Much like the Florida Gators’ travails against the Miami Hurricanes, Americans find themselves struggling with many facets of their finances. Harris Interactive recently conducted a telephone survey of 1,008 U.S. adults specifically focusing on health insurance. The study found many Americans do not understand basic health insurance terminology and concepts like premium, co-pay and deductible.
One-third surveyed thought premiums were what you paid the doctor or pharmacist while over a quarter thought co-pays are what you pay the insurance company to provide coverage. Twelve percent did not know how deductibles worked. To clarify, premiums are what you pay the insurance company for coverage, co-pays go to the medical provider and deductibles are your out-of-pocket expenses before coverage kicks in. Even with a deductible satisfied you still may have to pay co-insurance or a percentage of health care expenses.
Ernie Almonte, chair of the American Institute of Certified Public Accountants (AICPA) Financial Literacy Commission, melodramatically noted “half of Americans would fail Health Insurance 101.” The AICPA offered some tips for consumers like comparing health insurance plans and premiums when you buy insurance. While that’s valid advice, realistically speaking, his words are meaningless because health insurance underwriting could drastically change the premium.
Plus, with so little transparency of healthcare costs shopping around for the most cost effective health insurance only makes sense in a libertarian utopia. In the real world think Sisyphean nightmare. The American health insurance system befuddles good accountants, too, Mr. Almonte.
Unpaid medical bills lead more Americans to file bankruptcy than delinquent home mortgages or excessive credit card debt. Medical costs account for three of every five bankruptcies. With household income hovering around $50,000, a $5,000 or $10,000 deductible coupled with significant copays (see above for definitions) would bust most budgets.
On another front we find further evidence of households dealing with financial woes. A United States Census Bureau report “Extended Measures of Well-Being: Living Conditions in the United States, 2011” found the number of U.S. households unable to meet basic expenses rose by 16 percent from 2005 to 2011. During 2011, 22 percent of households could not meet one or more basic need such as rent, mortgage, utilities, healthcare or groceries. Despite the recession ending in 2009, people still struggle, and 3.4 million Americans experienced food shortages in 2011. There’s no reason for people to be hungry in America but it’s a sad fact. In light of continued hardship, the percentage of wealth controlled by the top 1 percent has never been this high in my lifetime.
New Mortgage Reality Looms
Housing prices and homebuilding activity has picked up especially on the local level. However the locomotive for South Walton’s economy could be throttled back. In 2014, mortgages may be more costly with rates increasing but also more challenging. The size of loans backed by Freddie Mac and Fannie Mae will be slashed next year in addition to new rules regarding mortgages. This double barrel whammy could temper the South Walton growth engine (and the ATM the county loves). If you are planning get a mortgage, move quickly.
With uncertainty facing real estate and repercussions from the Great Recession still evident, failure to raise the debt limit will only exacerbate our problems.
Buz Livingston, CFP, has the only investment management and financial planning firm in the entire world headquartered in Blue Mountain Beach. Contact him at 850-267-1068 or www.livingstonfinancial.net. He’s a tweeting fool, follow him @BuzLivingston.