Medicare beneficiaries who are poor, old, chronically ill or have low incomes are disproportionately affected by out-of-pocket costs under the federal program, according to a study by The Commonwealth Fund.
Tax incentives to help workers saving for post-retirement healthcare costs won't cure all problems for beneficiaries with low incomes, the study found. And although low-income seniors have lower medical costs than other seniors, these costs account for a greater percentage of their annual incomes, the study found.
Recent policy proposals have emphasized providing tax incentives to save during working years, including health savings accounts and subsidized or tax-advantaged long-term care insurance. However, the authors of the study say these approaches are only a partial solution to post-retirement healthcare expenses, especially for those with low incomes.
In fact, tax incentives for healthcare savings probably would be more effective if such incentives were partly or completely limited to low- and lower middle-income individuals, the study's writers conclude.
Seniors with incomes of less than 135 percent of the federal poverty level spend one-third of their income on uncovered medical care, on average. Individuals with fair or poor health status, or those age 85 and older, spend almost 30 percent of their income on medical care.
Traditionally, supplemental insurance has helped blunt the effects of Medicare's cost-sharing requirements, but such coverage is only effective for some segments of the population. Low-income individuals disproportionately lack retiree benefits and can't afford Medigap premiums. The oldest and those with chronic conditions often are refused affordable Medigap coverage and may hesitate to enroll in managed care plans.
The study found that those nearing retirement age would be attracted to a plan that enables them to save for post-retirement medical expenses tax free. There is also a strong fiscal case for partly or totally limiting any tax incentives for post-retirement medical costs to those in lower income brackets, where the problem of post-retirement medical costs is far more acute.
"A modest form of means testing would allow tax incentives to apply almost universally but still reduce costs," the study concluded. "Applying the alternative minimum tax to income saved and denying eligibility for the highest 3 percent of earners who do not pay the AMT would reduce the percentage of total income potentially subject to sheltering by about 38 percent, and would reduce budgetary impacts by close to 50 percent."