It is easy to conclude that health care planning is anything but easy. Issues of affordability, portability and sustainability can appear overwhelming. Certainly the complexity of the system and all its variations are enough to cause many people, including professional advisers, to throw up their hands and skip the topic altogether. But I believe that by approaching the topic from the perspective of distinct market segments and then focusing on a few common core values of each, real value is possible from health care planning. This is the simple approach that I use.
Definitions
We can define "lower income" here as those who qualify for Medicaid. I would define "working class" in this discussion as those who couldn’t afford the lifelong cost of health care on their own without some form of public or government-paid subsidy. For this discussion, I would define "affluent" simply as a household with income more than two times the national median level; let's just say a household with more than $100,000 income.
ACA divisions
The Affordable Care Act (ACA) arbitrarily draws the line of health care affordability at 9.5% of household income plus about $12,500 in out-of-pocket expenses not covered by insurance. So for a family of 4 with an income of $100,000, that's a maximum total healthcare cost of $22,000 per year. I'm still not convinced that any typical American households consider $9,500+ in primary insurance premium or $22,000+ per year maximum health care costs to be affordable. Nevertheless, the law cuts off subsidies at 400% of poverty level income so a family of 4 with income of $100,000 does not qualify for an insurance subsidy.
At the lower end of the income division, most states provide fully-paid government-paid health care benefits under ACA for households with less than about $2,500 monthly income (again presuming a typical household of 4). Unfortunately, the term "planning" is far removed from the financial realities that so many households struggle with on a day-to-day basis.
Health insurance
I've long predicted, in articles dating as far back as the early 1980s, that we will eventually wind up with two separate health insurance markets, one for lower income and working class and a second for the affluent market. We already see this effect in other industrialized nations. In reality, many states have three distinct markets for health insurance today because coverage for lower income individuals provided under Medicaid is different (arguably inferior but with lower out-of-pocket costs) to coverage available through the public exchanges. As the exchange system evolves, we are already seeing that lower income and working class people are more likely to use the public insurance exchanges and affluent people more likely to use private exchanges. This trend is expected to continue while the features of each market become more distinct.
Planning for lower income clients
To be clear, I'm talking about people with significant assets who live with lower levels of taxable income. I'm not talking about poor people. We know plenty of millionaires who receive subsidized health insurance under ACA. Even far more people have assets like a modest retirement account and ownership of a family home. It is naïve to ignore the financial risks that health care claims can pose or personal assets today. Changes in medical collection methodologies and technology have dramatically increased the number of individuals facing collection action of catastrophic medical claims. He myth that Obamacare would cure "medical bankruptcies" is gradually coming to light. This risk can be controlled with supplemental insurance, asset planning or a combination or both.
Planning for working class clients
Learning to live comfortably with increased health care expenses defined by the Affordable Care Act requires significant changes to personal financial planning, family budgeting and, yes, even a fundamental change in lifestyle. It is not easy but it can be done. Strategies are the same as for lower income, except that funding comes from earned income, not assets.
Planning for affluent clients
The focus of health care planning for the affluent is to use part of compensation - let's call it bonus compensation - as a tax free payment allocated toward future health care costs. Usually this involves working through employer-provided employee benefit plans. There are many strategies to make this work but the goal is always the same: avoid taxes and accumulate assets.
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An increasing number of professional advisers are becoming aware that they can help clients in the transition toward financial stability in the face of increasing health care costs. I've worked with plenty of people in each of these categories - lower income, working class and affluent. Many started in a bad situation with catastrophic costs and an unsustainable cash flow. Yet all of these who committed to serious planning efforts have been successful in stabilizing and thriving in the post-reform health care environment.