Life Planning Fail

In preparing for battle I have always found that plans are useless, but planning is indispensable. Dwight D. Eisenhower

Life happens, but that’s no excuse for not knowing where you want to go. That’s a particular issue in healthcare.

People don’t like to think about negative events that are going to happen in the future. They’ll still happen, just the same. For Americans, the difference between life expectancy and “healthy life expectancy” is nine years.  They won’t necessarily come as a block toward the end of life. If fact, you don’t know when they’ll come.

A new study points out that people are often faced with making snap decisions about healthcare without adequate information. (1) That’s due to the failure to anticipate something that’s actually rather likely to happen.

People get hurt and sick. The roughly 320 million Americans generated 130.4 million visits to Emergency Rooms in 2016.(3) What are the odds you’re going to need one?

If you don’t know where you want to go in an emergency, you may get stuck someplace you don’t want to be.

Even if you’ve never had an illness in your life, you will. Nothing on this planet is immortal.

Like it or not, here are some questions for which you need to have answers.

• Financial
  • How do I cover sudden and potentially large medical bills? What does my insurance not cover that I’m going to have to pay?
  • How do I cover normal bills if I’m out of work for a few months? Or longer?
• Medical
  • In an emergency, where do I want to go for care? (Related: is my doctor affiliated with where I want to go?)
  • If I’m hurt and need rehab therapy, where do I want to go for care?
  • Does someone have access to my Living Will if I can’t speak for myself? (Having one isn’t a question.)
  • Who will advocate for me with medical personnel if I can’t speak for myself?
• Living
  • Whose going to care for me if (temporarily or permanently) I can’t care for myself?

Seriously, this matters. We have several local hospitals, two of which are problems.

• The ER department at one of them has misdiagnosed my wife twice out of two visits. That’s a 100% rate of being wrong. Do we want to test them a third time?
• The nurses at another consistently ignore a severe allergy that causes anaphylatic shock. Breathing is really nice, but you don’t really appreciate it until you can’t do it. It turns out, the nurses don’t pay attention to wristbands. (One nurse at that facility told us that they assume the allergy bands refer to drugs and not to more mundane and potentially lethal issues like iodine and latex allergies.) Going to that facility is like going to a casino. You might get fixed and you might die. How lucky are you?

As you age, where you go matters more. With seniors, for example, if taken to an ER for a serious fall, there’s a 50% chance of additional problems within six months of the initial injury, including death. Some of that risk is the result of decisions doctors make about medication.(4)

There’s no need to overthink this. Do your homework, ask questions, make decisions, and then get on with the rest of your life. Just get it done.

Aristotle was  right. Anything taken to excess turns bad. That includes both planning and lack of planning.

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Sources:

1. Emily A. Gadbois, Denise A. Tyler, Vincent Mor. Selecting a Skilled Nursing Facility for Postacute Care: Individual and Family Perspectives. Journal of the American Geriatrics Society, 2017; DOI: 10.1111/jgs.14988
2. American Geriatrics Society. “Hospitalized older adults may need more help selecting skilled nursing facilities.” ScienceDaily. ScienceDaily, 7 July 2017. <www.sciencedaily.com/releases/2017/07/170707211128.htm>.
3. Centers for Disease Control and Prevention, “Emergency Department Visits.” https://www.cdc.gov/nchs/fastats/emergency-department.htm
4. Jiraporn Sri-on, Gregory P. Tirrell, Jonathan F. Bean, Lewis A. Lipsitz, Shan W. Liu. Revisit, Subsequent Hospitalization, Recurrent Fall, and Death Within 6 Months After a Fall Among Elderly Emergency Department Patients. Annals of Emergency Medicine, 2017; DOI: 10.1016/j.annemergmed.2017.05.023

Air Pollution and Life Expectancy

A new study led by Prof. Mikael Skou Andersen of Aarhus University in Denmark finds that an increase of 10 micrograms per cubic meter in air pollution reduces an individual’s life expectancy by between 9 and 11 years. This is more than previously thought, although there is a debate about the “economic value” of those years.(1)

“Economic value” translates into an estimate of the amount of spending that is economically justified to reduce air pollution.  While life itself might have infinite value, no one wants to spend infinite money to preserve it. So we try to define how much money value there is in living to 90 as opposed to dying at 79. Under the theory, spending less than that money value to reduce air pollution is justified; spending more isn’t.

The challenge is that the European Union has set standards for air pollution reduction that some of its members are going to have difficulty meeting.

Needless to say, the European standards are more stringent than those in the US.

US rules:  The US has standards for two types of particulate matter air pollution:

• PM₁₀ : inhalable particles, with diameters that are generally 10 micrometers and smaller. Maximum of 150 micrograms per cubic meter of air in any 24 hour period. This may be exceeded once per year on average over a three year period.
• PM_2.5 : fine inhalable particles, with diameters that are generally 2.5 micrometers and smaller.(2) While the goal is 12 micrograms per cubic meter of air, there may be readings of up to 35 micrograms per cubic meter in any 24 hour period.(3)

European rules:

• PM₁₀: 40 micrograms per cubic meter of air, although there may be readings of up to 50 micrograms in any 24 hour period.
• PM_2.5 : 25 micrograms per cubic meter, no exceptions.

The difference in standards between the US and Europe exceeds the amount required to reduce life expectancy in Professor Andersen’s study. Life expectancy is greater in Europe than in the US. The residents of Monaco have a life expectancy that exceeds everyone else on Earth, and exceeds the US by more than 10 years.

What is 10 years of your life worth to you? Air pollution is yet another factor inflating US healthcare costs and the costs of your health insurance.

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Sources:

1. Mikael Skou Andersen. Co-benefits of climate mitigation: Counting statistical lives or life-years? Ecological Indicators, 2017; 79: 11 DOI: 10.1016/j.ecolind.2017.03.051
2. US Environmental Protection Agency, “Particulate Matter Pollution.” https://www.epa.gov/pm-pollution/particulate-matter-pm-basics
3. US EPA, “NAAQS Table.” https://www.epa.gov/criteria-air-pollutants/naaqs-table
4. European Commission, “Air Quality Standards.” http://ec.europa.eu/environment/air/quality/standards.htm

Food stamp cuts

Per capita annual spending on food in the US was $4,575 in 2014, the latest year for which figures are readily available. (1)

If you’re one of the unfortunate 10% of Americans with an income of less than $10,000 per year, food becomes a huge part of your budget. The Food Stamp program makes a difference for these people. With an average monthly amount per person of $126, it can offset perhaps 25% of what a careful shopper spends on food, and for the very poor, make a difference between eating and not eating.

The amount allotted to food stamps by the Federal Government has been cut each year starting with 2013. The Trump administration is now proposing a further 31% reduction in this benefit. Meanwhile, food prices are rising by between 1 and 2 percent per year.

The benefit cut is going to hurt the poor. However, it’s also going to bite some Trump supporters. The four largest grocery chains (Wal-Mart, Target, Kroger and Aldi) can all expect to see revenue reductions of over $1 billion from these cuts.

Wal-Mart itself receives 18% of the money allocated to food stamps, and so will be the biggest loser from these cuts.(2)

These cuts will impact profits, stock prices and shareholders.

If you still have Wal-Mart stock after all the negative news in retail, it’s time to reconsider.

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Sources:

1. USDA, “FoodExpenditures_table1.xls” https://www.ers.usda.gov/data-products/food-expenditures.aspx
2. Courtney Reagan, “Retail stands to lose $70 billion over 10 years if food stamp benefits are slashed, and here’s who gets hit the most,” CNBC, 29 June 2017. http://www.cnbc.com/2017/06/29/retailers-that-take-the-hardest-hit-if-food-stamp-benefits-are-cut.html
3. Center on Budget and Policy Priorities, “A Quick Guide to SNAP Eligibility and Benefits,” 30 September 2016. http://www.cbpp.org/research/a-quick-guide-to-snap-eligibility-and-benefits
4. Trading Economics, “United States Food Inflation, 1914 to 2017,” undated. https://tradingeconomics.com/united-states/food-inflation

A Different Perspective on Mexico

The monologue on Mexico focuses on those crossing the border into the US. In fact, that’s a very narrow view of the relationship between the two countries.

According to the State Department, there are one million US citizens living in Mexico. However,

• That figure was first reported in 2014. The number has been increasing since. The US government doesn’t  track residents living out of the country as long as they pay their taxes.
  • One US expat realtor reports a 40% increase in home sales in one US expat enclave just in the last year.
  • A commentator in The Guardian estimates the number of Americans living in Mexico as closer  to two million.
• A number of the US citizens living in Mexico aren’t there legally (estimates vary from 50 to 90 percent). The Mexican government isn’t particularly good about tracking them, and doesn’t deport them. In fact, Mexico abolished a mandatory prison sentence for undocumented immigrants in 2008. Those who have not committed a crime are simply allowed to stay.

CNN reports that there are four reasons that Americans give for moving to Mexico:

• Climate
• Culture
• Cost of living
• Escaping the US political climate

One American comments that doctors in Mexico are more helpful and enjoyable to visit than are doctors in the US.

It’s cheap. It’s very patient-oriented. It’s like my father practiced in Illinois about 50 years ago, without all the paperwork.

Many Americans, including some in Congress, view Mexico through the prism of an out-dated stereotype. Of course, if that changes, more Americans might move there.

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Sources:

1. Instituto Nacional de Estadística y Geografíca. http://www.inegi.org.mx/\
2. Adam Taylor, “Mexico has its own immigration problem: American retirees,” The Washington Post, 21 November 2014. https://www.washingtonpost.com/news/worldviews/wp/2014/11/21/mexico-has-its-own-immigration-problem-american-retirees/?utm_term=.dc11626a341f
3. Leyla Santiago and Traci Tamura, “South of the border, US expats have a different take on Mexico,” CNN 24 June 2017.  http://www.cnn.com/2017/06/24/americas/mexico-american-expats/index.html
4. “News Report: 91.2% of All Americans Who Live in Mexico Are Living There Illegally,” Latino Rebels, 5 March 2017. http://www.latinorebels.com/2017/03/05/news-report-91-2-of-all-americans-who-live-in-mexico-are-living-there-illegally/
5. Aristóteles Sandoval Díaz, “Millions of Americans live in Mexico. Can we continue to coexist?” The Guardian, 23 January 2017. https://www.theguardian.com/commentisfree/2017/jan/23/trump-futures-mexico-us-interlocked-wall-border

How Americans Drive Up Their Own Health Insurance Costs (UPDATE)

This is not a defense or excuse for the exorbitant pricing or profits in the health insurance industry in the US.  As with most social issues, there is no single cause of a problem. The industry owns part of the issue, Congress owns a major part, but consumers also own a piece. It’s time to recognize that and do what you can do about it.

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I grew up in an advertising era touting “rugged individualism.” The icons of that era included John Wayne, the TV character Palladin, and the advertising “Marlboro Man,” all part of a mythology that people could cut their own path regardless of others.

Unfortunately, that’s not how life works. If your reading this, someone else probably had provided the electricity for  you. If you also write, the court system protects your intellectual property. If you have a retirment account, you depend on financial regulators to protect your assets. If you eat (and you’d better be doing that), there’s the farmers and fishermen who provide what you consume. We are a connected network of people, whether on the grid or not. Whether you like it or not.

That’s blatantly the case in health insurance. There was a time when health insurance didn’t exist and didn’t matter. There were relatively few doctors in the 1850s, medical knowledge was relatively crude, and life expectancy was short.

• In the Americans, life expectancy from birth was only 35.1 years in 1850. Life expectancy for slaves was less, with estimates ranging from 22 to 30 years of age.
• The shortness was due to childhood deaths. If one could make it to age 10, there was a reasonable prospect to live to age 60.

Life expectancy has  increased dramatically in the last two years, as you can see from the chart above, from an excellent article by Max Roser. (1)

In most geographies, the major gain in life expectancy came after World War II.

However, the increase in life expectancy comes at a substantial cost. One estimate says that each day of additional life expectancy adds $1.6 billion to medical costs just in the US. (2) However, living longer is just one component of the story of rising health costs.

Behavior matters. Certain things some of us do add substantially to medical costs for each and every one of us. How does that work? It’s in built into the concept of insurance as conceived by Benjamin Franklin.

• People — healthy and sick — pay into a fund that in turn pays people in their time of need.
• The required size of the fund is determined by the number of claims and the size of claims. The required size of the fund determines what people who participate have to pay.

That might seem unfair to healthy people, but we have to remember that no one stays healthy forever. Everyone dies. Everyone gets a turn with illness, sometimes more than one turn.

What might be considered unfair is when people do things or allow things to happen that cause illness. For example,

• The CDC estimates that 36.5 million Americans smoke cigarettes, and 16 million currently have a smoking-related illness. Not everyone who smokes gets sick, but a larger percentage do, and that adds $170 billion to total medical expenses in the US. (3, 4)
  • According to a recent Gallup survey, more than 28% of adults in Ft. Smith, Arkansas, Layfayette, Louisiana, Erie, Pennsylvania and Bristol, Tennessee smoke. The national incidence is 18.2%, down from more than 40% in the 1960s. (9)
• Obesity is estimated to add $147 billion to national healthcare spending (2008 dollars). (5) That figure may be low due to the large number of undiagnosed diabetics in the US.
• Alcohol and drug abuse adds another $64 billion to healthcare spending (7)
• Distracted driving (there are no separate estimates of direct medical costs), but medical bills have been rising even as the severity of injuries has been declining. (6)

The medical expenses that result from these behaviors hit every consumer:

• Rising healthcare charges (remember the principle of “supply and demand”?)
• Rising insurance premiums to cover the rising healthcare costs
• Rising taxes to cover the proportion of expenses the government pays

High spending doesn’t mean better medical results.

With development, health outcomes generally improve, but the U.S. is an anomaly. The U.S. and the U.K. are both high-income, highly developed countries. The U.K. spends less per person ($3,749) on health care than the U.S. ($9,237). Despite its high spending, the U.S. does not have the best health outcomes. [Life expectancy, for example, is 79.1 years in the U.S. and 80.9 years in the U.K. And while the U.S. spends more on health care than any country in the world, it ranks 12th in life expectancy among the 12 wealthiest industrialized countries, according to the Kaiser Family Foundation, a non-profit organization focusing on health issues.] (8)

Europeans and the Chinese government understand the impact of individual behavior on costs. Americans have been more reluctant to understand and accept personal responsibility for how their behavior affects themselves and everyone else. It’s time to grow up and put the myth of rugged individualism away.

 

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Sources:

1. Max Roser, “Life Expectancy,” Our World in Data, undated. https://ourworldindata.org/life-expectancy/
2. Sean Davis, “8 Charts that Explain the Explosive Growth of U. S. Health Care Costs,” Media Trackers, 1 October 2013. http://mediatrackers.org/national/2013/10/01/8-charts-explain-explosive-growth-u-s-health-care-costs
3. US Centers for Disease Control and Prevention, “Economic Trends in Tobacco,” last updated 17 June 2017. https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm
4. US Centers for Disease Control and Prevention, “Current Cigarette Smoking Among Adults in the United States,” last updated 1 December 2016. https://www.cdc.gov/tobacco/data_statistics/fact_sheets/adult_data/cig_smoking/index.htm
5. US Centers for Disease Control and Prevention, “Adult Obesity Causes and Consequences,” last updated 15 August 2016. https://www.cdc.gov/obesity/adult/causes.html
6. Rocky Mountain Insurance Information Association, “Cost of Auto Crashes and Statistics,” undated. http://www.rmiia.org/auto/traffic_safety/Cost_of_crashes.asp
7. National Institute of Drug Abuse, “Trends and Statistics,” last updated April 2017. https://www.drugabuse.gov/related-topics/trends-statistics
8. NPR, “What Country Spends The Most (And Least) On Health Care Per Person?” 20 April 2017. http://www.npr.org/sections/goatsandsoda/2017/04/20/524774195/what-country-spends-the-most-and-least-on-health-care-per-person
9. Samuel Stebbins, “Cities with the Most Smokers,” 24/7 Wall Street, 22 JUne 2017. http://247wallst.com/special-report/2017/06/22/cities-with-the-highest-smoking-rates/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=JUN232017A&utm_campaign=DailyNewsletter
   

Immigration and the New American Reality

“I don’t want my child to grow up in the US.”

That’s a simple and direct statement from a financial professional who moved to Europe earlier this year. Her child will grow up learning between four and six languages and without the attitude/belligerence she sees in US schools. Plus college and healthcare are free.

Europeans pay high taxes. However, because so many expenses are included in those taxes, they have more money available to spend than most Americans do. That’s driving a faster economic recover in Europe than the US is seeing.

That prompted me to look at the data on migration. What are the trends? You might be surprised.

1. Both legal and illegal immigration peaked prior to the recession in late 2008. The trends since are downward. The declines started during the Obama administration.
   • The illegal immigrant population peaked at 12.2 million in 2007.(2)
2. Most illegal immigrants living in the US have been in the US for more than ten years. They are homeowners and taxpayers.
3. Mexico no longer accounts for a majority of illegal immigrants. The majority now from from a combination of Central America and Asia.
4. Mexico provides the largest number of LEGAL immigrants to the US. (1) Most Hispanic residents in the US are legal residents. (3)
5. Recent immigrants from Mexico tend to work in the US for a few years and then return to Mexico. Pew reported in 2012 that net immigration from Mexico was zero, with the number of people leaving the US matching the number entering.
   • This “breakeven” has little to do with US immigration enforcement. People are leaving for a lower cost of living and better social services.

The State Department estimates that 9 million US (non-military) citizens are now residents of other countries. That’s up from 4 million in 1999. However, the government has no formal mechanism for tracking citizens who move overseas. The actual number could be lower or much higher.

• Seniors are part of the out-migration. Financial advisors recommend considering moves to places like Costa Rica in order to be able to maintain a reasonable standard of living on Medicare. (5)

The US is changing relative to other countries. There are a growing number of valid reasons for not wanting to live here, and that will have an impact on the economy and employment in the future — probably driving more jobs and business investment offshore. Don’t expect driving people and money out of the US to improve job prospects and the economy here. That’s naive in the extreme.

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Sources:

1. Homeland Security, “Yearbook of Immigration Statistics 2015.” https://www.dhs.gov/immigration-statistics/yearbook/2015/
2. Jeffrey Passel and D’Vera Cohn, “As Mexican share declined, U.S. unauthorized immigrant population fell in 2015 below recession level,” Pew Research Center, 25 April 2017. http://www.pewresearch.org/fact-tank/2017/04/25/as-mexican-share-declined-u-s-unauthorized-immigrant-population-fell-in-2015-below-recession-level/
3. Jie Zong and Jeanne Batalova, “Frequently Requested Statistics on Immigrants and Immigration in the United States,” Migration Policy Institute, 8 March 2017. http://www.migrationpolicy.org/article/frequently-requested-statistics-immigrants-and-immigration-united-states
4. US State Department, “CA by the Numbers,” updated June 2016.  https://travel.state.gov/content/dam/travel/CA_By_the_Numbers.pdf
5. “Retire Overseas . . . and Live Better for Less . . . ” International Living, undated.  https://www.internationalliving-magazine.com/?gclid=COyAv7-tytQCFYWNswodZNkMcw

The Fiduciary Rule: What’s the Fuss?

Many people may say, “I don’t have any investments. This doesn’t affect me.”

Well, not exactly.

Most people aren’t financial experts. If you don’t have investments now, you hopefully will be saving money for retirement in the future. (If you plan to live on Social Security, well, the only way Social Security covers retirement living costs today is if you move out of the US to a lower cost country like Costa Rica. How’s your Spanish?)

Even if you’re counting on winning the lottery to cover you old age or breaking the house in Vegas, there will be times when you’ll need financial advice. It may be about where to put your money, or whether to buy or rent, or how to finance a home or car. Almost everyone has something on which they need financial advice. You’re probably no exception.

That’s why understanding the idea of “fiduciary” and who is and who isn’t is important.

How do you know you’re getting the best advice? How do you know you’re getting good advice? How do you know the person you are asking for advice has the knowledge to help you and isn’t lying to you for his own profit? Who’s responsible for keeping him (or her) honest?

It’s a problem. Remember Bernie Madoff and all the harm he did? A lot of money simply disappeared. And he wasn’t the first.

Most fraud doesn’t involve Ponzi schemes (what Madoff did). A more typical scenario is: “Investment X is better for this client than investment Y, but I get $100 for selling X and $200 for selling Y, so I’ll recommend Y to him.” The advisor gets a little more money; the client gets an inferior product. Will it make a huge difference for the client? Maybe, maybe not. Is it the right way to do business? No.

In fact, the Feds think that people are giving $17 billion in “excess fees” to retirement advisors now.

Giving sales people incentives to sell specific products is common throughout retail, not just something that happens with investments. How about the person who sold you a home theater set-up? Or your computer system?

“Spiffs” are bonuses paid to retail salespeople for selling a specific product. The term isn’t usually applied to financial products, although the underlying idea is relevant. Companies run competitions with potentially significant awards based on sales volume.

The Department of Labor (DOL) Fiduciary Rule is simple: it requires retirement advisors to act as fiduciaries.  That is, they must place client interests ahead of their own profit motives. To me, that’s the way advisors should behave, all the time. It shouldn’t require a regulation to make it so.

Fiduciary (legal term): An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.
http://legal-dictionary.thefreedictionary.com/fiduciary

The problem with the DOL rule is the general problem with government regulation. The government enforces rules through

1. Licensing requirements for sales people
2. Regulation of investment companies, and
3. Surprise inspections and tedious paperwork.

The extra bookkeeping and storage involved in the latter adds to overhead cost for the advisor.

In the Medicare insurance sector, salespeople have to keep records of every sales call for ten years and be able to produce those records for inspection when asked. Think about what that means.

My problems with the DOL rule are:

1. Can’t we find a better a more efficient and effective approach to enforcement?
2. We should impose the rule on all forms of financial advisor, not just investment and retirement advisors. That means including bankers, insurance agents, credit union managers, tax advisors, etc. Anyone who can affect your finances should be covered by the rule.

What you need to know:

• The fiduciary rule as now written doesn’t apply to everyone from whom you may see advice on financial decisions. Buyer beware.
• One guide to consider: Is the advisor open about what they earn from the different products they sell? Are they willing to recommend products they don’t sell? Are they willing to explain the reasons for their recommendations to you in plain English?
  

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Sources:

1. Eversheds Sutherland. http://www.dolfiduciaryrule.com/
2. Investopedia, “DOL Fiduciary Rule Explained as of May 23, 2017.” http://www.investopedia.com/updates/dol-fiduciary-rule/
3. Li Skinner, “Figuring Out Fiduciary,” Investment News, 9 May 2017. http://www.investmentnews.com/article/20160509/FEATURE/160509939/the-dol-fiduciary-rule-will-forever-change-financial-advice-and-the
4. Federal Register, 8 April 2016, v. 81, no. 68, Part V. Department of Labor, Employee Benefits Security Administration, “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule — Retirement Investment Advice.”
5. Heidi Shierholz and Ben Zipperer, “Here is what’s at stake with the conflict of interest (‘fiduciary’) rule,” Economic Policy Institute, 30 May 2017. http://www.epi.org/publication/here-is-whats-at-stake-with-the-conflict-of-interest-fiduciary-rule/?utm_source=Economic+Policy+Institute&utm_campaign=8817421bab-EMAIL_CAMPAIGN_2017_06_02&utm_medium=email&utm_term=0_e7c5826c50-8817421bab-58834721&mc_cid=8817421bab&mc_eid=0541ad0f29