Earlier this year I wrote a couple of articles about the state of health care in the U.S. They generated a lot of responses — so many, in fact, that it took me over a day to read them all.
Somewhat to my surprise, the clear majority of the responses went something like this:
The U.S. health care and health insurance systems have serious problems at many levels. The problem needs to be addressed holistically, not piecemeal. No matter what one thinks of Obamacare, it would be wrong to undo it without a fully worked-out replacement.
Well, we’ve seen nine months of attempts to do just that. And all have failed — because it was clear to a majority of the U.S. Senate that they didn’t actually solve any problems, much less do so holistically.
So, we are back to the piecemeal approach, as embodied by President Donald Trump’s executive order to cut $7 billion in cost-sharing payments to insurance companies participating in the Obamacare system.
If there’s still time in your financial life, you need to start thinking of an alternative … and I know just the thing.
The $7 billion in question are the payments the government makes to health insurance companies to offset the discounts on copayments that low-income consumers have received under Obamacare.
White House Press Secretary Sarah Huckabee Sanders said: “The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system.”
There’s just one problem: The money wasn’t a subsidy to insurance companies.
It was a subsidy to low-income Americans … nearly 6 million of them, or 57% of the people who get their insurance via Obamacare.
The insurance companies are simply a passthrough for the money that Trump has cut off. The money just compensates the companies for reducing high copays and deductibles for families unable to afford them. It’s not a source of additional profit for insurers.
By ending the payments, the administration has ensured that many Americans will see their premiums skyrocket. 20% to 25% is the figure being bandied about.
Unfortunately for many insurance companies, their rates for 2018 are already set. They can’t change them. They’ll just have to eat the losses … or become stingier about what treatments they’ll pay for.
But they have other options, too.
All of Us in the Crosshairs
Two groups of people that are especially vulnerable to the Trump action on the payments: Early retirees who aren’t yet eligible for Medicare and self-employed people. Those are the two groups most vulnerable to changes in the individual insurance marketplace.
That’s because, without the funding, insurance plans will flee individual insurance exchanges in droves. That will force early retirees — and anyone else without employer-provided health coverage but an income higher than the premium subsidy cutoff — to pay full unsubsidized rates for insurance directly from the insurance companies. The same goes for copays and deductibles, which will soar.
But there will be an impact on the rest of us too … including those of us who get our insurance from our employers. Here’s how and why…
As I’ve noted, Trump’s withdrawal of the payments will force the insurance companies to eat those costs in 2018. They’ll have to make up for that loss somewhere.
They’ll do so by raising the premiums the rest of us pay, spreading out the losses across all their plans. But there’s more.
In addition to the payment cuts, the president also signed an executive order calling for new regulations to encourage cheap, loosely regulated health plans. Once those are up and running, millions of younger people will move to them.
That will leave existing insurers with a smaller pool of riskier people to insure. Elementary insurance theory tells us this will result in even more premium increases.
To make matters worse, Trump’s move will actually cost the federal government an estimated $7.2 billion next year because it will have to shell out more in premium subsidies to cover these higher rates.
Individuals with annual incomes between $12,000 to $48,000 qualify for subsidies that offset the cost of their monthly insurance premiums. Trump’s action doesn’t touch that, so those subsidy payments will have to go up to cover higher premium costs.
Over 10 years, the additional cost would be almost $200 billion. So, there will be no budgetary savings at all … the opposite, in fact.
Playing Politics With Your Health Care
The president and other administration officials have described Trump’s move as a way to put pressure on Congress to come up with a bipartisan fix. It’s unlikely that Trump would have done this if he thought he couldn’t get Congress to agree on an alternative fix — and fast.
Under these circumstances, if you still have time to put aside money for your retirement health care needs, you need to find out as much as you can about what I call the “(H)IRA” as soon as possible. It’s a special trick that can save you current tax, ensure your health care and help you have more to spend in retirement.
Because I have a powerful feeling you’re going to need all the help you can get.
Editor, The Bauman Letter
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