies provided by the Affordable Care Act (ACA) can be quite beneficial, but you must manage your income in order to qualify. Here’re three tips to help you get there.
Rising healthcare expenses could be a risk at any age. Since Medicare doesn’t start until age 65, healthcare expenses are an especially important component of retirement planning if you want to retire early. That means you’ll have to obtain health insurance at a time when you’re vulnerable to rising expenses and also don’t have a salary.
The ACA was designed to make insurance more affordable and equitable by removing pre-existing condition requirements and connecting income to federal health insurance subsidies. These subsidies are activated, assuming your income reaches certain thresholds when you purchase health insurance through the federal healthcare exchange (healthcare.gov) or a state insurance exchange. There were 15 state-run marketplace exchanges serving residents of those specific states in 2021; the federal ACA marketplace exchange will cover everyone else.
President Biden’s American Rescue Plan included specific regulations for 2021 and 2022 that were meant to enhance health insurance affordability for individuals with existing marketplace coverage, uninsured, and those who lost employment coverage during the pandemic. Subsidies have increased for all income levels, and premiums are now limited to 8.5% of Adjusted Gross Income (AGI).
As a result of these modifications, an additional 3.7 million people are now eligible for subsidies, saving an average of $70 per month for those with incomes between 400% and 600% of the federal poverty level. The new level raises the subsidy limit to $76,560 for singles and $157,200 for families of four. For ACA subsidy purposes, income is calculated using your tax return’s Adjusted Gross Income (AGI) plus any tax-exempt foreign income, tax-exempt Social Security benefits, and tax-exempt interest.
The Act also eliminates the taxpayers’ obligation to repay tax credits that exceed their adjusted income. Those who lost their employer-sponsored health insurance during the pandemic will have their COBRA premiums paid in full through September of this year.
For the time being, better insurance coverage is offered at an all-time low price. Unless Congress moves to make it permanent, this will end in 2022. Meanwhile, if you are considering retirement, here are three strategies to help you lower your health insurance expenses between retirement and age 65 by maximizing the savings available through ACA subsidies. While obtaining a subsidy is important, you also want to be able to live comfortably and sustainably in your retirement.
Strategy #1: Deferring Social Security
The amount of Social Security you get is determined by a sliding scale established by the Social Security Administration depending on your age, the number of years you worked, how much you contributed to Social Security, and when you file your claim. Although you can start claiming at the age of 62, the payments increase for each month you defer claiming until 70 when your benefit reaches its maximum.
Social Security income is considered as part of your total income when computing insurance premiums on the marketplace. As a result, claiming Social Security later lowers your income and allows you to get larger subsidies in the years between retirement and the age of 65 when Medicare starts.
Delaying Social Security can benefit your overall retirement strategy since it results in more continuous income when you may need it most in middle- or late-retirement stage. Married couples, in particular, can benefit from Social Security claim strategies to reduce healthcare expenses. For example, the lower-earning partner might file early while the higher-earning partner waits – this reduces the couple’s income that counts for the current health insurance subsidies.
Strategy #2: Reduce Retirement Accounts’ Withdrawals
Withdrawals from 401(k)s, IRAs, and other accounts alike, along with Social Security, are considered toward the income that determines the healthcare subsidy level you get. As a result, if you intend to retire early, it’s critical to avoid withdrawing significant sums from tax-deferred retirement accounts, which might affect your potential subsidies.
Since you aren’t required to receive distributions until you reach age 72, smart planning can help you avoid the types of excessive withdrawals that might raise your healthcare costs. Consider increasing your IRA withdrawals in the year or years before retiring and placing the money in a liquid savings account, which you may then use in early retirement to cover your expenses between the time you retire and age 65.
If you have any leeway in your tax planning right now, you should consider converting your Traditional IRA to a Roth IRA to minimize the taxes you’ll have to pay after you’re retired and collecting distributions. If you already have a Roth IRA, you can make early withdrawals in this manner if needed because Roth withdrawals are not classified as income under the ACA.
Strategy #3: Create a Cash Reserve
There is a lot you can do in the years leading up to retirement to reduce your exposure to any unexpected healthcare expenses. Before you retire, you should generally direct any additional funds into the above-mentioned liquid savings account. At least a year before you plan to retire, consider moving any capital gains from taxable investment accounts into that account as well. Do the same with any unexpected windfall, such as a job bonus, an inheritance, or a gift.
The goal is to accumulate enough liquid funds in this account to pay all or most of your expenditures in the year or years between retirement and the age of 65 when you get access to Medicare. However, this financial cushion isn’t only intended to cover your healthcare costs; its larger goal is to ensure that you live the retirement lifestyle you wanted before retirement.
Many retirees take up part-time employment during these years to earn extra income and bridge the gap between their costs on the one hand and their savings and Social Security income on the other, a strategy that’s worth considering in the intermediate years.
A Final Word
Healthcare costs in retirement can cause difficulties and even negative financial implications. You may optimize your ACA health insurance subsidies by postponing Social Security and reducing withdrawals from IRAs and other retirement assets in early retirement. Before retiring, you can accumulate a liquid savings account to cover health-related expenses incurred between the time you retire and when Medicaid becomes the primary payer for your healthcare needs.
You should not have to waste time, energy, or your mental well-being worrying about whether you’ll be able to fully pay for the healthcare costs you may require during what should be times of leisure and enjoyment. Fortunately, with good planning ahead, we can reduce or eliminate these issues entirely.
TSP Finds that New Workers Are Investing More in Age-Appropriate Lifecycle Funds. By: Kathy Hollingsworth
/by leslie "kathy" hollingsworthThe agency that oversees the Thrift Savings Plan (TSP) has noticed a difference in the investment patterns of new workers. The agency found that these workers are moving their default investment fund from the government securities (G Funds) to age-appropriate lifecycle funds (L Funds). The TSP recently analyzed investor behavior and found that younger workers are investing more in L Funds.
The agency found that workers below the age of 30 invest 63% of their assets in L Funds. Those between 30 and 39 invest around 39% of their assets in the funds. In addition, workers between ages 50 and 59 invest 20% of their assets in the funds. Those between age 60 and 69 invest 17%, and those who are 70 and above invest 13%.
In its report, the agency stated that the 2015 shift of default investment from the G Fund to age-appropriate L Funds had changed the fund-utilization ratio. It also stipulated that the beliefs about the advantages of utilizing the L Funds also constitute a factor.
The report also stipulated that workers who have been using the TSP for longer have more investments in the G Fund than newer participants. Those between the age of 60 and 69 have 38% investments in the fund. Workers who are 70 and above have more assets in the G Fund, with an investment of 43%. On the contrary, only 9% of those under 30 and 18% of those between 30 and 39 invest in the fund.
The report stated that participants focus more of their investments on income-producing assets as they approach retirement. This factor, it stated, could be responsible for the new investment patterns. The agency also stated in its reports that fewer young workers are investing in the G Fund. In 2014, the youngest participants invested 42% of their assets in the G Fund.
The high percentage had prompted the agency to change the default investment fund from the G Fund. The agency explained that the fund is guaranteed against investment losses but has a lower growth potential than other funds. The change has the intended effects, as shown by the recent survey. Fewer younger workers are investing in G Funds, just as the agency wanted.
Though participants can change their default investment fund and amount, the agency said many participants never bother to do that.
Only FERS employees were considered for this survey.
Delaying Your Well-Deserved Retirement For Two More Years Might Be Worth It. By: Kathy Hollingsworth
/by leslie "kathy" hollingsworthUnless you hate your job, win the jackpot, have health problems, or marry a billionaire, you should think about delaying your retirement by a year or two. Even better, from a financial viewpoint, wait three more years, or even more, if possible.
That’s a reality for most still-working public workers covered by the Federal Employees Retirement System (FERS). FERS features several moving components, including a reduced federal annuity, a 401(k) plan with a government match of 5%, and Social Security. Although that’s a lot of work, it’s an excellent problem to have. And, with proper preparation, most FERS retirees may ensure that their overall income in retirement is comparable to their salary while working, if not greater. It may also allow many FERS retirees to live well without drawing into their TSP savings before they have to.
Then what’s the catch? Tammy Flanagan, a benefits expert, was a guest on Your Turn in May. She said that by working two more years, from age 60 to 62, an $80,000 income annually might increase their starting annuity by nearly $30,000. While earning their full salary, qualifying for salary raises, and increasing their “high-3” average salary.
Are you interested? Tammy made up this example to show how postponing retirement may benefit you (a lot!). Of course, there are several other factors to take into account. However, money, as in having enough in your golden years, is a significant factor. You may use this example of an $80K employee working more hours to receive more in retirement. Here’s the example:
- Duration of service at 60: 19 years
- 19 x $80,000 x 1% = $15,200 x 0.9 = $13,680 (10% reduction under the MRA + 10 retirement because the employee didn’t have 20 years of service by the age of 60 to be eligible for an unreduced retirement).
- Duration of service at 61: 20 years
- 20 x $80,000 x 1% = $16,000 + $12,000 = $28,000 (The extra $12,000 is a FERS supplement of $1,000 per month payable until age 62 when retiree can file for SSA and get an even greater SSA benefit based on their lifetime of FICA taxed wages).
- Duration of service at 62: 21 years
- 21 x $80,000 x 1.1% = $18,400 + $24,000 = $42,480 (The $24,000 represents the SSA benefit of $2,000 per month payable at age 62 from their lifetime of FICA-taxed wages).
The difference in income between this individual leaving at 60 and 62 is nearly $30,000 more per year for only two additional years of working. Of course, the individual who retired at 60 may collect their SSA benefit at 62, but the shortfall in their FERS basic retirement benefit for life would still be close to $5,000 per year or $600 per month. Furthermore, they would have benefited from two additional years at their presumably best earning years added to their SSA record, as well as two additional years of contributions and growth to their TSP account.
Of course, they may defer SSA and withdraw $24,000 per year from their TSP account to get $43,000 per year by deferring SSA until age 70 and then taking considerably lower payments from the TSP to fulfill the RMD requirements at 72.
Definitely one to have in your retirement planning kit. Also, don’t forget to forward this to a FERS peer.
Tammy is now “retired” (in her case, this means a full-time job as a retirement consultant).
TSP Accounts: After the coronavirus has hit the world economy hard, how long is the road to recovery? By: Kathy Hollingsworth
/by leslie "kathy" hollingsworthThe coronavirus has clobbered the world economy and the people depending on it. Some of the geniuses are working hard to find the vaccine and possible solutions for fighting this deadly virus, but until a controllable solution is available, the stock markets around the globe can fall at historical speeds. TSP account holders are amongst those hit worst by this virus and are now looking forward to recovering their losses due to the current market decline.
Many investors already know that this type of stock market decline is inevitable. The two main questions that bother our minds when such decline begins are: (1) How harsh will this decline be? (2) How long will it stay?
We can never predict when the stock market decline will happen, or why it happens. Sometimes, the U.S. or world equities never see a declining market, and sometimes they experience multiple declines. For example, in the year 1990, the decade started with a minor drop of over 10% that ended in January 1991, after a small period of recession and just after the collaboration of military operations in Iraq as part of Operation Desert Storm. The subsequent downturns were not seen until 1997 and 1998, and they were too short-lived and not very noticeable. Before that era, in 1987, the U.S. market saw the sharpest one-day drop of 22%. This was just three months before the C Fund came into operations. Soon a $250,000 portfolio was invested in the S&P 500 stock index fund (tracked by C Fund) after that; the day dropped to about $193,000 overnight. During that time, the stock markets declined by almost 1/3rd in totality.
Many investors experienced multiple downturns in 2020. Initially, it was seen in 2000 and continued for three years. Historically, this was the longest downturn followed by a historic bubble in stock market values – the S&P 500 and the C Fund returned at least 20% in each of the five prior years in the late 1990s in addition to the 9/11 terrorist attacks and a recession during that period. The next downturn was observed in 2008-9, and it was one of the worst drops in the U.S. and global stock markets since the Great Depression that started in 1929 and continued until the late 1930s.
From the stock market data of those years, we can analyze how an average investor would have dealt with stocks during those major declines and after the drop. Smart investors not only dealt with that traumatic period but also emerged as successful investors after surviving those downturns.
A recently released book titled, “TSP Investing Strategies: Building Wealth While Working for Uncle Sam, Second Edition” is a good one to analyze every 20-, 30-, 35-, and the 40-year period between 1900 and 2019, to find how average investors survived despite a variety of market declines during those timeframes. Each period has its own characteristics, but it is very important to check that investments in broad U.S. stock indexes (just like C and S Funds) dropped considerably at a certain point during every period that was analyzed, and they were also able to recover and raise enough after that decline. It was examined that in every 30-year period examined since 1900, an all-U.S. stock index portfolio (especially C Fund) outperformed the all-government bond portfolio (especially G Fund), by a noticeable margin. One exception was seen in the period from 1903 to 1932 when the market dropped evenly during the depths of the Depression (the stock fund was able to recover in the next couple of years).
If we know this in advance and analyze how an average investor deals with the market decline, and how they emerge as winners, then a person needs to be mentally prepared, if not emotionally, for the stock market drops as they happen.
Let’s understand this process. Start examining the 35-year period from January 1983 to December 2017. This period includes the sharp drop in 1987, the bubble years of the late 1990s, the longest drop in the U.S. stock market over three consecutive years in the early 2000s, and finally, the biggest decline in the U.S. equities of over 50% in 2008 and early 2009.
Let’s analyze this timeframe as a period for a new employee who contributes 5% of an entry-level salary of $30,000. According to government rules, this would make $250 in monthly contributions in the first year. Let’s assume that the annual salary and the regular contributions of this employee increase by 5% a year. Over 35 years, this employee would have a total contribution of about $271,000, and if we assume that half of this contribution matches the government’s, then that means a federal employee with a TSP account would have invested less than $136,000 of his or her money over the 35-year period.
To understand this clearly, four portfolios were tested. The first one is investing all contributions monthly in the S&P 500, representing the C Fund. The second one is investing all contributions monthly in an account that returns the 10-year U.S. Government Bond interest rate (closely equivalent to G Fund). A third one is investing about 65% in the S&P 500 and 35% in the 10-year bond, without any rebalancing. The fourth one is investing in the same percentage but rebalancing at the end of each year back to the same percentage (65-35) to account for portfolio drift over time.
Here, are the results of the four portfolios of investors who invested monthly from January 1983 to December 2017:
The highest value after investing for the 35-period is seen in the case of the C Fund; during each market drop, the fund also suffered a sharp drop in account value as compared to other funds. As compared to the balanced funds, it took a long time to recover after each decline, depending on our definition of “recover.”
If we define “recover” as the time starting from the month of peak value before the drop took place to the month when the value surpassed that same value, then we can say that all-C Fund account portfolios took five years to recover their losses after the 3-year decline of the early 2000s, and the 65-35 C-G Fund took just four years while the 65-35 annually rebalanced account took 3½ years to recover losses.
During 2008-9, the market decline was for a short duration, but it was sharper where all-C Fund account portfolio took three years to recover, the 65-35 account took three years, and the annually rebalanced 65-35 account took only 29 months to recover.
This thing may not be visible in the chart, but we can clearly see that the fastest recovery during this period came after the major market declines in the late-1987 period. All-C Fund account portfolios recovered to their original value in a year, and the other funds recovered faster than C Funds. The main reason was U.S. equities that recovered relatively quickly despite the market drop of about one-third.
Well, we must say that the 10-Year Government Bond account never declined despite the coronavirus market decline. The G Fund is the only fund in the TSP funds that have never dropped. In terms of total returns, the G Fund was the last one to end the 35-year period.
These were just a few examples from the previous 100+ years of the history of U.S. stock and government bond index. Overall speaking, the total value of a portfolio consisting entirely of U.S. stock indexes (such as the C Fund), can recover losses within a year or even three after experiencing a significant decline. The most severe and lengthiest drops may take another year or a maximum of two years to recover. Accounts recover comparatively quicker after short-term drops. This means that an active TSP participant does not need to sell his or her stock funds and continue investing despite the market decline. There are many planned strategies that investors can suggest during downturns. But we must mention here that the buy-and-hold strategy is the best one to stay in the market over long periods of time.
Over a period of time, we will find a solution to recover from the coronavirus, and the U.S. and world markets will recover after ongoing downturns too. By continuous investment in funds during these difficult times, TSP account holders will be able to recover from the losses as well. No doubt, we are going through challenging times, but there is a way to reduce anxiety — at least when it comes to investing — to focus on the long-term goals. We hope and pray for all to stay safe and healthy as the world fights on the coronavirus and struggles to recover globally.
How COVID-19 Has Affected Social Security and Medicare Services. By: Kathy Hollingsworth
/by leslie "kathy" hollingsworthThe death toll from COVID-19 in the United States is well over 500,000. Out of this sad figure, over 450,000 deaths were older members of the society—Americans who were at least 65 years old. These people were members of the society that benefited mainly from Social Security and Medicare services. The deaths are not the only impact of the pandemic on these two critical federal programs. There are other effects that the pandemic has had and will keep having on the millions of Social Security and Medicare beneficiaries who overcame the pandemic.
Social Security Systems and Intricacies
Popularly known as “Pay-as-you-go,” Social Security is one source of income for workers after retirement. While still in service, workers contribute to the program through payroll taxes. The funds from payroll taxes go into the Social Security Trust Funds, the same funds that pay those currently eligible to receive Social Security benefits.
At the start of the program, the money coming into the trust fund through payroll taxes was more than it was paying out to beneficiaries of Social Security. The table has since turned because there are more recipients than contributing workers now. If the downward trajectory continues, the Social Security Trust Fund will be empty, and recipients will only get paid from contributions from payroll taxes. Experts say contributions from payroll taxes will only be about 77% of the full benefits that current recipients get from Social Security.
Though this phenomenon existed before the COVID-19 pandemic, the pandemic has affected the Social Security Trust Fund balance as well.
How has the COVID-19 Pandemic Contributed to the Dwindling Social Security Trust Fund Balance?
The pandemic has contributed significantly to the dwindling balance of the trust fund due to some reasons, which we have listed below. The effects have been so extensive that experts have projected that the Social Security Trust Fund balance will become empty two years faster than estimated before the pandemic. The earlier projection was for 2035, but it has moved up to 2033 because of the pandemic, experts say. Here are reasons why the COVID-19 pandemic has affected Social Security.
- Many businesses stopped operations, which led to an increase in the unemployment rate.
- The pandemic led to a reduction in work hours, which translates to lower incentives.
- The government deferred withholding payroll taxes to ease the burden of workers and businesses during the pandemic.
- More people signed up for benefits during the pandemic.
- Many contributing workers died during the pandemic.
All these points are reasons for reduced payroll taxes, meaning the Social Security Trust Fund will indeed empty faster than pre-COVID projections.
National Average Wage Index, Social Security Benefits, and COVID-19
National Average Wage Index (NAWI) is one factor that determines how many benefits recipients can receive from Social Security. The index analyses how wages grow and use the information to determine the trajectory of inflation. As a result of the pandemic, the index for 2020 might be lower than preceding years.
What does this mean for Social Security beneficiaries? The Social Security Administration measures a recipient’s benefits using some criteria, including the NAWI, for the year the recipients turn 60 and will be eligible for Social Security benefits. So, those that clocked 60 in 2020 will receive fewer benefits than usual due to the pandemic. Sadly, they will continue receiving the reduced sum for the rest of their lives.
In September 2020, the Congressional Budget Office (CBO) predicted the 2020 NAWI would be -3.8% compared to 2019. More recently, the CBO has said it expects the 2020 NAWI to be closer to -0.5%. This means that benefits will be lower for anyone turning 60 in 2020 but not as low as initially predicted.
Compared to projections in 2020, things seem to be turning up. In September last year, the Congressional Budget Office (CBO) estimated that the NAWI for 2020 would be -3.8% compared to the index for 2019. The office has since recanted that statement because of recent events. The CBO now estimates the 2020 NAWI to be around -0.5%, meaning the benefits will be low but not as low as CBO had projected last September. However, this only affects individuals that turned 60 in 2020.
Effect of the Pandemic on Social Security Benefits for Disabled
According to a Social Security actuaries prediction of November last year, people who had COVID-19 but survived the infection could later suffer some lasting effects from it. As a result, more people will sign up for Social Security disability benefits in 2021 and the two years after it.
Effects of COVID-19 Legislation on Social Security
Another effect of the pandemic on Social Security is its legislation on the program and its beneficiaries. Even beneficiaries of the Supplemental Security Income will be affected by COVID-19-spurred legislation, such as the CARES Act, Consolidated Appropriations Act, and the American Rescue Plan Act. Here are the effects of the pandemic on Social Security:
- The pandemic led to three Economic Impact Payments of $1,200, $600, and $1,400.
- It also led to a reduction in FICA taxes that disturbed the prompt payment of FICA while ensuring that the decline and delay will not negatively affect the Social Security Trust Fund.
- It caused a pause in the receipt of student loans from Social Security payments.
- The Social Security Administration also received $300 million to support the fight against COVID-19.
- The pandemic led to an extension of payroll tax repayments.
- It also caused an extension of the qualification criteria and amount of Child Tax Credit and Earned Income Tax Credits. In contrast, the statutory exclusion to both tax credits remained the same.
Expected Lasting Effects of the Pandemic on Social Security
About three months ago, Social Security actuaries projected some lasting effects of the COVID-19 pandemic on Social Security. The agency projects that nothing significant will result from the pandemic. There will be a pandemic-spurred recession, which would have ended by 2023 with only minor permanent damage.
However, the agency projects some short-term effects such as:
- Reduced birth rates in 2020 and 2021.
- Increased death rates in 2020 (12% higher than usual), 2021 (6% higher than normal), and 2022 (2% higher than usual).
- A reduced number of people applied for disability payments in 2020, but the figure will be higher in 2021 and 2022.
- More unemployment in 2020, but things would have returned to normal by 2023.
- GDP, productivity, and earning levels will suffer a lasting reduction of 1%.
The Medicare System and Intricacies
Medicare is a federal insurance coverage plan for older citizens (65 and above), people with disabilities, and those living with End-Stage Renal Disease (ESRD). The Centers for Medicare and Medicaid Services (CMS) is a branch of the U.S Department of Health and Human Services that runs the program through payroll taxes, participants’ premiums, and funds from the government. The CMS makes Medicare payments through the Hospital Insurance (HI) and the Supplemental Medical Insurance (SMI) Trust Funds. While HI funds Medicare Part A (Hospitalization), SMI funds Medicare Part B (Medical) and Part D (Prescription Drugs).
HI Trust Fund’s primary source of financing is payroll taxes. This source has been dwindling for a while, just like the Social Security Trust Fund. Without the contributing effect of last year’s pandemic, experts had projected that by 2026, the HI Trust Fund would only be able to pay 90% of hospitalization costs of the participants of Medicare. On the other hand, the SMI Trust Fund, which gets most of its funds from premiums and government allocation, will continue to finance Part B and Part D without problems. This does not mean it will remain untouchable. With inflated premiums and more reliance on government allocation, it is bound to encounter its challenges down the line.
Effects of the Pandemic on HI and SMI
HI Trust Fund will shoulder the bulk of the pandemic effects on the Medicare Trust Funds. The extent of the damage is not known yet. As the 2020 Medicare Trustees Report states, the trustees cannot accurately give a projection that accounts for the effects of the COVID-19 pandemic at this time.
According to CBO, around two million Medicare participants will need hospitalization due to coronavirus infections during the pandemic. Of this figure, the CBO estimates that 1 million would be in hospitals under Medicare’s inpatient prospective payment system. As a result, the CBO states that the CMS would be spending about $3 billion more than the average in 2020 and 2021.
The SMI Trust Fund will also be indirectly affected. By 2030, Medicare trustees project a 6.3% increase in the percentage of personal and corporate income taxes for financing SMI and a 14.3% increase by 2094.
Effects of the Pandemic on Medicare Participants
There are several ways through which the pandemic will affect Medicare participants apart from the possibility of death or permanent disability. According to a CMS survey, here are some effects the pandemic has already had on Medicare participants.
- About 21 participants had to avoid going to the hospital for non-COVID-related issues.
- 15% of the participants in the survey said they felt more worried about financial security.
- 41% said they had challenges coping with stress.
- 38% said they were having challenges maintaining a relationship with their friends and family.
Medicare participants receiving medical care from their housing also suffered from the following effects:
- They needed more social service support.
- They felt more lonely and depressed.
- Those with physical and mental health conditions had to deal with worsened symptoms.
- More of the participants resorted to alcohol and drug use/abuse.
- The rate of domestic violence rose.
- They also experienced a shortage of medical staff and equipment.
On the flip side, the pandemic had some positive effects on the participants as well:
- Medicare participants don’t have to pay for COVID-19 vaccines, tests, and treatments.
- They also have a broader coverage of medical services, including telehealth services and hospitalization when required.
Effects of the Pandemic on Physicians, Hospitals and Other Medicare Providers
Within the first six months of the COVID-19 pandemic, Medicare providers, such as hospitals, experienced the following:
- Payments for fee-for-services decreased by 39%, inpatient services by 33%, and physician services by 49%. These figures rose to 96%, 93%, and 95%, respectively, by 1st July.
- At the end of the sixth month of 2020, cumulative payment deficits ranged from 12% to 16%.
- There was also a drastic reduction in the need for personal preventive screening and surgical services.
COVID-19 Legislation and Medicare
The bulk of COVID-19 legislation impacted Medicare. In fact, within the first seven months of 2020, over two hundred regulatory changes were made, with about forty-nine more by the eighth day of January 2021. Here are some COVID-related regulatory changes that affected Medicare:
- Expansion of Medicare coverage for telehealth services
- Removal of cost-sharing for vaccination procedures
- Increment of Medicare payment fees to providers
- Special waivers on certain hospital length-of-stay criteria
- More increment of payment fees to physicians
- Elimination of sequestration slashes for March 2021
These changes were made through the CARES Act and the Consolidated Appropriations Act. The first four changes were made through the CARES Act, while the last two were made through the CAA.
Lasting Effects of the Pandemic on Medicare
Like Social Security beneficiaries, participants of Medicare are people who are more susceptible to COVID-19. People in this category (older citizens who are 65 or older and people suffering from disabilities) might experience medical and financial concerns due to the pandemic.
Many participants had to pay a lot of money to take care of pre-existing medical conditions. As a result, they were suffering from some monetary challenges even before the pandemic. The pandemic led to some regulatory changes that helped reduce these costs, but the respite will only be short-lived.
These monetary challenges will only worsen with the increase in the unemployment rate, especially for older members of marginalized communities who received fewer incentives before retirement. They also have fewer Social Security benefits and reduced retirement contributions. The result of all this is that the pandemic will have more permanent effects on Medicare and Medicare participants.
