Got An Extra $300k?

Are you saving for your retirement?  If you are that's great but I hate to tell you that it's not enough, seriously, well that is if Congressman Paul Ryan of Wisconsin gets his way.  I'm sure you've heard of his 2012 budget proposal titled "The Path to Prosperity" (read the full text here) and the item from that proposal that has garnered most attention is his re-imagining/privatization/elimination of Medicare.

Please note that all dollar amounts referenced below are in 2010 dollars

According to Mr. Ryan's plan instead of being eligible for Medicare at age 65 (starting in 2022) you will receive an $11,000 voucher to shop for your own private healthcare coverage.  The $11,000 figure is the average expected voucher amount as laid out in the Congressional Budget Office's analysis of Mr. Ryan's plan.  This voucher amount will vary based on age, health status, and income level.  Now this voucher does not cover 100% of the cost of private insurance, in fact according to the CBO it would cost the enrollee considerably more the very year this new program would start compared to the current Medicare structure. 

As the law stands now the average Medicare recipient would be responsible for 27% of their healthcare costs in 2022, but under Mr. Ryan's plan that share of cost by the enrollee raises to 68% according to the CBO.  Assuming everything is equal (basing the full cost of coverage off the $11,000 voucher figure, not adjusting for inflation, etc) the current total value of a Medicare plan is $34,400 with the enrollee paying approximately $9,300 in annual out-of-pocket expenses (27%).  In 2022 for the same plan the enrollee will need to cover $23,400 out-of-pocket annually.

Now back to my original question, are you saving for retirement?  You are?  That's great, but which retirement structure are you saving for?  It makes a big difference, let's look at what you'll need to have set aside for your medical expenses in you retirement account.  Let's assume that you'll retire at age 65 and live for another 20 years:

                                 Current Law            Mr. Ryan's Proposal
Medical Expenses        $186,000                       $468,000
(20 years)

Wow, that's a difference of $282,000!  That's $282,000 more you have to start working on saving right now.  I turn 30 next week and have a good paying job and contribute to my 401(k) and even though retirement is at least another 35 years away for me $282,000 is a daunting figure.  Only those currently 55 and older are exempt from Mr. Ryan's proposal, so if you're 54 you have 10 years to save up for your increased out-of-pocket expenses.  Usually when you're that close to retirement you would move a large portion of your retirement savings into conservative investments to keep it safe but you can't do that if you only have 10 years to make almost $300k.  That's asking a lot of people to take a big risk; I know quite a few folks who had to put off retirement because they lost a chunk in 2008 because they didn't shift their money into more conservative investments.  Imagine an entire generation loosing big because they had to scramble to save a fortune and couldn't go the safe route because this new healthcare structure was implemented too close to their retirement deadline.

Ultimately this plan hurts Americans and benefits private insurance, and that's how it's intended.  I believe that this plan will NOT save the government any substantial amount of money, if it saves any at all.  First of all Mr. Ryan's proposal doesn't address the meat of the issue, rising healthcare costs.  Nowhere in "The Path to Prosperity" does he ever address how rising healthcare costs will be handled, I am left to speculate that the rise in cost will be burdened by the enrolee.  And what if the retiree can't afford any of the plans offered?  That's kind of why we have Medicare to begin with, insurance views the elderly as a financial risk, they will collect premiums for a very short period of time along with payouts during that same period of time that are much larger compared to a younger customer which is why premiums will be higher.  Just because the retiree can't afford insurance doesn't mean they wont' need medical services.  They'll still contract pneumonia, heart disease, fractures, strokes, etc.  And who do you think will cover these costs when they are hospitalized with no insurance and no income other than Social Security?  The taxpayer....and there goes your federal budget "savings."

This deal has nothing to do with the budget nor creating a better system for our retirees, it has everything to do with paying for his proposal to cut taxes for the richest Americans to levels not seen since 1931.