How will the midterm results affect the benefits industry?

If the midterms play out as forecast, here's the predicted impact on the insurance marketplace, health care delivery, advisors, employers and most importantly, employees.

Post-midterms, both parties will be eyeing the 2020 presidential election, and one of the key topics will be what the social contract with America looks like. (Photo: Shutterstock)

The famous ancient Chinese philosopher Lao Tzu stated that “Those who have knowledge don’t predict. Those who predict don’t have knowledge.” Keep that in mind as you read this, as this article was drafted in advance of the elections!

While we are still waiting on results of the election, we wanted to provide some perspective on the likely outcomes, specifically on what the impact might be on the insurance marketplace, the health care delivery system, the advisors and employers that interact (plan, strategize, implement and execute) and most importantly, the employees that participate in the employer-sponsored benefit plan.

What can we expect?

Operating under the assumption that the House of Representatives is Democratic controlled while the Senate will remain Republican controlled, it does not seem there will be any advancement in policies that will modify either approach in the direction of the past two years with respect to the Affordable Care Act (ACA) or the recently announced Association Health Plan (AHP). Both are intended to make health care more affordable, and both will fail to meet the test.

Neither of these policies are intended to make health care affordable. Their approach is to reform the insurance marketplace, not the health care marketplace. The foundational underpinning of both approaches aggregates consumers into larger pools to leverage the scalability of medical costs across large populations to achieve insurance premium stability. But they are very different in their approach to solve the problem.

Therefore, for the advisor, their client and the employee, the next two years will be largely the status quo. If there is any change in policy, it could be in a bipartisan approach to address prescription drug cost and the impact of prescription drugs on the health and safety of the community. The national discussion around opioids, the increase in drug prices on certain medications as well as the lack of generic equivalents are issues that both parties wish to address from a policy perspective.

The next two years

So, with no one party in control of congress and the executive branch, what does the next two years look like? Likely, the parties will be eyeing the 2020 presidential election and one of the key topics will be what the social contract with America looks like.

For example, according the USDebtClock.org the level of debt in America continues to represent a very real problem which continues to be “kicked down the road.” The numbers below illustrate the size and magnitude of the problem.

(These figures are as of October, 2018)

Thus, the “crushing” debt and burden on the individual will push political parties to publicly state that is a problem that requires attention, however, their energy to tackle this and their solutions will greatly differ.

For example, there are a few approaches that politicians can take to address this: raise tax revenues, cut government costs or a combination of both.

If raising tax revenue is chosen, the impact on the individual is important. It is certain that all taxpayers will need to contribute some amount tax revenue to buy down the debt. The problem is that most people are not in a secure place financially, whether this is saving for retirement or saving for a “rainy day.”

According to the 2016 Federal Reserve Bank tri-annual survey, the average median savings balance was $7,000 based on 6,000 households that responded to the survey. This does not represent a comfortable rainy-day fund in case of a short-term financial emergency. With increasing adoption of high-deductible health plans, according to the recent Kaiser Family Foundation report, the average deductible was $1,600 per single and $3,200 per family coverage.

This information is used to support the narrative that the individual is one medical claim away from financial hardship or bankruptcy.

This financial picture will provide the energy to continue to create a new social contract with America. The discussion will show itself in the political debate around the following benefits-related topics:

Future questions will focus on costs associated with a growing constituent base which are those individuals that are aging up into retirement and the costs associated with that population with some of those highlighted as cost of end of life care, cost of nursing home care, home health care and other geriatric costs.

Ideological tribes

With each question above, a parallel question will focus on how to pay or fund it. This will be the serve and volley between the various ideological tribes. In other words, any expansion of the social contract will result in higher taxes (personal, corporate, sales) to pay for it which, will slow the economy (employment reductions, reduced investment for example), which is the engine needed to pay for it. More government oversight will result in greater regulations, larger bureaucracy, and it will be more difficult competing in a global marketplace (resulting in employment reductions, reduced investment in the U.S. and more overseas.

With the big issues noted earlier and the current tribal mentality on the ideological islands, the political landscape and the ability to reach across the aisle in a bipartisan manner is just not present. But, if elected officials can work together, some of these big issues can be addressed.

For topics like the ACA and AHP, there may be some changes on the margins (prescription drug cost regulations for example), but not wholesale gutting or elimination of the policies.

During the next two years America will continue to have a more fervent discussion about what its social contract will be with the citizens—and non-citizens—of the United States.

If history is any teacher, this returns us to 1961 and 1962 when John F. Kennedy introduced and signed into law the introduction of benefits for 4.4 million citizens which provided financial assistance and was paid for through a payroll increase. Reviewing history, there was tremendous national debate about his policy goal. In the end, he won the hearts and minds over to have this policy passed and put into law.

I remain optimistic that for the next two years, the two parties will focus their message on how to win the hearts and minds of all the citizens of the United States to evolve the social contract. Time will tell what the policy looks like on the other side.

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