Medicare's benefit structure leaves beneficiaries with significant out-of-pocket costs, particularly if they lack supplemental coverage; such costs disproportionately affect low-income, old, and chronically ill beneficiaries. Supplemental coverage can offset Medicare's cost-sharing but is itself a significant expense. This report analyzes the extent to which incentives for private saving could relieve the burden of post-retirement health care costs. Focusing on low-income participants as part of a broader analysis of families of varying income levels, the analysis projects the savings potential for individuals if they could save a modest percentage of their income tax free and receive a rate of return equivalent to that in a basket of U.S. Treasury bonds. The authors conclude that enhanced savings offer only a partial solution to this problem for low-income seniors, and that a strong fiscal case can be made for partly or totally limiting such tax incentives to low-income and lower-middle-income individuals.
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