Personal Finance

There May Be Only 1 Way to Successfully Fix Medicare

Doctor With Worried Senior Patient Getty
Doctor With Worried Senior Patient Getty

Whether or not you realize it, Medicare, the program that helps cover eligible medical expenses for 40 million seniors nationwide, is in trouble.

The Hospital Insurance Trust could completely exhaust its cash reserves by 2030. If spending were to somehow accelerate, then the HI Trust could exhaust its cash reserves as early as 2022 in a worst-case scenario. Although a cash exhaustion doesn't mean "bankruptcy" for the program, it would mean that Medicare reimbursements would be based solely on the amount of payroll tax revenue being brought in at any given time. Were that to happen, physicians and hospitals around the country could stop accepting Medicare, putting our nation's seniors in a precarious position.

These Medicare solutions probably won't work

There are a number of reasons why Medicare is struggling. A huge influx of baby boomers are hitting the minimum eligibility age (65) each year, and people are living longer than ever, which is pressuring the program to cover a growing group of older Americans. On top of that, prescription drug inflation is handily outpacing wage growth and inflation, causing the cost of treating seniors to rise.

To counter these concerns, a number of solutions to fix Medicare have been proposed by lawmakers. We've heard calls to raise the Medicare retirement eligibility age, means-test Medicare-eligible seniors, and implement prescription drug reforms. Unfortunately, none of these solutions single-handedly fixes Medicare.

Baby Boomer Serious Stare Getty

What this means for you

To be clear, this doesn't mean your percentage of payroll taxes will necessarily go up. Congress seems to be trying everything possible to avoid increasing payroll taxes on working Americans. However, it does mean that working Americans would be wise to take the rising cost of healthcare expenses into consideration when figuring out how much they need to save for retirement.

Universally, the smartest move working Americans can make is opening or contributing to a Roth IRA. A Roth IRA is a particularly valuable tool because all investment gains within the account are free and clear of taxation as long as you make eligible withdrawals. Importantly, this means that no matter how much you withdraw from a Roth IRA during a given year in retirement, it won't impact your income calculations for Medicare. In short, a healthy Roth IRA can help you cover unexpected medical expenses during your retirement without causing you to necessarily pay surcharges in Part B or Part D because of your income.

A Roth IRA also comes with the added advantage of no minimum withdrawal requirements, as well as no age contribution limits (which you will find with a traditional IRA). Put plainly, this means seniors have the luxury of letting their nest egg grow if they choose to, and they're able to keep contributing money each year for as long as they live.

There are a number of ways to save and invest for retirement, but with Medicare's future looking a bit shaky, regularly contributing to a Roth IRA could be your best solution.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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