Which is worse: Loss of income or health care?
CHUCK JAFFE
The Supreme Court decision Thursday to uphold most of the Affordable Care Act probably shouldn’t change the answer to a financial question most people never have asked themselves in today’s uncertain economic times:
“Which would be worse, the loss of my income, or the loss of my health care coverage?”
It’s a tough question to answer, because income is obviously more important on a day-to-day basis, but the lack of medical care takes precedence in the event of a critical illness.
While the Supreme Court’s decision mandates health coverage for all down the line in 2014 – and requires taxpayers to pony up for care or face fines for a lack of coverage – there’s a long road ahead from now until then. It’s too early to assume that the health care provisions will take effect as written.
Meanwhile, Americans are looking at a high unemployment rate, a real concern about the loss of income and the problems that could be caused if their health insurance lapses.
Financial advisers say that everyone should evaluate the question and consider how it plays out in their lives, then decide whether they are adequately protected.
Too often, according to advisers, consumers simply let the situation play out, and try to do their best to stay within the lines, rather than going in the direction that serves them best.
“In our experience one of the most common things we hear is ‘I cannot consider retirement before age 65 because of health insurance (Medicare),’” said Dan Dorval of Dorval & Chorne Financial Advisors in Otsego, Minn. “Instead of focusing on their financial ability to meet their own unique goals, people become conditioned to receive certain benefits without having to pay the full cost for them.
“Health insurance is one of the most significant, where many people have always had coverage through their employer and cannot envision a time when they might have to pay for coverage on their own,” he added. “They have been conditioned to assume their only option is to transition directly from employer-provided coverage into government-provided coverage in the form of Medicare. When we explain to them that they can purchase coverage on their own, they look at us like we are speaking a foreign language.”
One reason for that is that health care coverage is not cheap.
While the new law will make health coverage available to all, it won’t necessarily make it dramatically less expensive. Insurers will now have to make coverage available to people with pre-existing conditions who might not have qualified in the past; in being forced to issue those kinds of policies, expect insurers to raise costs across the board. The insurance exchanges coming in 2014 will help, but the only way there will be bargain-priced health insurance is if it comes stripped down, with significant limits and endless disclosures so that consumers are aware of the inadequacies they could face.
Further, the Supreme Court ruling kind of gave consumers a price point for making a decision, where they can decide if they are better off paying the fine that comes from being uninsured or paying health care premiums.
An analysis by the Kaiser Family Foundation says that by 2016, the penalty for an individual adult will be $695, and up to $2,085 or 2.5 percent of total income for a family. Someone who is willing to take the risk that they can avoid serious medical problems will weigh those costs against health care premiums.
It’s the wrong decision – they will be better off applying the money to insurance and having the protection – but it’s one that cash-strapped consumers are going to make.
Herb Daroff of BayState Financial in Boston, made it clear that most people should consider what they would do in each case, loss of income or loss of health care.
He acknowledged that the choices being faced are “not overly popular.”
Against loss of income, the options run from tapping real estate equity to moving in with other family members. Your hedge against the loss of health care or the need for custodial care might again be working something out with the family, Daroff said, but once that option runs out, their assets and home are at risk every bit as much – and possibly more – than with a loss of income.
For anyone who looks at the economy and sees high unemployment, changing technologies that are shifting and changing the job picture and health care costs that are rising – whether it’s premiums or actual service costs – trying to figure out just how bad things could get with a loss of income or health coverage is a challenging, unpleasant, but necessary exercise.
What you will hear coming out of the high court’s decision is that, come 2014, consumers should focus on making decisions among the options that will be available.
The reality is that consumers should always be looking to make that decision, and should not wait until 2014 to do it unless they have some sort of guarantee that they will have health coverage that long.
What’s more, too many people believe that the goal is to maximize the public assistance they receive, rather than protecting what they have or enjoying a longer retirement if they can afford it.
If maximizing the benefit means losing assets – as if often the case with Medicaid, where a lifetime’s worth of assets can be exhausted – then capturing the supposed freebies comes with too great a cost.
Likewise, employees should be figuring how long they want to work not so much by when their Social Security maxes out or other benefits kick in, but by when they are comfortable that their lifestyle is not in jeopardy.
Ask anyone who is unemployed or uninsured – or even simply underinsured – and they will tell you that nothing – not even public assistance – completely takes away the sting of a loss of income or a loss of health coverage.
That didn’t change with the Supreme Court ruling or the new health care laws, and consumers would be wise in this economy to consider what they would do if ever they were to become one of the statistics and faces of the problems.
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at cjaffe@marketwatch.com or at PO Box 70, Cohasset, MA 02025-0070.
