Tuesday, August 30, 2016

The Healthcare Monsters

Economy and Markets

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ECONOMY & MARKETS | August 30, 2016

Killing Us with Healthcare

By Rodney Johnson, Senior Editor, Economy & Markets

EditorI've never heard anyone brag about what they spend for a medical procedure. Healthcare isn't like housing or transportation. People are proud to shell out big bucks for a big house, and many drivers can't wait to show off their expensive set of wheels.

But when it comes to healthcare, we're only smiling when we save money, not spend it, which makes the current trend so much more difficult.

While government officials point to slower price increases and bray on about bending the healthcare cost curve, everyday people are watching more of their hard-earned dollars fly out the door to pay for care. Even though overall costs might be rising at a slower pace, the amount consumers have to pay is shooting to the moon.

And the pain doesn't stop at the door to retirement. As the healthcare monster devours more dollars, we have less money to spend where we want, which adds to the misery in our economy, and will eventually add to a nasty financial setback.

Middle-income households now spend more on healthcare than any other cost outside of shelter. This part of their budget jumped more than 3% from 1984 to 2014, and now eats up 8.9% of their funds.

Most of the increase occurred in the last 10 years, as healthcare spending rose 25% from 2007 to 2014. As these families spent more on doctors and prescriptions, they spent less on food, housing, clothing, and transportation.

Keep in mind that this calculation ends just as the ironically named Affordable Care Act went into action. Since 2014 things have gotten much worse, not better.

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Consumers who purchase insurance on the healthcare exchanges know about rising prices all too well. Premiums have increased by double digits every year for most buyers, and in 2017 prices will shoot higher by almost 30%.

In just a few short years, premium prices are up 50%, and that's just for the privilege of buying insurance. Sure, there are subsidies out there for almost 90% of buyers, but that covers just the premium cost. Once you have insurance, there's the small matter of the deductible.

Insurers have reconfigured policies to include higher deductibles to keep premium prices lower than they would have been. That's nice in theory, but with premiums up by double digits each year, tacking several thousand dollars onto the deductible just adds insult to injury.

Deductibles of $5,000 and $6,850, on top of $1,000-per-month premiums, are common. This is also where workers who get their insurance through their employers are feeling the heat.

Firms still pay roughly 80% of insurance premiums for employees, but the plans are less generous, requiring more deductible payments. The effect, while not as pronounced, is the same. Consumers have less cash to spend on what they want.

For retirees, the math gets more complicated.

The government deducts Medicare Part B payments from Social Security checks. This year, the price of Medicare Part B is expected to climb more than 20%, or about $27 per month. But inflation has remained tame, so the Social Security Cost-of-Living Adjustment (COLA) could be as small as 0.2%, or even flat. For those receiving the average benefit of $1,335 per month, this equates to less than $3 per month. The increase in Medicare Part B will eat up all of that gain and then some.

Recent retirees might get some relief. If they earn less than average income, then the Hold Harmless Act would shield those who retired in the last year from a Medicare cost increase that would reduce their benefits below the prior year's level.

Unfortunately, this only works once, and then the recipients must eat the cost. The price of Medicare Part B jumped 16.1% last year, so those who were able to avoid that price hike now have to pony up.

To make it even more of a puzzle, if the COLA ends up at 0%, then the Hold Harmless Act doesn't apply, and all Social Security recipients will get hit with the full cost increase, thereby lowering their incomes.

The end result is that most everyone in America is paying significantly more for healthcare, either through premiums, deductibles, or a combination of the two. This leaves us with less money to spend on what we want. It's harder for young families to afford having children or buying homes, while retirees can't spend as much on maintaining their lifestyles. For those in the middle, saving for retirement and education is difficult.

The problem with healthcare is that it doesn't fade with an economic downturn. When our economy resets and financial assets drop, healthcare costs will remain high, eating up more of our falling incomes, and creating a further drag on the economy.

And it doesn't stop with consumers…

The premium subsidies for the health exchanges, and the makeup payments for the Hold Harmless Act, come from somewhere. Or, more to the point, from someone. That lucky person is the U.S. taxpayer, who is on the hook for ever-rising healthcare costs as the government declares bigger sections of the population eligible for assistance.

As equity markets reach new highs and consumer misery plumbs new depths, something's got to give.

Don't be left holding the bag when the markets roll over. Make sure you have enough left in your pocket to pay for your premiums… and your deductible.


Follow me on Twitter @RJHSDent

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