Affordable Healthcare Act Plugs the "5½-Year Loophole" For Retirees

Recently, there has been a dust-up surrounding a Congressional Budget Office report on the Affordable Care Act that determined 2 million fewer Americans will be working by 2017 thanks to the law, rising to 2.5 million by 2024. Some have seized on this number as proof that Obamacare is evil and bad for the economy.
But the details actually show that the loss isn’t of jobs … it’s actually a loss of workers who will leave voluntarily.
You see, Americans typically can tap their retirement funds without penalty at age 59½ … but Medicare doesn’t kick in until age 65. So for 5½ years, prospective retirees are stuck in limbo. Obamacare fixes that, and that’s a boon to workers — both young and old.

The Kaiser Family Foundation estimates that only 28% of large firms with employee health coverage offer health benefits to retirees, down from 66% in 1988. And among smaller firms, the situation is even worse. At the same time, healthcare costs have soared in the last few decades.

In 1999, for instance, family coverage averaged $5,791 and single-party coverage averaged $2,196. In 2013, those policies cost $16,351 and $5,884, respectively — a jump of 182% for family coverage and 168% for single coverage in just 14 years.
And for older Americans — particularly those with pre-existing conditions like high blood pressure or diabetes — coverage costs much more.This convergence of disappearing coverage and increasing cost of healthcare has left a large swath of older workers “trapped” until 65 — the age most Americans are eligible to enroll in Medicare. So, why are workers trapped?
Well, at 59½ you can finally access an IRA or 401k plan without early-withdrawal penalties of 10%.
But given the steep cost of health insurance, many older Americans can’t afford to give up their jobs and the employer-sponsored benefits that come with them. Sure, a small group of Americans has saved enough to cover private insurance to bridge the gap from 59½ to age 65… but not many.
A 2013 report from Fidelity Investments reported that as of 2012, workers ages 60 to 64 were reporting an average 401k balance of $133,100. Think about that. If you plan on living 20 years after retirement, that leaves you a meager $6,655 per year to live on. Or if you are drawing income of 4% annually from that nest egg, you only can generate $5,324 annually.
That’s the average annual cost of health insurance for a single policy, according to the numbers mentioned above.
Plus, remember: These are all averages. Some prospective retirees have a lot less money saved than the average. Some prospective retirees have higher healthcare costs. And some face both issues.
Sure, there are older workers who never intend on retiring. They are examples of the American work ethic many hold dear, and their right to continue working deserves protection. There also is a share of America still covered by their previous employer’s coverage that doesn’t face this challenge.

But for the millions of those who want to retire but can’t for lack of health coverage, Obamacare is the solution. Thanks to the new health insurance marketplaces, older workers can go to public exchanges and find more affordable health insurance — and cannot be denied coverage because of pre-existing conditions.

We can debate other details of the law, and the government should indeed improve the Affordable Care Act over time. But it’s crucial that we remain committed to closing the gap between 59½, when you are eligible to access IRA and 401k savings without penalties, and 65, when Medicare kicks in. It’s not just the right thing to do for grandparents and gardeners so they can retire, either — it’s the right thing to do for younger Americans trying to advance in their careers.
If we provide a dignified and safe way for older workers to leave the labor force of their own accord, younger Americans can more easily climb the corporate ladder and find opportunity. Obamacare is a win-win for seniors, younger workers and the U.S. economy in this respect. As the CBO put it in its report, the drop is “almost entirely because workers will choose to supply less labor” because of the benefits they receive.
So don’t believe the hyperbole about millions of jobs lost. For many older Americans trapped in their jobs and working simply for benefits, those jobs will not be missed.

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