I was talking to a gentleman today who works part-time as a professor at a local community college. He also spends part-time running a local non-profit. His experience shows why the recovery from the 2008 recession has been so slow.
When the Affordable Care Act, a.k.a. Obamacare, was forced through Congress by the thinnest of margins, one issue pointed out was that it discouraged employment. This is because the law requires a company provide healthcare to employees who work for more than 30 hours per week. It also requires employers with greater than 50 employees to offer health insurance. This creates a digital change in the cost per employee. If you give someone a few extra hours per week, your cost for that employee may jump by $8,000 per year or more. Even worse, if you add another employee to the payrolls and pass the 50 person threshold, your cost may just by $8,000 per employee per year, or $400,000 for a 50 person company. This is a recipe to reduce hours and keep companies from creating jobs.
While the intentions of the law were good – get everybody health insurance – the way it penalizes businesses who go above a certain threshold is a bad idea. It has caused businesses to cut people’s hours to stay below the threshold. Likewise, it has caused businesses to not expand and hire more people because they can’t pay for the huge cost of adding healthcare for all of their employees.
The gentleman I was speaking to saw his hours cut at the college because they could not afford to pay for health insurance for him and others like him who were not full-time professors. For the individual, this means that not only do they not have health insurance, but they also have less money in general to pay for things like healthcare, food, and housing. This makes people drop out of the workforce entirely so that they can get Medicaid. Otherwise, they may need to work a few part-time jobs because they cannot get a single full-time job.
So is there an answer to healthcare? I think that there is a solution that will work for most people, and for the number remaining it would be easy to take care of them. It involves going back to the way healthcare was paid for before health insurance was offered through work, but adding a measure of personal responsibility. It involves the following:
- Everyone who is working is required to put 10% of their salary away into a health savings account for their immediate family. This account is disconnected from their job – it is money sitting there waiting for them when they need it whether they are working at the time or not. Lower income workers would receive a subsidy to boost their contributions.
- Parents are required to put away $500 per child per year into a health savings account for their children from the time their children are born until they turn 18. That means the child will have a starter HSA of $9,000 when they leave the house. Parents can contribute more if needed. Poorer parents would get a subsidy.
- Individuals would be required to purchase major medical insurance. They could choose policies that pay for bills that exceed certain thresholds, such as $5,000, $10,000, or $20,000. Choosing a higher threshold would require enough money be saved in the HSA to cover the deductible. Higher thresholds would charge lower premiums, encouraging individuals to keep the balance in their HSAs high to reduce their major medical insurance bills. These policies would cover all medical costs after the individual met the threshold and would continue to pay for that condition.
- Doctors would be required to post their rates for procedures so that individuals could determine the price of services and compare among providers. Doctors could also have flat rates per year and sell healthcare plans.
The reason that this plan would work is that most individuals would have the money needed to pay for care when needed, meaning that people wouldn’t be hit with outrageous bills that are the result of many people not paying their bills. Because the bills would be more reasonable, more people would be able to just pay their bills. The major medical insurance means that most people would also be able to pay for the rare, high cost events like major surgeries and accidents.
This would also disconnect health insurance from employment, resulting in increased employment, increasing the amount of goods and services produces, leaving people better able to take care of themselves. and improving the economy. This in turn would further lower healthcare costs since it would increase the percentage of people who could pay their medical bills. Soon, the ability to pay for healthcare costs would be as common as the ability to pay for food and most people would be paying their costs out-of-pocket, saving their HSAs for the rare major expense..
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.