Here’s What the Current Tax Reform Plan Would Mean for Retirees

The new House Republican tax plan has many seniors worried about their financial well-being—and for good reason.

As it currently stands—and the bill is still under consideration, so anything can still change—if the cost of your medical expenses is greater than 10% of your adjusted gross income, you can itemize and deduct them. For millions of seniors, the combination of rising medical costs and post-retirement income levels means that that 10% isn’t hard to exceed.

As a result, many seniors rely on this deduction to pay for important medical needs without going bankrupt.

The Washington Post recently ran an article about it, writing:

“What is of particular concern for some seniors is that this means they would be losing a deduction that covers payments for nursing homes, assisted living or inpatient hospital care.

Nearly 8.8 million households filed 2015 returns that claimed the medical and dental expenses deduction, according to the IRS. AARP’s Public Policy Institute says that 49 percent of those who took the deduction had income of less than $50,000, and 69 percent had income under $75,000.”

The cost of healthcare is already one of the largest expenses for the retired population—and it continues to rise each year. If the bill were to pass, millions of people would be left deciding between necessary medical care—and going broke.

Let’s break down some of the numbers on just how much this bill would cost American seniors.

First and foremost, there’s the cost of long-term care.

John Hancock conducted a national study in 2016 to determine the average cost of long-term care options, such as nursing homes, assisted living facilities, and adult daycare. The cost ranges from an average $20,540 annually ($79 daily) for adult day care—an already unfeasibly high cost for many Americans—to an average $102,930 (a staggering $282 daily) for a private room in a nursing home. (And in some parts of the country, nursing home costs exceed $400 a day.)

And costs aren’t going down anytime soon. Over the past eight years, the cost of adult care has increased an average of 1.5% annually, while the cost of nursing homes has gone up over 3% annually.

Considering the fact that the median income for Americans aged 65 and older is under $23,000 for individuals and just over $38,500 for households, managing the cost of long-term care would be untenable without the tax break.

Then there’s the cost of Medicare and insurance premiums.

According to a 2015 report published by HealthView Services, the cost of healthcare over the course of retirement run in the hundreds of thousands of dollars for the average couple—just for the premiums for Medicare Part B (doctor services / outpatient care), Part D (prescription drugs) and a supplemental insurance policy.

A 65-year-old couple retired today with a joint income of less than $170,000 can expect to spend about $583 a month—just for the cost of premiums. By the time that couple is 85, it’ll be closer to $1,211 a month. Since 2013, that number has risen by 6.5% year-over-year.

Assuming an average lifespan 87 for men and 89 for women, these couples will spend over $266,000 on premiums alone over the rest of their lifetime.

And that doesn’t include non-Medicare-covered expenses.

Despite the staggering premium costs, there’s a lot Medicare doesn’t cover. Add those in and that same 65-year-old couple can expect to pay over $394,000 over the course of their retirement.

Included in the list of non-Medicare-covered expenses are some pretty basic care need—such as dental, vision, and various special services. Long-term care, the biggest healthcare expense for many seniors, is also not covered.

Medicare also limits how much it’ll cover for various other services, including but not limited diagnostic tests, physical therapy, speech pathology, and cataract surgery. And if you’re receiving specialized treatments for various illnesses, including multiple sclerosis or certain types of cancer, you can expect to pay about a third of the cost out of pocket.

These are common—and very often necessary—healthcare needs for seniors, for which many rely on the medical tax deduction.

Nothing is certain yet…

It’s important to note that this bill is all still up in the air. The Senate Republicans’ tax proposal doesn’t touch the medical deduction. If both proposals are respectively approved, the House and the Senate will negotiate a compromise.

But suffice it to say, if the medical deduction is ultimately eliminated, it could prove detrimental to millions of people across the country.

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rhian horgan

Rhian is the Founder and CEO of Kindur. Prior to founding Kindur, Rhian spent 17 years at JP Morgan building investment products for individuals. Rhian is passionate about the opportunity to leverage modern technology to simplify retirement decisions.