July 11, 2014 by Tony Novak
The Affordable Care Act has profoundly changed personal finance in ways that are not apparent to most of us yet. The impact will be spread over many years and through different channels so that their may never be a clear and direct link in the minds of most consumers. Yet we should not lose focus that health care spending is a large, and soon to be the largest, component in understanding consumer finance. The average American household spends almost $25,000 per year in total health care costs and this number is growing at more than $1,000 per year. More than half of this cost is now paid by employers but we predict that will also change within the medium-range future. This blog post is meant to list some of the areas for consideration in other publications and presentations.
1. Overall increase in health care spending – ACA increases the overall portion of our budget that we spend on health care. By most accounts, this increase is about 4 percentage points. This change applies to the national spending as well as to individual household spending. 4 percent may not seem like a lot but economists know this is enough to cause serious economic drag. The adjustment must come from other areas of our household budget: housing, food, auto, etc. Most important, the adjustment must initially come from discretionary spending; this is the area that hurts consumer confidence the most and we are likely to hear more about this impact in news stories over the next few years. For example, lower-income people facing a choice between buying medications or paying household bills.
2. Managing higher out-of-pocket costs – The out-of-pocket risk under Obamacare insurance policies is higher than on most earlier policies. This change was intended. Consumers will ultimately react by increasing their access to cash reserves. Other options like Health Savings Accounts and employer-sponsored Health Reimbursement Arrangements will increase in popularity.
3. Increasing cash reserves – Financial advisers will likely increase the minimal recommended cash reserves for their clients. Most households need to be prepared for $5,000 to $10,000 uncovered medical expenses in a single year. That requirement will increase by almost $1,000 per year going forward as health care expenses continue upward and insurance cost controls tighten. Higher health care expenses, once triggered, tend to span several years. This puts a drag on overall Return on Assets for consumers and places a slight drag on the investment markets.
4. Health care lending – a new growth industry has emerged to help consumers pay for health care expenses not covered by insurance. This is likely to be embraced by the health care industry to ensure revenues so that health care may look more like auto sales with respect to the fact that financing will be in place before the deal is completed.
5. Aggressive collection practices – Advancing technology opens new opportunities for aggressive high-tech collection practices for those authorized to seek payment for medical charges not covered by insurance. In some cases we expect that employers will be held accountable for employee medical expenses due to failure to comply with ACA mandates.
6. Middle income estate planning – We already see increased concern from middle-income families who recognize that all or most of their parents’ assets will wind up in the hands of health care providers. Steps can be taken to avoid this outcome and we will certainly see consumers react to this growing concern.
7. Use of big data – The largest issue that we need to grasp is how expanded information will be used by corporations to impact us on a daily basis. It is legal for companies to use non-protected health-related data in their business operations. ACA is not directly responsible but leads to more of our health information being pushed from the private/protected arena to the public/collectible category. For example, the correlation between health and future earnings capacity may be incorporated into credit score assessments. Individuals with specific medical conditions as evidenced by their consumer purchases may be incorporated into hiring decisions. For example, a middle-aged man purchasing Breathe-Rite strips over-the-counter might be assessed as less likely candidate for a leadership positions requiring high energy and long hours.
8. Changing adviser roles – For almost three decades, I spend many hours advising thousands of consumers of their health care options. Now I find myself saying “just go online to an exchange”. It’s not something that I like saying when a person is clearly asking for personal help, but it a change in the health care delivery system that is beyond my influence. The Affordable Care Act ushered in a new army of people called “Navigators” who are charged with the task of enrolling consumers into mostly government paid (or in a few case government-subsidized) health plans. They are not allowed to give advice. The underlying unfortunate message is “Shut up, don’t ask questions, just sign on the dotted line”. Industry sources say that health benefits sales agents are existing the profession by the thousands. These are, as a group, well-trained and professional sales people so I have no doubt they will find success in other fields. Even CPAs who give advice on selecting health benefits for a fee can come under fire by groups purporting to be acting in the public interest. (See my criticism of the Better Business Bureau’s actions to stem independent health care advisory efforts earlier this year). In short, the consumer is left without knowledgable professional help in making some of the most important decisions of their life.
This list is not exhaustive and may be updated as this topic evolves.