Begin financial planning for health care changes now

We expect major changes ahead to U.S. health care policy under the current federal leadership. We don’t know specifically what these changes will be and when the changes will come. Yet for those with chronic medical conditions, it makes sense to begin financial and legal preparations for the change now. One key aspect of the change is already clear: more people will face the risk of medical bankruptcy than before. Your financial assets, and maybe even your life itself, are at stake.

The basic difference between The Affordable Care Act (Obamacare) and The American Health Care Act (Trumpcare) is how the plans handle sick people. Obamacare puts healthy and sick people into the same insurance pool and spreads the costs evenly over the population. Healthy people and sick people pay the same. But under Trumpcare – the Republican bill that passed the House and will be revised by the Senate – healthy people will no longer be subsidizing sick people. Health insurance for sick people will be very expensive, even after government subsidies.

Nobody likes to think of themselves as falling into this category of “sick people”. Yet many of us will eventually develop chronic medical conditions that are expensive to treat. In any given year the statistic that 80% of our nation’s medical costs are spent on 20% of the people holds true. The individual corollary, from a financial planning perspective, is that 40 % of us will incur a medical experience at least once in our lifetime where the cost of treatment will exceed our total household net worth. Even a simple and routine maternity expense for a healthy young woman, for example, exceeds the financial abilities of most young couples. Dreaded diseases like cancer, diabetes, heart conditions are far worse.

Most people with chronic medical conditions have trouble paying for health care. This is not new. This means, for example, that a financially stable person who develops adult onset diabetes is likely to become impoverished over time. I’ve covered this trend and the data behind it in many blog posts over the years. Under the Republican health care plan, this type of medical bankruptcy will happen sooner and affect a lot more people.

The financial planning approach for this situation used to be called “Medicaid planning”. The concept involves protecting whatever assets can be saved before medical care providers have the legal right to claim the residual wealth of the patient. The proverbial situation “lost the house to the nursing home” is a best-known example.

Financial planning for medical costs requires a long time frame and family cooperation. Trumpcare planning will involve earmarking funds for health care, avoiding taxes on this money, separating and protecting assets, and providing for bullet-proof supplemental insurance. The only logical response to Trumpcare is to revisit your financial planning, review your assets and titling, and then reconsider the potential risk and cost of catastrophic health care.

I urge clients to review of their financial plans now to be prepared for big changes ahead.

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