Magic Money Tree - Updated/Confirmed

I know I have written recently that there is no magic money tree, but this week I came across two more examples to reinforce the point.  As much as some people wish and act as if there were a secret pot of gold, stash, or bank account to fund insurance payments or legal settlements, it’s a myth.  When we are told that something is free, it’s clear that someone is paying for it and that someone, either directly or indirectly, usually turns out to be us.  The “federal funds” that show up to bail out our local governments, perhaps helping to build a road or a bridge, come from tax our dollars or from borrowing that some day must be paid for with tax dollars.

This is not to say that the economic pie is not getting bigger.  As productivity increases, our standard of living goes up.  It would be foolish to say that life hasn’t improved over the past 50 years.  It has, but as a result of hard work and innovation, not as a result of corporations or governments just digging into deeper pockets.

The first illustration comes from this week’s business news.  With people getting older and living longer, the long-term care insurance industry is readjusting their financial forecasts.  They expect to pay out more than originally planned for nursing homes and other end-of-life care and expenses, so premiums will rise.  In other words, they will get it from their customers.  If you buy LTC insurance today or in the future you will pay more.  “The industry is shrinking, prices are rising and carriers are limiting their coverage.”

From this week’s financial news comes this story about the 2014 implementation of Obamacare.  Expert opinion is that it is "likely insurance companies will raise premiums on everybody, given the mandate, to deal with the number of pre-existing conditions that come into the fold."  Once again we will be required to pay (or your employer must put more toward benefits with less for your pay raise).

Insurance is a good example because people seem to think that they pay premiums but never see that money again.  There must be a big pot of money somewhere.  They fail to consider that the whole concept of insurance is for everyone to pitch in so that the few with unexpected losses receive help when needed - like neighbors coming together in the old days to rebuild a barn, but so much more impersonal that we lose the feeling of helping and adopt a feeling of being cheated.

In any case, the belief that there is some big pot of funds, or as I like to say, a magic money tree, has again been debunked.  These are just two more examples of how increased costs find their way back to our pockets.

By the way, elsewhere in that financial article it says, “one of the many key criticisms of [Obamacare]: little to no direct cost-control.”  Exactly what I said on October 29 about all the proposed solutions!