Health Care Reform: 6 Things Retirees Need to Know

The health care reform law will effectively increase the Medicare services and benefits being given to senior citizens and retirees. On top of that, older Americans will be able to enjoy lower prices for many types of prescription drugs. For a retiree to take full advantage of the health reform legislation, here are some of the very important aspects about the law that one must know.

1. Rebates on Prescription Drugs

Beneficiaries of Medicare Part D Plans face a gap in their coverage. Known as the Medicare or prescription drug doughnut hole, this is the difference between the initial prescription drug coverage limit and the onset of catastrophic coverage. The initial Medicare coverage has a maximum limit of $2,830. Any prescription drug expense beyond that limit will be paid for by the beneficiary up until the total expenses reach $4,550, upon which the catastrophic coverage will take effect. When the catastrophic coverage threshold has been reached, the beneficiary will again enjoy Medicare coverage. With the health reform legislation, Medicare Part D beneficiaries who reach the doughnut hole gap will receive a $250 rebate.

2. Coverage Gap Reduction and Discounted Medications

Under the law, the coverage gap itself will be gradually decreased come 2020. By 2011, pharmaceutical companies will also be compelled to offer seniors who have reached their coverage gaps half-price discounts on brand name prescription drugs. However, high-income retirees or beneficiaries will see a significant reduction in the federal subsidy for premiums paid to their Medicare Part D plans.

3. New Rates for Medicare Taxes

By 2013, the health reform law will effectively increase the payroll tax rate for Medicare from 1.45 percent to 2.35 percent. This will be computed on individual earned income higher than $200,000 or on joint-filer income above $250,000. Also, a 3.8 percent Medicare tax will be imposed on income from investments, dividends and interests, provided that the adjusted gross income from such sources totals at least $200,000 for an individual or $250,000 for joint filers. Medicare taxes will not be deducted from IRAs, pensions, 401Ks or other retirement plans.

4. Increased Medical Deduction Allowance

The allowable itemized medical deductions have been increased from 7.5 percent to 10 percent of an individual’s annual gross income. This will take effect in 2013. Moreover, seniors aged 65 or older, along with their spouses, will be totally exempted from 2013 to 2016.

5. Added Protection for Buyers of Life Insurance

At first glance, the health care reform law will not have a big impact on self-employed individuals or on those who receive full coverage from their employers. However, provisions in the health reform legislation protect anyone who needs to buy life insurance. For instance, by 2014, insurers will not be allowed to deny applicants, even those with preexisting conditions. Insurance companies will also no longer be able to put lifetime limits on the insurance coverage, nor will they be able to cancel any existing coverage in their plans.

6. Insurance Coverage Will be Compulsory

Under the health care reform law, everyone will be compelled to have coverage. An individual without any form of coverage will be slapped with penalties. Self-employed individuals, early retirees and those who do not have any insurance can obtain their coverage via state exchanges. Private insurers will be able to sell their insurance plans in such exchanges.

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