Mr. Buffett said a specter much more sinister than corporate taxes is looming over American businesses: health care costs. And chief executives who have been maniacally focused on seeking relief from their tax bills would be wise to shift their attention to these costs, which are swelling and swallowing their profits.
“If you go back to 1960 or thereabouts, corporate taxes were about 4% of G.D.P.,” Mr. Buffett said. “I mean, they bounced around some. And now, they’re about 2% of G.D.P.”
He said that while tax rates have fallen as a share of gross domestic product, health care costs have ballooned. About 50 years ago, he said, “health care was 5% of G.D.P., and now it’s about 17%.” (the actual number is 17.8%.)
58% of all medical costs are in the group 65 and older. With the changes proposed on Obamacare and the establishment of a lower reimbursement for medical care providers, more and more emphasis will be placed on those receiving the care. https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html
Health spending growth by federal and, state & local governments is projected to outpace growth by private businesses, households, and other private payers over the projection period (5.9% compared to 5.4%, respectively) in part due to ongoing strong enrollment growth in Medicare by the baby boomer generation coupled with continued government funding dedicated to subsidizing premiums for lower-income Marketplace enrollees.
According to the National Health Expenditure Data Center:
Medicaid spending grew 9.7% to $545.1 billion in 2015 or 17% of total NHE. (National Health Expenditure)
9.7%, think of the power of that number! Then think of the power of the overall percentage, 17%.
Want more? I have discussed reimbursement not covered by Medicare and passed it on to the participant.
Ready? Out-of-pocket spending grew 2.6% to $338.1 billion in 2015 or 11% of total NHE.
The bill for those who cannot pay the excess after reimbursement expenses will fall to the taxpayer. Those who cannot pay will have to file bankruptcy, but in the end, the taxpayer will pay by increased taxes and costs of Medicare.
Just like Mr. Buffet has shared, it is not about tax rates but about medical care. As we help our target market ready themselves for retirement, we MUST focus on funds set aside for this category. Anyone in that age group with assets at risk should rethink that allocation.
Never have we ever had a time when safety and security have become more critical. I cannot think of an argument I would lose in arguing with a broker who still has funds at risk for those in our target market.
Want to hear what I think corporations (businesses) will do to provide health insurance benefits to their employees?
Here is what I think will happen, history will repeat itself. Remember company pensions? What do almost all companies now offer? 401(k). Instead of providing a retirement income to retired workers, they directly offer a matching fund for 401(k)s. It limits their liability and allows them to know their worst-case scenario.
When PE firms grab hold of old-line companies and calculate how to expand profits, the first thing they do is a limit liability. Paulson did it with The Hartford; it is just the beginning. Companies will calculate how to put a specific number on the penalty and then build their product’s profit margin around it.
Now consider health insurance offered by corporations. What is the future? Payment vouchers and you find your coverage.
It is already happening. Think of a large American producer of airplanes; what changes have they made to their pension obligations? Think about how many US Companies have outsourced their pension obligations to insurance companies.
Why? Because it provides a specific liability.
Think I am right? Vouchers will limit the future liability of corporate health insurance obligations.
It is coming.