How the Republicans Are Paving the Way For Single Payer Health Insurance

The proposed tax legislation sponsored by the Republicans in Congress and the Trump Administration would repeal the individual mandate in Obamacare.  This mandate, which requires all uninsured Americans to either buy health insurance or pay a penalty through their tax returns, is much detested by the political right.  But it is based on a sound principle of insurance.  Insurance works best when a large group of people work together to pool their risks.  Mandatory insurance on all registered vehicles is a good example of how an intelligent insurance systems works.  If the Republicans repeal the Obamacare individual mandate, then the private health insurance market for individual coverage will be severely distorted.  The healthy won't buy coverage until they get sick or are injured.  Since Obamacare forbids insurers from excluding prior medical conditions, people can game the system by not paying for insurance until they need a lot of health care.  Then they buy coverage and pay premiums that total only a smidgen of the actual cost of their care, while shifting most of their costs onto others.  Insurers would have to push up rates sharply and a lot more people would drop coverage--until they need a lot of healthcare, at which time they would game the system by buying health insurance.  The market for private individual health insurance would die.  Then, really large numbers of people would be uninsured.

Senator Susan Collins from Maine has tried to negotiate promises from Republican leaders in Congress and the Trump Administration for alternative funding for health insurance that would supposedly stabilize that market.  But with all the secret, back-room, opaque maneuvering and sneaky, swampy pork barreling that has gone on into putting together the proposed tax bill, one wonders how Senator Collins can be so sure these promises will be kept.  She has no meaningful recourse if they aren't.  Given how the proposed legislation is primarily a monumental looting of the U.S. Treasure by the rich and by large corporations falsely depicted as tax "reform" for the middle class, how can Senator Collins believe there is any good faith at all on the part of the Republican leadership?

The Republican destruction of the market for private individual insurance will pave the way for the expansion of Medicare to cover uninsured individuals.  Politically speaking, it is no longer acceptable to throw these people into the gutter.  Even President Trump recognized this when he promised that there would be insurance for everybody notwithstanding his efforts to repeal Obamacare.  But the underhanded tax law repeal of a health insurance measure--the individual mandate--vividly illustrates the difficulties of trying to use the private insurance market to provide universal health insurance coverage.  The Republicans leave no alternative except an extension of Medicare to uninsured individuals of all ages.

Virtually all industrialized nations today provide some form of universal, single payer health insurance.  Some allow supplemental private insurance for people willing and able to pay for premium level care.  Americans today view health insurance as something all should have, and a government program like Medicare is the only realistic way universal coverage can be provided.  Medicare isn't perfect.  But it works well, and ensures near universal coverage for people age 65 and older.  Its imperfections can be improved. It can and does work side-by-side with private insurance (such as Medicare D and supplemental policies).  Americans today won't tolerate their fellow citizens being tossed in the gutter because of health problems, in order to fund a monumental tax cut for the rich and powerful.  The Republicans will find this out in 2018 and 2020.

The Only Health Insurance Option Left

Less than two days after being released publicly, it appears that Senate Majority Leader Mitch McConnell's health insurance bill, the Better Care Reconciliation Act, is d.o.a.  Five senators have already announced their opposition to the bill as presently drafted.  A half-dozen or more have expressed concerns.  Since the doubters include both Tea Party types and moderates,  McConnell is in a bind.  If he offers compromises to win over the Tea Partiers, he will likely lose some moderates.  If he offers compromises to satisfy the moderates, he will likely lose some Tea Partiers.  It looks virtually impossible for him to get at least 50 votes. 

The Senate will vote soon on this bill--which is basically tax legislation that cuts taxes for the rich and funds those cuts by taking away health insurance coverage for a lot of mostly poor people--and it will either pass (unlikely) or fail (likely).  If it fails, what then?  Obamacare is struggling, with insurers pulling out of exchanges and premiums rising sometimes dramatically.  The Trump Administration and the Republican Congress have created so much uncertainty that health insurers apparently feel compelled to raise rates sharply.  Whether or not any replacement for Obamacare is passed, this uncertainty will remain, and rising premiums may force many people to drop insurance coverage. Thus, the number of people losing health insurance will rise under the Trump Administration even if Obamacare survives.

Forcing people to go uninsured is political anathema in America today.  Whether or not the Republicans like it, Obamacare established the baseline principle that all Americans are entitled to comprehensive health insurance coverage at an affordable cost.  Both Republican and Democratic voters subscribe to this principle, and legislators who violate the principle do so at the peril of their re-election.  But with Republican machinations making Obamacare increasingly unworkable, a replacement will have to be found.

Realistically, the only option left is a single payer system, with private insurance available as an optional supplement.  Private health insurance doesn't work well, especially when it comes to covering the poor, the sick (i.e., those with prior medical conditions) and the elderly.  That's why Obamacare is unwieldy and the Republican alternatives are worse.  We've already figured out that single payer is needed for the elderly, and established Medicare.  It works well.  Medicare can be supplemented by private insurance coverage and often is.  Sure, Medicare has long term funding issues.  But have you noticed how premiums demanded by private health insurers are going through the roof?   It's hard to believe that a government funded program would be more expensive.

Essentially all other advanced industrialized nations have single payer health insurance systems (or national health care, like the UK system), with per capita costs that are far lower than America's and better health outcomes overall.  No other advanced industrial nation has the extremely expensive and increasingly dysfunctional mish-mash of private coverage that America has.  Single payer systems are imperfect, and the availability of optional private supplements can ameliorate many of the imperfections.  The current Republican White House and Congress won't adopt a single payer system.  But their failure to do anything intelligent with health insurance coverage will push America toward the only realistic health insurance option remaining. 

Will Donald Trump Be a Traitor to His Class?

The most important legislative priorities of the Trump administration--tax and health insurance reform--will be enacted within a matter of months.  Both of these measures will greatly impact the working class whites who propelled Trump to the White House--either for better or for worse.

Preliminary assessments of the proposed tax reform indicate that taxes for the middle class will drop about a couple hundred dollars.  One percenters can look forward to many thousands in tax savings.  This isn't exactly what folks in small town America were hoping for.  To make up for the loss of income tax revenues from these cuts, the President may endorse a border adjustment tax (basically, a tariff on imports that would likely increase the prices of the inexpensive food and goods that low and moderate income Americans rely on).  To many, this might feel like another kick in the teeth.

Health insurance reform is turning out to be a very tough nut to crack.  President Trump has said he wants to preserve the protections that many low and moderate income Americans count on--guaranteed acceptance, coverage against pre-existing medical conditions, and subsidies for those unable to pay full freight.  But these conditions are very expensive.  How will the President cover the costs?  There seems to be little consideration of progressive taxation of the wealthy or increasing the federal debt.  Yet there's no free lunch.  One possible "solution," so to speak, would be to offer low cost policies with skimpy coverage--prior medical conditions would be covered but total coverage might go only up to $25,000 or $50,000 a year.  This would be expedient, but would effectively deprive people of coverage when they needed it the most.

On top of this, the President's desire to turn Medicaid into a program of block grants for the states has significant potential to reduce coverage for the low income.  Many of these people voted for him.  Where will they go for care without health insurance? Medicaid covers around 74 million Americans--almost 1 in 4.  Cuts to this program could mean many millions of people mad at the President.

President Trump's problems are exacerbated by his proposal to increase military spending by $54 billion.  Where will this money come from?  The Republicans in Congress won't agree to more deficit spending.  So the President can either raise taxes, or piss off many millions of voters by cutting other federal programs.

Donald Trump is President at a time when stark choices are necessary.  He was elected as an insurgent.  But he's stacked his cabinet with establishment Republican types, people who have no demonstrated concern or sympathy for his core constituents.  The Republicans who control Congress gave him scant and faint-hearted support during his campaign.  But today they stack the legislative agenda with bills that would make the rich richer and offer the working class hardly more than a crumb or two--and stale ones at that.  

If the President really wants to help his constituents, he'll have to be a traitor to his class.  He'll have to offer substantial improvements in life to the working class, and sorry to say, but wealthier people will have to pay for them.  America got itself into its current mess by believing that somehow everyone can get more of everything all the time at no cost to anyone else.  The last two large nations to subscribe to this notion--the Soviet Union and Communist China--had to abandon their illusions and now struggle with the consequences of the their wishful thinking.

Franklin Delano Roosevelt, the greatest President of the Twentieth Century, was labelled a traitor to his class.  And he was.  He endorsed legislation like Social Security and a strengthening of protections for workers and labor unions that uplifted many millions of ordinary Americans out of poverty and into the middle class.  The cost was born to a large degree by a sharp increase in federal income taxes paid by the well-to-do.  The rich grumbled and plotted against him.  But he ushered in the prosperity of the 1950's and 1960's, now viewed as a golden age in America.  America's perceived decline from those days also correspond with ever increasing inequality of wealth and income.  If Donald Trump really wants to make America great again, he'll have to make it great for the working class.  That isn't the direction he's been going in since his inauguration.  The next few months, when his most consequential legislative initiatives will be enacted, will likely make him both a traitor--either to his core constituents or to his class--and a hero--to the wealthy, many of whom didn't support him but are glad to free-ride on his policies and program, or to the working class that vaulted him into office.  The choice is his.

Donald Trump's Head Fakes

Donald Trump loves Twitter.  At least, so it would seem with his irrepressible use of the 140-character megaphone.  It grabs peoples' attention, particularly the attention of the press.  A 140-character message is usually easy to grasp and react to.  Not much work for a reader or a reporter.

But what's the purpose of his tweeting?  During the election, he tweeted or retweeted about a deceased Muslim veteran, a former Miss Universe, assertions by white supremacists, and other things that contravened the social values of the Democratic electorate, provoking vigorous and extended efforts by his opponent to argue that he was unfit for the Presidency.

Meanwhile, back on Main Street, Trump was holding rallies and talking about jobs, jobs and jobs.  He kept his eye on the ball (i.e., the economy, stupid), while diverting his opponent with social values head fakes.  She took the bait, and lost sight of the fact that economic distress drives elections more than the character flaws of candidates.  She paid for her mistakes.

Now, Trump has tweeted that flag burners should be imprisoned and lose their citizenship.  Surely he knows that flag burning is protected by the First Amendment to the Constitution and cannot be punished with criminal prosecution or deprivation of citizenship. So why tweet?  Could it be that he wants to divert attention from other things he's doing?  His tax proposals look like they'll make the rich a lot richer, and maybe even increase taxes on some members of the middle class.  His possible changes to Medicaid might leave some folks less well-insured.  His infrastructure proposal seems to focus more on giving businesses tax breaks than fixing the roads and bridges that are in the worst shape.  He's promised to repeal Obamacare, and to roll back financial regulatory reforms of the Dodd-Frank Act.

If you're concerned about what soon-to-be President Trump is going to do, watch out for his head fakes.  Don't be diverted by transparent attempts to yank your chain.  Focus on the big stuff, the things that will change things fundamentally.  Keep your eye on the bottom line, because that's what our incoming businessman President will do.

We're All Temporary Workers

According to data collected by the U.S. Bureau of Labor Statistics, middle aged Americans are, on average, likely to have held 11 or 12 jobs by the age of 48.  See http://www.bls.gov/nls/nlsfaqs.htm#anch4.  The same group will have, on average, experienced 5 or 6 periods of unemployment by the age of 48. See http://www.bls.gov/nls/nlsfaqs.htm#anch42.  Only about 10 percent of these workers will have had between 0 and 4 jobs by age 48.  In other words, the long lasting, stable employment that we anticipate for adulthood is mostly a mirage.  Few of us enjoy that kind of certainty.  Indeed, it's fair to say just about all of us are temporary workers.

Of course, there are differences among workers.  Some are considered full time, others part time.  Some are permanent--either full time or part time--and others are temporary--either full time or part time.  But the average American, with about 12 jobs by the age of 50, is realistically a temporary employee, just with better benefits if he or she is considered "permanent" and is working full time.

The impermanence of employment means fewer employees qualify for defined benefit pensions, even in the few jobs that still offer pensions.  It also means that in the real world, workers have trouble building up their 401(k) and IRA accounts, because they're periodically hit with a spell of unemployment or have to rebuild benefits at a new employer.  Many workers draw down their retirement accounts during episodes of joblessness.  When they resume working, they have less time to build up their balances again.  The only ways to counteract the temporariness of employment is to save furiously, or, if you're lucky enough to have a job offering a pension, to somehow stay put long enough to qualify for the pension, no matter how boring the job or overbearing the boss.

The wobbly, and sometimes turbulent, work lives of most people place this year's politics in sharp focus.  The debates over Social Security, health insurance, trade policy, jobs programs and wage stagnation become all the more crucial when we consider that, in the end, we're almost all temporary workers. Proprosals that enhance stability for workers, like protecting and strengthening Social Security and Medicare will be popular.  Measures like free trade agreements are likely to be losers.

But don't count on the government to bail you out.  You're not a major financial institution, so assume that there will be no bailout for you.  Save as much as you can--and then save some more.

How To Reduce Volatility in Your Retirement Income

The S&P 500 has dropped three days in a row, and after all the market calm of recent months, many investors must be thinking that the apocalypse looms.  There are understandable explanations for the recent downdrafts.  Islamic radicals of the Sunni variety have rapidly seized several towns and cities in Iraq, along with American weapons and vehicles provided to the Iraqi government (and the administration worries about giving small arms to moderate Syrian rebels?).  Iranian paramilitary troops, who are Shiites, supposedly are fighting alongside Iraqi government troops to retake territory seized by the Sunni radicals. Is Iran now a more important ally of the Iraqi government than the U.S.?

Russian tanks have reportedly rolled into Ukraine, where the fighting is escalating.  Bashir Assad is winning in Syria, and the moderate rebels that the U.S. supports seem to be almost inconsequential.  Most of East Asia is squabbling over this island or that, with contending nations issuing many a proclamation declaiming a neighbor as a ratfink, a double ratfink or even a triple ratfink. 

Domestic politics also create uncertainty for the markets.  Eric Cantor, House Majority Leader, was just defenestrated in a primary election by a guy from far right field whose name, even if we mentioned it now, you probably wouldn't recognize.  (But we're going to, because it's Dave Brat, a marvelously fitting name for a guy who ousted the Majority Leader.)  Cantor, who outspent his opponent's six-figure campaign by $5 million, convincingly proved that money isn't everything.  Not even in politics.  The Koch brothers must be scratching their heads about what checks to write next.

The markets will always be plagued by volatility.  And it tends to pop up when you least expect it.  That might be inherent in the definition of volatility, but you know what we mean.  Yogurt happens, but you don't want your retirement finances smeared with yogurt.  While there are no complete protections against the ups and downs of life, here are a few ideas for calming the financial waves.

Build Up Social Security Benefits.  Disregard the hyperbole.  Social Security will be there when you retire.  Maybe not exactly as it is now, but nevertheless in a meaningful form.  Any politician who votes to eliminate or sharply reduce Social Security retirement benefits will end up doing an Eric Cantor faster than Eric Cantor as voters reject the idea that they should have to eat dog food in their old age.  Work as long as you can to build up your benefits.

Get a Pension.  If you're lucky enough to get a pension, stick out it long enough in that job to qualify.  Although classic defined benefits pensions are usually found these days only alongside the remains of diplodocus, lasso one if you can.  Other pension arrangements, like cash balance plans, are a lot better than no pension. 

Save More.  Saving more is a salve for portfolio instability and financial insecurity.  Those that have the saving jones won't have to get loans.

Use Retirement Accounts.  Retirement accounts like 401(k)s, IRAs and so on offer tax advantages that let you leverage your retirement savings, while limiting your ability to prematurely spend your savings.  A particular advantage to a 401(k) account comes if your employer provides a matching contribution, which is the freest money most people can get.  Use these accounts as much as you can.

Diversity Your Investments.  The values of all assets wax and wane.  But they usually don't wax and wane in unison.  More commonly, some assets get yeasty while others do the fallen souffle thing.  And vice versa.  So a diversified portfolio is usually kind to your antacid budget.  There are moments, like the 2008-09 financial crisis, when it seems like almost all assets belly flop.  But these cognitively dissonant interludes are the exception and not the rule. 

Consider an Annuity.  A fixed annuity (one that pays a specified dollar amount per month) or a fixed annuity adjusted for inflation can be a reasonable way to provide a steady income.  Annuities aren't cheap, and you should buy only from an insurance company with a strong credit rating. Don't put more than about one-third to one-half of your portfolio into an annuity because cash needs in old age can be unpredictable and it helps to have a nice pool of cash or cash equivalents.  Be very cautious about variable annuities--they often have high expenses, and the point here is to reduce volatility, not subject yourself to it in another form. 

Health Insurance and Long Term Care Insurance.  Financial volatility can sometimes come from sudden increases in expenses, and not just decreases in portfolio values.  Health care and long term care needs are the biggest landmines in the journey through retirement.  Most retirees are covered by Medicare, but if you're not, then buy something else.  The Affordable Care Act, despite all the teeth-gnashing on the right, is likely to be a good option if you don't have anything else.  If you have a significant net worth, consider buying long term care insurance, especially if you have a spouse who may depend on that net worth after you've gone to the great Dance Party in the sky.  It's expensive, but so is long term care.  If you want more than the quality of care given to Medicaid patients, long term care insurance may be a good choice.

Part-time Work.  Okay, you want to hear about retirement, not employment.  But part-time employment reduces the extent you need to draw down your savings, so you can keep more powder dry for later.  It also lessens your risk of dying from the boredom of day time TV.  It may boost your Social Security benefits (depending on your work history).  And the dignity of work is better than the indignity of looking for sales on dog food.

The Key To Obamacare's Survival?

Even though the House of Representatives has just voted to use the budget bill to defund Obamacare, its chances of survival are pretty good.  Not just because the Senate will delink the defunding from the budget bill, but also because Obamacare suddenly seems to have some powerful supporters.

Not that these supporters are speaking openly.  But here's the scoop.  Major American corporations are moving their workers or retirees to the private exchanges.  Wahlgreens, Sears, and Darden Restaurants (think Olive Garden, Red Lobster, Longhorn Steakhouse, Capital Grille and more) have announced that employees will move to the private exchanges.  IBM and Time Warner are moving retirees to the private exchanges.  Apparently, these companies will pay employees or retirees subsidies to reduce their premium costs.  But these companies, and others making similar moves, are offloading a very important risk--the unpredictability of health care costs.  They provide fixed subsidies, thus stabilizing their costs.

Businesses love predictability and certainty.  Profits are more likely if you can control major cost items like health care coverage for employees and/or retirees.  In essence, Obamacare is on the verge of becoming an important subsidy to big business.

Experience teaches that government subsidies are virtually impossible to eliminate.  Long after the Great Depression and Dust Bowl, agricultural subsidies that make no public policy sense persist.  Even after being nationalized just before they could bring down the entire U.S. economy, Fannie Mae and Freddie Mac roll along, now more centrally positioned in the financing of residential real estate than ever before.  Virtual giveaways of access to minerals on federal land continue unabated even though the settlement of the West was effectively complete by 1890.

With Obamacare in the process of becoming a potentially really, really important subsidy to really, really big corporations, do we really think that it's going to be eliminated?  The Tea Partiers in the House make a lot of noise, but can they take on the political firepower that big business lobbyists can bring to bear?  Recent polls indicate that a majority of Americans support Obamacare, and politicians in a democracy eventually have to pay attention to the polls (see Obama-Syria-poison-gas-response for more on this point).  But, just as importantly (or more so), powerful business interests can arrange the survival of big subsidies no matter how loud some people in the House of Representatives scream.  This may reflect poorly on the nature of the political process, but it's the truth.  And Obamacare may well now have the backing of some highly influential lobbyists who will speak softly (to stay out of the cross-hairs of the Tea Party) but will wield big sticks to keep their clients well-subsidized.

Managing Personal Risk

Modern businesses put a lot of effort into managing risk.  They take risks, because that's how they might make big money.  But they also work to mitigate the downsides of their risks, because employee stock options don't pay off real well if the CEO, or someone or something else, blows up the business.

Individuals need to manage risk as well.  Bankruptcies most often result from unexpected problems, like a medical crisis or job loss.  If you don't deal with the ways that life can fall apart, the chances of your life fallling apart increase. The need to manage personal risk may be one of the most under-appreciated aspects of financial planning. While there's no perfect or complete way to analyze personal risk, here are some things to think about.

Age.  As you grow older, reduce risk.  If anything goes wrong, you will have less time to recover, and less ability to recover as your value in the labor force declines (and it eventually will).  There are variety of ways to reduce risk discussed below.  The important point is that as time passes and you accumulate more gray hair, reduce personal risk.

Occupation.  Your occupation can be a major risk factor.  Some types of work can't be performed by older people.  This would include construction, law enforcement, military service, fire fighting and other jobs that demand physical strength and endurance.  It could also include jobs that don't demand physical strength, but do require certain abilities that deteriorate with age, such as flying, working as an air traffic controller, or performing surgery.   If your job has a relatively limited time span, start building wealth at an early age and persist.  You may be able to have a second career when the first one ends.  But then again, maybe not.  Don't count on what's highly uncertain.  Assume your first occupation is all that you'll ever have and base your financial planning on it.

Employment stability.  If your job security is unstable, build up a large pool of savings to tide you over the rough spots.  A year's worth of living expenses, or more, in an emergency fund would be a good idea.  If you work in a boom-bust industry, like construction or oil and gas drilling, or an unpredictable job, like entertainment, your savings account is your best friend.  If you have to take on debts, or lose a car and/or house, because you didn't prepare for a layoff, your long term financial future may be cloudy.

Health.  Factor into your financial planning your health problems, especially any chronic ones you have.  There is no way to avoid having health problems, especially as you get older.  That's why having health insurance is so important--you will definitely use it.  Also have some savings available for health care expenses not covered by insurance--these expenses are one of the leading reasons for personal bankruptcy filings.  If your health is good, save plenty because you may need to finance a long life span. 

Debts.  Debts are one of the most dangerous risks.  Jobs may not be secure, but debts, once incurred, are a certainty.  If you're poor, but debt free, you won't end up in bankruptcy.  Poverty doesn't lead to bankruptcy; unmanageable debts do.  But debts are also one of the most controllable risks.  Avoid taking on debt unless it's really necessary.  Pay off debts as quickly as possible, especially as you get older.  A mortgage-free house is better than a sleeping pill.  There are some financial planners who will tell you to have a mortgage and invest your cash in stocks.  Well, if stocks maintained a nice, steady upward trend all the time, this might well be a smart move.  But if stocks are sometimes volatile--well, some people do manage to eat dog food.  Avoid debt and you avoid risk.

Moral and voluntary obligations.  Lots of people help their kids pay for college--and then help some more when the kids rebound home after graduating.  Many help their aged parents.  Quite a few help siblings, nieces, nephews, friends and so on when the going gets tough.  If you are likely to accept these obligations, manage your finances to be able to meet them.  Being nice can be a major financial risk factor. 

Riskiness of your assets.  This isn't quite the same as asset allocation.  This is preparing for things to go wrong with your choice of assets.  Don't think your allocation is necessarily right.  Almost no one predicted the financial crisis of 2008 and hundreds of millions of savers worldwide got a big tummy ache as a result.  If you really think that you and your financial planner have it all figured out, contact me about buying a very nice bridge in Brooklyn, and at a bargain price, too.

But back to the first point.  Stress test your investments (see http://blogger.uncleleosden.com/2010/11/stress-test-your-retirement.html).  If you are uncomfortable with the potential losses you could incur, change your allocation.  Of course, no matter what you do, you'll end up with some kind of allocation.  The important thing is to end up with something that you can live with on good days and bad.  

Insurance.  Only Congress is less popular than insurance companies.  But having some insurance coverage is important to mitigating risks.  We've already covered health insurance.  Have homeowners or renter's coverage.  Maintain plenty of liability coverage on your auto policy, and buy an umbrella policy if you have a significant net worth.  Get disability coverage (first check to see what your employer offers, and supplement it if appropriate).  If you have dependents, like minor children, buy life insurance.  Think about long term care coverage if you have significant assets.  Granted, writing a check to an insurance company feels like eating sawdust.  But if life takes a u-turn, it's comforting to be able to forward the bill to an insurance company.

Boost your benefits.  Work as long as possible to build up your Social Security credits and any pension benefits for which you are eligible.  Okay, Congress, the White House, City Hall, the boss, or somebody is always threatening to trim or take away these benefits.  But they will very likely survive in one form or another, and you benefit from maximizing them because they may offer the best shelter available when cold economic winds blow.

Will the Affordable Care Act Lower Health Insurance Costs?

In 2014, two of the most important provisions  of the Affordable Care Act take effect.  These require health insurers to accept all applicants without regard to prior medical conditions, and to provide unlimited coverage.  Although some recent news stories indicate that health insurers are raising premiums in 2014 to compensate for these provisions, it's possible to foresee a time when these same provisions will constrain the growth of health insurance costs. 

These requirements--no exclusion for prior medical conditions and unlimited coverage--provide powerful incentives for insurers to manage health care rationally.  Currently, many health insurers endeavor to limit their exposure to the costliest patients (i.e., those with existing medical conditions and those needing very expensive care).  In other words, insurers attempt to avoid covering those most in need of coverage.  It's no surprise that the most common reason for individuals to file bankruptcy is unmanageable medical bills.  It is perhaps surprising that most of these individuals have some health insurance coverage--but not enough. 

By forbidding insurers to squeeze out those in the greatest need of coverage, the Affordable Care Act now steers insurers' attention toward managing care rationally and providing the best quality, most effective care.  Preventive care, such as regular physicals, screenings, immunizations, wellness programs, and so on will take priority. People will hopefully fall ill and injure themselves less often and perhaps less severely.  In the long run, this fundamental change in approach may lower the growth of premiums, as improvements in health from better preventive care hopefully reduce the need for medical treatment.  Premiums will rise next year for many--but only because they're getting better coverage.  And that improved coverage may pay off in the long run.

Defensive Financial Planning

One aspect of financial planning that receives little attention is avoiding an unexpected depletion of your assets. It involves dull, boring stuff like insurance and taking care of yourself. Far more exciting are graphs showing the exponential growth of compounded savings and glossy magazines featuring lifestyles of those retirees who planned well. But in financial planning, a good defense can preserve the wealth you took so much effort to build. Consider the following.

INSURANCE. Okay, few things in life are as nauseating as insurance. Most of us would rather see the dentist than review our insurance coverage. But insurance protects our finances when bad things happen.

Health insurance provides the means to get medical care. Health problems, not credit card craziness, are the number one reason why people end up in bankruptcy. Insurance doesn't necessarily prevent bankruptcy, but it makes it much less likely. A good health insurance policy also opens doors at the emergency room, and ensures that you get good care. Your recovery may be faster and you suffer less stress over availability and quality of care.

Disability insurance provides income when you can't work. More often than you might think, people suffer from disabilities. Social Security disability isn't easy to qualify for, and the process takes a long time. Private disability coverage is often easier to qualify for and more generous.

Life insurance protects your family if you're no longer around to provide for them. Not everyone lives to 75, 80 or older. Life insurance feels like the biggest waste of money imaginable, unless your family needs it. Term life is usually the best choice. Permanent, whole, or universal life typically involve high commissions and other costs. Most people are better off buying term coverage and saving for retirement in other financial vehicles.

Auto insurance is required by law, but the amount of coverage you have to buy is often pretty low. Boosting your liability coverage will make sense as soon as you have any sort of respectable net worth. Without good liability coverage, a single accident can wipe out a lifetime of saving.

Homeowners/renters insurance provides liability coverage, and in the case of homeowners coverage, the funds to rebuild if your house burns down. Get a flood rider if there's any significant chance of flooding (and not just from a river, but also from sewer backups and the drainage ditch in the back yard). Buy earthquake coverage if you're in a high risk zone.

Umbrella policy. An umbrella policy provides liability coverage above and beyond your auto and homeowners policies. You can buy protection up to $10 million and perhaps even more. Umbrella coverage becomes a good idea once your net worth reaches a level you wouldn't be embarrassed for others to know about. Remember, a single car accident can wipe out a net worth of $500,000, $1 million or more, even if you have $300,000 of liability coverage from your auto policy. The umbrella policy puts a lot more protection over your head, and is worth thinking about if you start to get attached to your six or seven figure net worth.

Business liability coverage may make sense for those who are self-employed and work in circumstances where a customer or other person might be injured. For example, if you operate a catering business out of your kitchen, buy some insurance that covers the possibility of customers getting food-borne illness from your products. Accidents happen.

MAINTAIN YOUR HEALTH. As mentioned above, the single most common reason for personal bankruptcy is a health problem. Health insurance doesn't cover all expenses, and significant health problems can prevent you from working. Even if your uninsured health care expenses are modest, you still confront the mortgage, grocery bills, gas expenses, etc. So exercise, eat a balanced diet and avoid/quit smoking. Keeping your health as good as possible can make a real difference in your financial well-being.

Health Insurance for Pre-existing Conditions

[Updated Feb. 19, 2013]

If you're healthy, health insurance is an expensive annoyance. You know you should have it, but it seems like a waste of money. And millions of Americans go without health insurance, because they don't want to be expensively annoyed. But if they get sick or are injured while uninsured, they learn the hard way that, even more than a loan, health insurance is hard to get when you really need it. That's why you should always have health insurance, especially if you're in good health (when it's much easier to get).

Once you become sick or are injured, you have a pre-existing condition. From the perspective of a health insurer, that very possibly makes you a losing proposition. No one likes losing propositions, and certainly not insurance companies, whose business is, in essence, to bet on the health of their customers. Very few people today contract leprosy, but a lot of people who have a pre-existing condition and are uninsured learn what it feels like to be a leper.

So how can you protect yourself?

Get health insurance while you're healthy. The best way to cover pre-existing conditions is to be insured at the time they first occur. It's now illegal for insurance companies to drop coverage for customers who get sick or are injured. Axing customers who might actually make claims is prohibited by the federal health insurance reform enacted last year (derisively called Obamacare, but it really does help those who are sick or injured).

Keep your current health insurance. If you are covered by health insurance, keep it. That would mean exercising your COBRA rights if your employment is terminated. As your COBRA coverage expires (usually after 18 months), buy an individual policy to continue coverage. Avoid time gaps in coverage--continuous coverage one way or another makes it essentially impossible for insurers to stiff you on pre-existing conditions.

Be young. Last year's health insurance reform law now makes it illegal for insurers to decline coverage for children under the age of 19 due to pre-existing conditions. In addition, young adults up to age 26 may be covered under their parents' health insurance (if their parents have family coverage).

Be old. If you're 65 or older, make sure you're enrolled in Medicare (at least Parts A and B, and also Part D if you don't otherwise have prescription medication insurance). Pre-existing conditions are covered by Medicare.

State pools. Many states have insurance pools that offer coverage for their residents with pre-existing conditions. These pools can be expensive. But being uninsured with a pre-existing condition can be more expensive.

Federal High Risk Pool. A federal program created by last year's health insurance reform provides coverage to those who are uninsured with pre-existing conditions. This program isn't cheap, but is less expensive than many state pools. (A problem for those in state pools who want to switch to the lower cost federal program is that you have to be uninsured for something like six months before you can get into the federal program; that's because the federal program is meant to help the uninsured, not the expensively insured.) The federal high risk pool expires in 2014, when a permanent program for comprehensive nationwide health insurance coverage is supposed to begin. The website for the federal high risk program is at www.pcip.gov.  Feb. 19, 2013 update:  the federal high risk pool is  closing on Feb. 22, 2013 because of funding problems.  If you want to participate, get your application in by Feb. 22, 2013.  If you miss this deadline, look for any available state insurance pool, find out if you're eligible for Medicaid (see below), try a community health center, and wait until 2014, when comprehensive insurance coverage under the Affordable Care Act will become available.

2014. If you live until 2014, a comprehensive nationwide program for health insurance coverage will begin, which will prohibit health insurers from excluding pre-existing conditions.  Insurance for those who otherwise aren't covered can be purchased through so-called health insurance exchanges.  Your home state may offer an exchange (possibly in conjunction with other states), and a federal exchange will be available if your state does not offer one.

And if you're broke? If your financial condition is sufficient modest, you may qualify for Medicaid (it's primarily for people with dependent children or a disability). You might also be able to get care at a community health center (which generally serve the low income). And there's always the hospital emergency room, which provides care to the indigent (although it may not be as comprehensive as the care provided to the insured).

For more information, see http://blogger.uncleleosden.com/2010/04/benefits-of-federal-health-insurance.html, and http://blogger.uncleleosden.com/2007/06/how-to-find-health-insurance.html. The U.S. Department of Health & Human Services provides a website where you can research health insurance options: http://www.healthcare.gov/.

Will the Federal Courts Pave the Way for Single-Payer National Health Insurance?

The score over the constitutionality of last year's federal health insurance reform is 2 - 2. Two federal courts have ruled it's constitutional and two more have decided that at least part of it isn't. The feature on which disapproving judges focused is the requirement beginning in 2014 that the uninsured buy individual coverage. The government contends that this requirement is permitted by the Constitution's Commerce Clause (which allows Congress to regulate matters affecting interstate commerce). Opponents assert that the law purports to regulate inaction--being uninsured--and that inaction isn't commerce.

Proponents respond that life is more complicated than that. As a society, we don't toss the uninsured in the gutter, to die slow, painful, lingering deaths. Instead, they are treated, and if they can't pay cash (which is very often the case), the cost of their care is borne by the rest of us in the forms of higher hospital charges, larger co-pays and deductibles, and steeper health insurance premiums. This imposition of costs on paying patients has interstate impact, and consequently allows federal health insurance reform under the Commerce Clause, proponents contend.

The final word on constitutionality rests with the U.S. Supreme Court. Given the split among lower courts, the Supremes will almost surely take the issue. Predicting the weather is easier than figuring out how the Supremes will rule.

It's interesting to consider that, if the Big Court gives the new law a thumbs down, it may well pave the way for a single-payer national health insurance system. Even if a federal requirement for an individual to buy health insurance goes beyond Congress' constitutional authority, a taxpayer funded single-payer, comprehensive national health insurance program would surely be constitutional. We already have such a system for Americans 65 and older (it's called Medicare), and another such system for many with low incomes (called Medicaid).

Today's Republican controlled House would strenuously resist a single-payer system. But the naysayers have no serious alternative. The baseline problem for Republicans (and those Democrats who voted against last year's health insurance reform) is that no one, not conservatives, moderates or liberals, want the system we had before last year's reform. That "system," with its hodge-podge, hit-or-miss, luck of the draw "coverage," left tens of millions uninsured, tens of millions more underinsured, and numerous Americans going without treatment until their problems became severe enough for an emergency room visit, where others (i.e., the insured) would pick up the high costs of the uninsureds' care. If last year's reform is tossed out by the courts, there will be enormous political pressure for an alternative. The Republicans, who have been singularly feckless in improving the health insurance system, will find themselves losing favor with an electorate struggling for coverage. This is one issue where the party of No will have to rethink its message. Reality is that we'll have health insurance reform one way or another, if not now, then pretty soon.

Last year's health insurance reform was a rather complex political compromise designed to make Americans face a simple fact of health insurance: it's fairest and most sensible when everyone contributes to the cost. (That's why state laws require all motor vehicles to be insured.) If last year's reform doesn't survive judicial review, a single-payer national health insurance system may be the one alternative sure to withstand constitutional challenge. Other alternatives would be much more complex, and therefore exposed to legal challenge (when it comes to the law, complexity begats litigation and simplicity tends to avoid it).

Many taxpayers may not like a comprehensive, single-payer system because of fears of rising costs. But those rising costs are already smacking those of us who are insured, through our premiums, co-pays and deductibles. The rising costs are less a function of the insurance system we have than of expensive advances in medical technology and the extensive care sometimes given the very elderly. Dealing with these issues involves difficult ethical questions, but leaving people uninsured won't solve these problems.

A ruling against last year's reform will likely limit Congress' options for the structure of a replacement program. It won't persuade voters to accept a return to the Dickensian grimness of the status quo ante. If last year's reform is struck down, the single-payer national program may well rise up from last year's ashes. This probably wouldn't be what the federal judges ruling against the reform intend, but we often get what we don't intend.

Stress Test Your Retirement

With stocks going nowhere for the past ten years or more, we now understand that retirement planning involves more than seeking the highest returns. Risk has to be managed. Savings must be protected. This is especially so as one grows older. With fewer working years left, those who have living memories of seeing or wearing leisure suits should think about downside risk as well as upside potential. It's a good idea to stress test your retirement.

A stress test would estimate how well your finances would look in adverse circumstances. There are different ways to do this, and some can become quite complex. There is no magical formula or golden number(s). Much depends on your appetite for risk, your life expectancy and your retirement goals. Let's start with individual factors.

1. Stocks. Assume a 50% drop in the stock market. That's not an unrealistic assumption since stocks dropped a bit more than that at their worst point in the 2008-09 financial crisis. They could drop like that again, notwithstanding every assurance from Wall Street and high ranking government officials. What impact would that have on your finances? If the answer is too much for your comfort level, then reduce your exposure to stocks until you feel comfortable.

2. Bonds. Assume a 20% loss of your taxable bond portfolio. This would be a very large loss for bond holdings, but could happen if the Fed has to raise interest rates sharply in order to combat inflation. (Indeed, the Fed's ongoing quantitative easing program--the purchase of Treasury securities with printed money in order to lower interest rates--has anomalously resulted in increased interest rates, suggesting bond investors expect inflation from the QE.) What impact would a 20% drop in your taxable bond holdings have on your equanimity? If the answer isn't conducive to equanimity, dial back your bond exposure.

3. Municipal Bonds. Assume a 20% loss in the value of your muni bond portfolio. This, too, would unusually large. But the growing crisis over state and municipal deficits, and the possibility that interest rates may rise because of or in spite of the Fed, could produce significant muni bond losses. How would this affect your sense of financial security? If you don't like the answer, trim your muni holdings.

4. Money Market Funds and Similar Products. As we know from the 2008-09 financial crisis, money market funds can go under. Less well-known similar products, most notoriously auction rate securities, may be less safe than money markets. Assume a liquidity crisis for your holdings of money market funds and other short term investments. What would you do if you couldn't get to these assets? If the answer is ugly, transfer your liquid assets to money market funds that invest only in U.S. Treasury securities, or to bank or credit union accounts and CDs that are fully insured by the federal government. Don't mess around searching for incremental increases in yield. Make sure your liquid assets are truly safe (because they may not be liquid otherwise).

5. Insurance Products. Insurance products are subject to the creditworthiness of the insurance company. Insurance companies make mistakes. If, like AIG, they make big enough mistakes and put the international financial system at the edge of the abyss, they will be bailed out by the government. But most insurance companies can't put the touch on taxpayers like that. Try to figure out how much you could salvage from your annuity or other insurance products if the insurer goes belly up. You might have to research the law of the state where the insurance company is chartered for the coverage provided by its guaranty association for life insurance. (One place to start is the website for the national umbrella organization for these associations, called the National Organization of Life & Health Insurance Guaranty Associations,
http://www.nolhga.com/.) The amount of coverage may be between a maximum of $100,000 to $500,000, depending on the state. If that limit spurs major heartburn, either avoid making a big investment in insurance products, or look to boost the non-insurance portion of your portfolio. Be cautious about exiting insurance products you've already bought, because the insurance companies may whack you with painful termination fees. But pay those fees if your exposure to insurance products makes you queasy.

6. Pension. Let's say your employer goes bankrupt and ditches its pension plan. Can you live with the reduced payments you might end up with? Figuring out how much your pension might be reduced in such a circumstance could be difficult and the stress test might have to be done with just an approximation (factoring in the limitations in coverage from the Pension Benefit Guaranty Corp., if applicable; see http://www.pbgc.gov/workers-retirees/benefits-information/content/page789.html). You could try assuming your pension payments turn out to be half of what you expected. Then, increase your current savings a lot because the loss of half a pension would be painful for just about anyone.

7. Social Security and Medicare. Social Security and Medicare will not disappear. They will be here as long as the Stars and Stripes fly. Of course, some modifications will surely be made, particularly in light of the recent mid-term elections. These modifications won't give you a warm glow. Assume your benefits are reduced by 15%. If that would increase your antacid budget, save more.

8. Health Insurance. If you're under 65, consider the impact of losing your health insurance. (Just about everyone 65 or older has Medicare coverage.) If you're in a group plan, research the cost of buying replacement coverage (which would be an expensive individual policy for most people). Then save more. If the health care reform of 2010 survives Republican attack in 2011 largely intact, you'll probably be able to get good coverage. If the 2010 health insurance reform is significantly cut back, you could be in a tight spot.

9. House. If your home is part of your retirement finances, consider the impact of a 25% drop in its value. Many homes have dropped more than that in the past few years. Don't think it can't happen again. Factor in the mortgage, home equity loan(s) and other liens on the house. If a 25% loss would ruin your day, save more.

We all know that, in a financial crisis, more than one asset class may go sour at the same time. Estimate the combined impact of such a morass. One thing that is certain is we will have another financial crisis like 2008-09. When is anyone's guess. But an enduring lesson of 2008 is that there are no new paradigms in the world of investments and finance. Sooner or later there will be another financial crisis. Those that prepare for it will probably do okay. Crisis deniers surely won't.

Where is there safety? Money market funds that invest solely in U.S. Treasury securities for one. Bank and credit union accounts and CDs that are fully insured by the federal government are another. See http://blogger.uncleleosden.com/2010/07/safe-investments.html. Longer term U.S. Treasury securities will be paid in full upon maturity, but are subject to interest rate risk during their terms. Gold and silver may look attractive at the moment, but their values have historically been extremely volatile. Invest in commodities at your peril.

If you don't like the results of your personal stress test, save more. That, more than anything else, will strengthen your finances. A diversified portfolio is prudent (stocks and bonds can help with your long term financial needs). But diversified doesn't necessarily mean high risk. Having 20% in stocks and 30% in bonds, with the rest in safe assets, may be as diversified as some people want to get, especially those over 70. All the nice looking statistics and charts that financial planners can generate about long term gains don't mean diddly if we're stuck in one of the decade long or longer time periods when financial assets sag. Allocate your assets in the way that facilitates sleep. You'll sleep better for it.

What If Federal Health Insurance Reform is Unconstitutional?

The constitutionality of the 2010 health insurance reform is now being actively litigated in several federal district courts. So far, the law has stood. The provision with the greatest chance of being struck down by the courts is the provision requiring most uninsured individuals to buy insurance coverage in 2014 or pay a tax.

This requirement makes sense from an insurance standpoint, since it helps spread the cost of coverage among a broader, rather than narrower, group of people. A similar requirement was included in recent health insurance reform in Massachusetts.

The basic claim of unconstitutionality of the federal requirement is that it is beyond the constitutional authority of the federal government. The federal government, as we all learned in high school, has only the powers conferred on it by the Constitution. Opponents of the health insurance reform argue that the new law amounts to an exercise of general governmental police powers, something that a state government could do but which is outside the limited grants of federal authority set forth in the Constitution.

First things first. It's highly unlikely that, if the courts find the 2014 mandatory insurance purchase requirement unconstitutional, they would strike down the entire health reform legislation. The Supreme Court has instructed that if one part of an act of Congress is unconstitutional, the offending part is to be severed and, normally, the rest of the act is to be upheld. This principal of limiting the impact of findings of unconstitutionality was recently applied in a case called Free Enterprise Fund v. PCAOB, handed down in June 2010. In that case, the Supreme Court found that one aspect of the law creating the PCAOB (an organization regulating accountants) was unconstitutional (in that the SEC could remove governing board members of the PCAOB only for good cause). But the court decided that, by tossing this one provision, the SEC would be able to remove governing board members at will and that such an interpretation of the law would make the PCAOB constitutional. So the Court excised the one bad provision of the law and upheld the rest.

Such an approach is likely to be applied to the health insurance reform. If the 2014 mandatory insurance purchase requirement is deemed unconstitutional, the rest of the law will probably stand.

Moreover, there is a pretty straightforward fix if the courts strike down the mandatory purchase requirement. That would be to make it voluntary for individuals to buy health insurance but charge them higher premiums the older they are when they buy in. This is the approach taken with Medicare Part B: it's voluntary but charges higher premiums the older a person is at the time he or she first enrolls.

The problem presented by voluntary enrollment is that people could wait until they are sick or injured before buying insurance. Because the new health insurance legislation requires insurance companies to accept all applicants and to cover pre-existing conditions (thus tremendously improving health insurance over today's morass), an individual could game the system and start paying premiums only when he or she needs expensive health care. By charging late enrollees higher premiums, Medicare Part B makes them pay for the risks and potential expenses they represent. The same could be done for younger folks.

Financial advisers generally advise older folks to sign up for Medicare Part B at the earliest opportunity (age 65) to avoid the higher premiums imposed for waiting. A comparable premium structure for younger folks could create the same incentive. The larger the pool of insured people, the more rational and fair health insurance in America will be. If the 2014 mandatory purchase requirement is struck down, a ready fix is available.

Benefits of Federal Health Insurance Reform

2010's federal health insurance reform includes a wide-ranging panoply of programs, credits and other measures. Folks currently covered by employer sponsored health insurance plans won't experience much immediate change. But over the next year and later, they'll see improvements.

Those having trouble getting coverage will find the new law a big improvement. The recent legislation isn't Internet-friendly--it can't be summarized to two paragraphs or less. But there are a number of provisions that could soon change things for millions of Americans. Here they are, with those taking effect sooner listed first.

Small Business Tax Credit. Small businesses may get a tax credit of as much as 35% of their employee health insurance premiums, depending on how large they are, starting immediately and running through 2013. Small, in this case, means small (as in no more than the equivalent of 25 full-time employees). These companies, which may number as many as 4 million, are perhaps the most likely not to offer health insurance to employees, so the credit could bring more people under the umbrella of employer-sponsored coverage. The credit will increase to 50% of premiums beginning in 2014 and is available for any two consecutive years at the 50% level.

Closing the Medicare D Doughnut Hole. Those covered by Medicare D policies who in 2010 hit the gap in coverage called the "doughnut hole" will be eligible for a $250 rebate. Beginning in 2011, a 50% discount (instead of the rebate) will be available for prescriptions filled in the doughnut hole. The doughnut hole will be closed in 2020.

Federal High Risk Pool. By the end of June, 2010, a federal high risk insurance pool will become available for persons with pre-existing conditions who are having trouble getting coverage otherwise. This pool is temporary, and will operate until federally established health insurance exchanges provide a permanent source of coverage beginning in 2014. At that point, persons with pre-existing conditions can purchase health insurance through the exchanges or some other way, such as individually acquiring coverage. You can more information and application options at https://www.pcip.gov/.

Federal Assistance for Employers Covering Early Retirees. By the end of June 2010, a temporary federal program will begin offering reinsurance to employers providing early retirees (i.e., those between the ages of 55 and 64) with health insurance during retirement. Reinsurance is an indirect way of subsidizing retiree health insurance coverage, and should make it easier for employers to maintain coverage for early retirees. (Retirees 65 and older are eligible for Medicare coverage, so the reinsurance program doesn't extend to them.) The reinsurance program will be superseded in 2014 by the health insurance exchanges.

No More Punishing the Sick. Just as banks are notorious for denying credit to those who need it the most, sometimes insurance companies drop customers because they fall ill. Beginning at the end of September 2010, insurance companies will be prohibited from engaging in this practice. Some Tiny Tims will enjoy Christmas early this year when their Scrooge-like health insurers can no longer ax them.

Children Under 19 Cannot Be Turned Down for Pre-existing Conditions. By the end of September 2010, insurers won't be able to turn down children under 19 because of pre-existing conditions. (By 2014, insurers won't be allowed to turn anyone down for pre-existing conditions.) The high risk pool mentioned above could cover children who aren't protected by this provision.

Young Adult Dependents Up to Age 26 Can Be Covered by Parents. By the end of September 2010, young adults up to age 26 who are dependents of their parents will be eligible for coverage under their parents' policies (unless they live in a state that mandates coverage to an older age, such as 28 or 29).

No Lifetime Caps on Coverage. By the end of September 2010, insurers won't be allowed to impose lifetime limits on coverage.

Phaseout of Annual Limits on Coverage. By the end of September 2010, insurers will face greater restrictions on their ability to place annual limits on coverage. By 2014, annual limits will be eliminated.

Free Preventive Care. By the end of September 201o, new private insurance plans will have to cover preventive care without co-pays or deductibles. Beginning in 2011, Medicare will provide the same free preventive care coverage.

Increased Funding for Community Health Centers. Beginning in October 2010, community health centers--clinics that provide primary care to mostly low income patients--will receive increased federal funding in order to almost double over the next five years the number of patients they treat. This should help alleviate the shortage of primary care throughout much of America.

Independent Appeals Process. By the end of September 2010, new health plans will be required to have independent appeals processes for customers denied claims or coverage. This could be very important if you or a family member have a major health issue.

This year's health insurance reform affects many other aspects of the health care system, and will be implemented over the next decade or so. A more permanent system with health insurance exchanges should be in place by 2014. The number of primary care practitioners should increase. The patchwork health insurance system of the past will gradually be phased down, and near universal coverage should result from the federal programs. In the meantime, if you want information about current health insurance resources, take a look at http://blogger.uncleleosden.com/2007/06/how-to-find-health-insurance.html. Illegal immigrants cannot participate in the federally sponsored system, and may have to fall back on the remnants of the old health care system. This limitation is understandable from a political standpoint. However, if an illegal immigrant has, for example, tuberculosis, meningitis or some other transmissible illness, we all benefit if that person gets good health care.

The Silence in the Health Insurance Debate

There's a really big elephant in the room where the question of universal health insurance is being debated. And everyone is assiduously avoiding any mention of it. That's the question of how medical care is allocated. Yet, allocation is crucially important to the question that is vigorously debated: costs and who should bear them.

The subject of allocation of medical care is taboo, at least in America. This is the nation that enshrined the pursuit of happiness in its creation myth. To this day, the notion of limits is unacceptable. Just last fall, the American Dream was renewed when voters chose a nonwhite boy from a broken family of modest means as its President. The idea that the latest in medical care shouldn't be available to all in need isn't accepted.

However, you can't provide unlimited amounts of anything and health care is no exception. Allocation happens early and often in America, and it isn't pretty. Nonprofit hospitals (which probably comprise a majority of all hospitals) are required to provide a modicum of free or discounted care to those who cannot afford to pay. And they do. But it appears that charity patients don't receive the same quality of care as the well-insured and well-to-do. It should come as no surprise that money matters. Even in countries with universal health insurance (like Canada and various European nations), the well-off are free to plunk down cash on the barrelhead for more and better health care--and they do, going to other nations if necessary.

Allocation decisions are also made in the regulation of health insurers. Health insurance companies are principally regulated today by state governments. These regulators decide, among other things, what policies sold in their states must cover. In some states, group health insurance contracts must cover acupuncture treatments, while other states do not require such coverage. The federal government decides what Medicare, Medicaid, and other federal health insurance programs, will cover. The regulatory process is a place where politics can affect the way health care is allocated, and has played an increasingly important role in recent years.

Allocation also is done on the front lines, by physicians. They, presumably, make determinations based on medical need and appropriateness. However, concerns over malpractice claims lead some physicians to recommend more, rather than less, testing. And, unfortunately, there have been all too many allegations that some physicians stood to gain financially from diagnostic tests or treatments they recommended. Thus, we have a degree of misallocation, a crucial problem in controlling costs.

Health insurers compete for the most desirable business (group insurance contracts) by trying to keep costs under control while providing expansive looking coverage. Thus it is that delivering mothers are often discharged the day after giving birth, and many breast cancer surgery patients as discharged a day or two after surgery. Physicians are unhappy because their professional judgment is superseded. Patients are unhappy because they are booted out of the hospital before they feel ready for the outside world. This, however, is another way health care is allocated.

Then, there are "exogenous" factors, like layoffs and unemployment, when formerly well-insured persons are suddenly scrambling for any sort of coverage. As unemployment levels rise, health care allocations shift away from the laid-off and their dependents. They have limited measures like COBRA to continue coverage for a while, albeit at a high cost. See http://blogger.uncleleosden.com/2007/06/how-to-find-health-insurance.html and http://blogger.uncleleosden.com/2007/09/health-insurance-update.html. Some assistance with the costs is provided by the administration's recent stimulus bill. See http://blogger.uncleleosden.com/2009/02/health-insurance-help-in-stimulus-bill.html.

There is no simple resolution to the allocation problem. The seemingly arbitrary and almost cruel limits of some private insurance policies have led a majority of Americans to support the formation of a federal health insurance plan. To avoid this result, the private sector needs to get it together fast, and effectively. There is reason to doubt it will succeed. Private insurance companies could have competed for the revenues that Social Security now gets, by offering low cost annuities and similar contracts that would guarantee a fixed (or even inflation adjusted) income during the golden years. Instead, insurers endeavor to sell high-cost, high commission, complex, and confusing annuities that sometimes seem to contain more surprises than benefits. Something comparable seems to be happening with many private sector health insurance policies, which have high administrative costs, incomprehensible complexity and a surfeit of surprises that don't involve the payment of benefits.

Conflicts of interest that physicians may have when making recommendations for tests or treatments should be prohibited, especially with respect to Medicare, Medicaid and other federally funded payments. Medicare and Medicaid might control costs better if conflicts of interest were eliminated, instead of the current approach of cutting physician reimbursements to the bone and pressuring honest physicians to provide quality services for little or no income.

We should have a more open dialogue about how much medical care we are truly willing to pay for. There is nothing wrong with having the Cadillac of national health insurance programs. We have the Cadillac of national defense systems. The U.S. Navy rules the high seas and safeguards shipping lanes for all. The U.S. Army and Marine Corp have more combat capability than any other nation's ground forces. The U.S. Air Force provides the finest air defense in the world. If we want, we can have the finest of national health insurance programs. We just need to be willing to pay for it.

Much of the opposition to the Obama Administration's plan has coalesced around the question of who will pay for the national health insurance program. This is politically savvy because no one wants to pay more taxes. As we can see from California's politics, focusing on tax burdens has an uber-NIMBY quality that paralyzes the political process and prevents anything constructive from being done. The naysayers on national health insurance are desperately trying to throw the health insurance debate into the tax burden briar patch, because that's where nothing gets done.

The administration should openly discuss the elephant in the room. Talking about what the government can provide presents the problem in positive terms: here, electorate, is what you get. It may be limited--indeed, of course it has to be limited because there can't be unlimited health care. But Medicare started off as a limited program, and still is a limited program. No politician in Washington who has functioning survival instincts would suggest repealing Medicare. Medicare can be and is supplemented by private insurance coverage--and so could any general federal health insurance program.

The administration would take a positive step by openly discussing how much health care insurance the government would provide. That would also clarify how much the cost would be. Taxpayers have only the example of the private sector as a frame of reference, and are understandably frightened by its history of skyrocketing premiums, very high administrative costs, and coverage limitations that most severely affect those in the greatest need. The government program should leave room for private insurance programs. Americans don't want anyone uninsured and they also want choice. These seeming inconsistencies can be accommodated by extending the mixed public-private health insurance system that, with Medicare and Medicaid, we already have. It is important to accentuate the positive, and doing so could help make national health insurance a reality.

Health Insurance Help in the Stimulus Bill for the Unemployed

For many of those who have been laid off, there's help from the Obama administration's economic stimulus bill paying for COBRA health insurance coverage. COBRA is a law that gives you the right to continue employer-sponsored health insurance coverage for up to 18 months after being laid off or otherwise involuntarily terminated. It's a crucial benefit for those with pre-existing medical conditions, who otherwise could have a very difficult time getting insurance coverage.

The problem with COBRA is that you have to pay the full cost of the premiums; there's no employer subsidy and there is a 2% administrative fee. Full freight for a family policy can easily run over $1,000 a month--a steep bill for someone who's just been laid off.

The stimulus package provides a 65% subsidy for those who were laid off between Sept. 1, 2008 and Dec. 31, 2009. The subsidy lasts nine months and phases out for individuals making over $125,000 a year and married couples making over $250,000. Eligible laid off employees who didn't initially opt into COBRA should receive a notice about the subsidy from the their former employers giving them 60 days to enroll for subsidized coverage. Dec. 22, 2009: here's a little holiday cheer. The 65% federal subsidy has been extended through June 30, 2010, and workers laid off between Jan.1, 2010 and Feb. 28, 2010 are entitled to the subsidy, as well as those laid off between Sept. 1, 2008 and Dec. 31, 2009, who are covered by the original stimulus package.

Health insurance coverage is one of the most important things to maintain even while you're unemployed. Life without a job is hard, but it can become a disaster if you have major medical expenses and no insurance. Stinting on health insurance coverage can easily prove to be pennywise and pound foolish. If you're uninsured and can take advantage of subsidized COBRA coverage, buy it. No one likes paying for insurance--until they need it. Then, it seems like a wise purchase. Health problems are inevitable. The only question when you will have them. Since that's unpredictable, health insurance coverage is essential.

If you or someone you know needs more information about health insurance resources, see http://blogger.uncleleosden.com/2007/09/health-insurance-update.html and http://blogger.uncleleosden.com/2007/06/how-to-find-health-insurance.html.

If you or someone you know is facing the loss of a job, there are a number of financial considerations to keep in mind. See http://blogger.uncleleosden.com/2007/05/financial-checklist-for-job-loss.html.

Health Savings Plans

One of the most heavily promoted new health insurance products is the health savings plan. It's becoming increasingly popular with employers because it costs them less. That's nice for them, but what about the employees and their families (also known as the "patients")? Is a health savings plan good for them?

First, let's look at the basic features of this plan. It combines a high deductible health insurance policy with a tax advantaged savings account. The patients are expected to pay the first few thousands of dollars of health care expenses they have each year. They save pretax dollars in the health savings account (as much as $2,850 for individuals and $5650 for families). If the account is part of an employer-sponsored plan, the employer may contribute money to the account as well. The account is portable--if the employee changes jobs, he or she can take the account along (including the employer contributions). Your health savings account may be invested in stocks, bonds or mutual funds. Otherwise, the money will usually be put into a bank account that pays relatively low interest.

You can pay medical expenses out of account. In effect, you'd be paying your health expenses with pretax dollars. But you don't have to pay medical expenses from the account. You can save it for future medical expenses, and build up the amount of the fund with future contributions.

As for the insurance part of the plan, that's where the high deductible insurance plan comes into the picture. After you pay a substantial deductible (which can be thousands), the insurance plan begins to pay. Some high deductible plans pay all expenses (i.e., there's no copay). Others require a copay.

The theory behind these plans is that by requiring patients to pay the initial few thousands up front, the plan motivates them to seek out lower cost providers and use their health dollars more efficiently. Supposedly, less money is wasted on needless or high-cost health care. For example, patients might choose an inexpensive generic prescription drug rather than an expensive name brand. The employers benefit because the premiums are lower.

Consumer advocates have complained that health savings plans are difficult for consumers to use because price-shopping for health care is difficult. It you have a broken wrist, you head for the first available emergency room. You don't call several hospitals and ask them to fax you their price lists. If you're diagnosed with cancer, you look for the best physician you can find, not the cheapest. Few patients have the medical sophistication to decide whether or not they need a CT scan, an MRI, an ultrasound, or some combination of the three. Patients required to pay full freight may defer health care when they initially have a problem, and then seek help only when it's gotten worse--and probably more expensive to treat.

If your employer switches totally to a health savings plan, you don't have any choice but to open an account. Do so because it gives you a tax advantage.

If you have a choice, a health savings account is a good idea if you are quite healthy. That means most younger people are more likely to benefit. But some young people have significant health problems and some older people are quite healthy, so focus on your personal situation. If you don't need a lot of health care, the money in the account can accumulate and compound into a nice medical care nest egg for the future.

If you need a fair amount of health care, a health savings account may do little or nothing to make you better off. Indeed, you may be better off with a traditional plan. Remember that with a high deductible health plan, you might have to pay full freight for the first few thousand dollars. That means that a prescription that you're used to getting for a $20 copay may end up costing you $100 because you don't get the subsidized price you used to get. One advantage of traditional plans is that professional plan administrators are bargaining with the pharmaceutical companies for discounts. With a high deductible plan, you could be on your own.

A recent study by the Georgetown University Health Policy Institute and the Kaiser Family Foundation found that in most pregnancies, a traditional health care plan appeared to be less costly than high deductible plans. For copies of this report, go to http://www.kff.org/womenshealth/7636.cfm. This is an example of how people who need significant health care often appear to be better off with traditional health insurance.

A person who is well off (annual income of $100,000 or more a year) and needs relatively little health care has a nice little investment gambit with health savings accounts. Stuff as much money in the account as you can, pay for your current medical expenses with aftertax dollars, and let the account balance build up. The money can always be used tax free for medical expenses. After you reach age 65, the money can be withdrawn for nonmedical purposes and all you need to do is pay state and federal income taxes (in other words, it's just like a traditional IRA or 401(k) account). If you withdraw the money before age 65 for a nonmedical purpose, you have to pay income taxes and a 10% penalty. Just beware of one thing: you won't always be healthy. Everyone suffers some deterioration in health eventually. Or they are hurt in a car accident. If that happens to you while you have a high deductible plan, your financial success may not glow as brightly.

Okay, so a health savings account will help the well-off become more well-off. How about everyone else? If your employer gives you a choice between a traditional plan and a high deductible plan, be very careful. Parents should keep in mind the substantial health care costs that kids sometimes have. People with ordinary or less than ordinary health should avoid creating disincentives to seek care. Many medical problems can be addressed fairly easily if you get to a doctor quickly. Wait a while, though, and you could be in big trouble.

The bottom line is that when you're thinking about health insurance, focus on the insurance part of it. Health savings plans tend to confuse things, because they mix investment with insurance. You might make a bad choice because you're trying to resolve too many conflicting considerations. Look at things from the standpoint of which plan gives you the best health insurance coverage. When you or your child is diagnosed with leukemia, you won't give a rat's left ear about investment options or tax advantages. All you'll want is the most comprehensive health insurance coverage possible, something that covers all possible treatments from sunup to sundown. Some high deductible plans are improving the scope and extent of their health insurance coverage, and maybe in the end, they will seem like the best option. But whether the best option is a traditional plan or a high deductible plan, make sure you're buying health insurance when you're considering health insurance plans. You've got 401(k)s, IRAs, mutual funds and plenty of other means to handle your investment needs.


Health News: To lose weight, turn up the lights. http://www.nbc4.com/family/13447047/detail.html.

How to Find Health Insurance

If you've been paying attention to the presidential campaign (i.e., if you're masochistic and have a really big antacid budget), you know that the candidates are rolling out proposals for reforming the U.S. health insurance system. It's good that they're trying to tackle the problem. But all of their proposals are just talk for now. The new president won't be sworn in until 2009, and actual reform will occur, if at all, months or years later.

So, we'll be stuck for a while with our current patchwork, crazy quilt, easy-to-slip-through-the cracks system. A major health problem can really mess up your life. A major uninsured health problem can force you into bankruptcy as well--more than any other reason, medical expenses are the cause of personal bankruptcies. So, how do you find health insurance coverage?

1. Hold onto what you have. If you're covered under a group health insurance plan, and are going lose coverage (e.g., because of a layoff), use your COBRA rights to stay insured. Under COBRA (a federal program), you have to pay the full cost of your continued coverage, but you remain insured for up to 18 months. COBRA lets you stay covered while you look for another job. Also, if you have a spouse, find out if you can be brought under your spouse's plan or policy.

2. Get information from your state government. At the federal level, health insurance has been mostly the subject of endless windbaggery. At the state level, there's been quite of bit of action, and your state government could be a valuable resource. Many states have programs to insure those that can't find coverage anywhere else. All states at least provide information to their residents. An easy way to tap into your state's resources is to go to www.healthinsuranceinfo.net. This is a website maintained by the Georgetown University Health Policy Institute, and provides a brochure for each of the 50 states and the District of Columbia. The brochure will give you information about your options, including any state program to help people who otherwise can't find coverage. Also, this website has a list of the states that have "high risk pools" (i.e., programs to help people who may otherwise be uninsurable).

If you think you're eligible for Medicare, you may be able to find assistance with Medicare questions through the State Health Insurance Assistance Program (www.shiptalk.org). To find a counselor, you connect through this website to the office for your state.

3. Contact a health insurance assistance program. There are a variety of programs at the state and regional level that might be able to help you. You can find the ones in your state by going to the program locator provided by an organization called FamiliesUSA (www.familiesusa.org/resources/program-locator/.

4. Contact a professional association or union. If you belong to a professional association or union, you may be able to buy health insurance through the organization. This is often the case with professional associations (such as bar associations for lawyers). Unions generally try to negotiate insurance coverage through the employer. But that isn't universally the case. Some unions may offer health insurance for members meeting certain conditions (e.g., Actors Equity, the union for actors).

5. Contact the big health plans. Large, well-established health plans often sell individual policies. Blue Cross-Blue Shield and Kaiser Permanente are well-known plans where you could start. A quick read of the Yellow Pages or a search on the Internet will give you the names of other plans you could contact. Individual policies will be more expensive than group policies, and there may be exclusions or limitations that you wouldn't find in group policies. But they are better than nothing.

6. Talk to a health insurance agent. You can consult a health insurance agent. Plenty of them are listed in the Internet. But it may best to find one the old fashioned way, through a personal referral. When it comes to a service-oriented business like insurance, a personal referral is likely to be far more informative than an Internet ad.

For many more hints and ideas about personal finance, please go to the Summer Heat edition of the Festival of Under 30 Finances: http://www.financeispersonal.com/2007/06/festival-of-under-30-finances-summer.html.

For more shopping hints, please go to the 17th Carnival of Shopping at www.become.com/pocketchange/2007/06/carnival_of_shopping_17.html.

Animal News: Parrots invade New Jersey. http://www.nbc4.com/slideshow/news/13460504/detail.html.

Aaaaagh!!!!! Insurance!!

Given a choice between visiting a dentist and buying insurance, most people would opt for the dentist. At least, you can get novocaine for the worst moments.

But if you’re serious about building wealth, it's important to protect yourself from risk. We’re not talking about investment risk. You know that stocks, real estate and other assets can decrease, as well as increase, in value. We’re talking about personal risks, and risks to your property.

What happens to your finances if you’re seriously injured and can’t work for months? What if a guest slips and falls in your home? What if you or your spouse dies, and leaves you to raise the kids alone? What happens if the next Katrina heads your way and turns your house into a pile of kindling? These are all examples of situations that could drain away your savings. How do you protect yourself?

1. Get health insurance. The most common reason people declare bankruptcy isn’t reckless spending. It’s unmanageable medical expenses. If you’re uninsured, do your best to get coverage. Be willing to sacrifice a lot of lifestyle in order to be protected. If you’re uninsured and have a health crisis, you won’t have a lifestyle. If you have trouble finding coverage, contact your state health authorities. Some states have programs to assist residents to get coverage.

Also, take care of your health. Avoiding a health problem is better than treating one, even if you have to eat some fruits and vegetables.

2. Get disability insurance. According to the Social Security Administration, something like 8.6 million workers and their dependents received Social Security disability payments in 2006 (www.ssa.gov/OACT/STATS/OASDIbenies.html). This figure doesn’t include people who received private disability payments, but no Social Security. Disability is a fairly common problem. Look for a policy that defines disability as your inability to work in your field or profession (and, indeed, your specialty within your field or profession). A policy that defines disability as your inability to do any kind of work (flipping burgers, anyone?) doesn’t provide much protection.

3. Get homeowners insurance. Make sure the policy limit is high enough to cover the current cost of reconstructing your home. Also have plenty of liability coverage, in case a guest slips and falls on your property--$300K is not too much. And think about whether you should get optional flood coverage--you don't need a Katrina to have a flooding problem (a sewer backup is all it takes).

4. Bulk up your auto policy. Make sure you have plenty of liability coverage--$1 million is rational in these litigious times. And don’t overlook the property damage coverage. Some luxury cars today cost over $100,000. Having $100,000 of property damage coverage isn’t a bad idea.

4. Consider life insurance. If you have dependents, life insurance may be a good idea. There’s no fixed rule of thumb for how much you need. Add up your other financial resources (savings, Social Security survivors’ benefits, any employer’s benefits for survivors, and your spouse’s income if he or she would work even if something happened to you), and then figure out how much insurance you’d need to get the little ones through college. Increase the amount if you want your spouse to stay home and take care of the kids.

5. Consider an umbrella policy. An umbrella policy provides additional liability protection, above and beyond your auto and homeowners’ policies. You can buy millions of dollars of coverage. It’s a good idea if your net worth is six or seven figures.

6. Consider a long term care insurance policy. This type of insurance covers nursing home expenses and other long term care costs (including some care at home). Medicare doesn’t cover most of these expenses. Medicaid does, but you need to spend down your savings to qualify for Medicaid. Long term care insurance is a way of protecting your savings. It could make sense if you have a six or seven figure net worth. Look for a policy with level premiums and an inflation adjustment in the amount of coverage. This stuff is expensive if you wait until your 60s (we’re talking thousands a year). If it seems to make sense for you, buy as early in your life as you can because it's much cheaper if you start when you're younger.

Okay, enough already about insurance. Here’s the story for your inner artist if you’re thinking of a career change. http://www.cnn.com/2007/SHOWBIZ/05/31/lego.artist/index.html.