Rising Health Care Costs Stretching Middle Class

united states map, health care costsBy Jeff Voudrie     Actuaries predict that Obama-care costs will result in an increase in claims costs of 60% in California and possibly up to 80% in Ohio. These potential health care cost increases could further exacerbate the ‘Coming Great Retiree Crisis’. In my opinion, it is important for everyone to begin factoring increased health care costs into their financial plans.

When the Obama administration committed to overhauling the current state of health care, the American people were told that it would reduce costs and increase availability to cover more people who had previously not been covered. However, the cost of medical claims are the most significant factor driving health insurance premiums. And, according to a report by the Society of Actuaries, they are going to rise by 32% for the average American policy.

A few states will see the cost of health care claims reduce, but these states are in the minority. The overwhelming majority will see at the very least a 10% rise. There is a great deal of disparity, with certain states’ costs like California and Ohio increasing by 60% or even 80%. This is because different states have different insurance rules to go along with different populations and demographics. As well, insurance companies will no longer be able to turn ‘high-risk’ insurance pools away and they will no longer be able to charge higher rates to people who are older and sicker. And although some people like this will save money for themselves, for others health care costs will rise.

This increase goes against the promise of smaller costs, and has many implications, especially for people who do not have coverage through their jobs. But, when you think of the 32 million previously uninsured Americans who will have health care coverage for the first time when the plan is fully phased-in, an increase in premiums appears unavoidable. It is not only the increasing societal coverage that will increase health care costs; it is the fact that the new pool of people includes sicker people, requiring more medical attention. Therefore, more coverage and higher health care premiums will be necessary for everyone.

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The report by the Society of Actuaries was challenged by the Obama administration, which said that the report only looked at one element of health care costs reforms and ignored relief strategies and subsidies such as tax credits. In other words, on the individual level there is opportunity to make savings that could balance increasing premiums. Additionally, the report did not include special subsidies that are to be provided to certain insurers who deal with larger numbers of sicker people.

There is also the element of competition between insurers. When the health care insurance markets go live on Oct. 1, the ‘free-market’ insurance market will begin and many providers will be in direct competition with each other, which is something that will help to keep health care costs low.

Ultimately, the promise of lower health care costs is appearing less and less true. With such rising insurance costs, along with the Crisis in Europe, restricted lending and higher debt, retired investors will need to continue to monitor their situation and take steps to keep living costs down. Simply put, there is no way of knowing exactly what the future will bring. Furthermore, whether or not you agree with social healthcare inclusion at the expense of rising costs, allowing your investments and savings to last as long as possible and reducing expenses will only make things better. Combined with historically low interest rates and ever increasing global crises, the next decade is likely to be one of the most difficult faced by U.S. retirees since the Great Depression. Now is the time to take action.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

Twitter:  @JeffVoudrie   @seeitmarket

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.