Obamacare Is Falling Apart…

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“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.

retirement trouble

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 fireball

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:

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:

image

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).

inflation

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.

The best article I’ve read on the topic is this article from Consumerism Commentary, which I posted on The Retirement Manifesto’s Facebook page:

facebook obamacare

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.
  • 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.

The Solution

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:

image

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.

 

retirement obamacare

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

Conclusion

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!

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28 comments

  1. You’ll be eligible for Medicare in 12 years, no? I hear if Hillary wins she may lower the Medicare age to 55.

    In our county we have one insurer that’s participating in 2017. So guess what we’ll be using? Plus, I’ve been reading stories that you have to monitor like a hawk what you say or what is said to you during your preventive exam, unless you want to get billed for services that are not covered. It’s going to be an interesting ride.

    1. Mrs Groovy, since you’re a bit ahead of me (congrats on 1 month to go!!), I’m very interested in how things work out for you. 1 insurer left in your county is concerning. Keep us posted!!

  2. Sounds worrying…
    At this time I am happy to live in Belgium with good basic coverage.
    That being said, I am having some personal troubles with some coverage.
    It is a matter for me to play the game well.

  3. One thing I have never understood, If the companies can make money and sustain with their Medicare supplements and Advantage plans, why not with with AFHC or just regular health coverage for less than $300 per month.

    1. David – sounds too simple, doesn’t it!? Concerning where things are heading, I don’t see the current path as sustainable. We need more folks like you who just look at the obvious….thanks for contributing to the discussion.

      1. I just turned 69 in August. When living in Kentucky my Anthem Medicare supplement cost $1,300 per year. We moved to Florida in September of 2015 and the same supplement would have cost $2,400 per year. Instead of keeping the Anthem supplement, I signed up for the the Florida Hospital SunSaver Advantage plan. It costs $0 per year. Under the plan (HMO-POS) I have no deductible and $4,500 Maximum Out-of Pocket. The plan also has Part D included. All of my meds are generic and with mail order service they cost nothing. My wife turns 65 in October and will switch from the Novelis Aenta to the same Florida Hospital plan I have. If she stayed on the Novelis Aetna Medicare plan, the cost would be $635 per month or $7,620 per year.

  4. I hadn’t really considered the effect Obamacare would have on companies that have provided healthcare for their retiree’s, I guess since they could go sign up for Obamacare they could terminate that benefit, but I guess that is every bit as much a reality as the companies who just quit providing healthcare for their current employees and would prefer to pay the penalty.
    As with almost every government program, this start out as well intentioned, but then good intentions meets reality where real economic consequences and benefits are realized, and the program never ends up the way that it was originally envisioned. I predict that “the government” will assume responsibility for providing insurance through the exchanges which will amount to little more than a huge expansion in medicare/medicaid, already the biggest contributors to our deficit. Someone had better figure out how to pay for it, can you say 50% tax bracket for everyone over 100K/year?

    1. “Can you say 50% tax bracket”….is, I’m afraid, exactly where things are heading. I’m contributing a fair bit to my Roth, under the assumption that future tax rates will almost certainly be higher than today’s brackets. With so many underfunded obligations, and a government unwilling to cut costs, it seems a reasonable assumption that we’ll all face higher tax rates in the coming years. Best to plan for it…..

  5. I’m glad that here in Canada health care is a universal social benefit for all Canadians and permanent resident. US healthcare system just seems so complicated to me.

    1. “US healthcare..seems so complicated to me”. I have a 6 word response to that: “You are not the only one…” Tough issue, not easily solved. Thx for your input.

  6. Thank you, Fritz, for a very cogent summation of the state of Obamacare. Going into retirement, Mrs. Groovy and I will be income poor and asset rich. So we’ll be entitled to substantial Obamacare subsidies. Right now we can get a high-deductible plan ($10K) for $17 a month. This comes to a taxpayer gift of over $16K annually. How sustainable is that?

    If things continue as is, I only see one solution: medical tourism. Americans will start seeking medical care abroad in droves. Paying the penalty here and paying doctors over there will be the cheapest alternative. The only thing that might forestall this is price transparency and competition between doctors and hospitals. Competition at the insurance level isn’t working. But politically, there’s no desire to approach the purchase of health care like we approach the purchase of smart phones. Sigh.

    I’ll keep you posted on our healthcare costs in retirement, Fritz. It should be interesting.

    1. $17 a month….you DO realize you’re killing me here, don’t you!? Good for you, and glad you’ve got a better option than many early retirees. Good point about medical tourism – it’s a growing trend, and will certainly continue to escalate if health care costs continue to climb. Nice addition to the discussion.

      1. As of now, Obamacare looks like it will work for us. But am I happy? Not really. This country has enough teat-sucking layabouts. It doesn’t need two more come mid October.

        I would love to see health insurance become more similar to auto insurance. You pay for the small expected stuff and let insurance pay for the big unexpected stuff. In other words, let insurance be insurance. Those who have pre-existing conditions should be on Medicare. They’re uninsurable.

        The only way to make health care affordable is to 1) have providers compete for patients, and 2) provide patients with an incentive to seek out the lowest-cost providers.

        Unfortunately, we’re going the statist route. I sure hope we can do socialism better than the Soviets did.

  7. There has been some competition in our area. A regional hospital group was losing a lot of patients to Kaiser. So they created their own in-network medical group and offered pricing in line with Kaiser. But the premiums are rising this year, although sounds like around 12 to 16% which is less than others are seeing, but I certainly didn’t get a raise that would cover that.

    I almost believe “Obamacare” was created to fail so that the endgame of a single payer system could be put in place. My plan was about $1400/mo with a $4000 deductible and $9000 max out of pocket. We didn’t have any major medical issues this year, but are close to the deductible. That is a little over $20K. I make a decent income so that is doable although not crazy about it. But for people who make less, I don’t know how they do it.

    In order to solve the problem, people from all aspects need to come to the table. We have sky rocketing school expenses that Drs. want to recoup. We have drug companies that want to make a healthy profit. We have hospital that want to make a profit. We have CEOs that seem to want to make grand incomes. We have health insurance companies that want to make a profit. We do need to stop giving benefits to those that don’t belong getting them and find a way to make those that are getting them, but not making enough to somehow earn part of the benefit to hopefully reduce the cost to those that are supplementing it.

    I want less Gov’t intervention, but I am not sure all of this can work in a completely private environment.
    cd :O)

    1. Great input, Chris. Pleased to see my “$1500/month” estimate is representative of what you’re experiencing (good point aqout the deductible being above and beyond the premium, and I may adjust my forecast up a bit to reflect that). Good summary of the stakeholders involved, and clearly part of what complicates any solution. Thx for your input!

  8. Great summary of the problems with Obamacare, Fritz. I am not a U.S. citizen, so it doesn’t affect me, but many of my website readers are, so I’ll be sharing your article with them.

    Private health care insurance in my home country Germany is very expensive too. One more reason to live or retire abroad. I’ve found international health insurance much more affordable than what I’d have to pay back home.

    1. Maggie, thank you SO much for sharing my article!! Much appreciated. I do think the health care issue will cause folks to think about expat living in retirement. It seems to be a growing trend, and health care inflation will only add to folks considering that option. Then again, I kind of wince when I think of getting a surgery done in some of the “low cost” countries that appeal to retirees. I think I’ll take my chances in the USA, but it is very concerning. Thanks for your input!

  9. A nice look at a troubling development, my friend. The previous healthcare system was failing people and far too expensive; and the ACA is certainly under pressure and the sustainability is uncertain. However, it is certain that healthcare costs – in all its forms and under whatever system we’re left with – will continue to rise.

    Like most people, I will be anxious to see where we are in 5, 10 (when I retire), 15 years and beyond.

    1. That’s a good “bottom line” assessment, James. Costs will surely increase, regardless of the political reaction to the health care system. Plan for heavy inflation in this spending category of your retirement budget, it’s coming!

  10. Great breakdown, though its too bad that things are going in this direction. I’m so thankful that part of my wife’s pension is the opportunity to sign up for their health insurance plan. Based on what it costs today, it will be such a bargain.

    1. I am so glad to come across this site and comments. I have been doing research on my options after my company has recently sent a letter to active employees and pre-65 retirees advising both that they will cancel pre-65 medical coverage on Jan 1 2017. I have worked for the company for 33 years and am 55 years old. This pre-65 retiree medical coverage has been offered since I started with the company, so it was disappointing and disheartening to have this benefit cancelled. I had factored it in my retirement planning for many years and was hoping to retire in next couple of years. I now expect that I will need to factor in at least $1000/mo that I was not counting on. Quite frankly I am not sure what to think about this. I feel like I got a hefty pay cut, and that my employer backed out of their agreement (they claim that it was always subject to change). I feel terrible for those that have retired in the last couple of years and are under 65 years, and now have to purchase their own coverage. I am reading on many sites including Human Resources sites that it is not uncommon for coverage to be pulled for 65 and over coverage, however with the exchange program in state of change companies are waiting to address pre-65 coverage until there is some stability. There has been talk amongst those in our company that are affected to seek legal counsel. Does anyone know if there is anything that can be gained in this? Is a company able to just pull this coverage at will if it was presented as one of the benefits offered? Thanks for the helpful site and comments.

      1. Liza, my company did it the exact same way, as have hundreds of others. There’s really no legal recourse, just be thankful you’ve not yet retired and can wait until you have sufficient retirement savings to absorb the additional cost. I’m in the same boat.

  11. This is one of the reasons I continue to live abroad in China, where I can walk into a hospital, without insurance, get a full medical check up including ultrasound, xray, get a blood and urine test, pay less than $100 and get results by 4 pm that day.
    While I understand that the US Health Insurance companies are losing money right now, it’s because their business model is totally wrong, they employ too many people, and spend too much money on things other than ensuring people’s health.
    If the system provided worthwhile benefits to healthy people, then healthy people would sign up not opt-out.
    If they really want to mandate health insurance, make it a tax, like social security, which is in fact, a type of mandated retirement insurance.

  12. I think the system was designed to fail from the beginning. You can’t tell the American public you can keep your doctor and you will have lower premiums and a better product and not deliver it.
    You can’t tell the insurance companies they will be able to reap obscene profits while the above is being said.
    Something like this should have been a focus of the uninsured only. Instead it affected a lot of others.

  13. Late to the discussion here, but I would say that a big part of this is the insurance companies playing hardball regarding their denied merger attempts. These mergers would severely limit competition was the govts rationale for denying them. One ceo actually was dumb enough to put his coercion attempt in writing.

    These same insurance companies make millions off other government plans like medicare parts C and D and in some cases medicaid. IMHO the govt should play hardball right back in terms of allowing these same insurers to profit off other govt programs. No cherry picking!

    While your analysis is thorough in many respects, i did not see you discuss medical loss ratios by insurer by state. They are required to spend atleast 80 percent of premiums on actual payments or they have to give rebates . I think we are over two billion in rebates so far. So many insurers can and do sell these policies with a profit. Specifically, most but not all of the Blues have figured out how to do this.

    Its not all doom! Problems, yes, but some tweaks would help solve much of it. But we can’t tweak what we have when the only solution one party will allow is to repeal it totally.

  14. Very interesting topic. I’m not American, but in Europe we’ll face our own challenges as a heavily subsidized healthcare system gets put under pressure by an aging population.

    Two thoughts cross my mind:
    1) your comment about healthier peiple foregoing insurance, baffles me. That is the whole point if insurance. We all chip in so that when one of us gets ill, that person is covered. Healthcoverage should be mandatory, as it is in Belgium where it costs me 90 euros/ year and that gives a basic coverage.

    2) governments should accelerate their quest for preventing disease and managing population health at scale. i think that in future we’ll come to a point where people who choose to forego on their health will have to face the financial consequences.

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