Consumer-driven trend

I just wanted to flag an investigation by a Congressional committee of fees that cause workers to lose billions a year in 401(k) retirement funds. The Washington Post and LA Times wrote about a hearing on the issue yesterday.

From the Washington Post story, the problem is this:

Mutual funds and other professional investment firms often charge fees totaling 3 percent to 5 percent of the assets they manage, when 1.5 percent would be more appropriate, Matthew D. Hutcheson, an independent consultant on pension fees, told the House Education and Labor Committee.

An excess charge of just 1 percent can seriously erode retirement money, retirement planner Stephen J. Butler testified. A couple investing $10,000 a year over 30 years and earning 10 percent, for example, would have more than $1.9 million for retirement at the end of that time. But that sum would be reduced by $355,395 — to just under $1.6 million — if that money earned one percentage point less, or 9 percent a year.

This has been able to happen because “fees often are scattered across written materials, or sometimes not reported at all, making it difficult for employers and consumers to comparison shop, according to testimony from Hutcheson and others, including an official from the Government Accountability Office, the research arm of Congress.”

It’s been about two decades since pension annuities — pooled retirement funds — started eroding as a benefit in favor of individualized 401(k)s — where workers could “take control” of their own nest eggs. It was also cheaper for employers to give workers a set amount to invest up front, rather than being responsible for a regular check after workers retired until they died (and sometimes beyond).

It’s only now that lawmakers are beginning to probe the opaque practices of these 401(k)s and bringing them into public view.

In health care, the rising popularity of Health Savings Accounts and consumer-driven plans to allow consumers to “take control” of their health care holds the same kinds of warning signs to me. These individualized plans are being pushed as an alternative to traditional comprehensive insurance — pooling people together to spread risk.

Sound familiar?

At this point, the health industry is far too opaque for consumers — and employers — to get an accurate read on what it is they are paying for or to comparison shop. Even more opaque than the 401(k) managers who are required by law to disclose certain information just now being investigated.

No laws require the disclosure of price information for consumers.

To have to wait two decades for a congressional committee to begin opening up investigations on practices behind the health care curtain could be far too late for some consumers, who could get sicker and die while waiting.

Health Access California promotes quality, affordable health care for all Californians.

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