The Economy: Back to the Future

Have you heard the advertising mantra, “Perception is reality”? It’s not. Reality is based on data that isn’t subject to twisting by political pundits — for example, a rapid growth in inventory of unsold cars and trucks at US dealers. The election brought about a rally in consumer confidence and in the stock market without […]

via The Economy: Back to the Future — CRAIN’S COMMENTS

Insurance: Please don’t buy this!

135354-RumorsJust because someone offers a product, that’s no reason to buy it.  Some just don’t make sense, except perhaps in an alternative universe.

The newest entrant in this category is something called “Active Shooter” insurance.  These policies first appeared on the market in 2015 and are designed for business owners.

Now let’s think about this.  The US averages 51 deaths due to lightning strikes per year (source: NOAA).  It’s probably fair to assume that this averages one death per lightning event.  The most common activity among victims when hit by lightning was fishing.

Now, between 2000 and 2013, there were an average of 11.4 mass shooting events in the US each year (source FBI).  This number has risen recently, of course.  The FBI reports 20 such incidents in each of 2014 and 2015.  The number of people killed per event is greater than in the case of lightning strikes, but still, there were only 20 of these.  There were 20.9 million business in the US as of 2010 (Census), so the odds of a business incurring an active shooter event is 0.0000095694%.

The business has a much better chance of being hit by lightning.  How many businesses have lightning rods?

By the way, if you believe in Apocalypse theory, most insurance policies exclude claims due to “acts of war.”  Earlier this week, commentators on Fox endorsed the US “declaring war” on ISIS.  That recommendation would elevate ISIS to the status of a country AND eliminate some insurance protections Americans do have.  That’s why you don’t listen to Fox.

Anyway, Active Shooter insurance seems to me to be a silly way for the paranoid to waste money.  If you have money to waste, I can think of lots of better ways.

Health Insurance: the Uniquely American Jungle

VCphoto2To paraphrase a quote from a friend, it doesn’t matter who helps you with insurance until it does.

There’s no single policy or company that provides “complete” health insurance in the US.  Truly complete coverage involves stitching together policies from multiple sources while keeping costs manageable.  It’s the insurance version of quilting.

Your daughter breaks her arm playing basketball at school.  The doctor’s bill is $1200.  How are you paying for it?

You’re overdue for a colonoscopy.  Do you know that the cost can vary wildly depending on where it is done?  Will you be out of pocket for this or will your insurance cover the cost?  Do you know?

In medicine, it is the case that “an ounce of prevention is worth a pound of cure.”  Catching any illness in the early stages of development makes it easier and less costly to treat.  Most Stage I cancers are easily treatable at little cost; most Stage IV cancers are fatal and very expensive to treat.

For consumers, this means that annual check-ups aren’t optional.  doctor-clip-art-doctor-clip-art-4Nor are mammograms, colonoscopies or esophageal endoscopies.   By the time you become aware of a blockage of the esophagus (without a screening), it’s Stage IV and your five-year survival rate is less than 10%.  You’re basically done.

The problem for consumers is being able to pay for check-ups and screenings.  That’s where the fine print in your health insurance becomes critically important.  Some policies will cover screenings and some don’t.  If your policy doesn’t, and you have a high deductible, you could be liable for thousands of dollars in costs.

As the New York Times reported (10/17/2014 and 11/15/2015), there are consumers who have health insurance and still can’t afford to see the doctor.  They can’t pay the deductibles and co-payments, so the simple act of buying insurance becomes largely irrelevant.  The Affordable Care Act (aka ACA or Obamacare) simply didn’t go far enough to solve the problem of affordability.  A lot of that is related to accommodations required to overcome resistance to passing the law.

There are some resources, although some in Congress and the states are trying to cut the budget for them.  Planned Parenthood provides mammography for poorer women, but has become a target for other services in which it is involved.  There are also public health clinics, but these are only in limited locations.

Ultimately, the consumer is faced with an array of options and costs:

  • Private insurance, Marketplace insurance, Company-sponsored insurance or no insurance
  • Low or high deductibles
  • Low or high co-payments
  • Whether to include options such as dental, vision or supplemental health insurance
  • Choice of insurance company
  • Choice of doctor and hospital
  • Whether insurance covers travel out-of-state (some plans don’t)

Even seniors have to make choices between Medicare, Medicare Advantage and Medicare supplement plans.  Nothing is simple anymore.

Very few people can afford the high-end plans that cover everything with next to nothing out of pocket.  Even in the Marketplace, such plans can cost upwards of $2,000 per month, which is more than a  lot of people make in a year.  That’s higher than most mortgages.

That brings us back to the question of who advises you about health insurance.

  • Most agents are sales reps, trained to sell a particular policy and not necessarily familiar with the options that consumers may have.
  • With substantial turnover among agents, a lot of agents you meet will have been in the business for less than a year.  Some of these will make mistakes in presenting what their own policies do and don’t do.  That’s not a criticism.  Think about it: that’s why there are learner’s permits for drivers.
  • Under a new and controversial rule, investment advisors are required to place the well-being of the consumer ahead of the advisor’s financial interest.  There is no similar requirement for health insurance agents, although there should be.

So you can either hit the books and become an expert in health insurance yourself, or find someone who is.

There are agents with experience, knowledge, and who place the well-being of the consumer first.  We’re not perfect, but if we don’t know something, we tell you and then we do research and find the answer for you.  We don’t rush you into purchase decisions, but when we work together, we design a plan or set of complimentary plans that will take care of what you, your family and your employees need within your budget.

We’re here to help you complete your insurance quilt.

Vic Crain
Partner
Crain Insurance
vic@craininsurancellc.com
609 510-3712

Sanity, Finances and Supplemental Insurance

Realistic thinking and an ounce of prevention can give you a happier life.  If it sounds simple, it actually is.  It’s harder to change one’s mindset than it is to take the actions that are needed.

Most Americans, and certainly older ones like me, grew up with several assumptions about how our lives would play out.

(1)  Income will increase over time.  Taking on debt now is OK, because you can pay it off with increased earnings in the future.

(2) Housing is an investment.  The value of housing will increase.  Buy as  much as you can afford now, and make money when you sell.  Take on an equity loan now, and the growth in value will enable you to sell, cover the loan and still make a profit.

(3) Kids will do better financially than their parents.  In  your old age, your kids will be able to help you if needed.

(4)  Social Security is there to cover basic expenses in retirement.

(5)  You will be able to retire and enjoy yourself in your later years.

Like the Easter Bunny, these are wonderful myths.  However, trying to live as if they were true is a quick path to what some analysts call, “money depression.”(1)  That in turn is linked to problems with relationships and health.(2)

That’s the deadly spiral:  money problems can trigger depression, which can trigger health problems, which can add to money problems.

The blind faith in the future is what enables people to spend everything they earn and dive into debt.  It’s why almost half of Americans admit they would have trouble handling even minor financial emergencies, like a $400 medical bill.(3)

The new era of “living within one’s means” requires three things:

(A) Realism about the lifestyle one can afford

(B) A realistic budget

(C) Resources to deal with “the inevitable unexpected”, so that these don’t siphon off money you need for other things.

Item (C) is where supplemental insurance fits.  No one expects to get sick or have an accident, but the average American spends over 9 years of his/her life dealing with illness or injury.(4)  No one expects to have an accident.  Most cancers in the US are now attributed to environmental rather than genetic factors.(5)  You simply cannot plan on staying well.  That’s not something you fully control.

Supplemental insurance works by providing cash to those who are hurt or ill.  The cash is paid to the insured rather than to healthcare providers, and can be used to meet health insurance deductibles and copays, as well as to pay living expenses while ill.

Supplemental insurance makes sense for most people because it is very low cost.  Policies start at less than $20 per month for individuals, and less than $40 per month for families.

Financial peace of mind means having a budget that works and knowing that you are protected to the extent possible against the “inevitable unexpected.”  Once you achieve financial peace of mind, you’ll find you have the time and energy to tackle other challenges in your life.

 


Sources:

(1) Williams, Goeff.  “7 Steps to Defeat Money Depression.”  US News.  6 Aug 2014.
Harding, Anne.  “When Money Ruins Your Mood.”  Health.com.  http://www.health.com/health/gallery/0,,20541338,00.html

(2) Crown, WH, et. al.  “The impact of treatment-resistant depression on healthcare utilization and costs. The Journal of Clinical Psychiatry

(3) Gabler, Neal.  “My Secret Shame.”  The Atlantic Monthly [may 22016: 52-63]

(4) The World Health Organization gives the health life expectancy for US citizens as 69 years, as compared to a current life expectancy of 78 years.

(5) http://www.cancer.gov/about-cancer/causes-prevention/risk/substances
http://www.cancer.org/cancer/cancercauses/

 

 

 

Retirement: the Fading Dream

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Most Americans today will never be able to afford to retire.  Period.  Retirement was a concept basically created in the 1950s, and a number of factors have come together to end the dream for the great majority of Americans.  The end of the dream in turn necessitates changes in how Americans live.  These changes will affect the economy and politics.  Arguably, they already are.

Here are some of the fundamentals:

  1. The average US household has $35,000 in funds at age 65.
  2. The average Social Security payment in 2016 is $1,341 per month.
    https://faq.ssa.gov/link/portal/34011/34019/Article/3736/What-is-the-average-monthly-benefit-for-a-retired-worker
  3. According to Fidelity Investments, the average couple will encounter $245,000 in out-of-pocket health care expenses after age 65.
    https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise
  4. The Fidelity estimate excludes long term care/nursing home costs.  According to Morningstar, we need to add 2.4 years of nursing home or long term care costs, at approximately $13,000 per month per person, to the Fidelity total.  Subtracting what Medicare covers of nursing home expenses, that’s roughly $347,000 per person.

Basically, the average person needs upwards of $800,000 in liquid assets to retire.  However, at age 65, the average American has $35,000 in savings.

It’s pretty easy to see that these numbers don’t work for most people.  And that doesn’t consider the 10% of seniors who are caring for a grandchild.

So, how can the average person cope?  

  • They can work.  However, that takes jobs away from younger workers.  Job creation in the US isn’t strong enough to support both an influx of new high school and college grads and oldsters returning to work.  However, in this competition, older workers are handicapped as large corporations don’t like to hire them.  Seniors will return to the labor market at a much lower rate of pay than they had previously.
  • They can die at an earlier age.  In the US, low income males are doing that today, having lost 4 years of life expectancy since 2000.
  • They can deplete assets and let state aid contribute to covering expenses.  However, that means living one’s last years in extreme poverty.  People with severe, terminal illnesses such as advanced cancer are often having to do this.
  • They can move in with children.  The incidence of multi-generational families is on the rise.  That will change the kind of home buyers will want.
  • They can move outside the US to where health care is much less costly.  Central America is the destination of choice for emigres.  The US government doesn’t publish statistics on citizens who live outside the country.  Current third party estimates range from 3 million to 9 million, excluding military and diplomatic personnel and their families.  All estimates agree that the number is increasing.

[NOTE TO POLITICIANS:  More Mexicans are now leaving the US than entering, counting both those with and without documentation.  Why is this a point of discussion this year?]

Several of these trends suggest that there may be another sell-off of single family homes in the future, with another round of declining home prices, underwater mortgages and foreclosures.  Boomers will need money for health expenses.

The growing volume of available senior labor may put a cap on wage increases, and increase deflationary pressure.

The fundamental problem is that today’s Americans reached adulthood with certain expectations about how their life would be.  Those expectations are being dashed, generating the anger that is playing out in the current election season.  The disappointment and anger is still in its early stages, and may get much worse.

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In this context, its rather amazing that so many people wanted to run for the Presidency this year.  The next four years are likely to be traumatic, and the next chief executive is likely to leave office after one term as a much hated individual.