Reducing the Costs of Healthcare

We may soon see the repeal or defunding of the Affordable Care Act (ACA or “Obamacare”). No matter your political perspective, there is no doubt that rising costs of health care are a significant financial problem for many working musicians, especially those who rely on an individual health insurance plan to cover their family. These spiraling costs threaten our ability to save and accumulate, as well as to secure our retirement. In our financial plans, we calculate a higher rate of inflation for health care costs than other living expenses, but cost increases for those using individual plans on the ACA exchange have grown much faster than the overall 5-6% rate nationwide.

As a society, we are going to need to curb these costs while making sure all Americans have access to care. What concerns me today is that the new administration is pushing forward with the repeal while replacement plans remain vague and uncertain. We know what they are against, but what is the best solution?

Here’s a Financial Planner’s perspective on how America might reduce the cost of healthcare. My hope is that we can have a more educated and thoughtful conversation about this complex subject.

1) Covering Pre-existing Conditions
Requiring insurance companies to accept new participants and cover their “pre-existing conditions” is a fair and compassionate move from a consumer protection standpoint. But it’s a major change to the insurance model.

It means that insurers have to worry about self-selection bias, where people who are sick will sign up, but people who are healthy decide to forgo coverage. The more insurance premiums go up, the more self-selection occurs. That’s why the ACA included a provision to penalize people who do not have coverage, to create a financial incentive for everyone to participate.

The penalty is 2.5% of your income, with a floor of $695 and a ceiling of $2,085 per adult for 2016 and 2017. The ACA forces a painful decision between paying a penalty versus spending thousands more on coverage that has a high deductible and may offer little benefit unless you have a catastrophic illness or injury.

Unfortunately, requiring insurance companies to accept pre-existing conditions is like requiring auto insurers to cover your car after you’ve already had an accident. To afford covering pre-existing conditions, we need all Americans to participate in health insurance and not let healthy folks opt out. That’s why covering pre-existing conditions combined with rising costs is causing self-selection: people who are healthy are choosing to forgo coverage or cannot afford it.

Similarly, allowing young adults to stay on their parent’s coverage through age 26 under the ACA sounded like a great idea to keep those children insured. Unfortunately, it removed healthy young people from the risk pool, which made costs more expensive for everyone else who needed coverage through the exchange.

In this regards, the ACA coverage of pre-existing conditions has increased costs more than anticipated. Maybe the best solution would be a single-payer, government health plan, like in many European countries. Our tendency is to reject these plans out of hand, but maybe we should look more carefully at their costs, benefits, and features. We cannot afford to think we have nothing to learn from the rest of developed world.

2) Cost of insurance versus healthcare
Insurance companies have a mandate legally requiring a large, fixed percentage of their premiums go directly to medical costs and not to overhead. Insurance premiums have not been rising because of greedy insurance companies making profits. In fact, the opposite, companies are leaving the ACA exchange after losing tens or hundreds of millions of dollars. Insurance costs are going up because the costs of healthcare are skyrocketing.

What we need to be doing is looking at ways to reduce healthcare costs; insurance just passes through those costs to consumers. The US spends 50% to 100% more than other developed countries per person. We spent 17.8% of GDP on healthcare in 2015, the highest in the world. Universal healthcare programs in Europe, Canada, and elsewhere costs much less, no more than 10-11% of GDP.

Why do we spend so much on healthcare in the US?

  • US patients may pay 3-4 times as much for medicines than in Mexico or Canada. This is frequently for drugs that were invented or manufactured in the US. We need to examine why the free market isn’t pushing those costs down.
  • The threat of lawsuits, and magnitude of awards, hurts Americans two ways. Directly, the cost of malpractice insurance is ultimately passed on to consumers. Indirectly, doctors may order additional tests, procedures, or medications that may be unnecessary or more costly than other alternatives, because of the threat of malpractice, rather than medical need.
  • To some extent, private insurance subsidizes hospitals who receive low reimbursements from Medicare and from uninsured patients who do not pay. Your insurance company is likely paying a hospital much more than they would receive from Medicare. Many public hospitals, like Parkland in Dallas, serve the 15% of Americans who are uninsured. And when the uninsured have a $50,000 hospital bill, that amount will seldom be collected.
  • Patients often do not have any incentive to reduce costs or share in expenses. Once your deductible and out-of-pocket is met, for example, the patient’s cost of a $15,000 procedure is the same as a $50,000 procedure. Which procedure is a doctor or hospital more likely to recommend if you have good insurance?
  • We spend a significant amount of our Medicare and Medicaid budget on caring for people in their last 3-6 months. Dying is a natural process, but modern medicine often assumes we should prolong life for as long as possible regardless of the quality of that life. I am glad that we do not tie end-of-life decisions to cost, but perhaps it would be both sensible and compassionate to focus on comfort rather heroic procedures for an elderly patient with significant health issues. Being hooked up to machines and tubes may keep you alive, but it is not the same as living.
  • Many health issues such as heart disease, blood pressure, and diabetes are exacerbated by the obesity problem in the US. An education on smarter food choices and more exercise should start at an early age. Prevention is less expensive.

We cannot expect the cost of health insurance to decrease unless we address the cost of healthcare. We need to encourage everyone to have health insurance coverage, because the very nature of insurance is spreading out risks so that the pooled money covers claims for those who need it. We are keeping our fingers crossed that whatever plan Washington develops, more people can be insured and that we look long-term to keep healthcare costs better under control. For our musician clients, we will continue to help you sort through your options, but know that having access to a group plan through an employer or spouse, continues to be your best bet for coverage.

Emergency Assistance for Musicians

Today I am writing something which I hope none of you will ever need: financial assistance for musicians who experience an emergency. The most common need is for medical bills, which can easily run into the tens or even hundreds of thousands today for an accident, injury, or serious disease. The phrase “unexpected illness” is redundant – no one ever expects that they will be the one who experiences a life-threatening illness or injury. When these cause a financial crisis, there are three charitable organizations whose mission is specifically to help musicians in their time of need.

Even if this doesn’t apply to you, please read this, and keep these organizations in mind for your friends and colleagues. Every year, I hear about someone I know who plays in local groups, or who I went to school with, who is experiencing a financial emergency. Please let them know about these resources.

Musicians Foundation  http://www.musiciansfoundation.org/

Since 1914, the Musicians Foundation has provided emergency financial assistance for medical bills and living expenses for musicians who are unable to work due to emergency circumstances. To be eligible, you must have been a professional musician for at least 5 years and reside in the United States. To apply, they have a 4-page application and require tax documents, a letter, professional biography, and medical documentation.

Grammy.org MusiCares Emergency Financial Assistance  https://www.grammy.org/musicares/client-services/emergency-financial-assistance

Grammy’s Emergency Financial Assistance Program provides financial support for musicians in times of financial, medical, and personal crises. This includes hospital and medical bills, addiction recovery treatment, psychotherapy, Alzheimer’s care, as well as living expenses such as rent and utilities. To qualify, you need to document employment as a musician for at least five years and on six commercially released recordings or videos.

Sweet Relief Musicians Fund  http://sweetrelief.org/

Sweet Relief helps career musicians in the US and Canada with financial emergencies due to illness, disability, or age-related problems. Grants are provided to musicians who have regular public performances or performed or wrote music for at least three widely distributed recordings.

All three organizations accept and rely on donations to provide this financial support to musicians in need. So, if you are able, please consider making a donation on behalf of other musicians.

If you know a musician experiencing a health care and financial crisis, the last thing they may be thinking about is filling out forms, writing letters, and submitting financial paperwork. I will help any eligible musician complete these applications at no cost whatsoever. It’s a few hours of my time, but hopefully this can help them and their family in their moment of need.

The exorbitant cost of health insurance has been a frequent conversation this year. This month, I spoke with a healthy, young musician who is spending $450 a month for insurance, and a family of three with a premium over $1,200. As awful as that is, going without insurance is reckless. It is rolling the dice and hoping that you never get ill or have an accident. Please do not go without health insurance – you are risking everything. For moderate and low income families, make sure to investigate tax credits for insurance purchased through the Exchange, under the Affordable Care Act.

Link: IRS Facts about the Premium Tax Credit