Yesterday, I was talking with a client who has a Medicare supplement Plan F and a stand-alone Part D plan.  Kathy was telling me how tough things are financially now that her husband, who is 70, got laid off from his job.

Kathy and her husband are living on their Social Security, and their combined income is around $23,000 per year.  She said they spend $9,600 on their Medicare premiums, their Medicare supplements, their Part D plans, and drug co-pays all together.  They are going through their retirement savings to keep their heads above water.

Kathy told me that politicians in Washington don’t seem to realize how frightening the future is for people like her and her husband.

Later in the day, I read about the latest proposal by Republican Congressman Paul Ryan to privatize Medicare and push more costs onto elderly and disabled Americans.  The central ideas in the Republican plan are:  1) Limit government responsibility for the cost of Medicare;  2) Make people covered by Medicare pay more of their health care costs;  3) Turn Medicare over to private insurance companies (turning the program into a for-profit business).

Rick Ungar, who writes a blog for Forbes, wrote a review of the latest Republican plan for Medicare, and I share some of his thoughts with you:

The proposal would create an Obamacare style health exchange system (seriously) where seniors would go shopping for their health insurance policies. And just as is the case with Obamacare, insurance companies seeking to participate on the exchanges would be required to follow federal government regulatory standards and meet minimum coverage requirements in their offerings.

…the Ryan plan turns on the concept of government provided subsidies, in the form of vouchers, to assist seniors in paying for their care.

…According to the non-partisan Congressional Budget Office (CBO), under the Ryan proposal, a senior aged 65 could end up paying 68 percent of the cost of their health care out of their own pocket by the year 2030. That’s quite a change from how things work today with good, old-fashioned Medicare—and it is a change that should frighten even the most stalwart small-government fanatic.

…The only way RyanCare makes any sense is if we are prepared, as a society, to let our elderly die because they have been priced out of the health care market. That may be okay with some of you – but it will never be okay with me and it will never be okay with America’s senior citizens, now or in the future.

Then I thought about Kathy and her husband, two people who worked hard all their lives and saved some (but probably not enough) money for their retirement. They are very frightened by the future because they’re spending around 40% of their income on health care costs and coverage. They are spending down their retirement savings for their living expenses – and they don’t know how long their retirement funds will last.

Republicans are positioning their Medicare plan by saying Americans who are 55 and older won’t be affected by changes to the program. Republicans are betting that current senior citizens will say, “I’ve got mine,  so I don’t care about younger people”. But I’m betting that a lot of people like Kathy and her husband – who are very conservative when it comes to politics – understand how financially tough the current Medicare system is, and would not wish an even more costly program on anybody, especially their children and grandchildren.

The  never-ending discussions on reducing government spending are targeting Medicare. Seniors must pay more for their medical care, or they will use the health care system too much. Several plans have been proposed to force seniors to pay more and rely less on Medicare supplement insurance (a.k.a. “Medigap”).

About 50% of people on Medicare have some form of Medicare supplement insurance, through an employer retirement plan (31%) or an individual Medicare supplement policy (19%).  Another 21% of Medicare beneficiaries are enrolled in Medicare Advantage. These figures are based on 2008 data from Medicare.

Medicare supplement policies fill the gaps in Medicare and pay some or all of the co-insurance and deductibles that are built into Medicare.  The most popular Medigap plans are plan F, which fills all the gaps, and Plan C, which covers everything but the excess charges.  So seniors with these plans pay their monthly Medicare premium and their Medigap premium, and don’t have to worry about medical bills when they get sick.  New rules being proposed for Medigap plans would not allow this kind of  “first dollar coverage”.

Apparently, some actuary has determined that seniors should expect to pay out between $3,000 and $5,000 per year in medical costs.  So they should not be allowed to protect themselves from those costs with insurance. For example, a person who pays $150 per month for a Plan F Medigap can figure that $150 x 12 months = $1,800 per year to cover their medical expenses. This is a lot less than $4,000 or $5,000 that is part of several proposals being considered in Washington.

As an insurance agent, I recommend a Plan F Medigap, but I guess I am part of the Medicare budget-busting problem.  Some of my clients live in gated communities and can certainly afford their Medigap premium, or an extra $5,000 each year for medical expenses.  But most of my Medigap clients  live very modestly, and I don’t know if they can afford to put out $5,000 every year for medical bills.

I recently read that about half of Americans who are over 65 have less than $50,000 in savings.  The millionaires who serve in Congress think these seniors with very limited savings will be able to find extra money for their medical care. I guess they should know.  These ideas on deductibles and higher co-pays slowing down the use of the health care system are straight from the for-profit insurance industry. It is called “consumer-driven heath care”. What it means is that the government doesn’t ration the care people get – seniors will ration their own care based on how much they are willing or able to pay. What a system!