One Emergency Away From Financial Disaster: Financial Advisors' Daily Digest
By SA For FAs :
Investors generally come to Seeking Alpha to become rich, or at least richer than they were. Desirable as that might be, most people won't be and not everybody needs to be rich. But what unites everybody is the common desire and need to not be driven to the poorhouse.
Last week I wrote two articles on the unfortunate reality that today's pre-retirees are not in good stead financially. The first focused on the increasing levels of debt that Wharton researchers have tracked in today's population of 56- to-61-year-olds, compared to their peers in the past three decades; the second cited a recent survey showing that the demographic group most keen on increasing its level of participation in the " gig economy " is the 55-to-64-year-old cohort that in times past were looking toward their exit from the workforce. I didn't intend to revisit this topic so soon again but for the confluence of two things: one was, naturally, a newly published article on Seeking Alpha with grim statistics on today's middle-class reality and the other was a true-life personification of said statistics that I learned about within a few hours of reading that article.
In an article about the paucity of savings and weak economic recovery (something I also wrote about last week , as it happens), Constantin Gurdgiev discusses the steady rise in the proportion of U.S. households with no or even negative non-housing wealth, reaching 30% of the population today. The personal saving rate, which hovered around 12.5% in the early 1970s is just a little north of 3% today. Gurdgiev cites the famous 2016 Bankrate survey I have also cited, finding that 69% of Americans have less than $1,000 they could access were an emergency to occur. He concludes:
It was just a few hours after reading and noting to my wife how precarious middle-class economics have become that she mentioned that a professional acquaintance of hers, Patricia - a 61-year-old single mother of a 24-year old son with special needs - is right now in the throes of being brought down precisely by a dental emergency - and a Kafkaesque one at that, which may sound all too familiar to anyone who's had the misfortune of having to communicate with an increasingly bureaucratic healthcare system.
Patricia's son experienced sudden, severe pain on one side of his face. She wisely had their dentist check it out, but the dentist could find nothing wrong, so referred them to the ER on a Wednesday evening last month. The hospital dentist on call refused to come, suggesting they make an appointment for the following week. With her son on the verge of convulsions and non-responsive from the severe pain, Patricia proceeded with whatever diagnostic tests and pain management they could get. The in-patient hospital dentist ordered tests on the basis of which she concluded there was no dental cause for the pain, suggesting the matter was likely neurological, and something the son might have to live with the rest of his life. Despite this, the hospital coded the problem as dental and Patricia's medical insurance company refuses to pay the ER and hospitalization bill, which totals just shy of $25,000. "I will not live long enough to pay this off," says Patricia on her Facebook page.
Patricia has already been through four rounds of disputing the matter with the hospital billing department, trying to explain that the admission was non-dental and diagnostic, and was coded as dental by a clinician who saw her son for five minutes at the close of their three-day hospital misadventure.
It ultimately turned out that an oral abscess was the root of the problem - something they only determined just before discharge. Had the hospital dentist on call when they showed up to the ER figured this out, Patricia's son could have addressed the matter elsewhere without ever having been admitted, obviating the tortuous three-day sojourn in the hospital's confines and the resulting tab.
In Patricia's case, to sum up, her dentist couldn't find a dental problem and referred her to the ER, whose dentist refused to investigate the matter; the hospital's own testing and its dentist (later) saw the matter as neurological; despite all that, the hospital coded the matter as dental and the hospital coding department has thus far refused to re-code, which the insurance company requires in order to pay the claim . Patricia pays for medical insurance that includes ER and hospitalization benefits and has been stuck with a bill that could wipe her out; worse, she fears it could shadow her special needs son after she is gone.
Returning to Constantin Gurdgiev's article, it is absolutely true that a dental emergency can knock someone into "zero savings territory." Most U.S. households don't have dental emergencies every year, but everyone faces emergencies of one kind or another sooner or later. This is one reason most people take the precaution of obtaining various kinds of insurance. When insurance companies deny claims in a seemingly unreasonable manner (I offered to call the insurance company to get its side of the story, but Patricia is confident she can handle this on her own) , their lack of good faith or mere bureaucratic insensitivity is all it may take to shove a middle-class family over the edge.
One takeaway here for an under-saved middle class is the imperative of building and maintaining an emergency reserve. Today's money culture is based on credit. Some people even pride themselves on the "efficiency" of putting all their cash to work on consumption, investments or whatever, using their credit card's resources for emergencies. But since that money has to be paid back, with interest, and since unplanned expenses are a part of life, it behooves everyone to have cash on hand - to pay for emergency care, and even for attorney's fees to fight back against an unreasoning insurance bureaucracy.
Please share your thoughts in our comments section. Meanwhile, below please find links to other advisor-related content on today's Seeking Alpha. Also, Seeking Alpha has added podcasts to its repertoire - from me and others; for a weekly "best of" digest, follow SA Multimedia ; you can also follow my feed on iTunes .
- Laurence Kotlikoff: It's possible to reach an economically fair divorce settlement , saving a fortune on lawyers.
- Jeff Miller sees opportunity : lower stock prices, earnings that have exceeded high expectations and reduced risk.
- Wealthfront: There's no need to fear market corrections .
- Vanguard finds no credible evidence that demographic changes alone will negatively affect future stock returns.
For more content geared to FAs, visit the Financial Advisor Center .
See also Wheat, First Securities on seekingalpha.com
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