Saving for College
ACA and Job Lock
By Justin Stoltzfus
January 15, 2014
The media is all over the Affordable Care Act, mostly because of intense political drama. Reports on the number of applicants signed up, the strengths and weaknesses of various state exchanges, and the "he said, she said" of website administration are getting a lot of attention, from the Internet to cable news.
However, fewer analysts are looking at the long-term effects of the ACA. We can reasonably assume that, over time, more people will buy insurance over state exchanges as people change jobs, retire, become unemployed, or generally move around in the system. With that in mind, we can count on certain kinds of outcomes that will change the work world and the American economy.
Undoing "job lock"
One of the most exciting aspects of an alternative to employer-provided benefits is that it removes one of the most daunting barriers to small-business creation in America. Throughout the past 30 or 40 years, entrepreneurialism has lagged because people couldn't afford to leave their day jobs. This is largely because of the high cost and unavailability of private health insurance, which could be obtained at much lower prices through an employer in a pooled group plan. In comparison to group plans, individual plans became unaffordable, especially for anyone who had a health condition.
With a viable alternative in place, individuals are freer to leave their employers and start up their own businesses, because they can rely on more reasonably priced?medical insurancefor themselves and their families.
Another under-reported outcome from the ACA is that businesses will get some of the same types of protections that individuals do. For example, they will now receive protection from some of the traditional price hikes that happen when one or more employees get sick and start to require medical attention.
This resource from the U.S. Small Business Administration details how the Small Business Health Options Program, or SHOP, will allow small businesses to benefit from better purchasing power through risk-pooling and lower administrative costs.
To be clear, small businesses with fewer than 50 employees will be free from the federal insurance mandate that affects larger companies. Instead, the federal system will now offer tax credits and other incentives for small businesses to keep employee coverage.
Insurance that goes with you from job to job
Another major thing the ACA is doing -- again, over the long term -- is to change the way we think about health insurance. Some suggest that the traditional tying of health insurance to employers was a historical mistake.
By establishing an alternative option, health care reform is likely to lead more people to buy private insurance that they'll carry with them throughout multiple job changes. Assuming the state exchange products are competitively priced -- and many reports indicate that they are -- employees won't have such a huge incentive to jump into employer-offered benefits, which may still carry higher premiums and other costs.
The result of this will be a huge release of administrative pressure. Those with "boots on the ground" in the human-resources or hiring industries understand how difficult it can be for employers to manage the provision of benefits to all of their employees and their families on a regular basis. As a practical matter, the ability to take people on board without wrangling over benefits will dramatically change the standard types of employment contracts in many industries.
With so much media attention focused on the current situation, there has not yet been a lot of long-term thinking about how future generations of workers may be supported by reform. That's not to say there are no major concerns about the new model, and certainly the ACA is no panacea. But if the law works the way it was intended to, it will start to build future benefits that don't involve immediate gifts or discounts to buyers, but rather a gradual implementation of new kinds of economic freedom.
You may also be interested in..
By Justin Stoltzfus March 3, 2014 In addition to the wide range of 529 college savings plans based on tax exempt status, there's an option commonly called "prepaid tuition," which often receives a "529" designation and presents an alternative for college savings. Prepaid... more
Almost $122 billion of financial aid was distributed during the 2003-04 school year, with an average award of $10,472 per full-time student. Of that total, approximately 56% was loans and 38% was grants (Source: Trends in Student Aid, 2004). With so much money at stake, you should understand... more
Many students will first handle money without parental supervision during college. To help keep costs down and avoid conflicts, you may want to develop a budget to guide your child's spending. As you go through the process, consider the following: Firstly, consider all potential expenses,... more
No one disputes the fact that the cost of a college education is high. For the 2004-05 school year, the average annual cost of a four-year public university is $14,640 and for a four-year private university is $30,295 (Source: Trends in College Pricing, 2004). While those prices are sure to... more
Once your child starts college, you'll want to use funds set aside for college to maximize tax advantages as well as your financial aid awards. Which investments should you withdraw first - money from personal savings, Section 529 plan assets, or funds from Coverdell education savings accounts... more
Additional Educational Planning Resources
Right To Your Inbox!