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Retirement Planning: The Health Insurance Component April 21, 2009

Posted by retirementwithaplan in retirement.
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The narrative, which on numerous occasions I have suggested you avoid, cannot be overlooked when it comes to the discussion of health insurance. The narrative is the sensationalizing of individual experiences in a certain situation. The media, for example finds someone who has faced a greater-than-the-norm financial tragedy and tells their story to their viewers. It’s the news and we watch and wonder if that could ever be us. The stories tear at a basic emotion and makes us wonder “what if”.

042109_ins_img_2009That is a healthy discussion to have even if you are covered through your workplace or purchase it from a private insurer, on your own or otherwise. The costs have continued to rise for these insurers even as they siphon off only the best, charging exorbitant premiums for those most likely to use the system more often than they deem cost-worthy.

Although the insurance lobby, American Health Insurance Plans denies this adamantly, its president, who is also the CEO of HealthNet is guilty of exactly these types of practices. Jay Gelbert’s company has paid hundreds of millions of dollars in damage to clients who were treated poorly by offering employees rewards for dropping all but the most insurable from the roles.

The ranks of the unemployed has risen and fortunately at a much slower rate, so has the rate of the uninsured. The American Recovery and Reinvestment Act of 2009 offers those that are unemployed a 65% premium on the cost of continuing their health coverage through COBRA. The Department of Labor defines the Consolidated Omnibus Budget Reconciliation Act (COBRA) which “gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.” Keep in mind that these premiums, even with the help you might receive, are still high and force the unemployed worker to choose between continued coverage and other basic human necessities.

Yet, one uninsured American is still too many. The argument against a broad based, government sponsored health coverage runs the gamut from forcing out competition to ruining the ability of the market forces to take control and eventually dole at the best care at the best cost. But this market-based coverage has fallen short. Once a patient has lost coverage and possibly exhausted or could not afford COBRA extensions, the chances of re-enrolling in a private plan fall to near zero. This is not an efficient market but instead an efficient business model. The pricing that accompanies pre-existing conditions, many of which exists in often the slightest of forms once a patient reaches middle age, is calculated as a risk not worth assuming.

That assumption of risk, even as few as the private sector want to take, will still cost workers in employer based plans in excess of $1,000 a month. That cost can increase by fifty percent for those that are forced to buy insurance outside of a group plan. The question is: can private compete with a Medicare type plan that embraces all comers as equally eligible?

The simple answer is no. In many instances, private insurance cannot offer the same blanket of protection nor do they want to. To offer the no-compete argument is valid when it comes to comparing the two. Private insurance is focused on a profit;the government plans is focused on driving costs down and efficiency up by broadening the base of users, not culling the best ones from the persons most likely to use the system for their care.

The biggest fear the private insurers have is the price. The government will enter the marketplace, and if the current administration’s efforts are any example, it will be staffed with knowledgeable people who understand that care is more than an actuarial target. Offering urgent and well-care coverage will free up the stresses placed on emergency rooms. The lower costs for this kind of care will enable people who can ill-afford to continue with their medicinal regimes, and thus complicating the emergency room problem, and will allow greater treatment in a more timely manner. The current market place coverage forces the least insurable to the government for help.

Will the ranks of Medicare type insurance swell? Of course they will. But will the patients looking for coverage be all on the verge of catastrophic illness, further burdening the cost of coverage? Probably not. In fact, should a Medicare type plan enter the marketplace, the shift to enroll in a much better priced (and this is what competition is about) will be seismic.

And why would private health insurers complain about improvements in a system that spends $480 billion more than similarly developed countries? According an OECD survey of the top thirty nations, spending on health insurance has risen to 15.6% of Gross Domestic Product while at the same time, life expectancy has increased along with infant mortality. The 5% yearly increases in the cost of coverage (46% of the care in the US is government funded – compared with 73% in OECD countries) with fewer physicians per capita (2.7 per 1000 compared to an average of 31.% per thousand in other developed countries) and less acute hospital beds available (2.7 in the US compared to a global average among the top thirty nations of 3.9%).

This shift from complete coverage is a direct result of the private sector, which in the US offers the largest share of coverage among these nations (36%). These costs all trickle back into the taxpayers hands, exposing the weaknesses in the current system.

High health insurance costs remove potential investment dollars in any retirement plan, further jeopardize efforts by Americans to financially prosper and force citizens to make difficult choices in who should be covered and when. If this is allowed to continue unabated, we will never be able to make the strides this country needs to make in order to return its citizens to financial solvency.



1. Bobby - October 11, 2009

Thank you for your insight. Alas, the healthcare debate rages on. The divide between those who want the goverment to take over healthcare and those who insist it would be better left to the private sector is only getting bigger and more contentious. Can the private sector be trusted after all the greed and corruption of late? Can the government be trusted for the same reasons? This country and this administration has a big job ahead of it to try to come up with a working solution. Thank you again for your input. It is definately something to think about.

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