Friday, August 01, 2008

In an Age of Plenty, Why Nothing Stands Between You and Financial Ruin

This is the American prosperity paradox. Even though our economy has grown gangbusters since the 1980's -- the GDP doubled from seven to fourteen trillion dollars, and high employment and low inflation predominated -- we, Americans are more insecure than ever before, growing increasingly anxious about our future. Many people state they feel they are one "crisis" away from financial ruin.

High Wire: The Precarious Financial Lives of American Families, by Peter Gosselin, explains why this prosperity paradox exists, a paradox not limited to the working class; it affects people all across the income spectrum. Here's what Gosselin has to say in a nutshell:

After the economic turbulence of the 1970's, decisions were made to deregulate industries and reel in safety nets with the understanding that an unrestricted free-market would solve the economic problems generated in the previous decade.

This did wonders for the GDP; however, the cost of empowering the private sector came at the expense of the average American's financial security. No longer could American employees plan their future with confidence because the economic burden was transferred from government/ business to the individual household. Health insurance, retirement, disability insurance etc., which at one time, employed Americans could take for granted, became each American's responsibility.

Today, half of all Americans work for a company today that offers no retirement plan at all. The companies that do offer retirement plans have switched from traditional pensions to 401K plans. Under traditional pensions, the employer was responsible for putting aside the money, investing it to make it grow, delivering on the promised amount. Now, the job of managing your retirement rests with you. In other words, instead of the company assuming the risk, each individual assumes the risk without the time, money, or resources that the employer has when it was their responsibility.

To make matters even worse, the Employee Retirement Income Security Act of 1974 (ERISA), enacted to protect the interests of employee benefits and their beneficiaries, stating in the preamble, "protect … participants in employee benefit plans and their beneficiaries," now protects the insurance companies. Through a series of insurance company-favorable Supreme Court decisions, it is now much easier for insurance companies to deny the very benefits the law was designed to protect. The courts now defer to the decisions of the insurance companies.

The insurance claims departments have the same status as the IRS and Social Security Administration, even though, unlike those two entities, profit is the controlling or directing power, clearly presenting a conflict of interest. Claims adjusters in many insurance companies are encouraged and rewarded for denying claims, and large employers, under ERISA, are immune from most insurance regulation. Where does this leave the average to above average American? Well, if you take a significant hit, and do not have an abundance of wealth, the answer is you are on your own, as ERISA trumps all state laws and is the only law of the land as far as your benefits are concerned.

Debra Potter Peter Gosselin's LA Times article that inspired him to write the book.

Health Insurance Coverage

3 comments:

abandon yourself 22:36  

The Docile American sums up the reasons for Americans' complacency and an easily manipulable working class, the reason why Americans have so little protection.

bleute 09:11  

Great article! Thanks!

Anonymous,  12:58  

Half of all companies? I find that hard to believe.

If this is true, I would think more people would have joined the ranks of the financially ruined. Something's missing here.

But interesting, anyway.

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