Most Americans are in the dark when it comes to understanding the true cost of health care. A collision between demographics, technology, and the Affordable Care Act (ACA) is a jarring trifecta that will impact multiple generations.
The ACA, Obamacare, mandates multiple “free” benefits, the cost for which is spread over all policyholders even if they do not want or use the benefits. By standardizing plans, prices go up for many to subsidize others, and choices are limited. Even the “lowest cost” bronze plan passes 40% of the cost to the beneficiary. Generations X, Y, and younger baby boomers will have to factor potentially higher health care costs into their plans for saving for everything else, including educations for children and retirement. Employers, public and private, are cutting contributions to health plans or dumping the whole thing on the government, i.e., taxpayers.
Upper income earners in 2013 were socked with five major tax increases including a 0.9% increase in Medicare taxes and a 3.8% levy to net investment income. Some in Congress are demanding additional tax increases. Financial advisors need to be adroit tax planners as well as health care experts, or have expertise on their team.
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Demographics and technology are accelerating the coming squeeze. Technology extends life spans while adding to costs of treatment. As the ACA narrows choices, private pay options will grow, soaking up more savings dollars that individuals thought would be available to fund fun stuff like travel, new cars, and an idyllic retirement.
The oldest baby boomers turn 68 in 2014. Many boomers have had their retirement savings eroded, having stepped up to care for aging parents. Behind the boomers is a “birth dearth.” The boomer generation numbered between 77 and 80 million; Generation X, those born between 1965-1980, number only 46 million. The oldest Gen Xer turns 49 in 2014 and already some are getting a wake up call.
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AARP Public Policy Institute recently published a white paper, The Aging of the Baby Boom and the Growing Care Gap: A Look at Future Declines in the Availability of Family Caregivers. The birth dearth means less caregivers available to aid and support aging parents or other impaired loved ones. Noted the report, “In 2010, the caregiver support ratio was more than 7 potential caregivers for every person in the high-risk years of 80-plus. By 2030, the ratio is projected to decline sharply to 4 to 1. It is expected to further fall to less than 3 to 1 in 2050, when all boomers will be in the high-risk years of late life.”
Many boomers assume that they can sell their toys, vacation homes, or even closely-held businesses, to fund retirement and aging needs. Perhaps, not so much. With less buyers coming up behind them, prices may fall, eroding capital available for fun in the sun or the nursing home.
People are shocked to learn that Medicare covers very little when it comes to long-term care (LTC). Medicaid supports only the impoverished. The ACA has reduced funding to Medicare and does nothing about LTC. The cost for LTC insurance is rising. Gender-based premiums have increased the costs for females who are more likely to use benefits than males. Many insurance companies have exited the LTC business while premiums on in-force policies have been raised, in some cases as much as 70%.
Eight of ten men leave the planet before their wives. She cares for him. Who cares for her? Without planning, the kids! And there will be less “kids” to shoulder the burden.
Many doctors refuse to take new Medicare or Medicaid patients. Concierge medicine is on the increase even as the ACA narrows choices. Choice and quality will cost more money. Plan on it.
Retirement planning is also healthcare planning. Happy couples on cruise ships will be replaced by a daughter who had to take off work to push mom in a wheel chair to her doctor appointments. Are clients ready for the new reality? Are you?
Lewis Walker is President of Walker Capital Management LLC. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies. ▪ 3930 East Jones Bridge Road ▪ Suite 150 ▪ Peachtree Corners, GA 30092 ▪ 770-441-2603 ▪ lewisw@theinvestmentcoach.com