New saving/investment is the lifeblood of financial services, as well as the fuel for achieving personal financial goals. Yet, many affluent households lack the budget flexibility to keep saving and investing consistently. Why?
For your clients, you can sum it up in one phrase: health care. Here are a few facts you may want to share, along with sources of each (for your further review):
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Over the last 15 years (2001-16), health care costs for a typical American family of four have increased at an average rate of 8.4% per year, to $25,826 in 2016, according to the Milliman Medical Index (MMI). That’s more than four times the 1.9% average annual increase in the U.S. Consumer Price Index (CPI) over the same period.
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Over this 15-year period, median nominal household income in the U.S. increased at a 1.9% annual rate, according to the U.S. Census.
The gap between a 1.9% nominal gain in median income and an 8.4% annual increase in health care costs has drained a huge amount of the discretionary income Americans once had available for saving and investment.
Related: Candidates give lip service to cutting drug costs
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Soaring health care costs are hurting both households and businesses. According to Milliman, employers now pay 57% of total health care costs, while employees pay 43%. “Employees are shouldering more of the health care cost burden than they were 15 years ago.”
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Although Milliman says U.S. health care costs only increased by 4.7% in 2016, “the lowest annual increase since we first measured the MMI in 2001,” this trend will not continue in 2017. According to Kaiser Family Foundation, the average health insurance premium increase next year is expected to be about 9%. Obamacare observer and blogger Charles Gaba has calculated the weighted average state-by-state request for premium increases in 2017 at 24.2%.
It’s interesting that medical care only accounts for 8.4% of the CPI’s total weight, compared to 15.3% for transportation. Clearly, the CPI weight has fallen behind the reality Americans are facing. If the CPI weighted medical care at 12-15% of the CPI, U.S. inflation rate would be higher.
Of course, nobody seems to have any big ideas for holding down health care costs. It’s become like a giant, ever-growing tax, draining America’s wealth.
To save and invest more for the future, your clients may have to tighten their belts in other areas.
They also can demand that political leaders address the rising cost of health care, not with platitudes and politically-appealing sound bites but with cost-effective solutions. The future of Obamacare is a distraction. Cost containment is what really matters to most Americans.
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