When the new federal health care law goes into effect next year, Utah residents who don't have bank accounts could once again find themselves shut out of opportunities to improve their circumstances.
Under the Affordable Care Act, 29,590 residents of our state are expected to qualify for tax subsidies that can be used to purchase insurance through new health care exchanges. However, many of the uninsured households in our state have no checking or savings accounts and are effectively "unbanked" — 30 percent according to a report by the tax firm Jackson Hewitt. The problem is that insurance companies often require individuals to pay their monthly premiums via automatic withdrawal from a checking account. No account, no insurance.
As states scramble to set up health exchanges, the question of how unbanked households will purchase insurance has largely been overlooked. Fairly late in the game, federal officials at the Department of Health and Human Services have proposed requiring insurers to accept a menu of payment options, including cashier's checks, money orders and prepaid debit cards, so that families without checking accounts won't lose the opportunity to purchase the insurance required by law.
Those proposed rules should become the law of the land.
But we shouldn't stop there. In addition to ensuring Utah's unbanked get the health coverage they need, we must also find ways to address the larger problems that prevent these households from joining the financial mainstream.
More than 7 percent of households in Salt Lake City are considered unbanked, according to data compiled by the Corporation for Enterprise Development (CFED). An additional 17.9 percent of households are "underbanked," meaning they may have a bank account, but still use alternative financial services like check-cashing service, payday loans, rent-to-own or pawn shops. These families have little opportunity to save for the future, build credit and turn their hard-earned cash into valuable assets.
We have witnessed firsthand the impact of programs and services that help low- to moderate- income families in our area open savings accounts and achieve long-term financial security. Utah Saves, a public awareness campaign launched in 2005, is a program that helps motivate, encourage, and coach individuals and families how to save money, reduce debt and build wealth. Local efforts by the Utah Council on Financial and Economic Education, a coalition chaired by Utah State Treasurer Richard Ellis, are underway to launch a statewide Bank On campaign designed to help Utah families obtain access to safe and affordable mainstream financial services. In addition, volunteers with the Volunteer Income Tax Assistance (VITA) program connect individuals and families to free one-one-one financial counseling and education, and other asset-building programs such as the Utah Individual Development Account Network.
But these programs reach a mere handful of the households they could potentially help. Our government leaders need to play a stronger role in connecting residents to the financial mainstream by using tools like public awareness campaigns to inform residents about the potential risks of using high-cost payday loans. Local leaders can also help bring together area banks, credit unions and community organizations to extend their services to the unbanked and underbanked residents of our community.
We need to do more to prevent unbanked and underbanked families from being shut out of everything from reliable health coverage to a secure financial future. The gap in access to financial services is symptomatic of the widening wealth gap in our nation. If policymakers are to successfully increase access to health insurance, expanding opportunities to join the financial mainstream should be a key part of that effort.
Preston Cochrane is the president and CEO of AAA Fair Credit Foundation, a nonprofit credit counseling and HUD-approved housing counseling agency.