On July 3, 2025, Congress passed the One Big Beautiful Bill Act (OBBBA). Part of this bill includes significant changes and steep cuts to Medicaid, which will lead to higher overall healthcare costs for individuals.
For example, the Act will cut federal spending on Medicaid and the Children’s Health Insurance Program (CHIP) by more than $1 trillion. In practice, this means at least 10 million Americans will lose coverage by 2034.
The OBBBA is especially concerning for seniors on fixed or limited budgets. Withhigher co-pays, increased eligibility hurdles, and potentially reduced coverage, the result is more out-of-pocket spending — something that could turn even minor medical issues into big budget challenges.
In this article, we’ll explore the impact of OBBBA on healthcare and provide healthcare cost planning for seniors to help find cash when they need it most.
HOW FEDERAL CUTS ARE IMPACTING RETIREE HEALTHCARE COSTS
Along with reduced spending, other changes in OBBBA may increase overall healthcare costs.
First are more frequent eligibility checks, up from once per year to twice annually. This means more red tape for states and more effort for recipients. Consider an older couple who both have complex medical issues and live on a fixed income. Each time there is an eligibility check, they must provide proof of their income and medical issues. There’s an increased risk that those who are eligible will be denied coverage as states cope with increased workloads.
In addition, the new act mandates changes to Affordable Care Act (ACA) coverage that increase the portion of cost-sharing that falls on beneficiaries. This means more money out of pocket for the same services. Plans under the ACA will no longer automatically renew, meaning seniors must manually re-enroll every year, and the enrollment period will be shortened from three months to two. According to the Johns Hopkins Bloomberg School of Public Health, 40% of people signed up in the third month of the enrollment period last year.
For seniors, this introduces two potential risks: higher personal bills as their co-pays increase and cost-sharing is reduced, and a greater risk of losing coverage due to changing eligibility requirements or clerical errors.
FIRST-LINE STRATEGIES TO MANAGE AND MITIGATE MEDICAL COSTS
How do retired Americans pay for healthcare in this new environment? Here arefive strategies for medical expenses after Medicaid cuts that can help seniors manage and mitigate their medical costs.
Maximize Medicare and Supplemental Coverage
You have two broad choices when it comes to Medicare: Medicare Parts A and Bplus Medigap insurance, or Medicare Advantage. Choosing the right option for your situation can help offset the costs of care in retirement.
Medigap plans can help cover healthcare costs such as those for hospice care oradditional medical testing. Medicare Advantage plans, meanwhile, often come with drug plans that help offset the cost of necessary medicines.
Seek Assistance Programs
You may also be able to seek financial aid from hospital charity care initiatives, prescription assistance programs or community health funds. For example, if your income is below a specific threshold, you may be eligible for community health funding that pays for some or all of your care.
Use Health Savings Accounts (HSAs) or Other Buffers
Health savings accounts are triple tax-advantaged. Contributions are tax-free, and they are not subject to Medicare or Social Security taxes. This means you can contribute to an HSA without paying tax, and withdraw money for care costs without getting taxed.
Negotiate Medical Bills and Explore Appeals
You may be able to negotiate medical bills with providers through discounts or payment plans. In addition, you can contact your health insurance provider about “financial hardship” options.
This is because health care costs are not set in stone. If you explain your situation to your provider before treatment takes place, you may be able to access compassionate care discounts or pay a portion of your bill each month to reduce the upfront cost.
Budget and Reserve for the Unexpected
It’s worth keeping a contingency fund on hand for unexpected medical expenses,especially after you reach retirement age. For example, if you save $50 each month, that’s $600 per year. If you start saving at age 60 but don’t encounter a serious medical issue until you’re 65, you have $3,000 banked for unexpected expenses.
DEEPER LIQUIDITY OPTIONS WHEN YOU NEED MORE CASH
There are also other options if you need more cash to cover unexpected medical expenses, such as:
- Home equity lines of credit / reverse mortgages: Banks may offer you a HELOC based on your current home equity, or the option to receive a payment every month as part of a reverse mortgage.
- Selling non-core assets: You can consider selling non-core assets such as jewelry, vehicles or additional properties.
- Borrowing: You may be able to access liquidity via personal loans or lines of credit.
- Life insurance policy surrender: You may have the option to surrender your life insurance policy to your provider for a small lump sum payment.
- Life settlement for healthcare funding: Alternatively, you can sell your life insurance policy to a third party for a larger payout. We’ll explore this in detail below.
USING A LIFE SETTLEMENT TO FUND HEALTHCARE NEEDS
In a life settlement, you sell your permanent life insurance policy to a third party, who takes over the premium payments and becomes the new beneficiary. In return, you receive a lump-sum payment that is often multiple times the cash surrender value.
There are several situations where a life insurance settlement makes sense:
- You no longer need the policy because you have other coverage or investments.
- The monthly premiums are too expensive or burdensome.
- Your current age (65 or older) and policy size ($100,000 or more) make you eligible for a life settlement.
- You need cash to cover medical or care-related expenses.
Here’s a quick example. Leo is 75 years old and has just been diagnosed with a chronic condition that will worsen over time. Instead of dipping into retirement accounts or borrowing money from the bank, Leo chooses a life settlement for his $250,000 life insurance policy, which gives him the cash he needs to help cover the cost of long-term care.
THINGS TO KNOW BEFORE PURSUING A LIFE SETTLEMENT
A life settlement can provide much-needed liquidity in the face of rising senior healthcare expenses, but it’s important to know how to navigate your options. Here are six things to know before you start the process.
- 1. Make sure you qualify. To qualify for a life insurance settlement, youmust be 65 years or older with a policy worth $100,000 or more. If you have a terminal illness and less than two years of life expectancy, you qualify for a viatical settlement, which has no age restriction.
- 2. Understand the tax implications. Any return you receive from a life settlement (beyond what you paid in premiums) is taxed as long-term capital gains.
- 3. Choose a licensed broker. A licensed broker can help find multiple offers for your policy. They represent you, not the buyer.
- 4. Get multiple offers. Don’t take the first offer you receive. Instead, get and compare multiple offers to secure the highest payout. An experienced life settlement broker will do this for you.
- 5. Document everything. Document every communication and offer from brokers and buyers to ensure transparency and provide a paper trail.
- 6. Don’t wait too long. The value of your insurance policy can increase as your health declines, because buyers are more likely to receive the benefit more quickly. The longer you wait, however, the greater the risk to your finances.
BUILDING A MULTI-LAYERED STRATEGY FOR RISING MEDICAL COSTS
The OBBBA has serious implications for seniors’ medical expenses. Healthcare is getting more expensive, and seniors need new ways to ensure they have enough money on hand to cover these costs.
Not sure how to pay medical bills in retirement? No single solution is sufficient. A life insurance settlement won’t pay for everything, but in combination with prudent budget planning and strategic liquidity efforts, seniors can use it to reduce the pressure of medical expenses on retirement plans.
