MOODY'S REVIEW
JULY 2001
COMMENTARY ON INVESTMENT AND PLANNING ISSUES
ERROLD F. MOODY JR.
MASTER OF SCIENCE IN FINANCIAL PLANNING
LIFE AND DISABILITY INSURANCE ANALYST
REGISTERED INVESTMENT ADVISER
WWW.EFMOODY.COM
STOCKS: The NY Times has an article that says, "The market belongs to the stock picker." In other words you cannot depend on an entire sector or the market to move in unison. But then they go on to say, "The problem is which stock pickers to believe. The credibility of Wall Street securities analysts, a major source of investing advice, has plunged along with the stocks they once touted. And there is a glut of free information about stocks -- on the Internet in particular -- making it all the more difficult to distinguish fact from hype."
The point being that if it was possible to know which stock would be better than another, every one would focus on that stock. Someone will unquestionably find some good bets- but was it luck or skill? No way to know. Even if it is skill, it may take 70+ years to know with a 95% degree of certainty if it was skill. We'd all be dead by then- certainly the adviser would have quit a long time ago. Look what Peter Lynch did. As stated many, many times, human beings cannot pick stock.
PROPERTY CASUALTY INSURANCE: Last year was the second-most-costliest for insurance companies around the world, as commercial buildings and houses took a battering. Worldwide disasters added up to $100 billion and cost companies $28.6 billion, the most since the $33 billion reported in 1992, the Swiss Reinsurance Co.
The interesting thing about this is pure statistics. Based on pure numbers, insurers were able to "determine" how much of a loss to expect. Yet the last decade has seen more losses than the last three decades combined. It's the same with investments. You look at past history as a guide to the future- but also recognize that changes can bring radical alterations to all the history. See Philips curve commentary below for example.
NURSES: Here is yet another reason why LTC will cost more in the future and why you do NOT want to use Medicaid as the choice of care: (USA Today) The U.S. Bureau of Labor Statistics projects that by the year 2020, the nation will have 20% fewer registered nurses than it needs. An average of 3,000 fewer nurses graduated from baccalaureate programs, according to studies by the American Association of Colleges of Nursing.
ANNUITY COMPANIES COULD BE IN TROUBLE (LIMRA) "Big, unexpected increases in either the average or the maximum lifetime could cause annoying problems for annuity issuers. Many insurers already use mortality tables that extend to age 120 to set prices for products with lifetime payout features. But the "new" tables are based largely on adjustments to data collected for a 1983 table."
Such tables show much shorter actuarial lifetimes and much shorter payout periods and much lower reserves and at a time when there are much lower interest rates. Many companies will HAVE to consolidate since they will not be in a financial condition to continue. Mark my words.
LTC: Nursing home care costs an average of $55,000 a year, but 80 percent of the people who need that level of help are in their own homes, being cared for by family members, professional nurses or community groups.
DRUG COSTS: (Journal of Gerontology) Elderly Americans spend on average 19 % of their total income on out-of-pocket medical expenses annually, with more than half of these payments going toward prescription drugs and dental care.
THIS IS WHY YOU HEAR THE RISK OF LTC BEING 2 IN 5- The Department of Health and Human Services Executive Board on LTC Insurance discovered that a person over 65 is estimated to have more than a 43% risk of entering a nursing facility during his/her lifetime
PHILLIPS CURVE (NY Times) Long time viewers have no doubt read my comments about ratios no longer viable- dividend yield, some P/E ratios, etc. and specifically including the Philips curve which is the "ratio" of unemployment to future inflation. Here is some further commentary:
".......the Phillips curve is missing. All of a sudden, economists are a lot less useful as forecasters. For as it stands now, economists' forecasts of economic growth, unemployment and inflation are no longer projections based on historical patterns but, instead, pure guesses based on gut feelings about when, how and if the Phillips curve will return."
Interestingly enough to me, "the Phillips curve has not worked well outside America. Only in the United States has there been a relatively stable natural rate of unemployment to serve as a reliable indicator of when demand pressure is about to raise inflation. Elsewhere, the causes of rising inflation have always been too complex to be summarized by simply comparing unemployment to even a semistable natural rate."
Did you hear about the midget soothsayer who escaped from prison?
He was a small medium at large
MEDICARE COSTS- Never heard
this one before- (Health and Human Services) "Senior citizens whose doctors'
offices are owned by hospitals may be paying more for appointments than those
who see independent physicians. Some hospitals may be improperly treating
physician practices they own as outpatient departments when they bill Medicare
- even though in some cases the doctors offices are far from the hospital.
That costs Medicare patients more because Medicare out-of-pocket fees for
visits to hospital outpatient departments are higher than for visits to a
doctor's office. The outpatient fees can be 50% or more of the total bill,
compared with the standard 20% for doctor's appointments."
ETHICS (NY Times) "If you believe something is wrong and must change, anonymity should not be a prerequisite for coming forward. "If the fear of retaliation causes us not to stand up for our principles," said Stephen L. Carter, a Yale law professor and author of "Integrity" (Basic Books, 1996), "then what kind of principles are they?" Another noted that "if you truly want to make a difference, you're going to have to publicly bear witness and testify."
"The Merit System Protection Board, a civil service panel, conducted a 1992 survey of nearly 1,500 federal employees who had reported what they saw as misconduct. Twenty-three % said they had experienced verbal harassment or intimidation; 1% said they had been dismissed."
Well, my comments about the planning industry have clearly caused me verbal harassment, blackballing from organizations and more. But, as stated ad nauseam, if you allow financial planners and all the organizations to act unethically and illegally, sooner or later they will act illegally and unethically toward your money. (And, yes, I can prove every single allegation I have ever made.)
But as the article noted, "The problem is, this isn't a perfect world." So I may do this for nothing more than I truly dislike liars and frauds.
The article also commented, "Though some companies try to create an atmosphere in which people feel comfortable and supported in identifying wrongdoing, the reality is that behaving ethically can wreak havoc on a life without any guarantee that wrongs will be righted. That is why those who speak up, despite the risks, are seen as courageous -- and are believed."
Frankly, I do not feel courageous. Not even that bright at times since the effort for ethics and fiduciary responsibility is emotionally draining and financially unrewarding. And not one of the major financial luminaries- Quinn, Rowland, Scott- or the magazines- Money, WSJ, Forbes, et. al. even bother to address ethics within the industry. But, again, "This isn't a perfect world."
FEES (NY Times) "The Securities and Exchange Commission is reviewing stock-trading practices at a number of fund companies to see if they are getting the cheapest stock-trading commissions.
Because funds trade in such large volumes, they have always paid less than individual investors. But rapid technological changes and the new competition faced by stock exchanges should be causing commissions to fall further."
PROBABLY MORE WIDESPREAD THAN DAY TRADING. I received this Email.
Do you have any Information on employees who are addicted to "playing the market" with excessive trading within their 401K accounts? Are employers aware of this problem? My husband lost over $150,000 In two weeks! Some companies allow employees to make an unlimited number of trades by touch tone phone or computer. With a significantly large amount of money, that most would never be able to take to a casino, such high risk transfers (trades) are easily done as frequently as anyone who has a penchant for (or worse), are addicted to gambling, is compelled to do. Devastatingly, this easily and quickly ruins lives, futures, and secure retirements. I believe this is probably a much bigger problem than is known by the public and unsuspecting family members. Where is there any protection for the wife who may not have any awareness of their spouse's addiction and is dependent on this for security for her retirement years?
My reply wasn't that comforting since there are no laws restricting trading and none that I know of that are on the books. And employers don't have a clue to investing if for no other reason than the people they hire to set up pension programs rarely have a clue either. Remember, brokers have never been taught the fundamentals of investing- ever!
Regardless, this should have been foreseen as a "problem" by the employer and the human resource people. I think you should engage an attorney- and probably a family counselor or gambler's anonymous just for your husband- and proceed immediately against the employer or your husband (and others) will be allowed to lose more.
CENSUS BUREAU There were 25,208,000 foreign-born U.S. residents as of July 1, 1998 - 9.3% of the population. That was up from 19,840,000 in 1990, when they were 8.0% of the population. The current share of foreign-born residents is close to the 9.7% recorded in 1850, the first year the Census Bureau asked people their place of birth
I get no respect at all. I donated to
a sperm bank. Now I'm the father of three puppies.
MENTALLY ILL AND ELDERLY: Mental illness may collapse our Medicare and Medicaid system as the elderly get older and need/demand more government assistance- particularly where the financially capable are still trying to get on the government dole though they could have purchased long term care privately. The problems may consist of substance abuse, late onset schizophrenia, anxiety disorders and depression. The Archives of General psychiatry forecast a 275% jump in psychiatrically ill elderly from 1970 to 2030 versus 34% for those between 30 and 44. Factors for the increase include more willingness to seek help, less family support, and higher risk of alcoholism and substance abuse (perhaps due to the survivors of the drug cultures of the 60's and 70s'). They just continued to use drugs as they aged. Then there are problems with increased medication as we get older. They also noted that excluding dementia- which affects about 10% of the elderly- there might be up to 13% of those over age 65 that meet the standard criteria of having a psychiatric disorder. When accounting for all factors, up to 20% of todays' elderly have serious psychopathologic symptoms- expected to grow to 22% as the elderly get older. So, as regards private long term care policies- do you really want to end up in a Medicaid ward that can't even pay decently for the care needed right now? If you can afford a policy , buy one.
FROM A CAREGIVER (Ann Landers) "I spent the last five years caring for my mother. She passed away last November. I will never do another job (and yes, it is a job) as stressful and demanding as caring for her was. Yet I don't regret a second I spent with my mother because she needed me. Taking care of an elderly person full time can be debilitating. Mental health counseling can be a godsend. There are times when you just don't believe that you can make it through the day. And those days become more frequent and more draining as your loved one's health deteriorates. Tell your readers if they know someone who is taking care of an aging or sick relative, to offer a hand, or an ear, or a hug- and a word of appreciation and praise. It can mean more than you will ever know."
FOOTBALL TRUST: I always said that, put me up against Joe Montana and Oprah Winfrey in the offering of an investment, and I would come in a very distant last since every "investor" would flock to those they "trusted". Apparently that is what happened to some with former football star Fran Tarkenton. The SEC charged him with fraud in helping to direct a multimillion dollar financial fraud
COURT: In a California court case, a physician who had a 40 year "relationship" with his insurance agent stated that after purchasing $3 million in various life contracts and doing a few 1035 exchanges as recommended by his agent, he effectively ended up with no insurance due to lapses, excessive costs. He also filed against the company, New York Life, who indicated that it did NOT have a fiduciary obligation to him as a client.
That, absent fraudulent products per se, is probably closer to the truth. Simply because you lost money in a mutual fund which had been offered by a fund company through a broker, you cannot (absent fraud, etc.) sue the fund for the loss. Your focus was to the info, advice and fiduciary obligation owed by the broker.
As regards life insurance, the first duty of the agent is to the INSURANCE company by not misrepresenting the risks of the client to the company. In fact, in years' past, a representative of the California Department of Insurance noted that there is NO fiduciary obligation owed by the agent to the client. (I disagree as do most courts. Actually, so do any professional insurance agents. Once they have selected a good company, they always look out for your best interests. Notice that I said, "professional" agents. There are few professional insurance agents, securities brokers or financial planners.) Nonetheless, when I presented this comment to the head of an insurance company, he replied that "everyone knows an agent is there to sell life insurance. If they want to protect their interests, they should call up the company directly for them to send out a representative to directly help them (get real!) or hire a separate independent party to protect them (get real again!).
What will finally happen with this case? New York may, in fact, have liability since they know that agents are ineffectively trained. Further, I bet there were no checks and balances utilized by the company to assure clients they would be adequately covered. But why did the physician use this agent? Because he trusted him. If you want to use someone because you like or trust them, figure on getting screwed sooner or later.
AIDS: (Worldwatch Institute) Armed conflict killed 200,000 Africans last year, but AIDS killed 2 million Africans in the same period. UNICEF indicated that "By any measure, the HIV-AIDS pandemic is the most terrible undeclared war in the world." "The global AIDS epidemic is taking such a large toll in Africa that it will measurably slow world population growth. It was expected that world population growth would slow due to an international effort to provide better health care and family planning. But the spectacular rise in African mortality rates has been a surprise. Botswana, South Africa and Zimbabwe, will lose one fifth or more of their adult population within the next decade"
That is a catastrophe hard to imagine. Hitler killed millions and nobody did anything for a long time even though they knew what was going on. Will this end up the same? Some companies ARE coming to the forefront- but admittedly due to the fact that they are primarily just losing more consumers fo their product.
MEDICAID NURSING HOME CARE. The president of the Virginia Health Care Association said almost none of the state's nursing homes are making any profit and some are starting to declare bankruptcy. He noted about Virginia's $78/day reimbursement rate (47th lowest in the country), "How many hotels can you stop at and get a room for that? And we provide not just a room but 24-hour nursing care and meals and therapy and activities."
They note that they have "low wages and poor staff retention." That universally translates to poor care.
SOME MORE LITERACY- (American Association for the Advancement of Science) "Those thick, heavy science textbooks middle school students lug around are "full of disconnected facts" and irrelevant classroom activities. Nine widely-used middle school textbooks were examined over a four-year period by Project 2061, a long-term effort of the to improve science, math and technology education in schools. Not one was rated satisfactory, including the new crop of texts that has just entered the market."
"I'm not worried about the bullet with my name on it... just the thousands out there marked 'Occupant.'"
CORPORATIONS: (Handbook of Strategy and Management) "Only a few thousand corporations produce the bulk of the world's economic output and employ a significant part of the world's labor force."
INSURANCE: (National Association of Manufacturers (NAM) Operating Survey) Over 97% of the 1,700 small and mid-size manufacturers polled said they offered health and medical insurance to their employees. Almost 60% offer dental coverage, and just under half offer mental health coverage. Close to 80% offer bonus pay plans, and 82% offer some kind of profit sharing or 401(k) plan. On the other hand, fewer than 8% offer stock ownership plans to employees.
LIVING LONGER: (SF Examiner) Men now live 19 years longer than those born in 1920. The actuarial lifetime expected in 1920 was 54 years- now its 73. But that doesn't come without some risks of increased disease. (Should be obvious. Why were there "no" Alzheimers victims in the 1950's? They were all dead before they got that old to have the disease affect them.)
The deaths due to cancer have dropped . Between 1990 and 1996, the age adjusted death rates fore all cancers dropped 3.7%. A lot of that should be obvious- the decline in smokers. In 1964, 45% smoked. Now it's 27% for men and 22% for women.
HEART DISEASE: The nation's 30-year decline in death rates from heart disease and stroke has slowed dramatically in the 1990s. Even after the age adjustment, the decline of 2.5% to 3% in heart disease death rates that began in 1968 began to level off in 1990.
VIATICAL SETTLEMENTS: Several major insurers have filed suite to cancel policies that were issued on the basis of fraud. But it isn't just the viatical companies they are going after- it is the retirees as well. They applied for policies with the intention of selling them -- an outgrowth of the viatical industry known as "Senior Settlements" or "Life Settlements."
FRIENDS- "Friendship is different from all other relationships. Unlike acquaintanceship, it is based on love. Unlike lovers and married couples, it is free of jealously. Unlike children and parents, it knows neither criticism nor resentment. Friendship has no status in law. Business partnership are based on a contract. So is marriage. Parents are bond by law, as are children. But friendship is freely entered into, freely given, freely exercised.
Friends never cheat each other, or take advantage or lie. Friends do not spy on one another, yet they have no secrets. Friends glory in each other's successes and are downcast by failures. Friends minister to each other, nurse each other. Friends give to each other, worry about each other, stand always ready to help. Perfect friendship is rarely achieved, but at its height it is an ecstasy." From "Comrades" by Stephen Ambrose, Simon and Schuster, 1999.
JAPAN AND THE YEN: You have been reading a lot about the weak dollar and the strong Yen. Many have said that Japan needs to change it s banking system and stop funneling so much money to prop up an antiquated system. Per the NY Times article, "Greenspan said countries like the United States that had well-developed capital markets as well as strong banking systems weathered global and domestic financial crises far better than those that relied primarily on banks. "The Japanese government has intervened in the economy and is injecting funds in order to recapitalize the banking system. "While it has made some important efforts, it has yet to make significant progress in diversifying the financial system, which arguably could be a key element, although not the only one, in promoting long-term recovery."
"Tokyo will save money in the long run if its stops dithering and acts more forcefully to close failed or failing banks, sell foreclosed real estate and other assets, and create a smaller but healthier banking system."
I have literally given up on Japan and completely discounted the use of the Morgan Stanley EAFE Index.
DRIVING DRUNK: The number of drivers over the age of 65 will more than double to 60 million during the next three decades. No they don't drive drunk, but they are projected to cause as many accidents as a drunk driver.
SOCK IT TO ME!: The U.S. imports almost all its television sets, about two-thirds of its apparel and about one-quarter of its cars. But roughly 90% of its socks are still made in America.
AND I WILL BE ONE OF THE OLD ONES: In 30 years there will be twice the number of elderly, but only 15 percent more workers to help pay Social Security and Medicare benefits.
BUYING LONG TERM CARE? Here is a subtle but major difference between two of the leading companies. One asks if you have EVER had "XYZ" medical problem. The other asks if you have had the problem within the last 5 years. If you are perfectly healthy and want the first policy, fine. But if you have had "XYZ" problem and apply for A and get denied, you may not be able to get B policy since a red flag ma have been raised.
One nice thing about egotists:
They don't talk about other people.
INTERNET TRADING: (NY TIME): Professor's Dean and Barber at UC Davis reviewed the accounts of may investors who switched from telephone trading to internet trading. They indicated that before the switch, such investors had actually beaten the index by 2% or 3% from 1991 to 1996 (I have asked myself repeatedly, how could they do that with consistency since it was better than almost all of the fund managers who attempt to do the same? See end of commentary for answer). Anyway, after the switch, the investors "lagged behind the market by about 3.5% a year, on average -- a significant reversal of more than five percentage points. They observed, for example, that not only did the turnover rates rise sharply for these investors' portfolios, to 96% a year from 74%, but that these investors also became twice as speculative in their trading." Brad Barber noted that, "the reason people trade online more often is because they think they know more than they actually do". "We feel overconfidence leads to excessive trading which leads to poor performance."
It is estimated that online trading now comprises about 25% of all stock trading. Articles state that the Internet is full of information that provides the insight to profitable trading. Barber notes, "the notion is that when you go online, you're bombarded with information, but that gives people the illusion of knowledge. You sift through all that information, but the thing that people miss is that everyone else on the planet has access to that information" That's simply making reference to the efficient market- that everyone has all the same information at the same time and that no one can profit unreasonably. But I also note that even if you do have the same info, you can earn a lot LESS simply because you do not have the fundamental background to put the info to best use- even understand it. In fact, it's is a proven fact that many people who might read a statement don't have a clue to what is going on- but either think they do or are unwilling to state otherwise. (See my full article on illiteracy for the conclusive study.) Let me take this further. I have more background and education in the field of investments than most people you will ever read. I have taught the securities licenses for stock brokers as well as investment courses at colleges. I even took two years of the CFA courses. So what do I know about individual stock picking? Not much. Wouldn't try it on a bet. I figure that unless you have the time and capability to absolutely understand the nuances of the financial footnotes, the you are just screwing around with the financial statements overall. So I don't do individual picking at all. Essentially never have since, unless I could prove to myself that I could beat the market one on one, who am I kidding? My focus is on economic fundamentals with a concentration on the FED teachings. I do believe that that can provide good returns at acceptable or lower risks. For example, when interest rates came down from (roughly) the mid 80's to 1994, the use of long term bond funds returned 13+% with, in my mind, half the amount of risk as stocks. Why was I successful(?)- I read what the FED was attempting to do that was initiated by Volcker and then followed by Greenspan. And I continue to read the new material/revelations. For example, being stuck on the dividend return of the stock market as referenced in years' past meant that I should have never maintained a strong stock percentage as I have done. Or that I used almost exclusively U.S. stocks even when numerous articles said to focus on foreign issues in 1994 when Greenspan raised rates. Inflation was low- so was unemployment. Say, doesn't that sound good? Did to me. In that regard, do you know the relationship of the Phillip's curve and how is was SUPPOSED to effect the economy. And why it didn't? And on and on.
As to the higher initial return of the investors before they went online- The professors' conclusion is what I thought it might be and was also related by Marc Hulbert. "Over all, these investors never had genuine ability, but merely experienced a run of luck before switching to online trading. Confusing the bull market with brains, they became overconfident, trading much more often and more speculatively than they did before -- to their own detriment."
If you try to fail, and succeed, which have you done?
WOMEN AND THE TERMINALLY ILL: (National Institute of Health) When someone falls ill, about 75% of the primary caregivers are females relatives. And while they are called upon to provide care for a dying person, when they die, they must significantly rely more on paid help (probably because fewer close relatives may still be alive- obviously including their husbands). About 15% who die from cancer have unmet needs versus about 23% that die from other causes.
I have repeatedly focused on women and caregivers but the commentary was best expressed by the President of the National Family Caregivers Association who said, "this is a wakeup call for doctors to address the needs of caregivers."
Need to know-
A pig's orgasm lasts for 30 minutes.
Americans on the average eat 18 acres of pizza every day.
You are more likely to be killed by a champagne cork than by a poisonous spider.
Right-handed people live, on average, nine years longer than left-handed people do.
Elephants are the only animals that can't jump.
On average people fear spiders more than they do death.
The male praying mantis cannot copulate while its head is attached to its body. The female initiates sex by ripping the males head off. (Honey, I'm home. What the...)
An ostrich's eye is bigger than it's brain.
DYING: Approximately 2.3 million people will die in the U.S. this year. Over the next four decades, the total is expected to double each year due to the aging and greater populace.
DRUG COSTS: "The Health Care Financing Administration (HCFA) indicated that from 1995 and into 1999, expenditures for prescription drugs have been 3 to 4 times higher than hospital spending and physician spending.
OH, JUST SHOOT ME: (Surface Transportation Policy Project) Some of the nation's largest and most expensive road construction projects will save motorists just 30 seconds of commuting when they're completed, according to a study of highway data .. Moreover, motorists are losing more time in road work delays than they will save in years of driving on the improved roads.
FUND FEES; (NY Times) The average expense ratio paid by investors is down 16 % over the last six years. One analyst calculates that "the average United States diversified stock fund now charges 77 cents in annual expenses for every $100 invested, down from 88 cents three years ago and 92 cents in 1993." Another "attributed much of the decline to investors' seeking out lower-cost fund families."
IT'S STILL THE HAVES AND HAVE NOTS: Home ownership has NOT gone up- at least for most people.(NY TIMES) "Of the nation's 103 million households, 66.6% occupy homes owned by a member of the household. And the %age of home ownership is now at 65.8% exceeding the maximum set in 1980." But it's not reflective of Americans overall since it was the older Americans that have carried the ball. "In every age group under 55, home ownership remains below where it was in the early 1980s."
Further, homeowners today are much more highly leveraged than 15 years ago. Then, a down payment equal to 15% of a home's price was common; now 5% or less is more the norm, even to qualify for government-backed mortgages. Among homeowners, the median household income (half earn more, half less) has risen to nearly $46,000, up 16% since 1982, after adjusting for inflation."
"The human race is faced with a cruel choice: work or daytime television."
SALT: You hear different commentary. But from the National Heart, Lung and Blood Institute of the National Institutes of Health- By cutting their salt intake in half, all Americans - but especially those at high risk of hypertension - can lower their chance of developing high blood pressure
GERONTOLOGY: Despite increasing numbers of elderly Americans, the nation has a critical shortage of geriatricians-physicians who specialize in treating the elderly. With the shortage unlikely to ease soon, the American Geriatrics Society is launching new programs to train surgeons and general practitioners to improve their care for older patients, and to help families recognize quality elder care.
LONG TERM CARE: (Walter M. Cadette) "By default rather than design, the nation has fashioned a welfare strategy for long-term care, pushing Medicaid far afield of its original purpose of financing the medical care of the indigent, in particular those on Aid to Families with Dependent Children and successor welfare programs. Strikingly, more than a third of the Medicaid budget is dedicated to long-term care, most of which finances the stay of disabled elderly in nursing homes. The care of two out of three nursing- home residents is paid, in whole or in part, by Medicaid.
"A welfare model has also led to two-tier nursing-home care. Private payers, irrespective of their need for care, are typically given preferential treatment in admissions; Medicaid beneficiaries are often consigned to second- rate facilities because the budgets set by state governments (albeit with heavy federal funding) do not stretch to pay comparable fees.
"A welfare model, moreover, has been an open invitation to transfer assets to heirs in advance of the need for nursing-home care. To be sure, asset and income limits are an inherent part of any welfare grant; they are designed to ensure that the available resources go to those with the greatest need. In practice, however, Medicaid finances the nursing-home care of many others. Asset and income limits have given rise to a whole industry of estate planners adept at helping people meet the letter, although not the spirit, of the limits.
"Insurance--public or private or some combination of the two--would be a greatly better answer to the nation's long-term care needs. Indeed, long-term care is almost perfectly suited to an insurance model. Two out of five Americans over age 65 will spend some time in a nursing home. For most, their stay will be only for a few months, say, for rehabilitation following hip replacement or a stroke. Medicare ordinarily pays most of the costs associated with such stays. However, one in ten Americans over 65 will require care for five years or more and will incur costs that if paid directly from individual or family assets would bankrupt most families. If every family were to try to save to meet the cost of such a stay, the resulting saving would be excessive. Pooling of the needed saving through insurance premiums is the natural economic response, but one frustrated by apparent market failure.
"It is not a failure of the insurance market per se. Easy access to Medicaid all but forecloses the chances of developing a broad market for long-term care insurance. And, absent adequate public funding for alternative forms of care, easy access to Medicaid for nursing home care has led to excessive institutionalization of the disabled elderly.
"The challenge for government is to shift the financing of long-term care toward an insurance, and away from a welfare, model. The well-being of all the disabled elderly in need of Medicaid benefits is at stake because of two-tier care practices--a problem that promises to worsen as economies mandated by the Balanced Budget Act, for Medicaid as well as Medicare, take full effect over coming years. At stake also is 'honest government'--one that not only does not fund inheritance protection but that also genuinely protects those with greatest need. Clearly, however, an insurance model cannot be developed as long as most Americans needing long-term care can turn to a safety net in the first instance."
ASSISTED LIVING (NY Times) Everyone has talked about these homes as the panacea against nursing home. You enter these when you don't need the full time care. Privately paid assisted living is viewed as an appealing alternative for people who need some help but do not require skilled nursing. Residents have their own apartments with kitchens, eating communally and taking part in social activities only when they want to. Public areas are designed to evoke the atmosphere of a comfortable hotel rather than an institution.
Problem is, they have not been financially successful for the builders and promoters. The Alterra Healthcare Corp. of Milwaukee, the nation's largest assisted-living operator, has abandoned plans to build 100 new homes. Many others are under financial strain, and all have seen their shares recently plunge to record lows. What happened? The answer is a binge of overinvestment and overbuilding, with too many companies and people trying to seize a trend. Some companies failed to foresee that they would be serving an increasingly older, and therefore, more frail clientele (the average age is now 84), forcing them to hire additional employees, which cut into profits. Because of these problems, an analyst noted, "families may want to exercise an extra measure of caution when choosing a home. "The intense pressure to show profit margins created enormous pressures to keep staffing to a minimum. "You want to make sure that the place is adequately staffed."
STANDARD DEVIATION: Anytime a salesman or broker attempts to sell you a security of any type, ask him or her what its standard deviation of annual returns is (or is expected to be if it is a new offering). If he or she doesn't know, don't even think about buying it. If your broker is not familiar with the concept of the standard deviation of returns, get a new one- William Bernstein
HOSPITALS: With shorter patient stays and a surge in outpatient treatment, more and more of the nation's 840,000 hospital beds stay empty.
A woman needs only two tools: WD-40 and duct tape. If it doesn't move and should, use WD-40. If it moves and shouldn't, use the tape.
Long Term Care (National Council on Aging survey):
73% said the Medicare is the primary resource for long term care
85% did not know Medicaid was the primary source for long term care costs
ARBITRATION- I testified as an expert and since it is completed, I'll give you some insight to the problem. One of Southern California's largest brokerage firms sold a man over $1,000,000 of illiquid real estate and limited partnerships at age 77. Almost all of it lost. And do you know why he bought these "investments?" Because he trusted his broker- who actually looks gentlemanly and trusting. I know the real world. I know trust is the key to making money. But it is also the key to losing money since most investment advisors, insurance salespeople, whatever, are extremely limited in competency. Remember, the fundamentals of investing have NEVER been taught to a broker.
INTERESTING- When seven smokers went through a single session of breathing laughing gas, five quit for at least three days. Four were still tobacco-free when checked a month later.
MORE LONG TERM CARE: A recent survey indicated that the estimated total expenditures for acute and long-term care from the age of 65 years until death and in the last two years of life and found that total expenditures (in 1996 dollars) from the age of 65 years until death increase substantially with longevity, from $31,181 for persons who die at the age of 65 years to more than $200,000 for those who die at the age of 90, in part because of steep increases in nursing home expenditures for very old persons. Acute care expenditures, principally for hospital care and physicians' services, increase at a reduced rate as the age at death increases, the authors conclude, whereas expenditures for long-term care increase at an accelerated rate.
DISABLED: Nearly 25% of Americans age 65+ are disabled or in need on long term care. Nearly half the adult children in a recent urban study said they offer regular assistance to their parents including 10% who perform daily chores. But the survey also showed that the issue of aging is rarely discussed.
It is for a similar issue- death- that many people do not have wills and trusts. It is for these combination of reasons that businesses lack business succession planning. Mostly its men. It's not an issue of when they will die. It is an issue of IF they will die.
NURSING HOME VIOLATIONS IN THE BAY AREA
Pressure Sores- 25% of homes
Preventable Accidents- 15%
Improper care- 9%
Inadequate hydration- 7%
Abuse of residents- 5%
Your state and area could be quite different. But the reasons for most problems are undoubtedly consistent for any state- lack of payment and staff. Further, I submit that the problems have a higher and greater significance for homes with Medicaid patients simply because the home cannot afford the best attendants. This is not an incrimination of Medicaid in and of itself. Many of these people are dedicated. But they simply have far less to work with and the emotional and financial pressures will subsequently be felt by patients.
Just makes another case for independent private care through a long term care policy.
MEDICARE HMO'S: The rate at which Medicare HMOs are leaving Medicare is rising, according to government estimates. In the last two years, HMOs have pulled out of more than 400 counties in at least 33 states, directly affecting 734,000 Medicare beneficiaries -- 407,000 in 1999 and 327,000 this year. The turmoil touched 1 of every 9 beneficiaries enrolled in managed care. About 6.2 million of the 39 million Medicare beneficiaries, or 16 %, are now in HMOs.
OLD WORKERS (Watson Wyatt Worldwide) "Members of the baby boom generation-the 76 million born between 1946 and 1964-have been forced to compete with sharp elbows among themselves, but behind them is the much smaller generation X, the 41 million born between 1965 and 1976. As boomers age, "there are simply not enough new workers coming in to replace the old workers going out,"
The Bureau of Labor Statistics predicts the number of workers ages 25 to 44 will shrink by 2008, while the number of workers 55 and older will jump 4 % annually, making them the fastest-growing age group.
401(K) Hewitt Associates noted that 68% of workers between ages of 20 to 59 took a cash option from their 401(k) plans when switching jobs rather than roll over the assets and save taxes and penalties. Only 25% rolled the assets. 78% between ages 20 and 29 took cash; even between 50 and 59, 60% took cash.
GET OFF YOUR DUFF!: (University of North Carolina) Young Americans, specifically blacks and females, are far too sedentary. The problem stems from the decline in comprehensive physical education curricula in U.S. schools and habitual TV viewing and video-game playing among youngsters. Youngsters who don't get enough exercise could be at greater risk for problems such as obesity, diabetes, cancer and heart disease.
SO, HOW ARE YOU LIVING?: (NY Times) Japan leads the world in a healthy life expectancy of 74.5 years (Sierra Leone is less than 26 years. HIV-AIDS has cut the life expectancy in Southern Africa by 15- 20 years and by 10 years in other areas. The U.S doesn't do too well since it has its own "third world" within its population- the effects of AIDS, poor health of minorities, smoking and violence. The traditional life expectancy is 76.7 years with men at 73.9 and women at 79.4 (so how long would a 65 year old women have to live? 14.4 years? WRONG!) But the healthy live expectancy drops to 70 overall with 67.5 for men and 72.6 for women. A good portion of the reduction is due to a 25% minority population that has a lower life expectancy.
COMPLAINTS: (National Association of Consumer Agency Administrators and the Consumer Federation of America) Complaints about home improvement services topped the list of gripes among consumers with household goods ranked second, and credit and lending services were fifth in the survey of city, county and state consumer agencies that handle citizen complaints.
The biggest disease today is not leprosy or tuberculosis, but rather the feeling of being unwanted.
Mother Teresa