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Jim Lentini: Retirement and health-care issues

Business Commentary

Posted: August 3, 2010 4:55 a.m.
Updated: August 3, 2010 4:55 a.m.
 

Under the recently enacted federal health-care legislation, we have begun seeing the changes caused by this new law.

Brokers are questioning how much more work is involved in underwriting from the individual application process, underwriting disclosure for applicants and notice of benefits from the home office in processing claims.

While government is attempting to initiate "green" steps to protect our environment, health care that represents one-sixth of our economy is required to cut down many additional trees for paper printing.

And this is only the first phase of requirements since the law was signed March 23 and new changes began June 1.

Regarding group insurance, what appears to be happening is for those groups that fall into the mandatory coverage for employees or pay a fine, it will be most cost-effective for employers to pay the fine than to provide benefits.

The rule for businesses appears to be structured to drive employees and individual applicants to the government-run "exchanges" that will be in place by 2014. Can you imagine going to a venue like the Department of Motor Vehicles, only with more complicated options?

We have already seen some action toward this goal, with the notice by some states to pull out of providing individual health coverage for children, as was noted in the news last week with insurance companies in four states pulling plans off the market.

As the report stated, someone could wait until a child was sick or on the way to the hospital, then apply for coverage and the company would have to issue a plan according to the new law. This is what we in the industry would classify as a plan in "a death spiral." That means a program that is crashing with no hope of recovery. When this occurs, it will drive applicants to the government program, which would have to be subsidized by taxpayers, as the full cost covering all administration, underwriting and claims would be prohibitive for applicants to pay.

What does this mean for retirees? It will have an effect on parents and grandparents who are or soon to be retired who need to help their children and grandchildren receive benefits, and help pay their increased costs and taxes to provide for benefits and the family's needs.

According to the results of a study by the Employee Benefit Research Institute, many retirees will not be able to afford even basic necessities after 10-20 years of retirement. The EBRI study also finds that after 20 years of retirement, almost a third (29 percent) of those in the next to highest income level will run short of money, as will 13 percent of those in the high-income levels.

The survey further notes that approximately 24 percent of workers surveyed plan to delay retirement this year, with 29 percent pointing to poor economic conditions as the reason. Also cited was a change in employment status, 22 percent; insufficient finances, 16 percent; and the need to make up stock market losses, 12 percent.

Next year you can add to these factors the increased cost of health care, taxes to support health care and taxes to support all the additional deficit spending. As always, it is imperative for you to control your personal financial and retirement plans, and review your plan regularly with your financial advisor. Even if we see a different direction than what appears
happening in Congress and Sacramento, it will take some time for the corrections to help in our future planning. Again, remember the words of former President Ronald Reagan, that the scariest nine words you could ever hear is, "I'm from the government, and here to help you."

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments Inc. His column reflects his own views and not necessarily those of The Signal.

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