Over Half of Workers Would Have to Borrow Money to Pay for Unexpected Medical Costs
AFLAC has just published its fourth annual survey of employees and business leaders about health benefits. Overall, the responses show how poorly our system of prepaid healthcare (inaccurately labelled “health insurance”) protects workers from the costs of catastrophic illness. Highlights include:
- 53 percent of workers would have to borrow from their 401(k)s and/or use a credit card to cover costs associated with an unexpected serious illness or accident;
- 49 percent have less than $1,000 to pay for out of pocket expenses associated with a serious illness or accident, and 27 percent have less than $500;
- 42 percent say they are not at all or not very prepared to pay out-of-pocket expenses associated with a serious illness or injury.
ObamaCare is not solving these problems. Indeed, its only apparent effects are to generate confusion amongst employers and hurt their growth:
- Just 9 percent of employers feel extremely or very prepared to address changes in the healthcare system in 2014;
- Only 40 percent of companies say they understand healthcare reform extremely or very well, but that drops to 30 percent in companies with fewer than 100 employees;
- 14 percent switched employees from full time to part time in 2013, and 12 percent plan to do so in 2014.
“Overall, the responses show how poorly our system of pre-paid healthcare (inaccurately labelled “health insurance”) protects workers from the costs of catastrophic illness.”
While high deductibles and increasing health care costs are a factor, lack of savings is also a factor. People simply are saving less since the recession, leaving them vulnerable for unexpected costs.
This is where HSAs would play an important role in paying for unexpected medical costs.
The problem are that people do not prepare for future costs, because they do not have the disposable income to justify it. As we see more and more people that live paycheck to paycheck, increasing health care costs make treatment distant.
While it is true that people don’t save as much for future costs, rising health care prices and insurance plans aren’t doing individuals any favors. If costs weren’t so outrageous, paying for emergency care would not be such a daunting task for many individuals.
The survey shows how the majority of companies do not feel prepared for the health care reform changes. This does not bode well for many employers or their employees.
“Only 40 percent of companies say they understand healthcare reform extremely or very well, but that drops to 30 percent in companies with fewer than 100 employees;”
Employees cant possibly have much confidence in their employers if less than half understand health care reform well.
This could be why some employers are trying to give their employees the boot when it comes to benefits. If its too complicated and costly, firms see the next step as avoiding the problem altogether by letting their employees go to the exchanges.
There is effective pre-paid health care and ineffective pre-paid health care.
Health Matching Insurance uses pooling to provide a multiple of paid-up benefits each month.
This multiple grows to 3 at the end of 36 months, meaning a 300% return per month.
Premiums are forecasted through Milliman, a well-respected actuarial firm, to reduce 60-80% from the current premiums over time, and this includes medical trend.
Our application with the Texas Department of Insurance is expected to be approved so that we can solicit business in July
(of course, we have already solicited business in anticipation of a July approval).
Don Levit,CLU,ChFC
Principal of National Prosperity Life and Health
This is just stirring the pot unless it provides context. For example, how many people would have to borrow to meet catastrophic housing losses?
I’m betting a lot, as loans are one of the things that FEMA is supposed to provide. Does this mean that our entire insurance industry does a poor job of protecting homeowners?
Now that you’ve brought FEMA into it, you will give HHS the idea of lending people money to pay their medical bills!
Adding this post to your prior post about Obamacare as junk insurance, I at least come to the following condusion:
People who have low and irregular incomes should have low deductible health insurance.
Union organizers have known this for years,
Thank you but I disagree. Low incomes can be changed by subsidies, which can be done through a universal refundable tax credit. To what degree that tax credit is allocated to insurance premiums versus out-of-pocket costs is another question for another day.
I should add that in France, deductibles are next to zero for person with chronic diseases,
Im America we seem to use the patient as the kamilaze of cost control.
Whether it is medical costs of other potential expense challenges, the fact is most Americans are not prepared.
A 2010 Urban Institute study found that households with some savings (< $2,000) were significantly less likely (compared to those with no liquid assets) to face economic hardships – food, doctor visits, missed debt payments, utility shut offs, etc. No surprise there.
However, coming up with even small amounts of savings poses a challenge for many Americans – According to a FINRA 2012 study, about 40% confirm they could not could not come up with $2,000 in 30 days to deal with an financial emergency.
Some time ago, the Urban Institute did a study that confirmed those surveyed had up to 6 modest, unexpected financial shocks of up to $500 a year (sorry, I was not able to identify the specific study).
The problem is one of disposable income. It is one reason why so many Americans feel the need to be overinsured – why they often will reject the choice of a HSA-capable HDHP, in favor of a more traditional PPO or HMO, even though, they would be financially better off, over time, by accumulating assets in a HSA. Many can't get over the short term risk …
So, back in the day when I was in the plan sponsor role, we added an employer-provided, no interest, short term loan for those who selected the HSA-qualifying HDHP, but who were called upon to satisfy the deductible in the 1st five months of coverage (before they might reasonably accumulate enough HSA funds to finance the deductible).
Unless and until some personal responsibility and accountability is introduced into health care design (versus no cost sharing contraceptive Rx, etc.), we will not "bend the trend". That is, so long as Americans continue to demand politicians provide access to "the best coverage YOUR money will buy", we will not be financially capable of meeting everyone's health benefit wants.
The bottom line here, is that we should ensure that the 401(k) and the HSA can be integrated (like a defined benefit pension plan and a 401(h) account) – so that individuals can access those monies when needed – without limitation to expenses Congress had in mind (college education, medical expenses, home mortgage, etc.). Simply, people should be able to accumulate, borrow to meet the current need, repay the loan (while continuing to accumulate assets) to rebuild the account so that it is available to meet a larger, future need – such as post-employment income replacement, and retiree medical.
I've designed such programs … let me know if you would like to discuss.
I would also like to see savings for all purposes integrated to some degree. That is, we now have an alphabet soup of vehicles: 401(k), IRA, HSA, college-savings plans, etc. It would take a big lift to cohere them, likely as a part of personal income-tax reform.
Also, getting people to save money for the future is really difficult. I wonder if it goes against our evolutionary history? I mean, for most of human history, the question was irrelevant, so perhaps our brains are not evolved to do this functions very well?
Good points, Jack.
I would add the following:
a. Darn few Americans are overinsured any more. Higher deductibles are true at most workplaces, and in virtually all individual plans (including most plans on the ACA exchanges.)
b. The low interest employer loan is a great idea.
However, very few employers are so generous. And in the individual market, there is no employer. People turn to credit cards to pay off deductibles, and it is not pretty.
c. The lack of savings for 40% of households is probably a combination of low wages for some, and bad behavior for others.
In some cases, the health insurance premium itself eats into savings. Before I got onto Medicare, I had to pay $600 a month for a lousy high deductible plan.
That is (or was) a fact of life in the individual market.
I was lucky enough not to get sick, but I do know that the $7200 a year in premiums made it hard for me to save money.
Thank you. With respect to the question of “overinsurance” I agree with you in a crude sense. As you noted in a previous post, chronically ill patients in France often have no direct cost-sharing.
HSAs and consumer-driven health care have positive effects, but we still have to move beyond the deductible as an annual event. Or co-pays and co-insurance as fixed dollar or percentage amounts. (In some cases, insurers have started to move beyond this.)
Optimal cost sharing would be based on the patient’s condition, not the revolution of the Earth around the Sun.
This can’t really happen as long as insurers are motivated to shun the sick and attract the healthy. What we propose as a solution is health-status insurance, written about often in this blog.
Heck, I’m in a situation where I will end up having to take out a loan to pay for Obama care by the end of the year.