Friday, June 7, 2013

“We have to pass it to know what’s in it.”

That quote is well remembered in conjunction with the passage of the Affordable Health Care Act (“Obamacare”).  Well, we are finding out what is in it—and the associated (increasing) costs. Our purpose here is not to debate the passage of the bill; it’s the law of the land. What we do try to do is see how we can help our clients preserve their financial status in light of the political realities that face us. What do we know so far?

  • The law is not fully implemented—it won’t be until 2014.
  • Costs (even by the administration’s estimates) are increasing above original projections.
  • The cost of the Act (taxes) won’t be fully implemented until 2014.
  • Employers will be subject to “fines” if they don’t provide “appropriate” health care coverage.
Proponents and opponents have their own points of view concerning the impact the Act will have on businesses. We are not going to rehash those here. However, one thing we have noticed is that business does not act in a vacuum. Entities revise their plans in accordance with what will be in the best interest of business continuation. In that light, we cannot help but compare the health care plan with the retirement plans that business provide.

Decades ago, many employers provided defined benefit plans for their employees. The employer guaranteed a certain benefit for the employee at retirement. The employer bore the contribution and investment risk of the plan to ensure that the retiree’s benefit would be available at retirement. Because of the inherent risk on the investment performance side, defined benefit plans are being replaced by defined contribution plans (401(k)). Under such plans, the employer is providing contributions only and shifting the investment performance risk to the employee. Employers know their retirement plan costs—the contributions only. It’s up to the employee and their investment acumen to determine the benefit provided at retirement.

Will we see a similar shift in focus with employer health care plans? Increases in plan costs are rampant and now the employer is bearing both the costs of benefits for the employee as well as the probability of health care incidents. Will employers start providing employees a dollar amount for health insurance and tell the employee to provide their own insurance coverage? We may find out something else is in the health care act after it was passed.

Should you have any questions, please contact us at Paragon Financial Advisors. We will be happy to assist you as you plan for your financial future.
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