Record Consumer Complaints in 2020
The Federal Trade Commission (FTC) received more than 4.7 million consumer reports of illegal activity or unfair business practices in 2020, a 45% increase over the 3.2 million reports in 2019. It’s unclear why there was such a large increase, but it may be related in part to social isolation and economic stress during the pandemic. In October 2020, the FTC launched a new website for consumers to report fraud and other consumer issues that enables more efficient sharing with law-enforcement authorities: ReportFraud.ftc.gov.
Following the Inflation Debate
During the 12 months ending in June 2021, consumer prices shot up 5.4%, the highest inflation rate since 2008.1 The annual increase in the Consumer Price Index for All Urban Consumers (CPI-U) — often called headline inflation — was due in part to the “base effect.” This statistical term means the 12-month comparison was based on an unusual low point for prices in the second quarter of 2020, when consumer demand and inflation dropped after the onset of the pandemic.
However, some obvious inflationary pressures entered the picture in the first half of 2021. As vaccination rates climbed, pent-up consumer demand for goods and services was unleashed, fueled by stimulus payments and healthy savings accounts built by those with little opportunity to spend their earnings. Many businesses that shut down or cut back when the economy was closed could not ramp up quickly enough to meet surging demand. Supply-chain bottlenecks, along with higher costs for raw materials, fuel, and labor, resulted in some troubling price spikes.2
CPI-U measures the price of a fixed market basket of goods and services. As such, it is a good measure of the prices consumers pay if they buy the same items over time, but it does not reflect changes in consumer behavior and can be unduly influenced by extreme increases in one or more categories. In June 2021, for example, used-car prices increased 10.5% from the previous month and 45.2% year-over-year, accounting for more than one-third of the increase in CPI. Core CPI, which strips out volatile food and energy prices, rose 4.5% year-over-year.3
In setting economic policy, the Federal Reserve prefers a different inflation measure called the Personal Consumption Expenditures (PCE) Price Index, which is even broader than the CPI and adjusts for changes in consumer behavior — i.e., when consumers shift to purchase a different item because the preferred item is too expensive. More specifically, the Fed looks at core PCE, which rose 3.5% through the 12 months ending in June 2021.4
The perspective held by many economic policymakers, including Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen, was that the spring rise in inflation was due primarily to base effects and temporary supply-and-demand mismatches, so the impact would be mostly “transitory.”5 Regardless, some prices won’t fall back to their former levels once they have risen, and even short-lived bursts of inflation can be painful for consumers.
Is a High-Deductible Health Plan Right for You?
In 2020, 31% of U.S. workers with employer-sponsored health insurance had a high-deductible health plan (HDHP), up from 24% in 2015.1 These plans are also available outside the workplace through private insurers and the Health Insurance Marketplace.
Although HDHP participation has grown rapidly, the most common plan — covering almost half of U.S. workers — is a traditional preferred provider organization (PPO).2 If you are thinking about enrolling in an HDHP or already enrolled in one, here are some factors to consider when comparing an HDHP to a PPO.
The average annual employee premium for HDHP family coverage in 2020 was $4,852 versus $6,017 for a PPO, a savings of $1,165 per year.3 In addition, many employers contribute to a health savings account (HSA) for the employee, and contributions by the employer or the employee are tax advantaged (see below). Taken together, these features could add up to substantial savings that can be used to pay for current and future medical expenses.
Pay As You Go
In return for lower premiums, you pay more out of pocket for medical services with an HDHP until you reach the annual deductible.
Deductible. An HDHP has a higher deductible than a PPO, but PPO deductibles have been rising, so consider the difference between plan deductibles and whether the deductible is per person or per family. PPOs may have a separate deductible (or no deductible) for prescription drugs, but the HDHP deductible will apply to all covered medical spending.
Copays. PPOs typically have copays that allow you to obtain certain services and prescription drugs with a defined payment before meeting your deductible. With an HDHP, you pay out of pocket until you meet your deductible, but costs may be reduced through the insurer’s negotiated rate. Consider the difference between the copay and the negotiated rate for a typical service such as a doctor visit. Certain types of preventive care and preventive medicines may be provided at no cost under both types of plans.
Maximums. Most health insurance plans have annual and lifetime out-of-pocket maximums above which the insurer pays all medical expenses. HDHP maximums may be the same or similar to that of PPO plans.
(Some PPO plans have a separate annual maximum for prescription drugs.) If you have high medical costs that exceed the annual maximum, your total out-of-pocket costs for that year would typically be lower for an HDHP with the savings on premiums.
Your Choices and Preferences
Both PPOs and HDHPs offer incentives to use health-care providers within a network, and the network may be exactly the same if the plans are offered by the same insurance company. Make sure your preferred doctors are included in the network before enrolling.
Also consider whether you are comfortable using the HDHP structure. Although it may save money over the course of a year, you might be hesitant to obtain appropriate care because of the higher out-of-pocket expense at the time of service.
HSA Contribution Limits
Annual contributions can be made up to the April tax filing deadline of the following year. Any employer contributions must be considered as part of the annual limit.
Health Savings Accounts
High-deductible health plans are designed to be paired with a tax-advantaged health savings account (HSA) that can be used to pay medical expenses incurred after the HSA is established. HSA contributions are typically made through pre-tax payroll deductions, but in most cases they can also be made as tax-deductible contributions directly to the HSA provider. HSA funds, including any earnings if the account has an investment option, can be withdrawn free of federal income tax and penalties as long as the money is spent on qualified health-care expenses. (Some states do not follow federal tax rules on HSAs.)
The assets in an HSA can be retained in the account or rolled over to a new HSA if you change employers or retire. Unspent HSA balances can be used to pay future medical expenses whether you are enrolled in an HDHP or not; however, you must be enrolled in an HDHP to establish and contribute to an HSA.
1-3) Kaiser Family Foundation, 2020
Net Price Calculators Help Gauge College Affordability
Fall is the time when many high school seniors narrow their college lists and start applying to colleges. One question that is often front and center on the minds of families is “how much will it cost?” To help answer that question, you can use a net price calculator, which is available on every college website.
How a net price calculator works. A net price calculator can help families measure a specific college’s true cost by providing an estimate of how much grant aid a student might expect based on his or her financial information and academic profile. A college’s sticker price minus grant aid equals a student’s net price, or out-of-pocket cost.
The numbers quoted by a college net price calculator are not a guarantee of grant aid, but the estimates are meant to be close. By completing a net price calculator for several colleges before officially submitting an application, students can get an idea of what their out-of-pocket cost would be at specific schools and rank colleges based on affordability.
What information it asks for. A net price calculator typically asks for the following information: parent income and assets, student income and assets, a student’s general academic record, and family size, including number of dependents. A net price calculator might also ask more detailed questions; for example, a student’s class rank and test scores, the amount parents contributed to their employer retirement plans in the last year, current home equity, or how much parents expect to pay in health-care costs in the coming year. Every college has its own net price calculator, so there may be slight variations in the questions that are asked.
A net price calculator takes about 10 to 15 minutes to complete. Typing “net price calculator” in the search bar of a college’s website should direct you to it.
Results can vary. Keep in mind that colleges have different sticker prices and criteria for determining how much grant aid they offer, so calculator results can vary, even when the same financial information is being entered. For example, after entering identical financial information on three different calculators, families might find that College A has a net price of $25,000 per year, College B a net price of $30,000, and College C a net price of $40,000. Running a net price calculator for colleges that are similar in terms of selectivity and sticker price can help families compare the generosity of colleges in a similar peer group.
Consider filing the FAFSA. The FAFSA for the 2022-2023 school year opens on October 1,2021. Families should consider submitting it even if they don’t expect their child to qualify for need-based federal aid, because some colleges may require the FAFSA as a prerequisite for college-provided need-based and/or merit-based grants and scholarships.