Monday, August 29, 2016

Critical Thinking and the EpiPen Controversy

Here is what we heard on the news lately:  Consumers are shocked at the price increase in EpiPens, the brand name of an epinephrine auto-injector used by those with severe allergies.  In some cases, this is a lifesaving medication that patients are advised to carry with them at all times.  In a more toned down version, the New York Times wellness blog states: “A steep increase in the price of the EpiPen, a lifesaving injection device for people with severe allergies, has sparked outrage among consumers and lawmakers.”

In the business of EpiPens, I am completely disinterested.  No one in my family or circle of friends is affected.  The report made me think, though,  about some healthcare-related issues that reach past the current controversy.

The first is the issue of news media objectivity.  Upon first hearing the wording of these reports – shocked and outraged – they made it sound like the price of the medication shot up overnight.  In reality the price increase, from around $100 to over $600, took place over about eight or nine years at an average compound rate of about 30%.  This is still highly unacceptable, but it did not come as a sudden blow.

Here are the facts according to Elsevier Clinical Solutions’ Gold Standard Drug Database.  A two-pen set had been selling for less than $100 until the pharmaceutical company, Mylan, acquired manufacturing rights in 2007.  By 2009 the wholesale price was up to $103.50 and four years later $264.50.  Last year it was $461, and it went up again to $608.61 this May.  I would think the backlash would have started far sooner than this, but most people are shielded from these incidents by their insurance and it takes a big increase to spark outrage.

Consider the whole insurance mess.  First not everyone pays the full price for a number of reasons.  The USA Today reported:  “The average wholesale price of EpiPen has increased by nearly 500% since 2009, while the price that insurers and employers pay to Mylan is up 150% since 2013, according to Rx Savings Solutions.”  The insurance companies and employers cut their own deals as we all know from looking at our own insurance explanation of benefits (EBO) forms.  There is a price charged and a price allowed by insurance.

The company’s response was to broaden their practice of offering coupons to those who can least afford it, raising the coupon value from $100 to $300 and doubling the income level for eligibility to 400% of the federal poverty level (or $97,200 for a family of four) "for patients in health plans who face higher out-of-pocket costs."  But so far they have refused to lower the price.  So as the New York Times reminds us:  “People without insurance or with high-deductible insurance plans” and those with higher income will still pay full price, around $640.

Meanwhile, a USA Today article cites Martin Shkreli “blaming insurers for not covering the tab.”  In case you don’t recall, he is the one who, while CEO of drug company Turing last year, raised the price of an antiparasitic drug by 5,556 percent in a single move.  He currently faces security fraud charges and is no longer in that position, so why anyone would interview him or trust his judgment is puzzling.

Finally, the USA also states: “There's no generic equivalent and no brand-name competitor.”  But Consumer Reports just a few days ago told a different story:  “to get the low-cost, EpiPen alternative, you can't use a prescription for ‘EpiPen’ from your doctor. That's because pharmacists at your drugstore likely won't be able to automatically substitute the low-cost version if your prescription is written for EpiPen. Instead, ask your doctor to write a prescription for an ‘epinephrine auto-injector’.”  They found this alternative available at WalMart for $142.

What do we make of this jumble of reports?  First, the news media loves to exaggerate, if not misrepresent, situations just to get us worked up.  They talk about shock and outrage, implying a replay of the Turing situation when this case has been developing over several years.  They tell us there is no competition when a little easy research turns up an alternative medication.

Second, you don’t fix healthcare costs by fiddling with insurance (or offering coupons).  The insurance system is broken.  It’s complicated and confusing.  They negotiate their own rates, but the full price remains the full price.  Customers are forced to play by their rules and restrictions, but full price survives and continues to rise at the whim of the providers.  When there is no competition, or the alternatives are unknown or “out of network”, customers have no choice and the system continues to protect the rule makers and the price setters.

We must begin to use critical thinking and calming perspective to question everything we hear from the media, to sort through the hype to get to the real issue.  Remember, they decide not only how to present the news, but what they determine to be news in the first place.  Both decisions have an underlying profit motive.

We must also question everything politicians tell us about a healthcare crisis and proposed solutions.  No amount of insurance manipulation or government bullying will get to the core issues, lack of competition and lack of free choices.  Fixing that situation is the only way to put downward pressure on prices.

Friday, August 26, 2016

Retirement Made Simple

Last time I pointed out that Social Security is not resting on as solid ground as retirees and people nearing retirement believe – or try to fool themselves into believing.  (Many younger folks are more realistic, expecting never to be lucky enough to see the benefits.)  Without government guarantees, what can you do to ensure a comfortable retirement?  The only alternative is personal savings.

Step one is to make sure your idea of a “comfortable” retirement is realistic.  Dreams of world travel may not be in the cards.  Unless you are already living within your means and have acquired significant savings, a realistic retirement will likely be no more than your current situation.  If you can’t live within your means today, the future will be no different and you will be working until you die.

To be realistic you must understand what you have coming in versus going out, but must also have strong perspective, the ability (and willingness) to distinguish between wants and needs.  The biggest drawback to preparing for a comfortable retirement is the pressure from friends, family and the media to spend for today without regard to your budget and savings plan.

Once you are skilled at living within your means, responsible use of credit cards is a good option.  Many people shun credit cards, but credit cards should be treated like a tool with several benefits enabling you to:  accurately track expenses, build credit history and get better fraud protection than debit cards or cash.  And if you pay it off in full each month, the card companies must give you the rewards and points even though you pay them no additional interest or late fees.

For the bigger purchases or emergencies, shop smarter.  Use the Internet to check competing prices and quality.  Being realistic again involves distinguishing between wants and needs.  One big foolish purchase can undermine years of careful spending.

Finally, set savings goals based on a long-term plan.  Project your needs forward. You may have fewer expenses in retirement but you may have more – remember about healthcare costs.  Then use financial planning tool, free on the Internet to help figure out how much income you'll need in retirement and convert that amount to set a target savings amount.

Convert the overall goal amount to a specific savings plan, so much per month or pay period. If you can do better, the balance can be allocated to another goal, like saving for college, and only after that spent on other luxuries you initially decided to pass up during the needs vs. wants exercise.

Finally, invest smartly and conservatively.  “Save for the short term and invest for the longer term." Bank accounts and money market funds are great for emergency savings but retirement is long term and you can’t borrow to finance it like you can for college and emergencies, so don't be concerned with the possibility of short term fluctuations.  Retirement accounts also offer tax advantages and may get additional help from an employer 401(k) match.

It takes a little arithmetic (critical thinking) and some perspective, but a few calculations and a few sacrifices now will be well worth it when you don’t find yourself in the group of seniors, struggling to survive, questioning what went wrong, regretting earlier decisions and blaming the system for giving them a bad deal.

(Thanks to Vanguard Insights for many of these savings ideas, but this is not an endorsement of any particular brand.)

Monday, August 22, 2016

One More Time: Social Security

Now that the election is in full swing, the subject of Social Security will surely come up.  Those who want to be elected will swear that they will “protect” the Social Security system, although they are usually vague about how this will be done and no major changes have been made to the system since 1983.  The motive is to persuade seniors that voting for them will somehow guarantee a continued flow of checks.

Another sure way to pull ahead in the polls will be to accuse their opponents of characterizing Social Security as a “Ponzi Scheme” or (truthfully) telling Americans that it stands on shaky ground.  Seniors don’t want to hear this and would prefer to keep their head in the sand by voting for the candidate who helps them deny reality.

The reality most Americans don’t want to face is that the system is based on taxes, not on contributions.  Two arguments dominate.  The first is that it’s “my money” that has been held in some mysterious trust fund.  The second is that it’s a right and not an entitlement.  The first is wrong.  The second is mostly wrong.

Social Security was built on a faulty assumption that there would always be enough workers to support all retirees.  Since then America had a post-war baby boom and a major increase in life expectancy.  More people are retiring and they are living longer and collecting longer.

Previously, everyone paid into the system by the FICA tax.  Some of this money was immediately paid out to retirees.  The rest went into a trust fund for the future.  But in 2016 all of the money coming in is immediately being paid out, and that is not enough.  Money must be taken from the trust fund to make up the difference.  A retiree is not collecting his contributions from some personal account; the money is coming from today’s workers.

Is it really a Ponzi scheme?  No.  A Ponzi scheme is defined as “a fraudulent investment operation where the organization pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources.”  Social Security is not a Ponzi scheme only because it is not fraudulent.  The government is upfront about the fact that older folks are paid by a direct transfer from the younger workers.  Otherwise it fits the definition.  Not enough profit/interest is earned to cover current obligations.  It is clearly not anyone’s invested money coming back to him or her.

Some then characterize it as an entitlement.  Is it an entitlement?  No, again.  As I explained in February 2013, an entitlement requires a legal obligation to pay a certain benefit at a given time, but the government states in one of their actuarial notes that it is not technically a liability because there is no such legal obligation.   Since no contractual or legal obligation exists for paying full scheduled benefits on time once the trust fund reserves are depleted, it doesn’t fit the definition of an entitlement.  (But I don’t think that’s the explanation most people hoped to hear.)

But what of the trust fund?  The results of my research in February of this year showed that the government also has its own definition of a Trust Fund with more flexibility than anyone would ordinarily expect. They can change the rules whenever they want to and have done so many times in the past (usually to retirees’ advantage, but that doesn’t mean it couldn’t go the other way).

Finally, this recent article tells how most retirees regret their decision about when to collect benefits.  The swing between early collection and waiting until age 70 is from 75% to 132%.  About a quarter wish they had waited longer.   How will they feel when the trust fund is depleted (estimated about 15 years from now) and the payout must be reduced to only the amount covered by current “contributions”? 

Not to worry – the politicians who have not had the courage to address the looming problem for the last 30 years will undoubtedly come up with a solution that keeps voters happy and drives the country further into debt.  That’s the way they “solve” problems in Washington, until they run out of money.

Friday, August 19, 2016

Blacken Your Teeth (to Whiten Them)?

Last time I gave an example of the desperation evident in people’s behavior to find some simple miracle to improve their health and wellbeing. All it takes is a celebrity endorsement, some anecdotal evidence on a TV doctor show, a news report about preliminary findings or a viral video and many people decide to adopt a new habit, product or procedure without any research.  The professionals are then forced to react with warnings and watch-outs to protect their patients from potential harm.

It happened again this month after a YouTube post by someone going by the name of Mama Natural became an instant success, reaching millions of viewers.  This was not about a miracle cure for your body, but for a miracle teeth-whitening solution.  Now, according to Fox News and others, dentists are “warning against using [this] DIY whitening trend that involves smearing a charcoal-derived black mixture on teeth” saying it “may lead to enamel deterioration and tooth erosion.”

Activated charcoal capsules are available in health food stores or on line.  The video recommends that you break open a capsule and mix the powder with water to achieve a pasty texture.  Then either brush it directly onto your teeth or instead just swish the powder around in your mouth.  Rinse after three to five minutes (some say up to ten minutes) and see the results.  Endorsements, testimonials and spokespersons say you will see whiter teeth almost immediately.

The theory is that activated charcoal absorbs impurities.  It has been used in air filters and in emergency rooms to treat poisonings and drug overdoses.  More recently activated charcoal has been adopted into beauty products, such as skin creams and facial masks, to supposedly produce benficial effects by absorbing impurities on the skin.  The next logical step is to use it to deep-clean teeth, remove the stains and get them sparkling white.

Not so fast!  The responsible articles point out that not enough evidence is available to tell if charcoal brushing is beneficial or dangerous.  The charcoal itself might be too abrasive.  Over time it might actually be removing enamel along with those stains.  When you lose enamel, not only do your teeth get sensitive, but the tooth enamel is lost.  Enamel can’t grow back as cut skin or broken bones do.  Once it’s gone, it’s gone.

While dentists are concerned, the natural websites are spreading the news.  This one gives instructions, promotes it as a "natural" way to whiten teeth and mentions only the messiness as a potential downside.  (The pictures accompanying some of these stories are really disgusting, so messiness is indeed a problem, though a minor one.)

But dentists have only themselves to blame.  Over the past 10 to 15 years I have noticed more radio, TV, direct mail and Internet advertising for dentists with most of them emphasizing the whiteness of your teeth over the health of your teeth.  Catch phrases like “show me your teeth,” “perfect smiles” and similar ones stress the superficial side of oral hygiene.  Most dentists offer tooth whitening as an extra service.  So why are they surprised? How can they really blame patients when a potentially less expensive way to get the same results comes on the market or over the Internet?  When you start appealing to appearances over the practical need to see a dentist regularly, it may work to bring in business in the short run but you will soon find yourself in a different competition.