Health Care Turmoil Now, Pension Turmoil Tomorrow
First they came for your healthcare. Next, they are coming for your pensions.
Yes, it looks like the $3 trillion healthcare industry, as well as pensions in the U.S. are going to go through a major transformation. And, while the final form of the health care is yet to be decided, it’s clear that basic health care, prescription, hospital and critical care medical expenses will probably all increase and add to any individual’s financial uncertainty.
And from another angle, the number of pension plans in the U.S. is also set to decline in the next decade due to accounting changes and premium increases from the Pension Benefit Guaranty Corporation (PBGC.)
Combined, this means that the greatest financial safety nets for millions of Americans—health care costs and pensions that provide a stable retirement income—are going to evaporate or become more expensive. This also means that more Americans will be on their own financially than ever before, even as numerous studies have shown that millions of Americans are not financially prepared to retire.
If You Get Sick, Blame Yourself
As the pizza mogul Herman Cain told voters when he ran for as a Tea Party candidate for president, “If you don’t have a job and you’re not rich, blame yourself.”
Now, this can maxim also can be extended to healthcare. This means that the 130 million Americans with pre-existing conditions, and those without could face added payments of thousands of dollars for a variety of medical conditions.
How many Americans will this affect?
“We estimate that 27% of adult Americans under the age of 65 have health conditions that would likely leave them uninsurable if they applied for individual market coverage under pre-ACA underwriting practices that existed in nearly all states,” according to the Kaiser Family Foundation. Worse, in a separate poll, Kaiser found that 53% of those polled said report they or someone in their household has a pre-existing condition.
And while the current Trump-Republican proposal has yet to pass the Senate, it did not contain good news for older Americans, and the ones most coveted by financial planners. CNN Money found that enrollees in their 50s and early60s benefited from Obamacare “because insurers could only charge them three times more than younger policyholders. The bill would widen that band to five-to-one.
Costs of Pre-Existing Conditions Under Trumpcare (Source: Money Magazine)
|Condition||Surcharge as a share of standard premium||Surcharge in dollars|
|Lung, brain, and other severe cancers||1,790%||$72,980|
|Colorectal, breast, kidney, and other cancers||703%||$28,660|
|Diabetes without complication||137%||$5,600|
|Rheumatoid arthritis and specified autoimmune disorders||652%||$26,580|
|Major depressive and bipolar disorders||208%||$8,490|
“That would mean that adults ages 60 to 64 would see their annual premiums soar 22% to nearly $18,000, according to the Milliman study for the AARP. Those in their 50s would be hit with a 13% increase and pay an annual premium of $12,800.
“Also, the GOP bill doesn’t provide them with as generous tax credits as Obamacare. A 60-year-old making $40,000 would get only $4,000 from the Republican plan, instead of an average subsidy of $6,750 from the Affordable Care Act, according the Kaiser study. “
Watch Your Pension Evaporate, Too
Aside from health care, the next major safety net for older Americans that is being jeopardized is pensions.
The $3 trillion defined benefit pension fund market is endangered because many funds are not making the contributions to fund their workers’ plans. This deficit situation is not new, but changes in accounting rules and stock market gains that have failed to close the pension funding gap are going to make it easier in the next decade or so for corporations to terminate their pension plans.
To replace corporate pensions, employers will either make a lump-sum cash-out distribution to participants or buy annuities for plan participants, according to a report, DB Pensions and the Emergence of the Big Bang Theory, written by Richard McEvoy, a Mercer partner from the pension consultant Mercer.
“Over the next five- to ten-years, we expect to see a shakeout in the corporate pension market with substantial outflows to insurance and household balance sheets in the forms of annuities written by insurers and participants taking their DB benefit as a cash option,” McEvoy wrote. An estimated 30% to 40 of all pension plans now are frozen and that number is increasing, he said.
So, if you are an individual investor or financial planner looking toward the financial horizon a decade or longer into the future, get defensive. Or, you can get politically active. Expect the number of medical-related bankruptcies to increase, accompanied by more people who will be responsible for managing their money for decades to come, even after they retire.
Of course, the problems are that no one can predict their health or financial futures.
Or, calculate the odds of another financial recession or bubble.
No problem. The Republicans want to eliminate Dodd-Frank and the Department of Labor’s fiduciary standard. This means it is Dodge City for most Americans, at least in terms of our collective financial security. Watch your back and caveat emptor.