Approximately 60 percent of the personal bankruptcies in the U.S. are due to medical bills that have exceeded the amount that families can pay. A majority of those filing for bankruptcy had some form of health insurance coverage, but it did not cover sufficient costs to prevent bankruptcy. There has been a 50 percent increase in personal bankruptcies during the past six years, according to researchers at Harvard University.
While this is the largest bankruptcy risk that many people face, too often financial advisors are not as proactive as they could be in seeking to create awareness of this risk and recommending steps that address it. Even if you do not sell health insurance coverage, this has a huge impact on estates, and must be an important consideration for savings and retirement plans. The latest forecast is that 17.6 percent of gross domestic product (GDP) will be spent on health care in 2009. Every dollar going toward health care is one less dollar that can be saved or invested.
Though the U.S. health care system is very complex and there is no easy solution to the current debate in Washington, D.C., it is very important to closely look at the vision for the future. To showcase some of these ideas, the Health Section of the Society of Actuaries (SOA) issued a call for essays on "Visions for the Future of the U.S. Health Care System."
The SOA's call for essays elicited a strong response in terms of the diversity of opinions from both actuaries and other professionals in the health care industry. The invitation to submit 1,500-word essays went out to members of the SOA Health Section; SOA Long-Term Care Insurance Section; DMAA's Care Continuum Alliance; American Society of Health Economists; and American Society for Health Care Risk Management.
Twenty-nine of these essays were published in an e-book, which can be found on the SOA's Web site at www.soa.org/healthessays
John I. Mange, FSA, MAAA, who won first prize for his essay, "Prepaid Medical Care and Medical Insurance," asserted that we need to philosophically and legally differentiate between prepaid medical care and pure medical insurance. By doing so, Mange said we can align incentives to introduce more individual accountability and gain efficiencies.
Second prize went to Ian Duncan, FSA, FIA, FCIA, MAAA, who authored "Harnessing the Forces of Markets and Innovation." This essay discusses the need to remove barriers within the health care industry that impede productivity gains, provider and patient decision-making, effective long-term funding and innovation.
Jonathan Shreve, FSA, MAAA, wrote the essay, "Change the Expectations in Health Care," which took third prize. He urges to first change our expectations in terms of individual responsibility to have insurance coverage and provider responsibility for quality outcomes. Reinforcing these expectations with appropriate financial incentives and policies is the next step.
Even if you do not sell health insurance, there are several important tips to offer to your clients. Some of these suggestions are contained in the Managing Post-Retirement Risks chart produced by the SOA's Committee on Post-Retirement Needs and Risks, which you can find here: http://www.soa.org/files/pdf/post-retirement-charts.pdf
1. Make sure that your clients are aware of the extensive resources that could be used in retirement to cover health care. This will dramatically impact their target amount of funds needed to be saved for unexpected heath care needs.
A new Employee Benefit Research Institute report looks at how much money people will need to cover health care expenses in their retirement. This should be a matter of interest to millions of baby boomers moving steadily closer to retirement age.
The estimates published are sobering: If you're 55 years old today and you expect to retire in 2018 and don't have retiree health coverage through your workplace (as most people don't), you'll need the following funds:
- $132,000.00-$266,000.00 for men
- $181,000.00-$308,000.00 for women
- $325,000.00-$511,000.00 for married couples
This doesn't even include the cost of care in assisted living centers or nursing homes for the frail elderly, a cost that Medicare and most traditional health insurance policies don't cover. The reason why the range is so large is that it's difficult to predict how long you'll live, the state of your health as you age, how quickly health care costs will escalate and what will happen to Medicare.
2. Insist that your clients know what health coverage will provide, and which items are covered and are not covered. Too often, that is the last thought on someone's mind as they are being treated for a health issue, but different approaches to the treatment can result in different levels of payment from the health insurer.
3. Encourage your clients to consider a phased retirement as they reach retirement age, which is an option that is increasingly offered. Instead of retiring from a job and losing health benefits, employees may choose to keep working, at least part-time, in a job that will allow them to remain covered.
4. Anytime clients find themselves in a temporary situation without employment, encourage them to carefully consider their health benefits. They need to carefully review the COBRA option, which provides certain former employees the right to temporarily continue health coverage. On average, the full amount of the COBRA premium for a family, which is approximately$1,069.00 monthly, will quickly eat away savings; however, the American Recovery and Reinvestment Act of 2009 expanded eligibility for COBRA and provides many people with a 65 percent reduction in COBRA premiums.
5. You must strongly encourage your clients to know their options for long term care coverage. Nearly 10 million people need long term care, which is essentially help in dealing with activities of daily living. Most people who need such care are age 65 or older, but 37 percent are less than 65. The risk of needing long term care does rise steeply with age. A study performed by the Health Policy Institute of Georgetown University showed that among people 65 or older, 14 percent need long term care, in contrast to 1.4 percent of people less than age 65. Among people age 85 and older, nearly half need some long term care.
6. Partner with an expert in health insurance coverage. Know where to direct your clients who have health needs that you cannot fully serve. Make sure you know the various types of health coverages that are available for individual coverage from health insurers. There are now health insurance Web sites that allow you to compare plans and see which ones are right for your clients, in regards to coverage and price. Short-term options are also becoming more readily available.
7. It's never too late for individuals to reduce their risk of major health problems with lifestyle changes involving diet, exercise and smoking. Showing concern for your clients' lifestyle shows that you care about their quality of life.
Changing the U.S. health care system is a daunting and complex task; however, you can start the process of change by acting as a personal risk manager with one of the largest risks that your clients face. They need to be fully informed about their risks and ensure that they are aware of the options available to them today. The steps to create less strain on the health care system often start with personal decisions, and financial advisors always play an important role.