The Role of Health Coverage in Financial Wellness
Without making some changes to the existing American health care system, your clients will continue to have one more obstacle between them and their financial goals.
Hi there Talking About Money Community, how are you? No really, how are you?
In this post I want to ruminate on the intersection between health care costs and financial capability. If I could be a fly on the wall during your sessions with clients, I think that I would see that at least part of the time you talk about the three tactics that you can take to improve your cash flow (say it with me now):
Increase your income
Decrease your expenses
Do both
And while for some of your clients this will help to improve their financial standing – and maybe even generate enough cash to start saving in an emergency fund – what happens when that client gets sick or injured? You may then ask three other questions:
Do you have access to health care?
Do you have health insurance?
Do you have enough health insurance to cover this medical event?
You may find from talking to your clients, reviewing their monthly cash flow, and looking at their credit reports that many of them have already had a medical event that set them back financially. And they are not alone.
The country is once again pondering whether or not the Affordable Care Act should be the law of the land. Some people believe that health care is a human right, and that the ACA furthers that goal. It’s not perfect, but it is better than a free market system of health insurance that prevents some from getting coverage.
Others believe that it is unfair to force people to pay for something that they do not want (aka the “individual mandate”).
Here’s the rub: Who does not want to be healthy? Who wants to face their days without knowing if how they are feeling (physically, mentally) is normal or not? I am just one person, but that seems like a scary proposition to me.
Walk with me down memory lane to a scene from Kimberly’s earlier life, at the tender age of 24: That summer I went three months without health insurance. I had just left a job with employer-sponsored coverage, was waitressing for the summer to pay the bills, and in the fall was going to attend grad school where I would get student health coverage. At the time my mom was worried (and this woman loves to worry). “What if you get hit by a car?” she asked me again and again.
“I won’t,” I replied casually. “And anyway, I don’t make enough money right now to pay my rent and pay for health insurance.”
I reasoned that I would do without until I could get affordable coverage at the university. Luckily, I did not get hit by a car that summer. But this memory reminded me that when you hear that mandated health care is bad because it “impedes someone’s personal freedom,” what the subtext might be is that mandated health care is bad because it is too expensive for someone who is waiting tables to pay the rent.
Let’s turn to how the health insurance system directly impacts your clients’ ability to reach their financial goals, and what might be done about it.
First, why do people not have health insurance?
There are certainly non-financial reasons why people do not have health insurance, but all-in-all cost seems to be the primary reason why people forego health coverage. In a 2019 article published by the Kaiser Family Foundation, premiums for households above 400% Federal Poverty Line (that’s $48,560 for an individual and $100,400 for a family of four) were deemed too expensive because at this income level, households are eligible for neither premium subsidies nor premium tax credits.
In another 2019 Kaiser Family Foundation article it lists the primary reasons cited by people (like your clients) are without health insurance:
You lost your employer-sponsored health insurance or you changed jobs to a position that did not offer health insurance (like me during the summer that I was 24)
You made a little bit too much money and lost your Medicaid coverage
You lost your health insurance because you a) got divorced and your former spouse held the health insurance, b) the family member who held the health insurance died, or c) you are a young adult and no longer eligible to receive insurance through your parents
Second, what happens when you don’t have health insurance (or enough health insurance) to pay your medical bills?
According to Kaiser, in 2018:
30% of uninsured nonelderly adults said they were paying off at least one medical bill over time
18% had medical debt in collections, with a median debt of $681.53
43% said they had problems paying household medical bills in the past year
How are you supposed to pursue your path to financial capability – like save for a down payment on a home, or put money aside for your children’s college – with this drag on your cash flow and these black marks on your credit report?
The global pandemic has only added fuel to the fire of a broken health care system. In a September 18, 2020, article in USA Today, it reported that in August, consumer finance company Credit Karma conducted an analysis of nearly 20 million members in the U.S. and found that they have a total of $45 billion of medical debt in collections, which averages to about $2,200 of debt per member (emphasis mine). And this is only expected to get worse in 2021, as medical debt has a 180-day lag before it is registered on a credit report. In short, unpaid debt in the fall of 2020 will not start showing up on credit reports until the spring of 2021.
Even before the pandemic (and after the introduction of the Affordable Care Act), medical debt was the leading cause of bankruptcy in the United States. A February 2019 study from the American Journal of Public Health found that 66.5% of all bankruptcies were tied to medical issues —either because of high costs for care or time out of work. So while the Affordable Care Act has improved accessed to health care, it has not provided a level of coverage adequate to keep what some estimate to be around 500,000 households each year from applying for medical bill-related bankruptcy.
Third, what should be done to provide your clients with health insurance coverage adequate to allow them to pay premiums while pursuing their financial goals?
We are living through a global pandemic (as if you didn’t know). Many of your clients are being impacted by it through either a) getting sick or having someone close to them get sick, b) losing their job and possibly their employer-sponsored health insurance, or c) both.
So how should the health insurance system be improved for you clients? An August 2020 repost from the Commonweath Fund suggests the following options:
Expand Medicaid in the 12 states that don’t have it (or provide a federal fallback option for people in those states)
Enhance and extend ACA marketplace premium and cost-sharing subsidies
Allow more people with unaffordable employer plans to purchase subsidized coverage through marketplaces (or through public plan)
Increase outreach and enrollment efforts on coverage options (especially for those who lose employer coverage)
Ban non-ACA-compliant plans (like short-term policies) that leave people exposed to catastrophic health care costs
Develop an auto-enrollment mechanism that will enable people to enroll and stay enrolled in comprehensive coverage
Maybe you believe that improvements to the existing Affordable Care Act are the way to go. To others, this amounts to nibbling around the edges and does not provide the comprehensive change that Medicare for All would provide:
Access to all needed services and benefits while protecting individuals from excessive financial hardships (like bankruptcy)
Financing the health care system by making one entity (most likely, but not necessarily, the government) solely and exclusively responsible for paying for medical goods and services
Elimination of all private insurance and provision of a very generous benefit package while limited, if any, out-of-pocket costs
At the end of the day, your clients deserve to not have their financial goals sidelined by an illness or injury. I do not believe that anyone should go broke paying for health care after surviving a medical emergency, nor do I believe that anyone should have their financial goals held back by having to pay exorbitant monthly premiums and annual deductibles.