My intent in writing this blog has never been to make it political. I’m sure some of my readers are probably saying “Enough about the Affordable Care Act, already. Just get back to information about stocks and bonds.” I’m sure that many of my readers have different political views and would love to have a single payer healthcare system.
The reason I have written so many posts, however, is that the Affordable Care Act will make the central theme of this blog, providing information on how to grow financially independent by working and saving, pointless. As I have stated, under the current level of taxes an individual in the middle class has the ability to save and invest. In doing so, one can become financially independent by the time one is 45 to 50, and be fairly wealthy by the time one retires. If this continues for a couple of generations where the children build on the wealth of the parents, very wealthy families could be produced.
This is done by sacrificing and avoiding debt when you are young to allow you to invest and increase your income later. This involves doing things like not buying new cars, eating in or bring a lunch most days, and keeping vacations modest (and paid for with cash) until you have assets generating enough income to have more lavish vacations. These simple steps can allow a middle class family to save the $200-$500 per month needed to build assets and generate investment income.
The Affordable Care Act, however, requires those who are young and healthy to pay $200-$800 more per month for health insurance. It is not that they are suddenly sicker or will be receiving better quality healthcare. It is so those that are older and sicker will be able to pay less because young people who use little healthcare will be paying for part of the sicker person’s care. The idea is that you will pay a lot and use little healthcare when you are young in return for paying less and receiving more tcare han you have paid for later in life. Like Social Security, however, this requires those being born now and ten years from now to agree to this bargain and keep paying these high premiums when you need the care.
If people in their 20’s and 30’s start paying another $300 per month for healthcare, that will make it even more difficult to save and invest. Indeed, many people may start eating in and buying used cars just to pay their health insurance bills, rather than to save and invest. This will cause a drop-off in sales at restaurants, stores, and car dealerships, likely leading to job losses and an even smaller economy from which to support this massive healthcare program. It will also take investment capital away since fewer individuals will be investing, reducing the pace of innovation and making fewer new services be provided and fewer jobs be created.
A better plan for healthcare is to eliminate pre-paid healthcare entirely, instead making medical costs more transparent and allowing the market to drive down costs and make the system more efficient. This would be coupled with mandatory contributions to Health Savings Accounts (or making the consequence of not having money saved severe enough that most people would chose to do so on their own) so that individuals have money to pay for care when required. Insurance would still be needed to spread the risk for expensive procedures, but having people pay out-of-pocket for most care would reduce costs, result in better care, and allow individuals to save while they are young to pay for their own care when they are older.
We also need to get away from the notion that individuals should not pay for their healthcare. Few people would take charity when they are able to provide food and shelter for themselves, but most people are more than willing to use a government program to pay for their nursing home care. In fact, many people spend down their savings in retirement just so they can go on Medicaid rather than spend the money on their own care. It is fine to leave an inheritance when you die with money left over, but shouldn’t we first use that money to take care of ourselves while we are alive rather than burdening others? Not only is this fair, but the quality of care we receive will be better and we will have more choices.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.