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A Joyous But Costly Baby Boom

We are enjoying a baby boom at Palisades Hudson.

Since last summer, we have already welcomed two new members to our extended family, and three more staff members are scheduled to contribute to our unofficial headcount by the end of this year. While the boss is not typically the first to know such things, I expect our demographic minitrend to continue for some time. It is a joyous side effect of having a relatively young staff made up of professionally secure and personally mature individuals.

But the side effect is costly as well as joyous. The New York Times this week explored how the price of prenatal and delivery-room care in America far exceeds that of other developed nations. Insurance companies usually pick up most of the exorbitant tab, but not in all cases. And even people who have insurance nowadays pay thousands of dollars out of pocket, which was unknown when my own children arrived a couple of decades ago.

These costs fall entirely on my staff, not on me. I got out of the business of buying health insurance for my employees in 2010, when the fundamentally flawed Affordable Care Act passed. While I very much want my staff to have insurance - and I believe they all do - the new law introduced so many distortions in the insurance and health care market that the only prudent thing to do was get out of it. Instead of subsidizing employees’ health care directly, I gave them a raise; I will also pay higher taxes to subsidize insurance for tens of millions of Americans, only a few of whom work for me.

Meanwhile, the Affordable Care Act did almost nothing to make care affordable. The Times article describes how the fee-for-service model has been carried to extremes in the obstetrical world. When a mother-to-be asked the cost of having a baby, a hospital in New Hampshire could only quote a range from $4,000 to $45,000. For all the good that sort of information does, the hospital might as well have said $100 to $1 million.

Almost none of the medical practices and billing procedures described by The Times will change next year when the Affordable Care Act is in full effect. The only difference is that more people will have insurance companies standing between them and the parties sending the bills, making consumers even less price-aware than they are now.

The new federal subsidies for insurance will, for a time, mask these excessive costs even further, until the subsidies themselves become unsustainable. By artificially inflating demand for these overpriced and often unnecessary services, the Affordable Care Act will actually make care less affordable for society as a whole. Not to mention the subset of the population who will not have insurance under the Affordable Care Act, such as non-citizen residents and those who choose to pay the relatively modest penalty for remaining uninsured rather than burdensome premiums.

A few years before I stopped buying insurance for employees, I shopped for a plan to cover the two or three people who were then in our Florida office. It was too small an operation at the time for most group plans, so I considered paying for individual policies. I was amazed to find that most such policies would not cover prenatal and childbirth services. As an employer, it was impractical - probably even illegally discriminatory - to offer such coverage to my staff. Even if it were legal, I would not want to offer it. We ultimately found a way to cover everyone under a firm-wide group plan that included maternity care.

It’s a shame that the Affordable Care Act did not actually address the exorbitant cost of health care. The philosophy was to get everyone covered first, and then worry about costs. That was exactly backwards. We need to get costs under control and then get everyone into a system that provides a reasonable level of guaranteed health care. That probably means, in the long term, some sort of publicly financed health care system, which might coexist with private alternatives in much the way that public and private schools exist side by side.

Instead of a thoughtful discussion of how to go about achieving this desirable outcome, we got a law that is an impractical mess of overregulation and wishful thinking. The law also created an opposition that has elevated resistance to insurance “mandates” into theology. Yet we have long lived with education mandates, immunization mandates, even military service mandates. The inclusion of a mandate is not the deeply flawed law’s problem.

Our staff can afford to have babies, for which I am thankful. Maybe someday, amid the wreckage that I anticipate the Affordable Care Act will create in the health insurance system, an Affordable Babies Act will arrive to pick up the pieces.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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