May 30, 2013
Editor's note: this blog post was authored by Ambika Panday, Assistant Director of Policy & Advocacy at The Financial Clinic, and is adapted from an article that appeared originally in the Clearinghouse Review Journal of Poverty Law and Policy, March-April 2013 (pp. 492-508).
Chronic illness, poor health, and inadequate health insurance are three major obstacles keeping low and moderate-income families from building their financial security. While it is unclear whether poor health begets financial insecurity or vice versa, the correlation between the lack of health insurance (and poor health) and poverty is unmistakable.
Uninsured Americans are at greater risk for breast and lung cancer, cardiovascular disease, and death when compared to insured individuals. These poor health outcomes may reduce one’s income by up to 28 percent and may also obstruct educational attainment. A low level of formal education generally translates into an additional reduction of income over time.
The confluence of these various factors leaves uninsured and underinsured Americans financially insecure and woefully asset-poor. Indeed, the cost of medical care so forcefully crushes financial security that it often leads to personal bankruptcy. Nationwide, medical debt remains the number one cause of personal bankruptcy filings. Many Americans have racked up tens of thousands of dollars of credit card debt trying to pay back medical bills or survive without a job. Ameriprise Financial recently commissioned a survey and found that different health-related costs comprise two of the ten most common events that damage retirement savings.
It is no surprise that full-time year-round workers are more likely to have health insurance (most likely provided by their employer) than their unemployed counterparts. Yet, we cannot forget that nearly one-fifth of all working-age Americans (28 million people or 19.3 percent of 18-64 year-olds) who worked at some time during the previous year also lacked health insurance.
So, it should come as a great relief to the asset-building field that the Affordable Care Act (ACA) will soon be implemented. Among the most important pieces of social welfare legislation to pass Congress since Medicare and Medicaid were implemented in the 1960s, the ACA has the potential to transform the trajectory of asset-building for millions of lower-income Americans and their families.
The ACA Will Put Money into the Pockets of All Americans, Leaving Room for Savings
By increasing access to health insurance and low-cost or free preventative care services, the ACA will leave more money in the pockets of all Americans. It will also ease the crushing financial and emotional burden that poor health places upon uninsured low-income Americans. Specifically, the expanded health care provisions will help Americans build assets by:
- Eliminating the cost of preventative care
- Eradicating the asset limit for most Medicaid recipients
- Providing tax incentives for purchasing healthcare
- Placing a $2,000 maximum on out of pocket deductibles
- Lowering the cost of medical expenses (and the financial burden of healthcare costs) so that fewer bankruptcies will result from the astronomical cost of medical care and/or health insurance
- Compelling employers to cover at least 60 percent of all medical costs
The Financial Clinic is a New York City-based organization that works with low- to moderate-income households on achieving their financial security goals. The average Clinic customer has an annual income of approximately $15,000. Living on such a small salary in New York City is difficult enough without the added pressure of unexpected emergencies, rising medical costs, and the constant threat of losing employment due to a medical problem. Even those Clinic customers who have health care forego preventative doctor visits for themselves and their children because the visits are cost prohibitive. The end result is that many customers do not access medical care until the problem has become unmanageable, and quite expensive to treat. If these patients had received medical care before their problem worsened, the cost of care and the length of time needed for treatment may be significantly reduced. By eliminating the cost of preventative care, the ACA will not only encourage more people to seek preventative services, it will also increase the likelihood that they will maintain good and stable health, which in turn improves their chances of transitioning from asset and income poverty into financial security.
Overall, the ACA will leave more money in the pockets of low-income Americans, which can be directed toward other asset-oriented goals, including: saving for retirement, paying for college, or buying a home. At the same time, greater access to health insurance and quality care will help ensure that all Americans get the opportunity to maintain their most valuable asset: good health.