4/23/2014


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Problems With Medicare
by Jim Schlagheck

If Social Security has large funding issues. Medicare has gargantuan ones. Medicare is the federal health insurance program that provided benefits to disabled workers as well as people age sixty-five and older. It is another important "pillar of American retirement." And it is beset by serious problems.

Medicare is a contributory insurance program. You are entitled to receive its benefits if you pay into the Social Security system while you are working. After your retire, you contribute to the program via taxes and premiums.

At present, Medicare consists of four parts, covering a jumbled mix of hospital, doctor, and prescription costs. There is also a program--Medicaid--for low-income families. You can visit AARP's Web site to learn what is and what is not covered by these programs. They are, simply put, a bureaucratic nightmare.

Entire books have been written on what Medicare will and will not pay. What I want to do here instead is touch on the most important facts about Medicare that impact your retirement preparations. The first is that Medicare only covers about one-half of a person's medical expenses. you need supplemental insurance or deep pockets for the rest. And the second is that Medicare is also facing insolvency. It needs fixing, too.

Medicare is also running out of funding. It has the same funding dilemma as Social Security--but on a significantly larger scale. In fact, Medicare's projected funding hole is estimated to be four times greater than Social Security's. The magnitude is mind-boggling.

Medicare faces a long term projected deficit of nearly $29 trillion. The amount is so immense that it is often cited as a percentage of the country's gross domestic product. As the U.S. Department of Health and Human Services explains it, "Medicare trustees project that Medicare expenditures could rise from 2.7 percent gross domestic product today to 9.6 percent in 2050 and reach 13.9 percent in 2080....The Congressional Budget Office projects that Medicare and Medicaid combined could rise to 11.5 percent of gross domestic product in 2050. Expenditures of that magnitude today would represent more that half of the entire federal budget.

So what does that mean to you? It means that health care--count on it!--is going to take a colossal bite out of your savings unless our health care system is radically overhauled. You are likely to incur increasing health-care and medical costs as you age. Medicare is designed to give only partial assistance and it is failing. You will need supplemental insurance and good savings to for it.

About this article and the author:

Jim Schlagheck is a wealth management specialist, the author of "Cash-Rich Retirement", and the co-producer of "Retirement Revolution", a public television series on better ways to prepare for retirement.  He has worked with leading financial institutions and counseled super-wealthy families around the world.  His book guides readers through a 6-step action plan to build savings and reduce investment losses.  His views are not a solicitation to buy any product or service.  You alone are responsible for determining whether any investment, product, or strategy is suitable for you based on your own, independent research, your investment objectives, your financial and personal situation, and the advice of your financial and tax advisors. He has his own investment blog, "Show Me The Money" at www.invest-blog.com.

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