“Obamacare Is Falling Apart…..And What It Means For Your Retirement”.
Today’s post will focus on what’s really been happening since Obamacare became the law of the land, and what it means for your retirement planning. I’ve learned a lot over the past few weeks as I’ve researched this, and today I’ll share it with you. This is an important topic that all of us should understand as we prepare for retirement.
Politics aside, for anyone seeking early retirement The Affordable Care Act was a good thing. Really. For any early retiree too young for Medicare, but no longer covered by their company’s health care plan, The ACA provided a means to secure guaranteed health insurance.
Personally, I don’t like the politics behind socialized medicine, but I was pleased to know that my post-retirement health insurance challenge had become easier with the passage of the Affordable Care Act. Always looking for a positive angle on things, I chose to focus on this aspect of Obamacare as I approached retirement.
6 Years after it’s passing on March 23, 2010, we’re seeing the escalation of some problems.
Obamacare is falling apart, and it doesn’t appear to be something that will reverse course any time soon. I’ve learned a lot as I’ve studied the situation for this article, but I’m far from an expert on the topic. Therefore, I’ve included many links in today’s article and encourage you to research the subject for yourself.
I won’t get into the politics of the situation with today’s article, but I will point out what is going wrong with the system and the implications for anyone approaching retirement.
Plot Buster: It’s not good……
Obamacare Is Falling Apart…..Here’s How:
What once looked like a good thing for early retirees is much less certain. Due to insurance company losses, many are pulling out of the marketplace. Those that remain are raising prices, dramatically. The path forward is unsustainable, and what was once a relief for early retires is once again a source of anxiety. Following is a summary of why Obamacare is falling apart:
The Two Big Problems:
1) Insurance companies are pulling out of Obamacare
Insurance companies are hemorrhaging cash from Obamacare, and discontinuing coverage as a result. In A Big Way. Folks that thought they were covered find themselves losing coverage when their insurance company exits a market, and are now scrambling among a smaller and smaller pool of insurance providers.
Want proof? See some summaries below:
- Humana plans to “exit substantially all” markets where it sells individual plans on the exchange.
- Aetna is dropping out of 11 of the 15 states where it provides coverage, citing $430M in losses since 2014.
- United Health Care has said it will stop selling individual plans on all but a few exchanges, affecting 800,000.
- Colorado HealthOP, the State’s largest non-profit insurer, shut down, forcing 80,000 to scramble for coverage.
- Health Republic Insurance, of New York, shut down after facing massive losses, stranding 200,000 individuals.
- Blue Cross Highmark plan has lost $773M on Obamacare, and calls the situation “unsustainable”.
- 46% of Insurance Co-ops have now shut down due to losses from Obamacare.
- In total, 108 Insurance Companeis have now dropped out of the Obamacare marketplace.
- A smaller pool of providers in each market also creates problems, as highlighted in this NY Times article.
2) Costs Are Rising
To stem the flow of losses, insurance companies are requesting price increases across the country. Earlier this year, Humana requested a 50% price increase in Michigan and a 65% price increase in Georgia (concerning, since I’ll be retiring in Georgia!). While large price increase requests make the headlines, the actual increase is often less than requested after the regulators review the request and finalize the increase. Following is an interesting infographic from this article in USA today which illustrates the severity of these increases:
The average Obamacare price increase for 2017 is estimated to be 10%, according to a new Kaiser Family Foundation report. A 10% increase in one year is significant, and will compound as future years will inevitably continue to face increases. Over several years, this rate of increase would do real damage in a fixed income retirement budget (see $75,000/year in the “Impact On Your Retirement” section near the end of today’s article).
Obamacare Is Falling Apart…..Here’s Why
Clearly, there’s a systemic problem here.
In a nutshell, the insurers are losing millions of dollars, spending more money covering claims than they’re receiving in premiums.Obamacare: Outlflows > Inflows = Failure. Click To Tweet
Inflows (Insurance Premiums) are simply too low to cover the Outflows (claims) from plan participants. The dilemma is well explained in this Forbes article, which explains how premiums paid by enrollees aren’t enough to cover a sick population of patients.
Obamacare Is Falling Apart…..The Summary
Summarizing everything I’ve read on the topic, I see the root cause behind “Obamacare Is Falling Apart” as 3 main issues:
- Unhealthy people are signing up in droves, and 82% of those who have signed up are getting subsidies.
- These “Unhealthy” folks are sicker, getting more care, and costing more than expected in the initial plan design.
- Healthy (& Young) people are staying away, in some cases electing to pay the penalty since it’s cheaper.
Since the premiums of “healthy” people were supposed to cover the costs of claims from “unhealthy” people, the surge in unhealthy people and the shortage of healthy people has led to an economic imbalance. Insurance companies are suffering losses as the outflows from paying claims exceeds the revenue earned from premiums. This, in my mind, is the root cause of why Obamacare Is Falling Apart.
This will be a short section, as I simply don’t know the solution. Based on math, it’s straightforward, and best summarized by one of the comments I entered under the Facebook article shown earlier:
Clearly, we have a problem with the cost of health care in the USA, and the industry itself will have to find a way to address escalating costs. The increasing cost of medication plays a role, as does our litigious society (although I must admit I was pleasantly surprised to find during my research that the cost of malpractice insurance has actually gone down in recent years).
Bottom Line: This problem will be with us for a while, and you should plan accordingly.
Obamacare Is Falling Apart…..And The Impact On Your Retirement
The problem is severe, and will most definately impact the cost of an early retirement.
As a result of Obamacare, many employers have discontinued “retiree medical” coverage, which used to be a standard benefit. Employers argue that they used to have a goodwill obligation to provide medical coverage to retirees until they reached the age at which they could file for Medicare. This was based in large part on the reality that some retirees would have a pre-existing condition, where an individual may be unable to secure individual insurance. With the passage of the Affordable Care Act, employers no longer felt that obligation, as everyone was now eligible for individual insurance. Companies will now save millions on retiree benefit costs, and the burden shifts to many retirees to bear the cost of their own coverage. I’m in that camp, and I suspect many of you are as well.
If you’re planning on retiring early, make sure you’ve built in some conservative assumptions on how much you’ll have to pay for health care insurance. Don’t use a low estimate, only to retire and find you have insufficient cash flow to cover your actual expenses.
$75,000 Per Year For My Health Insurance
In my retirement cash flow planning, I’m estimating $1500/month for health care insurance. Inflated at 10%, this would increase to $3890 / month in 10 years, and $6265 / month in 15 years (yes, that’s $75,000 per year in health insurance cost if the current rate of increase is maintained!!). At 5%, I’d still be facing a $3118 monthly cost for insurance, or $37,000/year. Scary stuff, this, and a good example of why inflation is called the “silent killer” of retirement.
The compounding affect of inflation is dramatic – make sure you’ve accounted for it in your retirement projections.At the current rate of increase, my health insurance will cost me $75,000/year in 15 years Click To Tweet
The topic of health care is controversial, and not an easy one to solve. It has societal, ethical, moral, financial and political implications far beyond the scope of this article. The focus of this commentary is to explain what is happening in the USA health care insurance industry, and inform you (as a person interested in personal finance and retirement planning) on the potential implications for you.
As an individual, you are responsible to understand the realities you’ll face as you plan for retirement. Take the time to understand the major issues, and build contingencies into your plan. Hopefully, this article has been of some help as you learn more about this important topic for your personal retirement planning.
I’d encourage readers to leave comments on what they’ve found as a tolerable solution for post-retirement health care coverage. I’m not retired yet, and this issue is a major factor in my family’s decision on when I’ll be able to retire.
I suspect many of you reading these words find yourself in a similar situation. Hopefully, by working together and sharing ideas, we can Help Others Achieve A Great Retirement!