The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare,

The Importance of Defined Benefit Plans for Retirement Income Adequacy

August 2011, Vol. 32, No. 8
Paperback, 24 pp.
PDF, 882 kb
Employee Benefit Research Institute, 2011

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Executive Summary

The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare


THE “DONUT HOLE”: In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added outpatient prescription drugs as an optional benefit. When the program was originally enacted, it included a controversial feature: a coverage gap, more commonly known as the “donut hole.” The Patient Protection and Affordable Care Act of 2010 (PPACA) included provisions to reduce this coverage gap.


REPEALING PPACA: This article examines the impact that repealing PPACA would have on savings targets for health care expenses in retirement. The estimates suggest that retirees with high levels of prescription drug use throughout retirement would see their savings targets increase roughly 30-40 percent were the coverage gap reduction in PPACA repealed. Individuals at the median (midpoint) level of prescription drug use throughout retirement would not see any change in savings targets.


The Importance of Defined Benefit Plans for Retirement Income Adequacy


VALUE OF DB PLANS: This article shows the tremendous importance of defined benefit plans in achieving retirement income adequacy for Baby Boomers and Gen Xers. Overall, the presence of a defined benefit accrual at age 65 reduces the “at-risk” percentage by 11.6 percentage points.


LOW- AND MIDDLE-CLASS IMPACT: The defined benefit plan advantage (as measured by the gap between the two at-risk percentages) is particularly valuable for the lowest-income quartile but also has a strong impact on the middle class (the reduction in the at-risk percentage for the second and third income quartiles combined is 9.7 percentage points).


RETIREMENT INCOME ADEQUACY: The analysis also provides additional information on how the relative value of the defined benefit accruals impact retirement income adequacy.