Gen X and millennials would pay higher taxes to access Medicare

Have Americans made peace with the fact that they will likely not have access to Medicare when they turn 65? It doesn't look like it. 

Health insurance company eHealth surveyed 1,000 Americans born between 1965 and 1996 to see how millennials and Gen Xers are reacting to the likely loss of the government-funded insurance program: 94% still feel they are entitled to Medicare in retirement, and 84% are willing to pay higher taxes to ensure its survival. However, without a solid plan from Congress on how to sustain this resource, it's estimated that Medicare funds will run out by 2036, according to the board of trustees' annual report. 

This is dire news for everyone trying to save enough for retirement by 65, notes Whitney Stidom, vice president of medicare operations. According to the 2022 Fidelity Retiree Health Care Cost Estimate, a couple should expect to spend $315,000 on healthcare during retirement — and that's with Medicare still in the picture. 

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"Medicare is really vital because as we age our healthcare just becomes that much more important," says Stidom. "We're more likely to go to the doctor and more health issues come up."

Stidom points out that Medicare won't disappear completely in another decade. Instead, Medicare Part A, which mainly covers inpatient care, would get a downgrade, covering an estimated 89% of services in 2036. Part B and Part D, which cover outpatient services and prescription drugs, will remain mostly intact. These parts of Medicare are mostly funded by premiums, whereas Part A is backed by payroll taxes. 

"[Retirees] will still face big cuts to their benefits," says Stidom . "They will likely see higher out-of-pocket costs, deductibles and less coverage for things like preventative care."

Read more: Why it might be cheaper for every employee to have their own health plan

Notably, Medicare trustees had estimated that Medicare would run out by 2031 in their previous report, but factors like higher wages to tax from and delayed care during the pandemic extended Part A by five more years. 

Stidom stresses that Americans are more than willing to invest in Medicare, but without government intervention, there's little to be done. However, according to eHealth, nearly 80% of millennials and Gen Xers ranked Medicare in their top three most important voting topics, which could put pressure on Congress.

Read more: Are you being overcharged for your employees' healthcare? Here's how to find out

In the meantime, Stidom advises employers to continue improving their retirement and financial planning benefits, with the knowledge that healthcare is going to make savings goals even more challenging. He believes the solution will be a mix of financial help and educational resources: Employees need to understand how to take advantage of something like a health savings account (which they can invest and use tax-free once they turn 65), while also receiving wages and their employers' match to encourage the account to grow. 

"The rising cost of healthcare continues to be the number one concern that we hear from our customers," says Stidom. "Employers may want to look at educational opportunities so people can be informed and plan for it."