Archive | February, 2011

Why is it I can get money instantly from my bank account anywhere in the world, but my doctor has to ask me to have medical records sent to him? Use of information technology in health care is pathetic

28 Feb
Image representing iPhone as depicted in Crunc...

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I can do some amazing things, I can have my bank send me an e-mail each time there is a transaction in any of my accounts.  In fact, that happens within seconds of the transaction.  I connect my iPhone, my iPad and my laptop so when I change my calendar on one, it changes on all three.  I can also connect with anyone in the world on my laptop and have a video chat for free.  I don’t even pay my bills anymore, each company I owe money to simply takes it from my checking account each month or in some cases charges it to my American Express card where I accumulate points (that, by the way paid for a trip to Maui for ten days including first class airfare). Boy I can do all these amazing things and more and so can you.

What I can’t do is be assured that each of my doctors knows what the other is doing.  Each doctor asks me which drugs I may be taking and if another doctor has done this or that.  I hope I remember which drugs I may be allergic to because nowhere is this recorded and accessible to any doctor I may visit. Only because I have a health plan using a pharmacy benefit manager is there any hope of catching possible drug interactions. In the absence of such a plan you are on your own for such a risk.  When you do receive a prescription, it is generally on a piece of paper and you hope the pharmacist can read the instructions.  None of my medical records or procedures are automatically sent to my primary care doctor or anywhere else for that matter. When I visit a hospital I am asked to sign a release to have my records in a data bank accessible to doctors…in that hospital system.  Ah, progress.

There have been attempts to improve this situation and several are underway.  There is a hand-held device that allows a doctor to prescribe a drug with all the needed information on hand including optional drugs, information about the patient’s drug plan and it transmits the script directly to the pharmacy.  It is not widely used; nobody wants to pay for it.   We are a long way from a coordinated system that helps assure more efficient, higher quality health care for all.  Higher quality includes less risk for the patient from duplicative and unnecessary tests and errors.

This is nothing new of course, and yet we are still at it.  Here is something of interest from Bill Clinton’s attempt to reform health care in 1993.

As ‘The Clinton Blueprint: The President’s Health Security Plan’ (Times Books, 1993) points out, once you are enrolled, you will be assigned a “unique individual identifier.” “The unique identifier may be the Social Security number or a newly created number assigned to the health care system.” All of your medical information will be collected and stored in a “unified health information system,” where it can be accessed via your health-security ID number. And “an electronic network of regional centers containing enrollment, financial, and utilization data is created. The network receives standardized enrollment, encounter, and related data from plans for aggregations in analysis and feedback to plans, alliances, states and the Federal Government.”

Opponents of such a system see evil in the government having access to individuals’ health records.  Okay that’s fair, but what is the alternative?

We are never going to solve the core issues for health care in America unless we throw off the chains of outdated thinking and old norms and perceptions.  As much as we like to think otherwise, health care is not an individual thing that only involves one patient and one doctor and no other interested parties.

Has the toilet paper roll gone the way of the half gallon container of ice cream?

27 Feb

How many sheets of paper are on your current roll of toilet paper?  I bet it is the same as it was a year ago, but wait, take a closer look.  Does there appear to be more space at each end of the toilet paper holder?  There should be because the traditional width of a roll has been shortened by a half-inch.  You got it; the toilet paper roll has gone from 4.5” to 4.0.”  What do you think, are we being ripped off (no pun intended)? 

That begs another question, should the end of the roll go over the top or under the bottom? I believe over the top is most traditional, but the problem is finding the end of the roll when it lands on the top of the roll.  On the other hand, under the bottom provides a good chance that the end of the roll will hang free in the breeze thus remaining easily accessible. Give it a try.

Now in case you have not noticed, a half-gallon of ice cream is no longer 64 ounces.  A “half-gallon” is actually 1.5 quarts or 48 ounces,  That is twenty-five percent less than you used to get for the same price (despite what the sign in the store may say).

I suppose it all works out though, less going in one end and less to deal with it at the other and hey, no price increase. 

Now, if you just buy a car with a smaller gas tank you won’t notice the price of a gallon of gas going up 20%.

Obama budget includes PPGC changes with higher premiums on the horizon

27 Feb

The Pension Benefit Guarantee Corporation (PBGC) was established by ERISA nearly forty years ago to protect workers from losing pension benefits when a plan is terminated without adequate funding by the plan sponsor. This is accomplished by charging a premium for each person covered by the employers plan. Over the years the premium has increased steadily.

Of course the protection is a good thing and unfortunately necessary because of irresponsible employers and union funds. On the other hand the administrative burden and cost has contributed to the decline in defined benefit pensions (401k) type plans have no insurance).

The new Obama budget contains more changes for the PBGC and perhaps more reasons for employers to get out of the pension business.

Here is a summary from AonHewitt:

The proposed budget also includes a pay freeze on federal civilian workers, Pension Benefit Guaranty Corporation (PBGC) reform, and a federal government reorganization initiative. The budget proposes to save $16 billion over the next decade by giving the PBGC Board the authority to adjust premiums and also directs the PBGC to take into account the risks that different sponsors pose to their retirees and to PBGC, with two years of study and public comment before implementation and gradually phasing in any increases.

Every state and local government worker should be able to retire at age 50!

26 Feb
New York Mayor, Michael R. Bloomberg.

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I can’t claim authorship of this but I found it so interesting to be worth repeating. It is from the February 25th Wall Street Journal opinion page.

Innocent Americans assume that unions use collective bargaining solely to obtain better pay and benefits. Not exactly. The real game is to insist that the dough runs through the union—giving it power over the state.

In Wisconsin, for instance, the teachers union doesn’t just bargain for more health dollars. It also bargains to require that local school districts buy health insurance for their teachers through the union-affiliated health-insurance plan, called WEA Trust. That requirement gives the union (not the state) ultimate say over health benefits. It also costs the state at least $68 million more annually than it would if schools could buy the state-employee health plan—money that goes to a union outfit.

In New York the unions continue to blast the mayor.  A new ad says Mayor Bloomberg expects some city workers to stay on the job until 65 and he expects “you” to work to age 85. 

I don’t know about you, but I think every government worker should be able to retire at age 50 with 85% of their pay in a pension and full health benefits for life.  Sounds good to me.  Ah, but the trick is to not replace them when they do retire.  Now there is progress we can live with.

The idea that state workers need collective bargaining to assure they have good benefits is questionable.  A state that does not provide a competitive pay package will not be able to attract people to state and local government jobs, many of which are difficult and frankly hard and sometimes dangerous work.  But the key is “competitive.” I doubt many people will argue with paying competitive wages with competitive benefits, but you see, the issue is not that, the issue is preserving benefits that are far more than competitive.

If collective bargaining works, how did state and local governments get into this mess?

24 Feb
Charlie Chaplin stands on Douglas Fairbanks' s...

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Union busting, attacking the middle class, blaming state employees for budget deficits, disrespecting teachers and other civil “servants,” that’s some pretty heavy stuff. Yet the news is full of such claims. Depending on your perspective I suppose there may be an element of truth in all that. However, once again we are being distracted from the real issue.

The real issue is that the various states have trillions of dollars in unfunded liabilities. Yikes, New Jersey has about $55 billion in unfunded liability for retiree medical benefits. The city of Chicago is reported to have nearly $20 billion in unfunded pension liabilities.  How did this happen?

Some will quickly point out that the market crash caused by Wall Street is the culprit and that is certainly a tempting target. Actually, low interest rates increase the liability calculation and as we all know the market has largely recovered. In any case, the market does not explain massive liabilities for retiree benefits other than pensions (medical, dental, prescription and life insurance) because in most cases those promises are not funded.

Promising pensions and other benefits is tricky business because once promised they are hard to change without a lot of pain. In addition, compensation in the form of open-ended promises is difficult to control because of outside forces (think health care costs, interest rates and investment returns). While a 3% raise in pay also affects pension costs and perhaps other benefits such as life insurance and disability benefits, you still can project your future costs for the 3% raise.  On the other hand, health benefits have no cap and you have little control over the rate of future increase. The point is that to keep state worker’s pay competitive the available money should have been placed into direct pay rather than generous benefits with their hidden costs and growing liabilities.

Real collective bargaining understands and addresses these issues because in the long-term the promises affect the viability of both parties. Innovative companies address the issues with a long-term strategy and making adjustments that minimize the impact on workers who have come to depend on the promises. In other words avoid a crisis situation. General Motors and the UAW (and bondholders) learned the hard way. Now, the states are in the same boat, but it appears that public employee unions and some politicians still have a lot to learn about the consequences of uncontrollable costly promises.

To say unions have compromised and agreed to givebacks is misleading. Agreeing to start paying something for health care or raising the contribution to say 12% in a world where the norm is closer to 25% is a baby step. Increasing employee contributions to pensions is a short-term diversion when the design of the plan is flawed (think padding the pension with overtime pay in the final years of service) and unsustainable. If the states can’t afford to make required contributions, little has been accomplished.

Collective bargaining requires two parties to compromise from different points of view. One party wants more but is prudent and realistic. The other party wants to give little but understands that improvements are necessary to maintain a competitive environment.  Both parties know and understand the cost implications and the trade offs necessary.

This environment does not exist in the public sector.  The evidence is abundantly clear.  There is no regard for long-term costs. Benefit plans are inefficient, provide disincentives to control costs and frequently exceed by far the value of benefits provided private sector workers.  In addition, politicians and bureaucrats fail to identify and fund the ever-growing liabilities.  In some case they have diverted funds to other purposes such as tax rebates and intentionally used unrealistic actuarial assumptions.

If you think all this can be changed under the current system of “negotiating” between public employee unions and the politicians they help elect, then you must also believe that Americans have an average BMI of 25 and save aggressively for their retirement.

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A socialist’s view of Social Security. What you should know about the Social Security trust fund and its future impact on you

23 Feb

Sen. Bernie Sanders, an admitted socialist, has the answer for dealing with Social Security, do nothing, except of course raise taxes on those earning more than $250,000 a year. His view is that no basic changes are needed to Social Security rather simply raise taxes on the “wealthy” and things will be fine. He notes that far from broke the “trust funds” are invested in government securities and thus are backed by the full faith and credit of the U.S. government. He is right about that. But it seems to me the point he misses is that sooner or later the use of those funds will be required and the U.S. government will be required to come up with the cash to make benefit payments. Is that a potential problem? Well, the Chinese who are among the largest investors in the U.S. are looking for some assurance that the credit rating of the U.S. will not decline.

The money that is invested each day in the trust fund is not isolated by the Treasury, the money is spent like all other federal revenue, and there is no “lock box” or isolated funds. Social Security holds the Treasury securities just like any other creditor.

Consider this from the Office of the Chief Actuary of Social Security:

The last 5 Trustees Reports have indicated that Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds would become exhausted between 2037 and 2041 under the intermediate set of economic and demographic assumptions provided in each report. If no legislative change in enacted, scheduled tax revenues will be sufficient to pay only about three fourths of the scheduled benefits after trust fund exhaustion.

Here is a summary from the 2010 Trustees Annual Report:

The financial outlook for Social Security is little changed from last year. The short term outlook is worsened by a deeper recession than was projected last year, but the overall 75-year outlook is nevertheless somewhat improved primarily because a provision of the ACA is expected to cause a higher share of labor compensation to be paid in the form of wages that are subject to the Social Security payroll tax than would occur in the absence of the legislation. The Disability Insurance (DI) Trust Fund, however, is now projected to become exhausted in 2018, two years earlier than in last year’s report.

Thus, changes to improve the financial status of the DI program are needed soon. Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers.

The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.

The long-run financial challenges facing Social Security and those that remain for Medicare should be addressed soon. If action is taken sooner rather than later, more options will be available, and more time will be available to phase in changes so that those affected have adequate time to prepare.

Let’s put this in very simple personal terms. I looked at the last annual statement I received from Social Security in August 2009 and it tells me that since 1959 I paid $116,781 in Social Security taxes, my employer paid an additional $116,873. Any way you slice it, $233,654 is a lot of money. Well, in the scheme of things that is not true. You see, based on the monthly Social Security benefit my wife and I receive, our benefits will exceed all the taxes we paid in 2.76 years and will exceed the additional employers contributions in 5.53 years (and that does not include any future increases in our monthly benefit). Where does the rest of my benefit come from? It comes from my children who are now paying their Social Security taxes.

The essence of the problem ahead of us is that there are more people like me collecting these benefits and fewer people like my children paying for them. My Social Security statement tells me:

the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.

 Perhaps someone should send Senator Sanders his statement to read.

Social Security is in effect a Ponzi scheme and a welfare program. Does this sound like something that should be fixed by merely raising the taxes paid by some or all Americans?

There are some among us like Senator Sander who think so, but you see that is the problem with major entitlements, they only grow and grow based on political whims and when they become unaffordable the answer is not to modify them to reasonable levels, but to sustain and even grow them through higher and higher taxes. [think public employee pensions and benefits].

The Secretary of the Treasury estimates that within a few years the interest on the national debt will exceed $600 billion a year; it is now about $200 billion. When we get to the point where the Social Security fund needs to cash in the securities, where will the money come from? Well, either the government needs to raise revenue from higher taxes, sell other securities to someone else to raise cash or simply print money. Which of those alternatives sounds appealing to you?

Every entitlement we have is backed by the full faith and credit of the United States, which also includes the fourteen trillion dollars in U.S. debt, about half of which is owed to Americans and the balance to other countries. You can argue all you want who caused all this debt, but there is one answer you can’t argue with; politicians and all of us who gladly accept more and more from the promises made whether it be lower taxes, tax loopholes or more entitlements.

Americans are at a cross roads, they need to decide how much of their total security they want provided for them through a massive government and they need to decide how much they want to pay for it. That’s all Americans; you are not going to pay for the goals of Americas’ progressive left by heavily taxing each family earning more than $250,000. Keep in mind that based on intermediate assumptions by the Trustees, we will blow through the $2.5 trillion in the S.S. trust fund government securities in just twenty-four years between 2017 and 2041.

I suppose one option is to take the path followed by Norway, the government provides for all our basic needs in return for turning over 50% or more of what we earn in taxes? What do you think?

Just so you know here is what the Social Security.gov website says about the trust fund:

(more…)

Public employee unions are not like other unions and the difference is extremely important. Why you should support efforts to change the process of providing employee benefits to public employees.

22 Feb

Since you can’t separate politics from public unions and both parties leverage their influence to mutual advantage, how in the world can we expect honest collective bargaining with public employee unions?

Let's talk, or are you just chicken?

I negotiated union contracts for over thirty-five years. I know how an informed, intelligent union leadership works.  I know that a good union leader is able to balance the interests of his or her members with the reality of issues facing the employer in good times and bad. I know a good union leader has a long-term vision and places job security and working conditions high on the list of priorities. I know a good union leader is not greedy and is informed about employee benefit matters, understands how a pension plan works and what is driving health care costs.

Contrast that to public employee unions that are so political they seem unable to deal with reality.  They place the interests of their members ahead of the interest of all taxpayers who are footing the bill.  In New York the teacher’s union runs ads saying the mayor refuses to have “millionaires to pay their fair share.”   Listen to the rhetoric coming from the unions and you hear the standard progressive political phrases such as protect the middle class, raise taxes, and that the efforts of governors to manage costs are nothing more than an anti-union campaign.  Their view is short-term and greedy.  They have a “we are special, job for life” mentality.  They ignore the middle class working citizens who pay the taxes to pay the benefits and who in most cases have no such generous benefits of their own. Public unions are among the top contributors to political campaigns with 95% of the money going to Democratic candidates.  

I have heard people say that the best way to resolve these critical matters is through the collective bargaining process.  Under normal circumstances, I would agree with that.  I resolved many financial issues through collective bargaining; I managed long–term costs through collective bargaining.  I worked with union leaders who were able to equate the viability and success of the employer with the best interests of their members. Public employee unions have no such perspective or incentive to do so; states don’t go out of business after all. Public employee unions tend to “negotiate” by way of political donations and attack ads when there is a threat to continued spending.

So-called collective bargaining in the public sector is what got us into this mess in the first place. The fact is that bargaining with unions closely aligned to the politicians in a state, is not true bargaining.  Rather, there is protecting ones turf and ones voting bloc. The unions collect millions from their members and put much of those dues into advertising and supporting politicians who support the unions. According to published reports, the New Jersey Education Association collects $100,000,000 a year in dues and last year spent $300,000 a week fighting budget cuts.

I served on a state health benefits commission for teachers set up by a Democratic governor in return for some minor concessions by the unions.  The commission was made up mostly of union leaders and state employees.  I was the only uninterested party representing the public and I was frequently the only dissenting vote.  I witnessed union leaders on the commission vote to increase premiums at a level known in advance to be insufficient to cover project claim costs, I witnessed the same group vote down a proposal to increase the retiree co-pay for a prescription from $1.00 to $2.00, both actions when retirees pay nothing for their coverage and the state (and its citizens) has an unfunded liability for these benefits of $55 billion.  Yes, the liability is that high and unfunded because of decades of irresponsible politicians who ignored the growing costs and kept improving the benefits (dare I speculate in order to keep the union PAC money flowing).  These are same people who are supposed to “negotiate” with the unions.

What has collective bargaining got us?  Well, in New Jersey their plan had (recently changed) internal coordination of benefits.  That means that a husband and wife both enrolled in the state benefits plan could coordinate their benefits and then receive 100% reimbursement for their bills.  No employer in the world would permit this.  During hearings we held in the process of evaluating the state’s benefit programs, the unions bused people to protest.  One woman testified that we should not lower her benefits.  She was a temporary worker from January to May each year, and then collected unemployment for the rest of the year. However, for the entire year she received her health benefits for free.  There are numerous similar examples.

Lest you don’t agree that politics are the main driver in the relationship between public employee unions and their bosses consider this.  In Wisconsin, the governor exempted the police and firefighter unions from his effort to limit collective bargaining.  No doubt it is only a coincidence that these two unions supported the governor in his election campaign. 

Don’t be confused or swayed by the rhetoric on this issue.  The simple fact is that in many states the benefits and total compensation for government workers are out of control.  They got that way through poor management by politicians and by the irresponsible actions of the unions.  You are footing the bill.  These liabilities will make borrowing by states or local governments more expensive, these liabilities will be reflected in your income, sales and property taxes.  As I have said before, public employees deserve a fair, competitive pay and benefits package.  That package should reflect the total compensation of all workers in the state where they are employed.

That is all this should be about!

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Saving for your future retirement is no joke, but many people treat it is a low priority and are not prepared…big mistake

21 Feb

Not unless you save, you won't

Planning on retiring are you?  Well, I retired a year ago and already I am feeling the impact of rising expenses and a fixed income (medical costs, insurance premiums and property taxes most notably).  But I am lucky, I have a good pension, I have social security and I have a 401(k) plan.  If you are not so lucky and your retirement is mostly dependent on your ability to save, invest and then manage your money for the rest of your retired life, you have some serious planning to do.  In fact, some research shows that even with a pension and social security many people are not saving sufficiently now to meet their needs in retirement.  The greatest risk you will face in retirement is longevity.  So you have two choices, save more now or plan on reducing your longevity in the future so that you do not outlive your money.   Giving up a few meals out, a vacation or two and the like seems like a more appealing alternative to me.

To get a better understanding of the future you may face, take a look at this recent article in the Wall Street Journal, Retiring Boomers Find 401(k) Plans Fall Short

In order to get where you want to go even if it is thirty years from now you need a plan, a map and a strategy.

Here are a few simple tips to consider:

  1. Have a realistic idea of what your expenses will be in retirement- hint, they won’t drop by 20 or 35%  For example, let’s say you are an average person and you pay the basic Medicare premium plus Medigap coverage and Part D, well, for a couple in today’s dollars you just lost roughly $800 per month of your retirement income and that does not include out-of-pocket medical costs.
  2. Save early even if you have to lower or stop your savings in future years, say while paying for college.
  3. Don’t make withdrawals or loans from your 401(k) plan, put the money in and forget it until you are ready to head to sunny Florida some year in the future
  4. Live life as if your gross income is less than it actually is.  For example, if your family income is $80,000 a year, assume it is $70,400 and save the 12%  difference – or more ).  The idea is not to make your life miserable until you retire, the idea is to have a steady lifestyle from here on out, even if you live until 100.  [see note below]
  5. Pay attention to where you invest your money. This is investing not just saving.  That means you need to be diverse, you need to use an investment mix that provides growth and some security and most important you need to adjust your investment mix the closer you get to retirement (and using your money).  Many of the folks in their sixties who lost most of their retirement savings in the recent market crash did so for two reasons.  First, they were too heavily invested in equities for their age (they did not have time to recover their loss before retirement) and two, they moved their assets out of equities at the bottom of the market thus guaranteeing their losses and missing the recent market recovery.  In the years just before I retired I shifted much of my 401(k) into fixed income investments.  As a result I was largely unaffected by the market crash.  In the two years since January, 2009 my account has grown by 19%.  Could it have grown much more in that period if I were invested in equities, in retrospect it may well have, but that is not the point.  I am sixty-seven, I sleep better and didn’t see my life savings depleted.  However, you have to do what makes you feel comfortable and is best for your financial situation.  The key is that you must know what that is.   However, there is something to be said for the tortoise in that famous race. 

Note: Think of this process this way.  Say you are a teacher and earn $50,000.  Naturally you pay your taxes, etc. and spend the balance.  But your earnings are not really $50,000 they are likely as much as forty or fifty percent more.  Why, because part of your compensation is deferred into your retirement in the form of a pension and health benefits.  Some of that compensation is also your benefits while you are working.  In this example, you don’t earn $50,000 but more like $75,000 and a lot of it tax-free as well.   If you are not so fortunate as to have a good package of employee benefits, it is up to you to fund your own.  Hence, unless you can raise your income by 40% or so to pay for those benefits, you must adjust your standard of living to pay for them from your current income. 

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Do Americans have the slightest clue what they want when it comes to health care?

20 Feb

Short answer, nope!

As I have said many times, Americans (probably all people) are incapable of objective thought or actions when it come to health care. Oh sure, we can appear logical when it comes to writing about health care, criticizing policy or complaining about costs, but when it comes down to our health or that of a loved one, it all goes out the window. What matters then is not cost, but our health and our lives. Change the system all you want, but don’t gore my Ox.

National Journal: Americans Disapprove Of Health Care Defunding Efforts

A large majority of Americans disapprove of Republican efforts to defund the health care law, according to a recently released CBS News poll. The survey found that 55 percent of adults across the country disapprove of plans to defund the health care law, though a majority of respondents still disapprove of the law itself. Just over 50 percent of people surveyed said they disapproved of the law, with 34 percent strongly disapproving. Only 33 percent approved of the legislation (Fung, 2/16).

Wisconsin, New Jersey, New York, Illinois, General Motors, unions and too much of a good thing

18 Feb
Wall Street Sign. Author: Ramy Majouji

Image via Wikipedia

Here is a quote from a posted comment regarding an article in the NYT about the battle between state workers and the governor of Wisconsin:

“This is the state of affairs in this country: Wall Street and the banks perpetrate the largest financial fraud and economic meltdown in this nation’s history, and schoolteachers, prison guards and other civil service workers shoulder the blame.”

This is a scary point of view.  Do you think Wall Street had anything to do with the generous out of control benefit costs for state workers? Do you think Wall Street had anything to do with the mismanagement of pension funds at the state level (and not just Wisconsin)?  The fact is that these problems are the direct result of an unholy alliance between government employee unions and state politicians. In most, if not all cases, that is Democratic politicians, the very individuals who purport to stand for working families (mostly if they are members of an organization with a large PAC to spend). If you don’t believe this, look at the states in the most trouble, New Jersey, New York, California, Illinois… do you see a pattern here?

This is not hard to understand. If you get to elect the people who determine your pay and benefits you are likely to vote for the person who promises the best deal. If you are the person who is elected you are going to deliver on those promises so you get re-elected. Neither party gives a hoot about the long-term impact on state liabilities and budgets, the taxes needed to pay for the promises, the working families not part of this alliance who pay the taxes or much else.

The basic concept of promising more and more without regard to the long-term cost is alive and well at all levels of government.  And just as a point of reference, it is the same concept that greatly contributed to the problems at GM.

States should have addressed these issues long ago.  They should have compared state workers benefits with the general population of their state. They should have made gradual adjustments to the benefits to keep them on par with the private sector.   They should have installed a new benefits package for employees hired after a specific date long past.  In other words, as a famous politician likes to say, “it’s time these folks paid their fair share.”   States would be far better off assuring a competitive compensation and benefits package by placing greater emphasis on direct compensation.  Pay is more predictable than unlimited and uncontrollable obligations for pensions and other benefits, especially health benefits. 

Teachers, firefighters, police officers, etc. are not especially greedy or bad people, they are human. They are looking out for themselves as we all do. Many of these workers deserve special consideration in their compensation based on the nature of their work.  Often it is dangerous, requires special skills and dedication and are jobs most of us would not want.  However, none of that means they get a blank check.  Many responsible unions in the private sector have recognized the growing costs associated with employee benefits and the potential impact those costs would have on their members.  They have worked with employers to help manage these costs and avoid a future crisis.  Unfortunately, that is generally not the case with public employee unions

The job of the politicians is to look out for all the citizens and in that they fail miserably.

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Medicare claims administration is a farce…especially if you believe the Obama administration budget planners

18 Feb

Free! Free! Free!

The Obama Administration’s new federal budget is out and getting hit from all sides.  There is no winning with a budget no matter who is putting it together.  However, this budget demonstrates the folly of government-run, well, anything. 

Contained in this budget is an extension of the “doc fix” that is, delaying again any reduction in physician fees under Medicare.  That in itself is not bad as there is not much room for cutting physician fees in any case.  What is interesting is one of the ways the extension is going to be paid for.  Check this out from Kaiser Health News:

Obama’s budget cutters found savings in smaller nooks, too. The budget says Medicare will save $240 million over 10 years by implementing “prepayment review” before buying power wheelchairs for patients.

That’s potentially bad news for the Scooter Store, a motorized wheelchair retailer based in New Braunfels, Texas. Kim Ross, a consultant who works with physician groups and the retailer, says Medicare already routinely denies orders for the power chairs, forcing the company and patients into a long and costly appeals process.

You know the Scooter Store from its ads on TV, if they qualify you and you do not get approved by Medicare, the scooter is free and if you are approved, you pay little or nothing.  On the other hand, the retailer’s consultant claims that the orders are routinely denied by Medicare (if that is true, where are the potential savings?). 

Here is the point.  Why is it that Medicare keeps finding “savings” (see Medicare Fraud and Abuse, not a new story) to spend elsewhere (I guess they are not really savings are they) from improved administration of claims when the administration of those claims should have been in an aggressive and cost saving mode all along?  Why is “prepayment review” just now being implemented?

This is just another example of the absurdity of a massive government program.  It simply cannot be run efficiently.  Why, because the politicians do not want to upset the beneficiaries (voters), the bureaucrats have no reason to care what and how much is spent and the patient does not care, they “pay for” Medicare after all.  If a private insurance company operated like this, managers would be fired, costs would be out of control and ultimately it would be out of business,  and yet we criticize insurers for managing claims on the basis they are just interested in profit.  

Perhaps, if someone in the government were more interested in “profit” we all would be better off.

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New Jersey workers to pay how much for health insurance, when? Once again politicians demonstrate they don’t work in the real work

16 Feb

You should feel like one

You have to give New Jersey politicians credit for doing something, but they still miss the point. State workers have no right to a compensation package far more generous than the people footing the bill.

The following is from the Star-Ledger, New Jersey’s primary newspaper. It is talking about a proposal by a State senator.

“Under Sweeney’s proposal, all public employees would pay a percentage of their premium (toward health insurance) instead of the current system that requires them to pay at least 1.5 percent of their salary, according to officials.

The increases would be phased in over seven years and would be applied on a sliding scale depending on the employees’ salary.

For example, in the first year, public employees who make less than $30,000 would pay 2 percent of their premium, while those who earn more than $100,000 would pay 12 percent, according to a chart obtained by The Star-Ledger.

When fully implemented after the seventh year, the lowest income workers would pay 12 percent of their premiums, while top earners would pay 30 percent, according to the chart. The annual payments would range from $2,280 to $5,700 a year.”

Seven years to phase it in? Are you kidding?

Initially top earners to pay 12 percent? Hey guys, in the real world the average person pays at least 20% of the premium and has for many years. There are many workers who pay a lot more than 20 percent as well.

In addition, workers in the private sector have higher deductibles and co-pays than do State workers. For example, employees of one of the nations largest insurers have a $3,200 deductible.  Employees of the States largest utility pay 20% of the premium for single coverage and 25% for family coverage and have since 1996. Contributions required of employees of other New Jersey employers are similar or higher.

Nice try, but no cigar. Too little and much too late. Let’s be fair with State workers and with taxpayers, it can be done.

New Jersey legislators got us into this mess.  There were three commissions and task forces since 1993 that highlighted this problem (and those related  to all other benefits) and made recommendations to resolve it, yet until very recently nothing was done.  Waiting seven years to make even a dent in the problem is not acceptable.

Medicare fraud and abuse not a new story, where have the bureaucrats been the last fifteen years?

16 Feb
President Johnson signing the U.S. Medicare bi...

Image via Wikipedia

I have been conducting an informal poll in doctors offices the last several months. Admittedly it’s decidedly unscientific and small but amazingly my results are consistent with the CBO.

I have been asking the question “Which health insurer is easiest to deal with?” the answer in every case has been Medicare. That quick answer is often followed with “they don’t pay much but they pay everything.”

Here is an excerpt from a CBO report:

Weak controls for detecting questionable billing practices. All Medicare bills are screened for consistency and completeness as part of the initial processing of claims. Even very high volumes of services to individual patients or by individual providers do not necessarily trigger further review before payment. Currently, less than 5 percent of Medicare claims are reviewed.

Inadequate checks on the legitimacy of those billing the program. Medicare lacks stringent requirements for issuing billing numbers to certain providers. In some cases, phantom companies with only a post office box number have qualified to bill the Medicare program. Also, surveys of providers are too infrequent to ensure their continued compliance with Medicare’s conditions of participation.

Little chance of being prosecuted or penalized. The weak controls on billing mentioned above make it unlikely that inappropriate claims will be detected, but when they are detected recovery is uncertain. Penalties are often light, large penalties are difficult to collect, and providers often continue to bill Medicare.

The above is from a 1995 report.

Where did that $400 billion go?

 

During the health care debate of 2009 and 2010, much was made of the savings to be generated by cracking down on Medicare fraud and abuse.  What we should be asking is what were the bureaucrats and politicians doing for the last fifteen years.

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Public employee pensions are no different from health care costs…well sort of

15 Feb

If you listen to teachers, police and other public employees, they will tell you that the only thing wrong with their pensions is that the states have not funded them.  In many cases, they are right; they are not adequately funded.  Why are public pension underfunded?  Well, governments do not have the money, they diverted money from pension funding to other perhaps more visible, attractive spending, and they used actuarial assumptions, which make it appear a plan has lower unfunded liabilities than it does.  By “they”, I refer to politicians.

That is only part of the story. Think of it this way, during the health care debate the cause of high health care was presented as insurance company premiums when in fact it is the cost of health care. When it comes to pensions, it is not the funding that is the real culprit; it is the generous provisions of the pension plan. 

That is not to say that all government workers receive $100,000 pensions although some do. Their pension is based on their earnings, their service and the pension formula. A lower earning maintenance worker is going to have a low pension in terms of dollars, but not necessarily in income replacement.

In trying to solve the problem, some states see the solution as requiring workers to contribute more toward their pensions.  That is like thinking you are controlling health care costs by requiring workers to pay more in premiums. 

The fact is it should be possible over time to lower worker contributions thus freeing up money to save for retirement such as in a 403(b) plan and maintain a defined benefit pension as well.

How can that be?

The benefits currently provided are not in tune with the real world.  For example, according to an article in the Wall Street Journal a police officer in Pittsburgh can retire at age 50 with 20 years of service and receive a pension equal to 50% of pay.  To do that the formula would have to provide a benefit based on 2.5% of pay for each year of service (or some equivalent of that).  The typical private pension plan is in the range of 1.5% of pay for each year of service and rarely exceeds 2% and then only on some years of service or a portion of earnings.  Government plans typically have automatic cost of living adjustments, virtually unheard of in the private sector.  Many public plans have disability provisions that are amazingly liberal in definition and application…and expensive.  Early retirement provisions are liberal.  The definition of earnings generally includes overtime, may be based on the last year’s pay and often easily manipulated by workers (and poor management) to boost earnings in the last or final few years of service. In some cases workers retire in their 40’s with a pension exceeding their base pay at the time of retirement, we should all be so fortunate.  In the real world, pensions typically do not include overtime and earnings are defined as a five-year average or even a career average.  Oh, and in some cases such as in New York, the pensions are free of state and local taxes.

Ah, twenty and out

Not all public pensions are the same of course, but most have plan provisions that put the private sector to shame…and burden the taxpayer in the process.

While the gripe is valid that politicians (in some cases) have not adequately funded pension promises and used overly optimistic investment return assumptions,  just imagine what your state and local taxes would be if they had done things the right way.

Because of this looming crisis, some critics see the solution as eliminating the defined benefit plan in favor of a defined contribution plan.  That is wrong and unnecessary.  Unions and the people they represent are better served helping to design pension plans that provide a reasonable benefit for a reasonable cost.  

Pensions are not the only problem, the tremendous liabilities accumulated for retiree health benefits is also a looming crisis.  While the private sector slashed and burned these benefits when the liabilities hit the earnings of companies because of an accounting change several years ago, the states went on their merry way making few if any changes and in many cases not even knowing the scope of their growing liability.  Some states had modest funding for these liabilities but diverted the money to other spending.  Consider this recent article in the New York Times.

Politicians, instead of currying favor with labor unions, must make decisions that are best over the long-term for all the citizens they purport to represent, including the people footing the bill.

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