Monday, February 25, 2013

How Big is Big?

As discussions of the budget and debt limit make the news, we hear about billions and trillions of dollars.  These numbers are so enormous that I can’t even picture them.

A million is big, but the Roman Empire, as big as it was, managed well with no Roman Numerals higher than 1000 (M).  Today, Americans dream of having a million dollars.  Everyone "wants to be a millionaire."  Based on the average income of about $50,000, it takes 20 years just to earn $1 million (before taxes).  At the rate of a dollar a minute, it would take almost 2 years (without sleeping) to spend it all.  A million miles is the distance an average automobile driver in the US travels in about 74 years.  To most of us, a million is a very big number.

A billion is one thousand million.  If you threw one billion one-dollar bills into a fire at a rate of one per second, you could keep it burning for 32 years.  A billion dollars represents the earnings for 500 of those average households over a lifetime.  A billion miles equals 2,093 trips to the moon and back.  These days we hear billions of dollars treated like pocket change.

A trillion is one thousand billion or a million million.  It's a huge number.  It’s hard to imagine any comparison that even makes sense.  A $17 trillion-dollar debt divided equally among all the citizens of the US comes out to $54,000 each, $216,000 for a family of four.  A child born today is instantly $54,000 in debt.  If you took a trillion one-dollar bills and glued them together at the edges, you could construct a quilt over 100 miles long and 40 miles wide.  It could cover the entire states of Delaware and Rhode Island, plus the District of Columbia with some left over.  A trillion seconds is more than 410 lifetimes, back to the time of the Neanderthals.  It takes all the drivers in the US working together about 7½ years to burn a trillion gallons of gasoline.

A trillion is an inconceivably huge number.  Even a billion is very large, yet in the coming weeks and months we will hear news reporters and politicians mentioning billions and trillions of dollars like they are commonly understood.  Doesn’t the fact that our government owes nearly $17 trillion that we and our children are responsible for deserve more than this ho-hum treatment?

Friday, February 22, 2013

How Much Was That Doctor Bill?

As I have pointed out many times before, the healthcare system in the US is broken.  You don’t fix a broken system by adding to it or making it bigger.  Basic relationships are flawed; control is in the wrong hands.  Costs will not be controlled until these relationships are fixed, but no one seems to want to do it.

Our relationship with the doctor/hospital is a care relationship, not an economic one.  Ask your doctor the cost of what she is doing or proposing and you will get a shrug.  My former doctor told me that he didn’t even want to talk about insurance or costs.  That was delegated to a clerk in the office.  Meanwhile companies and private insurance are promoting high-deductible plans to motivate patients to control costs, yet, as this NBC article from just last week points out, prices are highly variable from one provider to the next and often impossible to discover ahead of time.

They call us patients, not customers, because they don’t perceive us as customers. When the visit ends, they sends the bill(s), not to us, but to our insurance company – sometimes months later.  There the bills are processed and split between what we owe and what they will pay based on a (secret to us) contract between the company and the provider(s).  In case of an error or discrepancy, we are caught in the middle.  We may have to call a healthcare advocate to mediate the problem.  This entails signed releases to address privacy law issues, and resolution may take more months.  In the case of a complicated procedure, bills are submitted, processed and trickle back to your mailbox individually.  Half a year later you try to recall what took place and which charges are valid.  (I spoke to a friend recently who finally received the $75 bill for a vaccination received over two years ago!)

Without prior access to costs, there is no chance for us to control them.  Costs and contracts are kept private, limiting competition between providers to who has the latest equipment and techniques not who is most cost-effective.  With the kind of variability pointed out in the above article, hip replacements from $10,000 to $125,000, how do we, the insured, begin to deal with cost?

The system is broken:  unnecessarily complex and secretive.  Making it more available and inclusive will not make it better or drive costs down. 

Monday, February 18, 2013

The Blame Game

Responsibility problems inhibit much improvement in America.  When we look for someone else to blame for our problems, it takes us off the hook.  We don’t have to work on our own failings in perspective or discipline.  Citizens play the victim, adopting the view that their bad consequences are someone else’s fault.

The most obvious indicator of weakness in responsibility is the number and types of lawsuits that frequently appear in the news.  Not all are without merit, but many serve to demonstrate how easily people look to collect compensation when life is not fair or serves them up an unpleasant experience.  You can hardly turn on the television or radio without hearing ads for personal injury attorneys.  Billboards along the side of the road proudly display their names.  Not long ago these attorneys were derogatorily referred to as “ambulance chasers,” but lately, perhaps due to these ads and effective lobbying, their status has improved.  Still, in this survey, which was the most current and reputable I could find, less than 50% of Americans have a great deal or a fair amount of respect for the legal profession in general. 

Here are two recent examples that reflect why we feel this way and why responsibility is considered a key dimension for improving our country.

Over the past couple of weeks the crippled cruise ship in the Gulf of Mexico has gotten a lot of coverage.  In the end, besides the loss of reputation by the particular cruise line and the stigma now attached to cruises in general, they “promised to give refunds, offer passengers another trip and cover their transportation costs home.”  Within 24 hours of reaching shore, however, a woman seeking more retribution or compensation arranged to file a suit claiming that she “feared for her life or that she might suffer serious injury or illness because of the presence of raw sewage and spoiled food.”  Note that this is not even about a real injury or illness, just the fear of one.

The second instance in the past week or so was the decision in the $1.3 million lawsuit against Lehigh University over a C+ grade.  The woman lost the suit, but the first sentence of this NPR story provides telling insight.  “The latest person to sue a university over a ‘bad’ grade has failed to make her case.”  The implication is that suing over bad grades is a fairly common occurrence.

It certainly is puzzling to consider how often students would take legal action to shift the blame for a poor grade onto the teacher or how, with the unemployment as high as it is and some giving up even looking for work, that anyone who can afford to take time off for a cruise would lack the gratitude that comes from perspective.  This type of behavior, of which these are just two more examples, and those who encourage it for their own gain, should not be tolerated.  How many potentially productive resources are wasted when the fearful, offended, vengeful, indignant or otherwise upset decide they want compensation for their emotional distress and can pursue it with less risk than buying a lottery ticket?  How can we begin to get America on the right track unless behavior strong in responsibility begins to replace this attitude of victimhood and abdication of personal responsibility? 

Friday, February 15, 2013

Are We Acting or Reacting?

One week ago I wrote about Social Security, that it was not an entitlement with a guarantee attached.  Despite this lack of guarantee, many people have become overly dependent on Social Security for retirement.  Although seniors resent the idea of an entitlement because it implies accepting charity from a system they actually paid into, the prospect of losing any benefits causes panic.  I concluded that at least part of this over-dependency was related to behavioral failings.

The problem begins as a consequence of poor discipline.  In some cases living from paycheck to paycheck cannot be avoided.  But in others, overspending on wants after the needs are met, an unwillingness to delay gratification, leads to minimal retirement savings.  When they are ready to retire, their primary investment is a house, which is not easy to cash in.  Social Security is a supplement, not able to replace a paycheck, so their lifestyle must be drastically curtailed.

How often, though, do they get to within a few years of retirement before they become aware that a problem exists?  A lack of perspective has insulated them from the realities of the future.  Perspective instills a sense of gratitude, appreciation for what we have rather than longing for more.  It encourages moderation and provides the motivation for the discipline of frugality necessary to save for the long term.

Lack of perspective also warps expectations.  Not so long ago, less than 100 years, retirement was a rarity, enjoyed by only a few.  Most people worked until they died, or if they were incapable of work, they were taken care of by their families.  When Social Security was passed, the life expectancy was less than 65.  Now life expectancy is near 80, and we want to believe the AARP when they tell us that retirement is a right along with affordable healthcare, not something we must earn by saving for it.  Considering the overall cost, this is not realistic.

For lack of discipline and perspective Americans have lost the ability to provide for themselves in old age.  Expectations are skewed.  In this and in many other areas we are reacting, without a plan or focus.  When it looks like Social Security is in danger, we have no Plan B.

Years ago this would not have been such a problem.  Changes were slower, allowing more time to adjust.  The telephone, invented in the 1880′s, took over 40 years to become widespread in America.  The first televisions, in the 1920′s, took nearly 30 years to replace radios as the primary source of home entertainment.  Today we have gone from e-mails and instant messages to texting on our cellphones in only a few years.  The pace of change continues to accelerate.  If lack of perspective keeps us living for today and only reacting as crises appear, the danger of serious problems will only increase.  This applies not only to retirement, but to many other issues, both personal and societal.

Monday, February 11, 2013

The Real Diet Busters

Each year, Frances M. Berg, M.S. of the Healthy Weight Network presents to promoters of weight-loss products the "Slim Chance Awards" in four categories:  worst claim, worst product, worst gimmick and most outrageous.  I came across a list of those awards for past 24 years on the diet scam website.  That’s nearly 100 products or advice sold to people to help them lose weight that mostly just helped them lose money. 

How desperate do you have to be to believe some of this stuff?  Examples include miracle potions and cleansing products that guarantee healthy weight loss.  Use a plastic bracelet that gives off vibes to stimulate weight loss and good health (2011).  “FDA cited 69 weight loss ‘supplements’ containing hidden, potentially harmful drugs or toxic substances, most imported from China, and says there may be hundreds more” (2009).  Slimming Slippers supposedly use reflexology, magnets, and the laws of gravity to increase metabolism by activating nerves in your foot to control digestion and eating habits (2000).  They have promoted belts, patches, jeans, body wraps, and even ear staples (2006).  Scientifically speaking, this is pure hogwash.

Several of descriptions of the “award-winning” products and claims mention government action (Food and Drug Administration or Federal Trade Commission) or class action lawsuits that were in progress at the time to protect us from dangers, to reimburse defrauded customers or to stop false advertising.

Losing weight is a classic example of behavior requiring discipline.  The process is easy to understand, eat less and exercise more, but carrying through on that program is very difficult.  We are naturally drawn to promises of an easy way out.  Beyond all those products and gimmicks, Amazon lists 39,472 paperback books and 19,375 hardcover books on the subject.  These, sometimes dangerous, guarantees of instant success are the real diet busters because there is no silver bullet, no easy way out or magic solution.  Everyone knows this, but the temptation to deny it in favor of a miracle cure is often too great.

Friday, February 8, 2013

Is Social Security an Entitlement?

There are differing opinions as to whether or not Social Security should be considered an entitlement as is stated in this article and elsewhere.  People near retirement age or already collecting Social Security claim that it’s not an entitlement because they paid into the system and deserve their money back.

The issue is really two-fold:  the word entitlement has acquired a negative connotation, and the definition of an entitlement is not clearly understood.

Today we hear about people having a sense of entitlement meaning that they take things for granted, feel that the world owes them, and expect to get things even though they are only willing to do the absolute minimum.  The word conjures up images of spoiled children complaining that the world isn’t fair, whining for more snacks, toys or clothing, and expecting to be praised and rewarded for just showing up.  It’s no wonder seniors, who worked for it, are offended at the thought of Social Security being an entitlement.

Technically, though, is Social Security an entitlement?  I found this rather long definition.   An entitlement is a “government program that provides individuals with personal financial benefits (or sometimes special government-provided goods or services) to which an indefinite (but usually rather large) number of potential beneficiaries have a legal right (enforceable in court, if necessary) whenever they meet eligibility conditions that are specified by the standing law that authorizes the program.”  The site goes on to classify it as an entitlement program, but Social Security does not fit this definition.

Although, an individual may be able to demand the same benefits paid to others in the same status, the group has no legal recourse.  Congress can change the program unilaterally, as they have done at least 17 times in the past.  The most significant change was a 20% increase plus annual cost-of-living adjustments in 1972.  They could, however, as easily reduce or eliminate it altogether.  The 2012 Actuarial Note explains their use of the term unfunded obligation as follows:  “We use the term obligation in lieu of the term liability because liability generally indicates a contractual or legal obligation. No contractual or legal obligation exists for paying full scheduled benefits on time once the trust fund reserves are depleted.” With no guarantee it can’t be an entitlement. 

Does this really matter?  The estimated unfunded obligation referred to above is $21 trillion, an unbelievable sum!  Sure we all paid in, but technically we paid a payroll tax or a FICA tax, not a contribution to a personal account.  Part of that payment went to current retirees.  The rest was saved in what politicians told us was a trust fund or lock  box – but how do you invest such large amounts?  It can’t be put into the stock market, corporate bonds or a bank account like a university endowment.  That would be too risky and inappropriate.  The only reasonable investment would be government bonds, and government bonds are the source of borrowed funds when the government runs a deficit.  So the trust fund is really IOUs from the government to itself.  Short of declaring bankruptcy, the government must pay back the borrowed money; but when the IOUs run out and the system is no longer able to pay out the promised benefits, they are required to pay out only what they take in.  The fact that we contributed all those years is meaningless.

I am now collecting Social Security retirement and hoping it will continue.  Because I knew it was risky and unwise to trust my retirement entirely to the government, I also invested in IRAs and 401(k)s.  I encouraged others to do the same.  Although it meant spending less at the time, it also helped me develop a more frugal lifestyle, which now costs less to maintain.  (Isn't it interesting the way that works out?)  Unfortunately, these facts were not made clear to many, and “Social Security is currently estimated to keep roughly 40 percent of all Americans age 65 or older out of poverty.”  Even if it's not technically an entitlement, far too many people are and will become almost totally dependent on it.  In some cases today's dependence is the consequence of earlier behavior.