June 7, 2014 by Tony Novak
After our country slowly works through the many technical issues in the implementation of health care reform throughout the next year, the affordability factor will come to center stage. Americans are still large unaware of the eventual cost and may react much more sharply as insurance premiums, out-of-pocket expenses and tax penalties rise over the next few years. The financial adjustments required by the provisions of the Affordable Care Act (ACA) will not come easily for us. A seminar host yesterday at the New Jersey Society of Certified Public Accountants annual convention put the issue of ACA affordability into perspective: “The good news is that we have the money to pay for all of this. The bad news is that the money is in your wallet”.
ACA defines ‘affordable’ as an insurance cost of 9.5% and for discussion purposes, let’s presume that deductibles, co-payments and uncovered items bring that up to the predicted 16% of household income. For a working class family with a combined gross income of $90,000 that works out to $275 per week. I’ve come to view this $275 per week figure as a baseline benchmark expense for my clients. Many families will view ACA compliance as a new legally mandated expense. We already know that resistance is powerful. Many will have a tough time with the adjustment and it will not be easy for households to pull money away from budgets for rent, auto, food and other expenses to accommodate the new healthcare law.
It occurs to me that the greatest unmet need in the financial services field over the next few years will be helping these middle class households adjust their spending to accommodate the new mandated healthcare expenses. What is the best way to do that? How can the cutbacks be made in other areas of spending with the least amount of angst and household infighting? It seems to me that this is a problem for old-fashioned financial planning techniques:
1) Analyze spending
2) Clarify values and financial priorities
3) Compare current spending with financial values
4) Look for savings opportunities and make other adjustments
5) Monitor results
There is nothing new here in the approach, just an expansion of the market need for assistance. All this adds up to new opportunities for financial advisers who work with working class clients, especially those that offer remote and online access. Automated tools are a must for efficiency in middle-market financial planning. To be effective in this new market situation, the advisory service will need to be fast, affordable and deliver a big impact through a range of new media platforms.
My OnlineAdviser and OnlineNavigator services are doing a little bit of this type of work already but we should prepare to improve the quantity and efficiency of this service over the next year.