The One Big Beautiful Bill Act signed into law this month by President Trump will have a broad impact on the health care and economic security of older Americans. Like the rest of the law, it may be “beautiful” for the wealthy, but it looks ugly for everyone else - especially low-income seniors.
The impact of the OBBBA for seniors can be broken down into a few key areas:
Health care will be more difficult to access for low-income seniors reliant on Medicaid and Medicare programs designed to help offset costs. And changes to the Affordable Care Act will make marketplace policies more expensive across all income groups.
Lower payments to health care providers will jeopardize the availability and quality of care in nursing homes, home-based long-term care and in rural hospitals.
New deductions will reduce taxation of Social Security benefits for higher-income seniors. But that change is forecast to accelerate the insolvency of the retirement trust fund by one year, to 2032 - an event that threatens to trigger a 23% across-the-board benefit.
In my latest Morningstar column, I break down the details on the OBBBA’s impact.
Political spin from the Social Security Administration
The Social Security Administration sent an email message to millions of Americans praising the passage of the OBBBA. That sentence alone is appalling for me to write - the SSA has been completely apolitical to this point in its history and has no business engaging in propaganda. Worse, the message was chock full of half truths and misleading information about the changes to taxation of Social Security benefits contained in the OBBBA.
As I note above (and in my Morningstar column), the law includes a $6,000 “bonus” deduction that will allow many seniors to reduce or avoid taxes on Social Security benefits. President Trump promised as a candidate to eliminate taxation of Social Security benefits, but doing so in this budget reconciliation bill would have violated Senate rules. The $6,000 bonus deduction is a workaround that will bring the income of many seniors below the levels that trigger taxation of benefits.
But the email message claims the following:
“The new law includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries, providing relief to individuals and couples. It does so by providing an enhanced deduction for taxpayers aged 65 and older, ensuring that retirees can keep more of what they earned.”
Here’s what really will be happening.
The bonus deduction is available to taxpayers age 65 and older with MAGI of up to $75,000 for an individual filer and $150,000 for a couple filing jointly. (Each spouse can take the deduction, for a total of $12,000, if both are at 65 or older.) It starts to phase out above those levels, and disappears for single taxpayers with income of $175,000 or more ($250,000 for joint filers).
The deduction is not available at all for Social Security beneficiaries age 62-64. And It expires after 2028.
It’s important to understand that the law doesn’t end the requirement to pay taxes on your benefits - it temporarily reduces the number of beneficiaries obligated to pay them. The Guardian has more on political spin from the SSA.
Why debt has risen among older Americans
My book Retirement Reboot explored how rising economic insecurity has damaged the retirement prospects for millions of Americans. Job loss and the soaring cost of big-ticket items such as housing, health care and education have played key roles.
One side effect has an increase in the amount of debt carried by older Americans nearing and during retirement. I recently spoke with Chris Farrell, senior economics contributor at Marketplace radio, for a series he produced on the forces behind the embrace of debt among older Americans.
You can find the entire series here; my comments are here and here.
What I’m reading
Will the OBBBA Medicaid cuts kick in only after the midterm elections? Not really . . . Prosecutors question doctors about UnitedHealth Medicare Advantage billing practices . . . Nursing homes may start sedating your parents . . . Moving forward after a dementia diagnosis . . . Equal-installment drawdowns make sense for RMD withdrawals . . . Why Vanguard joined the private equity craze . . . Social Security backs off listing living immigrants as dead . . . Social Security official pitched investment strategy for trust fund to avert insolvency . . . Assessing the health of Social Security: My conversation with journalist Ron Roel.