There has been speculation for some time that some aging Baby Boomers would prefer to continue to work past normal retirement age.  A variety of news reports coming out of Washington over the past several weeks also indicate that deficit reduction negotiations that are likely to begin in the fall may lead to increases in the normal retirement age within the Social Security program sometime in the future.  There’s a strong likelihood that the newly identified workforce trend marks the beginning of a tendency to see employment as a key component for financing longevity regardless of whether the trend is fostered by personal preference or by retirement plan formulas.

These results are not shocking in light of the health care debate and economic stresses that reverberate throughout the economy.  However, the survey shows the depth of the difficulty people have with companies and government agencies that are indispensible to their financial well being. 

This is a good time for intermediaries, whether they are trusted authors, financial advisors, academics and others to fill the void that is obviously missing in the public’s confidence in key industries.  Changes in health care, for example, are sure to cause people to have to rethink sometimes decades old strategies to financing coverage.  The health insurance industry will play a key role in the implementation of health reform, so designing a system in which the public has a basic level of trust is not a trivial matter.

T.R. Reid's "Healing of America"

For anyone trying to sort through the rhetoric surrounding the health care reform debate, I highly recommend a recent book by T. R. Reid entitled The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care. The author does an excellent job of describing the different health care systems that have been adopted by a number of countries. Moreover, he personalizes the role of patients within those systems by testing how many of them respond to a real shoulder ailment he actually experiences.

I’ve worked in insurance and financial programs serving Baby Boomers and seniors for most of my career.  One thing I recognize from time to time is how specific the programs I know are to the United States.  Therefore, I don’t spend as much professional time studying other systems, and I suspect that’s true of a lot of people in these industries.

Mr. Reid made one observation that is clear to me from the programs I know:

If there is a financial payback to programs designed to maintain good health, those paybacks generally do not appear for a number of years.

In the US, people (or their employers) change their insurance carriers too often for the carrier to have a financial incentive to incur the cost of a health maintenance program.  Medicare beneficiaries are likely to be in the program for a longer period of time, but the expenses are split between Medicare, a Medicare Supplement carrier and a Part D drug benefit carrier.  In other countries it can be easier to identify an entity that receives a financial return on a health maintenance program.

I’m not sure the book makes me more or less confident in the course of US health care reform, and the US system we start with is unique in a number of ways.  However, Mr. Reid has done a service by going well beyond clichéd descriptions of the health care systems that exist in other parts of the world.

The research attempts to quantify the financial loss incurred by people between the ages of 51 to 64 who have no health insurance (along with a major illness) as compared to people in similar situations with health insurance.  The authors’ findings indicate that the assets of the group without coverage suffered a median loss of 46 percent while those with insurance did not suffer a loss.

The research data is a powerful indicator of the destructiveness of the cost of major health conditions on a person’s financial plans.  The median wealth loss is substantial, but there are undoubtedly people who fare much worse than what appears as the average loss.

While the research helps establish the depth of the financial problem, the underlying fear of having major uninsured health expenses extends beyond those who are currently uninsured.  I have to believe that for each person in the uninsured category there are countless others who avoid an entrepreneurial opportunity or stay employed at a place in which they are not satisfied because of the fear of becoming one of these authors’ statistics.  This is hard to quantify, but improving this aspect of the job market may be one of the side benefits of health reform done well. Do you agree or disagree? Please share your thoughts in the comments section below.

By Stephen Savage

Sunday’s Washington Post Business Page ran a story by staff writer Ezra Klein with the headline “You Have No Idea What Health Costs” and a subheading, which read, “If You Did, You Might Just Want Real Reform”.  This article follows a provocative piece by David Goldhill in the September issue of The Atlantic Magazine, entitled: “How American Health Care Killed My Father”.

Both Klein and Goldhill make the point that people really don’t have a sense of the cost of health care.  Goldhill provides a dramatic financial setting for his views with the following analysis:

“Let’s say you’re a 22-year-old single employee at my company today, starting out at a $30,000 annual salary. Let’s assume you’ll get married in six years, support two children for 20 years, retire at 65, and die at 80. Now let’s make a crazy assumption: insurance premiums, Medicare taxes and premiums, and out-of-pocket costs will grow no faster than your earnings—say, 3 percent a year. By the end of your working days, your annual salary will be up to $107,000. And over your lifetime, you and your employer together will have paid $1.77 million for your family’s health care. $1.77 million! And that’s only after assuming the taming of costs! In recent years, health-care costs have actually grown 2 to 3 percent faster than the economy. If that continues, your 22-year-old self is looking at an additional $2 million or so in expenses over your lifetime—roughly $4 million in total.”

The lifetime health cost numbers are stunning.  Most people would likely be surprised to see them or to even see how much money is dedicated to their own healthcare over a shorter period of time.  While I am confident that both authors are correct in their analysis, I do think the current health reform debate coupled with our bad economy has made most people far more aware of the existence of a problem surrounding the cost of health care.

While the health reform dialogue rages a lot of things seem to be going on outside of the debate in today’s health care “marketplace.”  More people have to understand how to use a Health Savings Account (HSA) to their advantage.  Many Medicare beneficiaries have had to deal with the “doughnut hole” in which they are exposed to the full cost of prescription drugs.  Small health clinics are popping up in many regions of the country that specialize in less expensive alternatives for treating specified ailments.  In many instances, those clinics post an online schedule of prices for the procedures they perform.

It is hard to imagine how health care buying can ever look exactly like most consumer purchases.  However, the cost pain is real and growing and the effect of that pain is showing up in a variety of ways.  Whatever the result of the policy discussions, there will be opportunities to help people make good decisions on how to manage health care costs while maintaining the opportunity to achieve the best health outcome possible at the lowest financial cost.

The health reform debate is entering a new phase where compromise is in the air. The outcome continues to be of national importance, and the stakes are high for all sides of the health care equation.

The most perplexing question of the debate is how do health care policy makers slow the inflationary tendencies of the health care system, otherwise known as “bending the cost curve.” It’s not an easy question when there is so much debate on what causes health care inflation to outpace the general cost of living in the first place.

An article in the recent edition of Slate Magazine raises provocative questions about whether court rulings intending to open professional services to market competition had the effect of unleashing a commercial frenzy that drove up costs in the health care market. One of the primary questions asked within this article is whether a commercial motive is inherently inconsistent with health reform.

Ultimately, the end game is a search for the combination of best health outcomes at the lowest cost. Competitive forces can help get there if incentives are in place to keep people on their health plans for a long enough period of time to allow a plan to invest in that person’s health outcome.

Most reform proposals require insurers to provide coverage without regard to a person’s health condition. Plans will have to find ways to ratchet down the cost of expensive cases, and the regulatory structure will need to make sure that standards of care are in place. Consumers will also have to take responsibility to follow medical guidance, and financial carrots and sticks for taking responsibility are a foreseeable outcome of reform. Those of us in the business of advising consumers need to make sure they have sufficient information to guide their decisions.

Buying health care is not a market akin to laptop computers, and it is naïve to expect it to work in that manner. However, there is an opportunity now to “bend the curve” in part by using the strength of market forces and there’s a lot riding on the success of the effort.

As one indicator, it appears that a long historical decline in the price of term life insurance policies has ended. My colleague at Longevity Alliance, Bruce Cassens, who has years of experience in the life insurance industry, reports to me that term life insurance premiums have gone up from five to fifteen percent depending upon the carrier. Bruce also tells me that prices are rising on permanent, universal and whole life.

This trend reflects industry pressure to regain a solid financial footing coming out of the recession. It comes at a time when people who are “aging out” of old term policies may find they need life insurance for longer than they originally expected and therefore may need to go back into the market. For example, they may need to keep working for longer than originally planned or they may have continuing financial concerns for children or grandchildren.

A variety of factors will lead to increased demand for long term care insurance, life insurance and lifetime payout annuities. Insurance products are more important now to consumers than they have been in a long time. Competing pressures will make for interesting developments throughout the industry.

There are a number of significant observations in this article. One I found particularly noteworthy is the following:

“[The] damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue. There is no insurance system that will make the two aims match perfectly. But having a system that does so much to misalign them has proved disastrous.”

My own view is that there is nothing wrong with having a profit motive within the health care system, and trying to ban that motive will create its own forms of negative outcomes. To me, the most important observation is about the failure of the existing system to align incentives. Evidence exists that health care costs can be reduced if the profits were aligned first with achieving the best health outcomes, and second with the lowest cost method of achieving such outcomes.

Unfortunately, putting this observation into practice isn’t the sort of thing taught in Economics 101. From my experience, I believe moving toward aligned incentives would require significant changes in Medicare and the private insurance industry. From the private industry’s perspective, useful changes for any one beneficiary may not trigger cost savings for a number of years. Therefore, it becomes important for the industry to also build incentives for beneficiaries to stick with their carriers for a number of years. I like where this concept takes us because it allows carriers to build real relationships with their clients/customers and to spend money in the short term if the evidence shows the expenditure pays for itself over an extended period of time.

It will be interesting to watch the health reform debate to see if Dr. Gawande’s ideas gain traction. What are your thoughts on this article and issue? Please share them and I’ll look forward to your comments.

I look at this information with concern as the CEO of a business that helps people pay for the risks and rewards of longer life expectancy, including the very real possibility that a person will require long term care services sometime in his or her life. More importantly, the decline of the private voluntary market is an urgent national problem, because this market represents the best opportunity to avoid poor care and impoverishment for many aging baby boomers.

The economy caused much of the precipitous drop in the first quarter statistics. The future direction of the economy contains many uncertainties. What is not uncertain is this – the baby boom population is aging. Delaying the purchase of long term care insurance adds premium cost and risk that developing health conditions could preclude coverage entirely.

I don’t think it’s time to panic and write off the private long term care insurance market. For one thing, its success is in our national interest. However, this is a good time to consider how the market can attract additional participants and therefore come out of the business downturn determined to focus on growth and public adoption of its solutions.

The Social Security and Medicare trustees estimate that exhaustion of their respective programs trust funds will occur in 2037 and 2017. The programs will pay out more than they take in on an annual basis well before that time, so budgetary pressures occur long before the trust funds are fully depleted.

Aging Baby Boomers have seen many “retirement” rules change throughout their work careers. Many counted on employer paid defined benefit pension plans and even employer paid health care in retirement. The trend to eliminate these benefits began some time ago. The severe recession has taken out many of the remaining survivors, and it has even caused employers to suspend their contributions to employees’ defined contribution 401(k) plans. Not much is reliable any more.

What happens if Social Security and Medicare are changed in a crisis atmosphere? By necessity, how much of the burden will end up falling on those that have limited options for making adjustments in their plans? I understand the idea that crisis breeds action, but in this case action in the absence of lead time is bound to result in an ugly outcome.