What's Trending | POV | June 22, 2017

Working with Clients with Volatile Incomes and Rising Health Care Costs

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EPIC Insights

Health expenses are increasingly just another way for consumers to experience “expense volatility.

By MEGAN KIESEL | Clarifi

● Point Of View

Working with Clients with Volatile Incomes and Rising Health Care Costs

Megan Kiesel is the Director for Client Engagement at Clarifi, a nonprofit offering financial counseling to help you improve credit, reduce debt and avoid foreclosure. She agreed to answer a few of our questions about her organization and its work.

What services does Clarifi provide and who is your target audience?

Clarifi is a 51-year-old nonprofit organization that helps about 15,000 Philadelphia-area consumers improve their finances each year. We are a member of the National Federation for Credit Counseling and for all of our 51 years we’ve been devoted to helping people manage and pay off debt as well as improve their credit. However, as the consumer finance landscape becomes increasingly complex, we have expanded our expertise to help consumers with all kinds of issues.

For example, we help consumers prepare for homeownership, avoid foreclosure, and manage student loan debt. In the last several years it has become increasingly clear to us that health and health care are inextricably tied to consumer financial well-being. As such, we developed several programs to help consumers use improved personal finance to advance positive health outcomes and we continue to build new partnerships and pursue more opportunities.

Do you find that your clients experience income volatility and what solutions work best to help them deal with it?

Before I dive into income volatility, I want to take a moment to discuss my concerns about the “gig economy,” which are related. Individuals who are using gig work are often really suffering as a result. We see a lot of people who are working for sharing services like Uber to either supplement other income or to replace employment. But they may have to purchase a vehicle or invest more money into maintaining their own. They also often don’t take into account the costs. Gas may seem obvious, but the tax burden is often lost on consumers until tax time rolls around. Our counselors regularly find individuals who, while they may walk away from their shift with money in their pocket, are sometimes barely breaking even in the long run. I am concerned that these gigs are presented as a quick and easy way for consumers to make money without commitment, when really it’s just an example of society asking low wage people to take on a heavier load. It can be a great opportunity for people — if they are informed and prepared.

It’s tough for counselors to provide blanket solutions to income volatility, as everyone’s situation is so unique. In some cases people are earning most of their annual income through a seasonal job, whereas in other cases it’s far more unpredictable. An additional complication is that they usually aren’t actively budgeting or managing their money, so it’s not always clear to them when they are in the middle of a shallow month and are running out of money, which can result in overdrafts or other debt.

It’s hard to offer prescriptions that work for all, but generally, it’s best to help consumers plan for every month to be a shallow month and manage their expenses as such.  At the end of the day, this boils down to good old-fashioned budgeting and being disciplined about setting aside the excess during a flush month. If people don’t trust their own money management skills, then apps can help with this.

Do you see a connection between the health expenses your clients face and the income volatility they experience?

I think health expenses are increasingly just another way for consumers to experience “expense volatility.” Think of it like a car repair, or a broken hot water heater. If your doctor prescribes six weeks of physical therapy to avoid back surgery, it can put you in a financial hole. Unless there is a resource available to help patients figure out how to pay an expense like that, patients are likely to skip it, which can wind up being expensive for everyone.

You mentioned earlier that you are expanding to the health space. Can you share why?

The link between physical health and financial well-being is undeniable and relatively well documented. We had long seen in our work with clients who need to file bankruptcy that a lack of health insurance was a common culprit. In 2008 a researcher at the University of Pennsylvania asked us to look at the health of the clients we were seeing who were facing foreclosure; we found these clients to have higher rates of depression and lower adherence to prescription medication. Further, regular health care expenses are creeping up to a burdensome level. Not only are consumers paying more for premiums, but a consumer who takes several medications a month or has to visit the doctor frequently has seen a significant increase in co-pays. It has become a line item in their budget, whereas 10 years ago those expenses were usually negligible. And of course we all know that stress is bad for your health, and people who are struggling with their finances are under constant stress. So the outcomes there are quite negative as well.

Can you share the projects you currently have going on in this new health space?

Right now we have two active projects that are helping us learn more about the relationship between physical and financial health, and we have another project coming up. First, we have a Medical Financial Partnership (MFP) whereby we use the existing Medical Legal Partnership model to embed a counselor at a Federally Qualified Health Center. The counselor works side-by-side with the care team to provide financial counseling to patients who can benefit. We did a two-year formal evaluation of the MFP and found that individuals who worked with our counselor indicated lowered financial stress and improved financial behaviors.

To learn more about the problem from a different angle, we’ve trained several of our certified financial counselors as health care navigators. The goal of this is to help individuals understand the value of having health coverage from a financial perspective, make sure the client understands the actual cost of the health care plan they are choosing, and help the client ensure the plan fits within their budget.

Last summer we worked with J. Michael Collins and his team at the Center for Financial Security on a study of our clients’ health. We saw a strong correlation between poor credit, negative financial behaviors, and poor health. As a next step, we are hoping to launch another study later this year on the impact of financial coaching on medical adherence in partnership with a health system. I am very hopeful that this will show that financial coaching can have a tangible impact on people’s success in managing their health.

While, by design, the EPIC process brings together cross-sector leaders to advance solutions, the views and opinions of the author are their own and do not necessarily reflect the view of EPIC, the Aspen Institute Financial Security Program, or our funders.

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INCOME VOLATILITY|CONSUMER DEBT

Income volatility is not a discrete, boutique problem. It's a new normal for American households.

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