Board Reflections is a series of interviews with Commonwealth board members discussing their views on emerging financial challenges, innovative solutions, and the future.
Personal choice. Personal responsibility. It is hard to argue against that pair of values.
Yet while that is true in the abstract, trends in these directions in the financial lives of Americans require hard thinking, as Howell Jackson, a member of Commonwealth’s Board of Directors, discussed in a recent interview with Senior Vice President Melissa Gopnik.
Jackson talked about two specific examples, one established and one emerging. For retirement savings, moving from the classic defined benefit plan to a 401(k) model has given employees both choice and responsibility for planning, investment, and withdrawal. Jackson said that has been fine (though perhaps not ideal) for certain people (such as upper-income professionals), “but for a lot of people…it’s a very heavy lift to make those decisions.”
The emerging movement is in health care, where shifts toward high-deductible insurance policies and more cost sharing aim to have people take on greater consumer responsibility, making their own market-based choices. Jackson noted “it clearly resonates with something American about autonomy and choice that’s quite powerful, and it’s clearly part of our national culture.”
At the same time: “It’s going to be an interesting experiment…of a lot of autonomy. And eventually we'll be able to see whether it leads to lower cost and better choices. It's certainly not a path that any other developed country has chosen to go down, so it's a little lonely.”
Jackson observed that the trend in the retirement area is toward defaults based on beneficial assumptions – that a worker can choose to override – about how much will be saved and how it will be invested. This took a long time to develop, and he hopes it will not take twenty years to develop similar assistive measures for health care decision making.
Jackson is fearful that medical expense volatility – which he said was modulated to a considerable extent by the Affordable Care Act – will again become an issue for middle- and lower-income households. This will place greater emphasis on the need for precautionary savings to serve as a buffer.
Increased volatility also boosts demand for short-term credit. Although Jackson is excited about robust innovation in the financial services field, he talked about his longstanding interest in consumer protection given that the industry can trend into abusive practices if not constrained by regulatory controls: “[J]ust because you put the label of fintech in front of it, it doesn't necessarily mean that it's in the best interest of consumers or it's completely transparent.”
As we work to protect consumers as they exercise choice and take responsibility, Jackson is pushing for greater focus on assessing regulatory benefits. He sees technology as offering opportunities for proponents of consumer protection to be able to speak in quantified terms that put them on the same footing as opponents of regulation who regularly quantify (and perhaps overestimate) the costs: “There's so much focus now on dollar signs that if you don't come to the table with at least some dollar signs…you're not going to be… heard in certain circles.”
Howell Jackson is the James S. Reid, Jr., Professor of Law at Harvard Law School. He is a member of the National Academy on Social Insurance, a trustee of the College Retirement Equities Fund (CREF) and its affiliated TIAA-CREF investment companies, a member of the panel of outside scholars for the NBER Retirement Research Center, and a senior editor for Cambridge University Press Series on International Corporate Law and Financial Regulation. His research interests include financial regulation, international finance, consumer protection, federal budget policy, and entitlement reform.