As you know, I don't "get political" on this blog. That doesn't mean I don't care about politics; I do. I focus on other things here, but when the political winds change as dramatically as they have, it's important to understand (and plan for) possible changes in the tax code and other policies and laws that affect those planning for retirement or already there.
This article will be more pragmatic than ideological. But I do believe idealogy is important. I like this recent quote on Twitter from Tim Keller:
The gospel critiques all ideologies, and all the leading political platforms since the Enlightenment have been dominated by reductionism and idols.
As Christians, we must allow the gospel and the teachings of scripture to guide and inform our perspective on political platforms, policies, and plans. And, like most of you, I lean toward one political party over another based on my Christian worldview and the ideology that derives from it.
But I try to avoid political "idology." (I don't think that's a word.) I also try to take a reasonably open-minded, balanced view of political plans and policies. I don't think either political party has it absolutely right on all of its social and economic policies. From that "fair and balanced" perspective, I want to examine the (apparent) incoming administration's proposals as best I can.
The incoming Biden administration has been pretty open about its plans. My overall assessment is that much of it is intended to maintain and perhaps expand on the Obama administration's remaining status quo, or in some cases, return to it. That's particularly true of Obamacare and Medicare.
Most of Mr. Biden's announced plans are not even close to what some of the more extreme (read: "progressive") elements in his party wanted, which I believe is good. (Although he will be under constant pressure to enact them.) Beyond the ideological considerations, I believe there are some problems with them from a practical (i.e., Will it work? Will it help? What are the long-term consequences?) perspective.
Of course, most of his proposals would require enacted legislation. The Congress' final make-up is still to be determined based on the Senate elections in Georgia in January. If the Republicans prevail, the new administration will have an uphill battle getting most of these plans approved in their present form.
Biden has announced all kinds of initiatives for the pandemic, climate change, housing, education, college loans, etc. But in this article and the next, I'll take a look at the areas that are most relevant to retirement stewardship.
First, we'll look at healthcare, Medicare, and income taxes. In the second article, we'll look at Social Security and retirement savings plans.
Affordable healthcare is a big concern for everyone, even more so for retirees. The Biden Plan in this area has three main pillars:
- Reduce prescription drug prices.
- Protect and expand Obamacare.
- Protect and strengthen the current Medicare program.
Healthcare is very complex, and there is certainly is more here than I can get into in this article (plus there is much I frankly don't understand), but I think the keyword here is "status quo." Biden wants to protect and strengthen these programs as they existed during the Obama years and reverse some of the Trump administration's changes.
There's no denying that healthcare and prescription drugs are expensive and that the costs have increased at an astronomical rate. Many people struggle to pay for healthcare coverage and prescription drugs.
Biden believes that the big Pharma companies unfairly price their drugs and wants Medicare to have more direct control over drug prices by negotiating directly with the manufacturers. He would also institute other price control measures to make them more affordable.
I have a hard time getting my head around this as I don't fully understand the industry. But I do know that everyone's situation is unique. The actual cost of prescriptions to a specific individual varies significantly and involves several factors.
Do they have health insurance, and if so, what kind? Is the prescription covered by the plan or Medicare? Is it available in generic form? If on Medicare, do they have an Advantage plan or a supplemental prescription drug plan? If so, what are the deductibles and co-pays?
For those with some insurance coverage, very few have to pay 100% of a drug's retail price, which in some cases, can be very high. Many people with employer healthcare plans have reasonable co-pays (although deductibles tend to be high). Of course, those with severe conditions who may be taking many expensive drugs will be the exception.
Lower prescription prices would be a good thing for everybody, retirees especially. I would support the efforts to bring costs down as long as the products can remain high-quality and companies that develop and manufacture them still have the financial resources they need to get the job done.
A Biden administration will want to bolster and expand the ACA and certainly resist any attempts to repeal it, which is highly unlikely with a divided or democrat-controlled Congress.
But there are still many issues with original Obamacare, not the least of which is that the ACA did NOT fulfill the promises that were initially made to reduce healthcare costs. It increased them. Nor were some able to "keep their doctor," which was a promise Obama vehemently made about the plan.
The individual mandate provision of ACA that required virtually everyone to purchase health insurance or pay a fine also remains controversial and is back before the Supreme Court in California vs. Texas.
Many of the provisions of Obama care, including free, no-copay benefits, forced the insurance companies to raise premiums and shift the cost burden from those who need the benefits to those who don't. This is reflected in much higher insurance premiums.
Another controversial aspect has been pre-existing conditions, which are covered by the ACA. The reality is that most people have been protected from pre-existing conditions since HIPAA in 1996. Plus, under the original ACA law, all Americans were supposed to sign up for health insurance, but many millions ignored the law.
Perhaps the most significant part of the "new" Biden healthcare plan is a public Medicare option (as opposed to the more extreme "Medicare for all.") The public option would compete with or be supplemental to private health insurance.
Most retirees are on Medicare, perhaps with a supplemental or Advantage plan. Consequently, they are not too concerned about the ACA. However, early-retirees, or those who have lost their private insurance for one reason or another, are very concerned about what will happen with the ACA. Many will be glad if it is retained and expanded, others would like to see it replaced with a more privatized option, and some strongly support a single-payer, "Medicare for all" type of program.
Biden wants to preserve and protect traditional Medicare as we know it. But he also wants to expand it in a couple of ways.
As I mentioned above, a proposed public Medicare option would allow workers with employer-provided healthcare to join Medicare. The idea is that the public option would benefit those who don't have access to Medicaid in their state under the ACA. Biden has said he would increase subsidies and offer tax credits that they can use to buy coverage via the public option through the ACA marketplaces.
Another large segment of the population could be affected—those with private or employer-provided insurance. If a public option becomes a reality and allows workers with employer provided coverage to join Medicare, there are some likely consequences.
Those with private insurance may drop it and move to the public option. This would reduce the premium pool for the insurance companies, which would raise them for everyone else who prefers the private option. It may also reduce competition among private insurers.
Also, because many (mostly larger) employers are self-insured, they may transfer their costs to Medicare, which is basically what they have already done to those who retired with company health benefits. (Try to find a company that offers a retiree healthcare plan. It's a thing of the past.)
Also, think about it from the employers' perspective. Healthcare coverage costs are a huge issue for companies large and small. If you owned a company, what would you do to save money and limit future liabilities?
Employers could drop their regular plans and replace them with a financial benefit amount equal to its current cost, which the employees can use to offset the new Medicare public option premiums. Then, the employers are, basically, out of the healthcare business; they have eliminated virtually all health benefits administration and related costs. It's now hands-off, and the employer's only involvement is determining the annual contribution.
This sounds like a good deal for employers (most would like to get rid of the healthcare coverage administrative headache), and perhaps workers as well, especially if they had a high deductible, high premium plans.
But remember: beyond taking care of their employees, employers want to limit costs and future liabilities. So, they will dump their costs on Medicare by doing what many large employers have already done to their retirees with company health benefits.
Therefore, I have a hard time imagining a Medicare public option that bears any resemblance to traditional Medicare in terms of benefits or premiums. Where will the additional subsidies and credits come from? (More on this later when we talk taxes.)
In addition to the public option, Biden also wants to lower Medicare's eligibility age. This is the "Medicare optional at age 60" plan. It could have its own problems.
Understandably, lowering Medicare eligibility to help those who have to retire who would otherwise be without insurance would be fairly popular. A big question is whether anyone would be able to sign up or whether it would only be available to the uninsured. What about the millions who buy coverage on their own?
Then there is the cost. Many uninsured in the 60 to 65 age group are enrolled in Medicaid, the state-federal health insurance program for low-income people. Moving them to Medicare would shift some costs to the federal government, which is already having trouble keeping Medicare solvent.
As a layman and as a retiree on Medicare, my concern is the desire to protect and expand these expensive programs without a clear plan (other than incurring more debt) to pay for them. If Medicare is expanded beyond retirees, what will that mean regarding the cost and services for those already on it?
When it comes to funding these programs, Congress seems to remain chronically unable to act in Americans' long-term best interests. I blame both political parties for this.
Is it Socialized medicine?
In my opinion, neither of these (the Medicare public option or Medicare optional at 60) are "socialized medicine." Socialized medicine is, strictly speaking, when the government takes over and runs all healthcare facilities, employing all the doctors and staff and setting budgets that stringently limit and sometimes delay care under certain circumstances. All citizens are covered, but it can result in lower-quality care.
There are 45 million people enrolled in Medicare, and the numbers are increasing daily. In ten years, there could be 80 million enrolled. But of those, only 10 percent rely on Medicare only. The other 90 percent (I am among them) use private supplemental insurance or Medicare Advantage plans. For the most part, we can choose our doctors, hospitals, and prescription drug providers, which are all private service providers. That doesn't sound like socialized medicine to me. (Although one could argue that traditional Medicare Parts A and B are socialized health insurance programs.)
Like so many other large federal programs, Medicare has its flaws. But no one has, as yet, proposed anything better.
The public option and lower eligibility age will surely face stiff opposition from Republicans and the health care lobbies, which are generally opposed to further expansion of government-run healthcare programs. Therefore, the status quo may be the more likely outcome, but that still doesn't solve the more significant healthcare coverage challenges in the country.
"If you vote for me, your taxes are going to go up" was a familiar Biden phrase during the recent election. (That sounds like the opposite of the "Read my lips: no new taxes" promised by George H.W. Bush during the 1988 election. According to Wikipedia, "Although he did oppose the creation of new taxes as president, the Democrat-controlled Congress proposed increases of existing taxes as a way to reduce the national budget deficit.")
The Republicans, understandably, took Biden to mean that he's going to raise everyone's taxes (as that is what he said, but apparently, not what he meant). Since then, Joe has clarified his tax plan, and it includes the following proposals:
- Increase the top marginal tax rate for wealthy households from 37 percent back to 39.6 percent.
- Impose the 12.4 percent payroll (FICA) tax on earned income above $400,000.
- Limit deductions on taxpayers with income over $400,000.
- Phase-out certain business deductions from income over $400,000.
- Increase the capital gains and dividends tax on incomes over $1 million.
- Raise the maximum corporate income tax rate to 28% from 21% (still less than the prior 35%)
Taxes matter to almost everyone (except those who don't pay them, I guess). Unless you make over $400,000 a year, it looks like most of these changes won't directly affect you.
Yet, if enacted into law, they may have significant economic impacts, especially on the financial markets. Of all the incoming president's policy proposals, his promise to increase taxes on corporations could have the most direct effect on the economy and the stock market.
Many high-income, high-net-worth families can afford to pay an additional 2.6% in tax. They can also afford higher capital gains and dividends taxes. Corporations, on the other hand, are highly sensitive to taxes. A 7 percent increase directly impacts their bottom line; it reduces net income. In turn, that reduces profits, and, in the case of public corporations, the amount of money available to shareholders as dividends. All of this affects the stock price, which in turn impacts both institutional and individual investors.
Most Christians would agree that the government provides good and needed services to its citizens and that taxes are a reasonable way to fund them. The differences come in the practical implementation of policies that define the nature and scope of such services and how public funds should pay for them.
All policies and laws have consequences—short and long term. New entitlements are created, the burden for something shifts from one group to another, long-term government debt grows, etc. Regardless of what you may think about Biden's proposals, many analysts say these new taxes on the wealth and corporation will be insufficient to pay for his s plans regarding health care, education, child credits, etc.
If that's correct, how and who will pay to keep Medicare (and Social Security) solvent, much less expand them in the proposed ways?
I am certainly not opposed to the government provided necessary services to the most vulnerable and needy in our society. I think that is in keeping with biblical norms and ethics. But realistically, the idea that the government can provide more and more for the middle class and lower-income Americans, all paid for by wealthy individuals (5%) and businesses, seems unfeasible without incurring an astronomical amount of debt—the consequences of that effect everyone, now and well into the future.