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Medical Cost Increases Are Shrinking . . . Really?
Health care costs have been rising more slowly. Although this is partly tied to the poor economy, some of the change appears to be more long lasting.
Without a doubt, the most important question for the federal budget: how fast will health care spending grow?
The news of the last few years has been surprisingly good. Contrary to earlier forecasts, the increases in U.S. health care spending have been meaningfully curtailed. But the critical question is whether this recent slowdown in medical cost increases will continue as the economy improves. If the recent trend were to continue, the impact on the U.S. economy and on government and household finances could be hugely beneficial.
Health Care Spending Has Increased Much Less Than Projected
From 2009 through 2011, total health spending grew at annual rate of just 3.9% per year, the lowest in the last five decades. That low pace seems to have continued in 2012 and into 2013. In contrast, between 2000 and 2007, the annual spending growth ranged between 6.2 and 9.7%.
Is Slower Growth the New Normal, or an Aberration Tied to the Poor Economy?
Economists largely agree that the deep recession and sluggish recovery are the main reasons for slowing growth in health care spending. Millions lost their jobs, and often their insurance coverage. Other struggling families had trouble paying their co-pays or deductibles and so were less likely to go to a doctor.
But the reductions in health care costs have been deeper than expected, indicating that there was more going on than just the bad economy. Now there’s lots of new data showing changes taking hold in the the health care system related to other factors:
- The Affordable Care Act’s reduced reimbursement rates are forcing the medical establishment to bring down costs.
- Has been less development of big, breakthrough technologies to drive up spending, after decades of saturation with new product and services.
- Administrative expenses appear to finally be starting to go down. Billing and collection costs are likely to fall with medical records increasingly computerized and with standard operating rules part of the Affordable Care Act (ACA) and state laws.
- Efficiency efforts are taking hold. Examples include declining rates of hospital-acquired infections, and a new emphasis on reducing readmissions.
- Rising out-of-pocket payments for patient is playing a major role. The portion of employer-sponsored medical insurance plans which require paying a deductible has sharply risen in the last several years, and the deductible amounts have also been rising. Patients who have to pay a larger share of their own health costs generally use less medical services.
Conclusion
As the economy continues to slowly improve, health care costs will likely climb somewhat as well. But there are other new important factors that will continue to tamp down cost increases.
Recent Articles for Further Reading
”Assessing the Effects of the Economy on the Recent Slowdown in Health Spending,” Kaiser Family Foundation, April 22, 2013.
“Health Care Cost Containment Strategies Used In Four Other High-Income Countries Hold Lessons for the United States,” Health Affairs, April 2013.
“If Slow Rate Of Health Care Spending Growth Persists, Projections May Be Off By $770 Billion,” Health Affairs, May 2013.
“The Forecast Slowdown in Medicare Spending: Is More Coming?,” Report@JAMA (Journal of the American Medical Association), February 21, 2013.
The Federal Budget Deficit is Shrinking, and Fast
This year’s deficit is now expected to be about 59% as much as last year’s, and the next five years’ deficits even less.
After a string of several years of budget deficits larger than 1 trillion dollars per year, the current fiscal year’s U.S. budget deficit is now expected to be about $642 billion. (This fiscal year ends on September 30, 2013.) Then during the subsequent five years—2014 through 2018—the deficit is expected to be even less than this year.
The Apples-to-Apples Comparison
Deficit amounts are often expressed in percentage of GDP—the gross domestic product. It seems sensible to base the size of a nation’s government’s debt on the size of that nation’s economy.
By this measure, the deficit will be falling from more than 10% of GDP in 2009 to about 4% this fiscal year. And it’s projected to go down to about 2.1% of GDP in 2015. For the sake of long-term comparison, the average deficit over the last 40 years was 3.1% of GDP.
Why is the Deficit Shrinking, and Faster than Expected?
The deficit projection is about $200 billion less than was projected just a few months ago. The decrease is not so much from the impact of the “sequester” political stalemate (which was already calculated into the previous projections), but instead for two other reasons: tax revenues from both individuals and businesses are increasing faster because of the improving economy, and the mortgage financing giants Fannie Mae and Freddie Mac have recently returned to profitability and are starting to repay the bailout money that taxpayers invested in them.
The Congressional Budget Office
To gauge the reliability of this information, it’s worth considering the reliability of its source.
This all comes from a report on updated budget projections by the Congressional Budget Office (CBO) released earlier this month. This report is mandated by law. The CBO’s mandate is to be “strictly nonpartisan,” conducting “objective, impartial analysis,” without making policy recommendations.
What Makes Chapter 13 So Special for Your Home and Your Vehicle?
Chapter 13 is bristling with tools to help you manage your mortgage and vehicle loan.
Chapter 7 vs. Chapter 13 in General
Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” give you two very different ways of attacking your debts. Grossly oversimplifying, Chapter 7 cleans off your slate of simple debts so that you can have a fresh start within a few months. Chapter 13 shoves your debts around in a way that you can sensibly deal with your more complicated debts, so that you can have a fresh start after three to five years. Debts on your home and vehicle can be among these “more complicated debts” better handled under Chapter 13, especially if you have fallen behind and are at risk of foreclosure or repossession.
Saving Your Home from Foreclosure
- Chapter 13 stops a foreclosure, and then gives you 3 to 5 years to pay any mortgage arrearage. That length of time significantly eases the burden of catching up.
- Although that arrearage is usually caught up by chipping away at it month-by-month, you may be able to do so in other ways, including by selling your home a few years after filing the case. This can give you some valuable flexibility, and allows you to keep your home for a crucial chunk of time—to stay in a local school district another couple years, for example—for less money each month.
- You may be able to significantly, permanently reduce the monthly cost of keeping your home by “stripping” off any second or third mortgages that have no equity. If your home is worth no more than your first mortgage, the second mortgage can be removed from your home’s title, allowing you to stop paying that second mortgage. Same with a third mortgage if the home is not worth more than the amount of the first and second mortgage balances combined.
- If you’ve fallen behind on your property taxes, you are given time to bring them current similar to the way your mortgage is brought current. What’s important is that during that stretch of time, your home is protected from the taxing authority’s foreclosure, and from your mortgage lender itself foreclosing for you not having paid those taxes.
- Most judgment liens can be taken off your home title permanently. The debt that resulted in a judgment against you is either paid in part or sometimes not at all, and then at the end of your case the balance is discharged (written off).
- If you have a lien on your home which secures a debt that cannot be discharged—such as child/spousal support arrearage or relatively recent income taxes—you pay off that debt through your Chapter 13 plan, and at the end of your case the lien is released from our title.
Saving Your Vehicle from Repossession
- If you are behind in your payments, and your vehicle loan is less than two and a half years old, then Chapter 13 will allow you to catch up on your back payments through relatively small installments lasting as much as five years.
- If you are behind but your loan is more than two and a half years old, you can do a “cram down”: reduce the balance to the fair market value of the vehicle, usually reduce the interest rate, and stretch out the payments beyond the usual length of the contract. These all work together usually to reduce both your monthly payment and the total you for the vehicle.
What Makes Chapter 13 So Special?
Would you like to favor certain important creditors over others? Often, Chapter 13 makes this possible.
Leveraging the Bankruptcy Laws
One of the basic principles of the United States system of bankruptcy is that it does not allow favoring some creditors over the others. That is, not unless that favoring is recognized as justified in the eyes of the law. In a variety of ways, creditors are recognized as legally different. For example, secured creditors have rights to collateral that unsecured creditors don’t. And certain debts can’t be discharged (written-off) in bankruptcy, such as child support, many types of taxes, and most student loans. Chapter 13 is a particularly good tool for leveraging in your favor the ways these and other ways that the law allows—indeed requires—you to treat creditors differently.
Here are two good illustrations.
Curing First Mortgage Arrearage
The law highly favors residential first mortgage lenders. The theory is that these lenders should be treated well in bankruptcy to lessen their risks, thereby encouraging more investment in the residential mortgage capital markets, to make mortgages more readily available for future homeowners.
So, if you were behind on your home mortgage and wanted to keep the home, in a Chapter 13 case you would be required to make payments on the arrearage and bring it current before you could get out of the case. But, because in a Chapter 13 payment plan you are usually only required to pay what you can afford, this means that catching up on your mortgage most of the time results in many or most of your other creditors getting paid less. Sometimes these other creditors may even not be paid anything, just so that you can afford to save your home. If your home is one of your highest priorities, and you are behind on the mortgage payments, then consider using Chapter 13 to favor your payments to catch up on those missed payments.
Child Support Arrearage
Another kind of debt that is highly favored in the law is child support, for rather obvious reasons. As a result, if you get behind on support payments, the collection procedures that can be used against you are extremely aggressive. In most states it includes the possibility not only of losing your driver’s license, but also your occupational or professional license—your livelihood could be taken from you.
Chapter 7 “straight bankruptcy” provides no direct help if you owe back support. The “automatic stay” that protects you from other creditors does not even apply to support debt under Chapter 7. This means that the aggressive collections can just continue; the bankruptcy filing has no effect on it.
But in a Chapter 13 “adjustment of debts,” you ARE protected from support collections, as long as you follow the rules—keep strictly current on ongoing regular support payments and on the Chapter 13 plan payments. Through those plan payments, you are required to pay off the entire support arrearage before completing the case. But you want to pay it off because you don’t want to owe any when you finish the case and lose the protection it provides.
Similar to home mortgage arrearages, you can essentially take money away from your other creditors in order to pay off the support arrearage. Indeed, in most situations, your support arrearage is paid 100% before you pay anything to the rest of your unsecured creditors.
Chapter 7 Complications
What if your income is too high, all your assets aren’t protected, you’re not current on your secured debts, and you can’t write off all your debts?
If Your Income is Higher than “Median Income”
To qualify to file a Chapter 7 “straight bankruptcy” case, you must pass the “means test.” The easiest way to pass it is if your income is no higher than the “median income” for your state and family size. “Median income” is the amount at which half of the households within an area earns more and the other half of the households earns less. (It is lower than “average income” and considered a more accurate representation because it is less skewed by the relatively few extremely high income earners.)
Here is a table of the current “median income” amounts for your state and family size.
“Income” has a specialized meaning for this purpose, much broader than normal taxable income. It generally includes all funds received from all sources, with limited exceptions. And instead of being based on what was received during a previous year, it looks only to the 6 full calendar months before the bankruptcy filing.
Although passing the “means test” is easiest if your income is less than median, often you can still pass the test and file Chapter 7 based on your expenses or under unusual circumstances. But qualifying may get more complicated.
If Not All of Your Assets Are “Exempt”
In most Chapter 7 cases, all of your assets are protected through “exemptions”—categories of assets which cannot be taken from you by the bankruptcy trustee (acting on behalf of the creditors). But sometimes you may own one or more assets that are not covered by an exemption, giving the trustee the ability to take it, sell it, and pay the proceeds to your creditors. But this can play out in a number of ways.
Your bankruptcy trustee may decide that the time and expense to collect and sell the non-exempt asset would not be worth the likely sale proceeds. Some assets are difficult to value, or to sell, or determining their value would cost a fair amount of money—for example, if a lawsuit would need to be filed to potentially turn a claim into cash. The trustee has a lot of discretion about what to do with any non-exempt assets.
If you have such a non-exempt asset that you want to keep, you can pay the trustee for the right to keep it. Your attorney can often arrange for you to keep the asset by paying what the trustee would have received from selling it. The trustee would then pay that money to your creditors.
Finally, the trustee may just go ahead and take the non-exempt assets, sell them, and use the proceeds to pay a portion of your creditors.
If Not Current on Your Secured Debts
Generally, in a Chapter 7 case if you are behind on your home mortgage or vehicle loan or other secured debt, you may be able to keep the collateral or you may decide to surrender it.
The creditor may let you catch up by paying the regular monthly payments plus an extra amount for the arrearage. Whether you will be able to do this depends on the kind of debt and the flexibility of the creditor. Vehicle loan creditors don’t tend to be flexible, usually making you to get current within a month or two after filing. Mortgage holders are usually more flexible, usually giving you about a year to get current.
The further behind you are on a debt with collateral that you want to keep, the more difficult it would be to do this in a Chapter 7 case.
However, you always have the right to surrender the collateral to the creditor, and then discharge whatever remaining debt you may owe. This generally does not complicate a bankruptcy case, even though the remaining balance after a surrender can still be huge.
If You Have Debts That Continue to Be Owed
The main purpose of a Chapter 7 case is to discharge (write off) your debts. Most if not all of your debts will usually be discharged. But some special ones may clearly not be dischargeable (certain taxes, support obligations, for example). Others may be at risk depending on the aggressiveness of the creditor. The last thing you want is to file a case only to learn that some of the debts you expected to be discharged will not be. Avoiding such bad surprises is a good reason for you to have an experienced bankruptcy attorney.
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