Financial Genome Project – Chapter 4

Chapter 4 – Health Insurance—A Privilege or a Right Still Comes From Your Paycheck

“For a long time, America was the only advanced economy in the world where health care was not a right, but a privilege.  We spent more, we got less.  We left tens of millions of Americans without the security of health insurance.  By the time the financial crisis hit, most folks’ premiums had more than doubled in about a decade.  About one in ten Americans who got their health care through their employer lost that coverage.  So the health care system was not working.  And the rising costs of health care burdened businesses and became the biggest driver of our long-term deficits.” ~Former President Barack Obama[1]

In Chapter 3, our sequence (pictured below) revealed that, before we receive our salary, our employer has to pay Social Security and Medicare taxes to the federal government and we must pay Federal income taxes, Social Security and Medicare taxes, and, if applicable, State income taxes and/or bank fees. All these taxes (yours and your employer’s) totaled 31-38% of your salary. But before we finally get to the point where you have your salary in your bank, ready to be spent or saved, we must look at another “involuntary” withholding–healthcare insurance.

CURRENT GENOME SEQUENCING

                Healthcare insurance evolved from nothing in the early 1900s to nearly 70% of the population being covered by employer-provided healthcare insurance in the 1960s.[2] Health insurance used to be considered a “benefit” offered by employers and treated as tax free for employers. In January of 2014, after a US Supreme Court ruling (National Federation of Independent Business v. Sebelius)[3], the individual mandate was passed requiring all applicable US citizens to maintain health insurance. While health insurance is mandatory, you get to choose how much you’d like to pay.

Modern insurance salary-withholding types involve 2 factors—a deductible and a premium. A deductible is the minimum amount you’re required to pay before the insurance picks up the costs. With the Affordable Care Act (ACA, a.k.a. Obamacare), one can also choose to pay $0, go without coverage and pay a penalty to the IRS (equivalent to the basic bronze plan). The premium is the monthly cost you and your employer pay to maintain the insurance. The size of the deductible and premium is typically inversely proportional. The higher deductible you have, the lower your premium should be. This is because you pay more initially for medical expenses.

Insurance is one of the most complicated parts of the genome. Navigating the entirety requires advanced mathematics and economics degrees, and there are several industries supporting it (i.e., insurance agents). Insurance companies use advanced mathematical algorithms to calculate the probability of someone needing to utilize the money and how much deductible/premium each person pays. This is done by actuaries, using complex actuarial tables. Since the start of for-profit insurance companies, they’ve managed to collect more than they need to pay out—creating what’s called a “float.” Insurance companies are then allowed to invest the “float,” for their own profit.

During the Affordable Care Act (ACA, a.k.a. Obamacare) planning phase, the White House webpage once said, “…the only changes you will see under the law are new benefits, better protections from insurance company abuses, and more value for every dollar you spend on health care.”[4] President Obama promised competition from the government to private health insurers. Unfortunately, as the ACA grew in complexity, politicians from both sides took opportunities to profit from it. Private insurers made money hand-over-fist. In 2016, UnitedHealth’s, one of the largest private health insurers in America, revenues rose nearly 24% to $83.6 BILLION.[5] Meanwhile, government-provided premiums continued to rise; despite President Obama’s promise to cut a typical family’s premium by up to $2,500 a year.[6] From 2014 to estimated 2017, premiums for the basic bronze plan rose 32%; 12% just from 2016 to 2017. Bronze plans started at $359 in 2014 and rose to $475 in 2017 ($408 in 2016).[7]

One of the goals of mapping out the Financial Genome is to create a forecasting model that takes in input and provides a forecast of the potential outcomes. For example, I heavily researched the Affordable Healthcare Act and knew that private insurers would make a lot of money off of taxpayers. But without a solid model, I was too scared to invest in private insurers. As mentioned above, UnitedHealth (stock symbol UNH) is one of the world’s largest private insurers and was rewarded nearly twice as much as the general stock market (see below). This is why I’m spending the time to map out the genome.

UNITEDHEALTH (UNH) STOCK SINCE ACA PASSED

All that being said, we’ll just focus on the genome connection between your employer and you. The last step before finally receiving your paycheck. You have some control over how much is taken out of your salary by deciding how much deductible and premium you’d like to pay. It’s truly a personal finance and lifestyle choice. Generally speaking, the healthier you are, the higher your deductible should be and the lower your monthly premiums should be. This is because you’ll be taking the financial risk if you need medical care. If you have pre-existing health problems or are unhealthy, then you’ll want to pay a lower deductible and pay higher premiums. If you require frequent health care, then your insurance company may pay more than you do in premiums. With ACA granting more access for those with previously uninsurable reasons and pre-existing conditions, insurers have to cover a large pool of people requiring medical care. The government and employers tend to incentivize higher-deductible health care plans since it minimizes their portion of the premiums as well as yours. Take a look at the chart below to show the different types of typical healthcare insurance plans that are available.

TYPICAL HEALTHCARE OPTIONS

We’ll discuss in further chapters, but the world has to decide whether healthcare insurance is a right of every citizen or if it’s a privilege of a civilized society. Like the title says, whether it’s a right or a privilege, it will still come from your paycheck. The choice will be philosophical, ideological, and political. Whatever path we choose, will determine what kind of connections that are built in the genome. As for now, and with the limited amount of public information, we can say that health insurance for a typical American job can be anywhere from 0.1 – 6% of your base salary. So after adding healthcare insurance, this is what our current genome sequencing looks like.

CURRENT GENOME SEQUENCING

We are finally at the point in the genome where you receive your salary and can start to save. We’re covering the very basics at this early point in our travels through the genome. It’s important to note that your employer giving you a salary isn’t the linear “starting point.” It’s a giant, interconnected circle, which we’ll continue to drill down as we touch each part of the genome.

 [1] https://obamawhitehouse.archives.gov/the-press-office/2013/09/26/remarks-president-affordable-care-act

[2] http://www.npr.org/templates/story/story.php?storyId=114045132

[3] http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf

[4] http://www.politifact.com/obama-like-health-care-keep/

[5] https://www.forbes.com/sites/brucejapsen/2017/01/17/unitedhealth-and-optum-profits-soar-despite-acas-political-uncertainties/#7e96ef535769

[6] https://barackobama.com/2007/06/23/a_politics_of_conscience_1.php  (Archive page: found in this article: http://www.politifact.com/truth-o-meter/promises/obameter/promise/521/cut-cost-typical-familys-health-insurance-premium-/

[7] http://go.avalere.com/acton/attachment/12909/f-0419/1/-/-/-/-/Deck.pdf

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