Archive | April, 2011

Eat the rich

30 Apr

ThIs a bit out of my comfort zone, but it is entertaining and food for thought. Concentrate on the numbers.

Michael Moore has a reported net worth of $50 million and amazingly he actually earned it, much like most millionaires and billionaires.

Why raising taxes is not the answer

30 Apr

As we muddle our way through the budget and deficit crisis the debate between cutting spending and raising taxes will be in the forefront. Arguments will sound good on both sides. After all, the objective is the same-cut deficit spending.

The problem is that raising taxes never accomplishes that, it simply creates more spending. Two great examples are the estate tax initially enacted to help pay for WWI and the AMT established in 1970 because 155 wealthy Americans paid no income tax.

Both these temporary and limited taxes are not only still with us but have greatly expanded in terms of the number of people affected. You need not be wealthy nor have many deductions to be caught by these once “temporary” taxes designed for limited purposes.

Keep this in mind as you hear new calls to ask the “wealthy” to pay “just a little more.”

Medicare cost saving initiatives; if not government then who?

29 Apr

Contained within the health care reform legislation are several programs to reduce costs via various initiatives from Accountable Care Organizations and quality initiative partnerships to simply cutting payments to hospitals. All these programs are focused on Medicare with the hope, if successful, some will be extended throughout the health care system. The problem is that no one knows for sure if the programs will be successful or what the unintended consequences may be.

CMSs recently announced cuts in payments to hospitals for Medicare patients is drawing flack from the hospitals who claim payments are already below costs while CMS claims hospitals were overpaid in the past.

Are there sufficient opportunities for hospitals to be more efficient and thus absorb payment cuts with no adverse result? I’m not sure anyone knows. It is possible hospitals will seek offsetting revenue and that could mean cost shifting to the non-Medicare population.

There is no argument when it comes to raising quality standards, reducing risks to patients or pushing for more efficiency. However, these efforts must be mutually achieved by providers and payers otherwise little will be accomplished for the overall health care system regardless of the impact on Medicare costs.

We need true incentives for all parties to make this work system wide. Where is the patient in this equation? The inherent value to patients should be obvious, and patients need to be fully aware of these initiatives understand and support them. However, past experience tells us that is not always the case.

We will here cries of government intervention in our healthcare and there is much of that. However, we must also ask if not government, who will address these issues?

Why is it so hard for politicians to take a risk and do the right thing?

28 Apr
Quel ricco sfondato di Mark Zuckerberg, founde...

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Is committing your political career to address serious problems, including through unpopular strategies worth the risk, probably not.

It is not just a matter of how drastic change is accomplished, but also important that the issue is honestly addressed.  Sadly the American people are far more inclined to accept promises of new and expanded entitlements and to push the consequences further down the road.  The Paul Ryan budget is a good example of taking a risk even if you disagree with the strategy.

If a parent does everything for a child with little responsibility on the child, what kind of person develops? We have a country with a growing number of those children, so now they vote for the party telling them how dependent they are, how disadvantaged they are because of the success of others and promising more to “help” them.  Not a bad political strategy I must admit if your primary goal is winning elections. Look at all the states where promises to state employees has worked.  Unfortunately the “parents” can’t afford the bill.

Consider this example of politics over the best interest of people. The Newark school system, one of the worst in the country, received a commitment of $100,000,000 from Mark Zuckerberg of Facebook fame. Almost immediately the infighting began over how to use the money; new schools, old schools, charter schools, etc.  The President of the City Council is leading the fight on one side.

” Ms. Crump joined a union rally and protest outside of City Hall Wednesday afternoon before the public hearing. She implored the protesters to vote for a certain slate of candidates on April 27. “We have a clear choice between those who will do nothing for labor and those who will do everything for labor,” she said into the microphone. She told the protesters to vote for the three candidates who “are about labor.” She then led people in a chant: “Jobs, jobs, jobs, jobs,” and added: “Jobs that are safe and secure!”

According to the newspaper article the unions are afraid part of the solution to Newark’s problems will be more non union charter schools.

Everything for labor?  Educational jobs that are safe and secure?   Should that be the goal or is it improving the education of Newark’s children even if it does take non-conventional means?  Aren’t politicians supposed to represent taxpayers and not unions? Of course, in politics taking a risk and doing the right thing may well cost you your job and whose fault is that?

Who benefits from closing the Medicare Part D donut hole?

27 Apr

The Republicans are accused of implementing a prescription drug program under Medicare, but failing to fund it. The Democrats complain the unfunded benefit is inadequate because of the coverage gap – the so-called donut hole. Therefore this benefit which has never been paid for is expanded. Affected Medicare beneficiaries received $250 in 2010. Drugmakers were required to reduce drug costs by 50% and health care reform phases out the gap over a number of years. Apparently sometimes something is not always better than nothing.

So we still have an unfunded basic benefit and now a much expanded benefit designed to benefit less than 10% of Medicare beneficiaries who reach the prescription drug gap. If you are a beneficiary who reaches the donut hole all this is a good thing. For those Americans who will pay for this coverage directly and indirectly, it may be a struggle.

While there is no doubt that the high cost of prescription drugs is a hardship for some people, it is also true that many states had their own drug plans for lower-income seniors before health care reform legislation. Listening to the rhetoric and reading the paper the perception can easily be that the vast majority of seniors are struggling with prescription costs. The reality as noted is that except for the ten percent who reach the donut hole each year, the basic benefit works quite well.

Could there have been a better way to deal with the ten percent on a needs basis as opposed to expanding another open-ended entitlement?

The wellness pill, if we only knew

26 Apr

Ok, where is my premium credit

I really don’t know what all the fuss is about over health care costs. Afterall we already know the secret to lower health care costs, improved productivity and peace in the middle east.

All you have to do is give each employee a tee-shirt that reads “I’m for wellness.” Okay, so perhaps a bit more is required; they must complete a health risk assessment or swear on an empty box of fries that they don’t smoke.

These benefits can be extended to Medicare as well. Simple move the senior discount lines a hundred feet further from the door so walking is required. Remove the seats in the senior area of Paneras so us folks have to stand during our morning coffee clutch. Gee, just a little imagination and who needs Ryan to solve the Medicare cost problem?

Oh no, you sense my caustic wit and cynicism when it comes to employers following the lead buffalo over the cliff of wellness programs. First, nobody even knows what a wellness program looks like. It can be anything from a communication campaign to an onsite gym to financial penalties for not participating in whatever the program may be. Wellness programs have been credited with everything from creating improved productivity, a happy workforce, employee loyalty (even in the face of elimination of other benefits) to reducing health care costs in as little as one year. Why don’t they just put it in a pill and give it to everybody … waive the co-pay for participation of course.

What the heck set the curmudgeon off on this again you may ask. In fact, it was this article that caught my eye as I was scanning my morning Google updates. Such glowing objective reporting fascinates me.

Hey doc?

Do you have a wellness program? Yes she said, I do indeed it meets our need you see. See my hat what do you think of that? That hat is fine, better than mine. I use my hat, my big fat hat, when I walk and all of that. That’s neat, you’re complete; problem solved in my view. If I only knew.

Did you ever notice that the wellness “experts” just happen to be running a wellness program company?  How come the CEOs of health insurance companies aren’t experts in health care?

Taxing the value of health benefits, budget talks may accelerate the process

25 Apr
President Barack Obama, Vice President Joe Bid...

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First it was health care reform and upcoming is the budget battle. What you may have thought secure (sort of) is in for a bumpy ride in the years ahead. If you are one of the hundred twenty million or so Americans with employer sponsored health benefits, what you may have thought you had is slipping away.

This will have serious implications on your total compensation, your plans to retire, your net income if already retired and on collective bargaining.

PPACA does a number of things affecting employer based health benefits:

  • Benefit mandates add direct costs and increased administrative costs.
  • Contributions to flexible spending accounts are limited.
  • A change in taxation of the prescription incentive payment for retirees is causing employers to cut back on these benefits.
  • W-2 reporting of the value of health benefits draws attention to the lost revenue resulting from these benefits.
  • A 40 percent excise tax on high cost (“Cadillac”) insurance plans in excess of $27,500 (family coverage) and $10,200 (individual coverage) offers the prospect of taxing these benefits or forcing benefit reductions.

And now, as a result of heightened attention to the budget and deficit there is renewed interest in taxing the value of health benefits. Some policy experts see this as a dual benefit. It creates increased revenue for the government and on the theory that if you pay more for health care you will be a wiser consumer, it reduces health care costs. You may see things differently.

Health benefits are a big budget target on many levels from Medicare to your benefits at work. It is not clear what the final impact of current discussions will be. However, higher out-of-pocket costs and more coming out of your paycheck are very high on the list of possibilities.

Plan accordingly!

Access to Work-Place Defined Contribution Retirement Plans a Key Factor in Future Income Security

24 Apr

WASHINGTON—New research from the nonpartisan Employee Benefit Research Institute (EBRI) shows that being eligible to participate in a defined contribution retirement plan at work is a key factor in whether workers will have enough money to afford basic expenses and cover uninsured medical care in retirement.

The EBRI research, based on its Retirement Security Projection Model (RSPM®), participant level data from the EBRI/ICI Participant-Directed Retirement Plan Database,TM and the EBRI IRA Database,TM finds that the “at-risk” level declines the longer workers are eligible to participate in a work-based defined contribution (DC) retirement plan.

For instance, looking at Gen Xer households (those born between 1965–1974) in the next-to-lowest income quartile, eligibility in a DC plan has a strong impact on retirement income adequacy: 58 percent of these households eligible for defined contribution plan participation less than one-quarter of future work years would be at risk at least 50 percent of the time, compared with only 21 percent for those eligible at least three-quarters of future work years.

“The results, especially for lower-income households, are due in large part to the importance of automatic enrollment and automatic escalation of contributions for 401(k) plans in future years,” said Jack VanDerhei, EBRI research director and author of the report.

EBRI’s analysis notes that retirement income adequacy in the future depends on a number of key factors, including among other things: the assumed retirement age, participation rates, employee contribution rates, employer matching formulae, employer nonelective contributions, asset allocation, job turnover, cashout rates, and rates of return.

However, VanDerhei said, “A crucial factor in workers’ ability to achieve future retirement income adequacy is their eligibility to participate in a defined contribution plan.” He noted that this finding has major implications for any policies that would decrease the percentage of workers eligible to participate in DC plans.

The full report appears in the April 2011 EBRI Notes “Retirement Income Adequacy: Alternative Thresholds and the Importance of Future Eligibility in Defined Contribution Retirement Plans,” online at

Millionaires who want to pay more taxes

23 Apr

I think it's time I ran for office

I guess when you have a few hundred million or even tens of millions in the bank promoting higher taxes on your future earnings makes you feel good. You can satisfy your liberal yearnings knowing that no matter what, you are secure. It’s nice to be king.

Here is a group of people who feel that way. Take a look. Raise our taxes Mr President, please.

If only I could raise my income to the point where I can make the minimum payment on my twelve credit cards, everything would be hunky dory. Hey, then I could maybe get another card.  Even in the face of mounting debt the President’s original budget called for additional spending.  What am I missing here?  Is it impossible for politicians to say “we can’t afford that” as desirable as it may be? 

Here is a simple test.  The Jones family has $6,000 in credit card debt, but is making its minimum payments on time.  However, there are little savings for retirement and only a one month worth of expenses in an emergency fund.  Dad wants a new car, his has 100,000 miles on it.  Mom wants her badly outdated kitchen remodeled, daughter wants music lessons to improve her considerable skills and son wants only an  iPad (to help with school work).  Which item(s) is the top priority they can afford?  

Answer: They cannot afford any of the items. 

They are using debt to buy things, they are carrying too much debt and wasting money on interest and they have woefully inadequate savings.  As desirable, necessary and essential as the new items may be, they can’t afford to spend any more until they get their house in order.  When did all this become such a hard concept for people to accept?  I’m thinking somewhere between 1968 and 1998.

Fifty-three percent of Americans say Medicare is OK as is or only needs minor changes

22 Apr
Medicare & Social Security Deficits Chart

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Based on a recent WSJ/NBC telephone poll, 15% of adults feel Medicare is ok the way it is.  Thirty-eight percent think it needs minor modifications.

Twenty-eight percent feel major changes are needed and 16% believe a complete overall is in order, so much for the Ryan plan gaining popular support.

What is really interesting is that among Democrats 60% say Medicare is Ok or only needs minor changes, while for Republicans it is 49% and for Independents it is 51%.

It would appear that not only do we have philosophical differences, but each group has its own math as well.   How can people look at a program such as Medicare assess the actuarial studies and trustee projections, the demographics and all the rest and come to such different conclusions?  Of course the answer is that they do not look at all that, rather they listen to the rhetoric of politicians and are swayed by that based on political affiliation. 

One might speculate that these same people believe they are paying for their Medicare and that their working year tax payments also paid for their Social Security.  They may also believe that the U.S. Treasury does not have to borrow more or print money to redeem the Social Security trust fund bonds. 

A social conscience is a lovely thing; it just needs a better accountant.

Reforming Medicare- Obama and Ryan have it right…and wrong. Take a look at both plans

21 Apr

Your going to do what to my Medicare?

Now that the debate on reforming Medicare has finally started, what do we do? First, we dismiss as either nonsense or pie in the sky both the Obama plan (if that’s what you call it) and the Ryan plan (a plan, but not a good one). The fact is both Obama and Ryan are right and both have plans that will not work.

Government run Medicare is here to stay, the public wants it to stay, and even the farthest right among us and the Tea Party know that releasing tens of millions of people to fend for themselves for health care coverage between age 65 and the hereafter is nonsense. It ain’t going to happen. No, I have not lost my mind or made a sharp turn left, I am merely drawing on nearly fifty years experience managing health benefit programs, working with employees and retirees from CEOs to laborers helping then understand and navigate their health benefits and to use them wisely.

Two elements of health care are big in the news these days, consumer driven health care and wellness and both of these are part of the approaches being proposed to deal with Medicare. Forget it. Neither will control health care costs. If anyone thinks that we can turn heavy users of health care into consumers in their old age they are as out of touch with reality as Rush Limbaugh and Paul Krugman. Has Paul Ryan ever talked to a group of people in their seventies, eighties or nineties? If you can get the private insurers to market their product at the early bird dinner or in the assisted living facility you may have something, but make sure they show up on a weekly basis.

The President must have forgotten what his own legislation does

The Obama non-plan relies on elements of PPACA that have already been counted in paying for health care reform, not sure how much more you can squeeze out of a commission making recommendations that can’t touch the fundamental elements of the problem. The idea that we can move forward with Medicare under a business as usual mentality when it comes to the beneficiaries receiving health care is ludicrous. In addition, as Professor Laurence Kotlikoff of Boston University points out, health care reform uses vouchers just as proposed under the Ryan plan. American families earning up to about $88,000 a year will receive credits toward purchasing health insurance. Are we to believe that these credits will rise at the same rate as health care (premiums)? If so, then the cost projections for PPACA must be substantially understated. If not, then the subsidized families will carry more and more of the cost of health insurance just as will Medicare beneficiaries under the Ryan plan.

On top of that while the President talks about Ryan sticking seniors with $6,000 in extra costs and giving it to the rich, his health care reform program imposes a new tax on so-called Cadillac health plans. What’s the difference? To comply with this requirement of PPACA health plans will lower the benefits thus shifting more costs to the average worker, in many cases because of their generous benefits, to government union workers.

Rush Limbaugh’s Death Panels-The Obama Plan to save money for Medicare

No, it is not a death panel as I heard Limbaugh yelling on the radio, but neither is it likely to generate much in the way of savings. Here is what the new health care law says about Medicare’s Independent Payment Advisory Board, the group of fifteen. I added the bold to point out some key points. For the most part this Board does not even deal with Parts A and B of Medicare.

Sec. 3403 as modified by Sec. 10320. Independent Payment Advisory Board.

This provision establishes an Independent Payment Advisory Board to develop and submit detailed proposals to Congress and the President to reduce Medicare spending. The Board is to consist of 15 members with expertise in health care financing, delivery, and organization. All members are to be appointed by the President and confirmed by the Senate. Proposals are to primarily focus on payments to MA and PDP plans and reimbursement rates for certain providers. The Board will be prohibited from developing proposals related to Medicare benefits, eligibility, or financing. Proposals, which will only be required in certain years, will have to meet specific savings targets. Recommendations made by the Board automatically go into effect unless Congress enacts specific legislation to prevent their implementation. The first year the Board’s proposals can take effect is 2015.

Scope of Proposals. The provision lays out a number of specific fiscal and policy criteria which the Board will be required to meet in making its recommendations. When developing and submitting proposals, the Board is required, to the extent feasible, to (1) prioritize recommendations that would extend Medicare solvency and target reductions to sources of excess cost growth; (2) include only those recommendations that improve the health care delivery system, including the promotion of integrated care, care coordination, prevention and wellness and quality improvement and protect beneficiary access to care, including in rural and frontier areas; (3) consider the effects of changes in provider and supplier payments on beneficiaries; consider the effects of proposals on any provider who has, or is projected to have, negative profit margins or payment updates; (4) consider the unique needs of individuals dually eligible for Medicare and Medicaid, and (5) include recommendations for administrative funding to carry out its recommendations.

As appropriate, each proposal is required to include recommendations that would reduce spending in Medicare Parts C and D. Reductions could be obtained by reducing Medicare payments for administrative expenses to MA and PDP plans, denying or removing high bids for drug coverage from the calculation of the monthly bid amount for Part D plans, and reducing performance bonuses for MA plans. Recommendations may not target the base beneficiary premium percentage or the full premium subsidy for Part D plans.

The Board is prohibited from making recommendations that would ration care, raise revenues, increase beneficiary premiums, increase beneficiary cost-sharing, restrict benefits, or modify eligibility.  Additionally, proposals submitted before December 2018 for implementation in 2020, cannot include recommendations that would reduce payments to providers and suppliers scheduled to receive a reduction in their payment updates in excess of a reduction due to productivity.

Does any of the above sound like it has a chance of saving trillions of dollars? There is as much the Board cannot recommend as it can. The weasel words contain in PPACA try as hard as possible to avoid any impact on beneficiaries. That is a dream and why the Obama plan is no plan at all of serious consequence.

Obama on Medicare reform

Already, the reforms we passed in the health care law will reduce our deficit by $1 trillion. My approach would build on these reforms. We will reduce wasteful subsidies and erroneous payments. We will cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency and speed generic brands of medicine onto the market. We will work with governors of both parties to demand more efficiency and accountability from Medicaid. We will change the way we pay for health care – not by procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results. And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services seniors need.

Now, we believe the reforms we’ve proposed to strengthen Medicare and Medicaid will enable us to keep these commitments to our citizens while saving us $500 billion by 2023, and an additional one trillion dollars in the decade after that. And if we’re wrong, and Medicare costs rise faster than we expect, this approach will give the independent commission the authority to make additional savings by further improving Medicare.

But let me be absolutely clear: I will preserve these health care programs as a promise we make to each other in this society. I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves. We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations.

Consider two observations on the above. By the time we find out if they are wrong, it will be too late. On the other hand we already know they are wrong. Tightening up on the administration of Medicare is not a plan, is not new and it should be part of the ongoing administration of all such programs.

Ryan on Medicare reform

Trying to turn Medicare beneficiaries into health care consumers under the theory they if they have more skin in the game they will be mindful of what they spend and choose health care more prudently is a day-dream. People don’t think that way, especially us seniors.

There are basic flaws in the Ryan plan, but it does make one clear valid point. We are not reforming Medicare and keeping it around for future generations without some significant direct impact on individuals. It may not be vouchers, but it has to happen. As you listen to both sides of this debate at least be armed with the facts on the proposals. I have highlighted some key points of the Ryan plan that have been distorted in the media.

Medicare Payment. For future Medicare beneficiaries who are now under 55 or younger (those who first become eligible on or after 1 January 2021), the proposal creates a standard Medicare payment to be used for the purchase of private health coverage. Currently enrolled Medicare beneficiaries and those becoming eligible in the next 10 years (i.e. turning 65 by 1 January 2021) will see no changes in the current structure of their Medicare benefits. The payment will be made directly to the health plan designated by the beneficiary (similar to the administration of the refundable health care tax credit), with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium. This allows the Medicare beneficiary to invest the leftover amount in a Medical Savings Account [MSA] to pay for other medical expenses, or to purchase long-term care insurance.

Each Medicare beneficiary becomes eligible for the payment by enrolling in a health insurance plan. Medicare will publish an annual list of plans that are “Medicare certified.” Medicare enrollees are able to use their payment to pay for one of the Medicare certified plans, or any other plan, such as those offered by former employers or available from the private market.

When fully phased in, the average payment is $11,000 per year (the average amount Medicare currently spends per beneficiary), and is indexed for inflation by a blended rate of the CPI and the medical care component of the CPI. For affected beneficiaries, the payment replaces all components of the current Medicare Program (Medicare fee-for-service, Medicare Part B, Medicare Advantage, and Medicare Part D). Payment amounts are income-related and risk-adjusted. They also are partially geographically adjusted, with the geographic adjustment phasing out over time.

Risk Adjustment. When the plan is fully implemented, Medicare beneficiaries will receive on average the standard $11,000, with the flexibility to receive a positive adjustment of that amount based on a risk-assessment from their chosen health plan. Once enrolled, beneficiaries may complete initial health exams through their insurance plans to determine whether they are eligible to receive a higher risk-adjusted payments. Each health plan must submit to the Medicare program any necessary results of the exam for Medicare to determine an adjusted risk-assessment.

Under the current system, Medicare frequently overpays for some services and beneficiaries and underpays for others. By risk-adjusting beneficiaries’ payments based on their health condition, this reform targets support to those who truly need additional help.

Income-Relating. The payment amount is modified based on income, in a manner similar to that for current Medicare Part B premium subsidies. Specifically: beneficiaries with incomes below $80,000 ($160,000 for couples) receive full standard payment amounts; beneficiaries with annual incomes between $80,000 and $200,000 ($160,000 to $400,000 for couples) receive 50 percent of the standard; and beneficiaries with incomes above $200,000 ($400,000 for couples) receive 30 percent.

Enhanced Support for Low-Income Beneficiaries. While any Medicare beneficiary, regardless of income level, is able to set up a tax-free MSA if he or she desires, the new Medicare Program establishes and funds an MSA for low-income beneficiaries. Specifically, for those who are fully “dual eligible” (eligible under current policies for both Medicare and Medicaid), and beneficiaries with incomes below 100 percent of the poverty level, the plan provides an MSA payment equal to the amount of the deductible for the average Medicare high-deductible health plan. Those with incomes between 100 percent and 150 percent of poverty receive 75 percent of the full deposit.

Retention of Medicare for Those 55 and Older. Clearly, the transition to this restructured Medicare Program should protect those at or near retirement – people who have long planned on the existing Medicare Program for their retired years. That is why the transition to the individual purchase of private health insurance applies to those eligible starting on 1 January 2021. For those eligible prior to that date (those 55 and older), the existing Medicare Program remains, and is strengthened with changes, such as income-relating of drug benefit premiums, to ensure its long-term sustainability.

Premiums continue to be based on an all-beneficiary average, so the phasing of the younger population into the new program will not increase premiums for the population continuing in the existing program. The proposal also retains the Medicare payroll tax of 2.9 percent of the Federal Insurance Contributions Act [FICA] and Self-Employed Contributions Act [SECA] payroll tax, as is the case now.

For individuals now younger than 55 only, the proposal adapts Medicare’s eligibility age to reflect Americans’ improving lifespans, raising in gradually, and in modest steps, from the current 65 to 69 years and 6 months.

Fail-Safe Mechanism. The proposal would establish a mechanism that would be activated in the Medicare trustees determined that the percentage of funding from general revenues exceeded 45 percent in the prior fiscal year. If activated, on 1 July or 2 months after the Medicare trustees’ report is released, whichever comes later, the mechanism would apply an automatic 1-percent reduction in payments for services provided in Medicare’s fee-for-service sector.

In effect the Ryan plan converts Medicare to a defined contribution arraignment (something used increasingly by large employers) and attempts to leverage the so-called buying power of beneficiaries and the competition among insurance companies. Ryan misses the point and oversimplifies the situation as much as Obama.

Here is the truth

We need to implement all the provisions of the Obama plan and more of the same. We need to recognize that Medicare is going to remain a government-run program. We need to substantially change the fee-for service payment system. We need much greater use of managed care because only such a system will better assure provision of quality, necessary and cost efficient health care to seniors. And yes, I am talking about various HMO type models such as Kaiser. In other words, we need to deemphasize Parts A and B of Medicare and emphasize well performing plans in Part C. Today we have it backward. Those beneficiaries who choose to remain in fee-for service Medicare must pay substantially more for their coverage.

Paying 25% (or less) of the cost of Medicare Part B and nothing for Part A when retired is not going to cut it in the future unless the Medicare tax on everyone is substantially increased now. Adding an extra charge on those earning over $250,000 a year as is done in PPACA may make the “wealthy” haters feel good but it does not solve the problem. Finally, Medicare must begin to act more like an insurance company with a profit motive. Before you drag out the tar and feathers, here is what I mean. The program cannot continue to simply pay virtually every claim that is submitted with no effective oversight as to medical necessity. This is especially true for Parts A and B. All the parties involved seem to know how to play the game except the people administering Medicare. All this means that we can’t have everything we want when we want it; it means some form of rationing. Any time someone is denied coverage for a service it is called rationing, so yes, we need rationing.

The Ryan plan may seem radical or “cruel” as Paul Krugman puts it, but it is that type of serious new thinking that is needed. The Obama plan may make us feel good because we are not directly involved, but it is not the solution because if we don’t change our ways, cutting payments to providers is not going to save us.

Higher taxes and Medicare premiums to be triggered by Congressional inaction

20 Apr

As reported by Bloomberg, plans are developing for automatic budget cuts and tax increases should Congress fail to fix the budget. In the world of health care and Medicare here is what is being proposed. And you thought inflation was just at the pump. Note the possible impact of partial taxation of the value of employer sponsored health benefits.

The Bipartisan Policy Center plan calls for reducing health-care costs, including spending on Medicare and Medicaid. If Congress fails to act, those programs would be subject to automatic cuts. Social Security would also receive automatic cuts unless Congress made revisions to put it on a course for solvency.

In health care, two-fifths of any savings would come from raising Medicare Part B premiums or other options; one-fifth by reducing Medicaid payments to states, and two-fifths from capping the exclusion for employer-sponsored insurance.

Tax increases would occur by raising rates across the board, by reducing tax credits or deductions by as much as half of their value in a given year, or by a combination of the two.

Unraveling Obamacare

20 Apr

In a little over a year the Patient Protection Affordable Care Act is slowly starting to unravel. There was little chance it would stay as written until full enactment, but changes to date are surprising, at least to me. There have been waivers for certain employer plans and for the states. Medicare Advantage Plans have gotten back some of what was taken away, the requirement to file form 1099 for all transactions is gone as are the free choice vouchers and some of the funding for non-profit health plans.

With the most significant provisions not going into effect until 2014 and a presidential election between now and then, it is impossible for employers and insurers to count on much of anything. Planning is becoming virtually impossible.

The chipping away and political accommodation strategies of both parties will have their consequences. This is not a good thing.

Maximize the value of a Roth IRA or Roth 401(k) account – pre-tax saving may be great now, but you need to maximize spendable income in retirement

19 Apr

Traditional IRAs and 401(k) plans allow you to save on a pre-tax basis for retirement. A Roth IRA or Roth 401(k) allows you to save on an after-tax basis but to receive all the accumulated earnings from your account on a tax-free basis.  Which is best for you?

Stuff that pig!

Take a look at the likely future in America; growing debt, health care costs still out of control, increased taxes in various forms a virtual certainty (and not only on the wealthy) and inflation on the horizon. Taken together it means one thing for future retirees; you are going to need as much money as possible just to maintain your standard of living.  That’s no great revelation, but what strategy are you using to deal with the future?

Assuming you are a prudent saver (hopefully that is a correct assumption); the next question is where should you put your money? Do you use a standard tax-deferred IRA and/or contribute to your company 401(k) plan or do you use a Roth IRA?

For most financial experts the answer is easy, you use a Roth IRA or Roth 401(k) account.  Both Suzie Orman and Jane Bryant Quinn recommend this strategy.  Why a Roth, because when you need the money, you can take out all of the earnings on your account tax-free (subject to certain early withdrawal rules).  While you get the benefit of not paying taxes on traditional IRA (or 401(k)) contributions when they are made, your contributions and earnings on your account are taxed when withdrawn.  Also, keep in mind that even though your earnings may have come from gains in the value of stocks or even dividends, your withdrawals are taxed as ordinary income, not at the lower capital gains or dividend rate. 

So, if you have $500,000 in your account and you make your first withdrawal when required at age 70 ½ you will withdrawal approximately $32,000 (actual amount varies based on marital status, month of your birth). Because you must pay taxes on this money, you don’t have $32,000 to spend, but something much less depending on your income tax bracket and any state income tax.  

Note this important fact, the minimum distribution rules do not apply to Roth IRAs (you do not have to make a withdrawal while you are alive).  However, the minimum distribution rules do apply to Roth 401(k) accounts.

Here is a handy calculator to help you determine your eligible IRA contributions  and also a link to Roth rules 

In addition, experts recommend contributing toward your 401(k) up to the maximum of the employer match and then switch to a Roth IRA if you are eligible.  Let’s say your employer matches all or a portion of your 401(k) contribution up to 6% of pay.  Make sure you grab that employer contribution, but any additional contributions you make should go into a Roth account.

For some lucky workers including some government employees, Roth contributions are available within the 401(k) plan. Participants can place contributions in the Roth portion of the plan up to the same amount each year allowed as a pre-tax contribution.  That’s not in addition to pre-tax contributions but in place of them or in combination with them if your plan permits.  Here is a link to the qualified plan contribution limits for 2011.

If you have a Roth 401(k) available you don’t need to use an IRA which may save you a bit on fees.  In addition, a Roth within a 401(k) plan allows you to use the same investment vehicles as pre-tax contributions.  If you are using the Roth within your 401(k) plan make sure that any employer match is made on either pre-tax or Roth contributions.  If not, always max out your contributions that are matched by your employer.

Here is the deal, save on a pre-tax basis today and pay taxes tomorrow or save on an after tax basis via a Roth IRA or 401(k) plan and pay taxes today, but not tomorrow.  In this case we assume “tomorrow” is when you will be retired and need as much income as possible (and tax-free income is a good thing).  We also assume that saving in an IRA or a 401(k) plan is saving for retirement, not a new car or great vacation a few years from now.

Here is what you need to think about doing:

  1. Make sure you are saving to maximize any employer matching contribution.
  2. If you do not have a Roth 401(k) available, consider a Roth IRA once you received the maximum employer match in your pre-tax 401(k).  If you are able to continue with your pre-tax 401(k) and open a Roth IRA as well, so much the better.
  3. If you have a Roth 401(k), consider saving via the Roth account instead of on a pre-tax basis (but always make sure you receive the maximum employer match)

The goal is to maximize the amount of spendable income you have in retirement.  Check out all the helpful links in this article and read the related articles below.  You can also go to for all the rules on these plans and a comprehensive set of questions and answers.

The choice is yours, but please take the time to make an informed choice.

Millionaires and billionaires to voluntarily pay more in taxes

18 Apr
President Barack Obama and Warren Buffett in t...

Image via Wikipedia

Ok, I’m kidding or dreaming, I made this up

We are told not only that we must raise taxes on the “wealthy’ [define as you see fit], but that many of the wealthy agree with this. 



If I give you a check for ten billion can you demonstrate an ROI?

Warren Buffett says the estate tax should be higher than it now is, Bill Gates father lead a move in California to raise taxes on higher income people.  Wealthy Hollywood celebrities are fully behind the President and his policies.   So who is stopping the wealthy and super wealthy from fulfilling their wishes?  Instead of donating $40 billion to the Gates Foundation, Buffett can write a check to the federal government if he believes that would be more efficient and beneficial.  George Soros the billionaire progressive is free to write a check to the U.S. Treasury if he strongly feels the money will be used wisely to help working class Americans or to fund Planned Parenthood.  

That’s the great  thing about a free country, you can do that kind of stuff if you feel it is the right thing to do.

Cleaning house

Don’t get me wrong, the wealthy donate to many good causes, build libraries, museums, donate to the arts and much more.  It’s called philanthropy and it it’s all good.  Not sure if any of that counts as their fair share though.  Apparently, only money collected in taxes and disappearing at the whim of Congress counts for ones fair share. 

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