Of Course Its Coming…

November 15, 2013

RiskyFrom taking tighter control over the health insurance market themselves to pushing decisions and costs down to individuals, businesses are experimenting with a host of new ways to offer health-care coverage, spurred in part by the launch of the Affordable Care Act, but also by the inexorable rise in the cost of medical care in the United States. The moves promise to change a social compact that has existed between employers and employees over health-care coverage for more than a half century.

SOURCE:  America’s ‘other’ health-care revolution – CSMonitor.com.

Of course changes are coming to employer based healthcare. In the same way that defined pension plans have totally evaporated in a twenty year period, healthcare paid by your employer will soon follow. And isn’t it convenient that the companies shedding a previously foundational obligation have something to blame it on. Obamacare.

The root cause of all the pushing expenses back on the employee comes when companies in the 1980s quit thinking of their employees as assets and instead saw them as liabilities. At first there was a trickle of companies who latched onto something called a 401k plan. The spin they used to drop their previous pension commitments to their employees what that they were giving them more “choices”. (I hated that term when it was going around 🙂 )They proudly announced that each of us could now manage our own retirement finances. But in reality what it meant was that instead of putting $x into a pension plan for you they could give you $x/2 to the 401K and make it sound like they were doing you a favor. Unfortunately the trickle became a flood in the 1990s and as a result there are almost no fixed benefit plans in existence today.

Since ever-increasing profits and dividends are the fodder for huge CEO pay the employees, as usual, get the short end of the stick. I realize that almost all of us think we can do it better than those other guys when it comes to investing money. We  rationalize that we can somehow time our investment decisions to maximize gain. Even for the “experts” stock picking and timing have always been more gambling than anything else. The fact that a broadly structured index fund beats more than 90% of the stock pickers is a testimony to that fact.

I admit that most defined pension plans were probably pretty conservative in the portfolios so the profit rates were somewhat low. Everyone thinks they can do better but what happens to their “private pensions” when they don’t? I personally witnessed a co-worker’s 401K get decimated because he had almost 100% company stock in his portfolio. He convinced himself that was his road to riches. He was convince he could make big bucks by sticking to his “plan” but in reality he saw about 80% of his retirement savings evaporate over a six month period!

I know there are those out there that say “Its my money so I should be able to do whatever I want with it, and many do just that. But what happens when they lose or spend it all before retirement? That is similar to those who have no health insurance today. All the rest of us end up paying for their failures in one mode or another.

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2 responses to Of Course Its Coming…

  1. 

    RJ – you’re right on one level but on the other I have seen people in my family that did have defined pensions and planned their retirement around them to only watch their former employer go through the bankruptcy court process to drop their “liabilities” and the current retirees only got 20-30% of what they thought they would have. I use to think that I wished I had a defined benefit pension when I was working but have since come to the conclusion that I would prefer to control the investments of my portfolio on my own and make my own spending choices and hopefully do so properly so as to carry my wife and me through retirement. It is tricky and I can (and have!) made some mistakes but at least I am driving that bus myself! Mike

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    • 

      Hi Mike. I was waiting for someone to come and tell me they are doing fine on their own. Thank heavens not all of us make faulty decisions on how to invest our money but far too many do. I was fortunate enough to have both a defined pension plan and a 401k. On the pension plan I get a monthly stipend of about twice my social security and about 30% of my last salary. During the tremulous Y2K years I looked into what I would get if my company had went belly up. Like the $100k deposit insurance there is a fed agency that guarantees pensions and if that had happened I would still have gotten about 60%. I know that many public sector pensions are/were very lucrative and maybe they would have lost more. For instance many firefighters can basically retire with monthly pension after twenty years that equals their on the job pay.

      I did intentionally paint a more distressed picture than is reality but only to emphasize the burden on society for poor (some might say stupid) choices.

      Thanks for bringing in the other side of the story…..

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