Healthcare costs are strangling us

Recently, none other than the Sage of Omaha, Warren Buffet, has sounded the alarm on what he sees as the number one threat to American businesses—rising health care costs. His advice is that we better do something and do it quickly. While Congress bickers over how to repeal and replace Obamacare, there is still a large body of American politicians who believe we should simply return to the good old days. While they fiddle with adjusting insurer’s premiums, or gutting Medicaid, the entire healthcare system surrounding them continues to burn. While they debate whether you should be responsible for your own medical insurance and how much Medicare should cover, health care costs rise at the rate of hyperinflation. Our legislators and president are strangely silent on what happens to those whose employer does not provide health insurance because they can’t afford it; (which is the case for many in small businesses). And by the way, small businesses happen to be the main employer of American labor. They are also silent on what happens to those of us whose Medicare insurance premiums, plus uncovered medical expenses, become higher than their retirement income. Recent estimates put uncovered medical costs at $260,000 for these same retirees. Of course, there is always Medicaid for the impoverished among us. But even that program, if the House has its way, will be reduced by $1 trillion this year. The politicians are focusing on the symptoms and not the cause of our healthcare problems. Mr. Buffet, a Democrat, in his recent shareholder meeting, took time to address what he called the real problem for American business,...

Living together is not what it used to be

Times are changing. Over 12 million Americans now “live in sin,” as my parents would say, and their numbers are increasing every year. As long as they remain together, everything is copacetic, but what happens when they break up? Thanks to the economy, demographics, and life-style choices, young couples today are living together and having children despite their unmarried status. In my own family, my niece is pregnant, unmarried, and has no intentions of tying the knot. Although her partner is the love of her life, they have decided (for now) to keep it that way. And in today’s economy, there may be a lot of good reasons not to get married. Number one among them may be affordability. In my example, both parties are young and work in a drugstore, stocking shelves and clerking. They live with his mother because they can’t afford to get a place of their own. You might ask why in the world they have decided to bring a child into the world under these economic circumstances, but that’s none of my business and more and more young people see nothing wrong with it. It could be that like most unmarried couples they are going through what I call a “test-drive” period to feel more emotionally and financially secure before making a more permanent commitment. That happens all the time. However, there are other reasons why getting married is no longer the first choice. As earnings and education levels among men and women are flattening out, there is no longer a crying need by some women to get married just to make ends meet....

“Watch the gap please”

If you haven’t realized it by now, Medicare has a lot of “gaps” in its coverage. In order to close that gap, various private insurance companies offer plans that cover a lot of out-of-pocket costs—for a price. Bare-bones Medicare coverage can leave you with some steep medical bills. As we discussed in our last column, if you are admitted to the hospital, for example, your first bill will tally $1,216 or more, which is the deductible you pay just for being admitted. After that, you pay 20% of the fee for every doctor visit, lab test, MRI, X-Ray and on and on. Remember, too, that there is no yearly limit for what you may have to pay beyond your basic Medicare Part A and B coverage. Depending on which plan you choose, a Medigap plan will pay some or all of these expenses. Some plans will pay the coinsurance for hospital stays; others could pay for the coinsurance expense for outpatient care. Other plans pay for additional costs like Part A and B deductibles, coinsurance for nursing care, and even emergency care outside of the U.S. As you might expect, the most comprehensive plans have the highest monthly premiums, although once you pay that premium, your insurance company pays everything else. That means you pay nothing for that quarterly medical checkup, that emergency room visit, or admission to the hospital. Here in Massachusetts, you have a guaranteed right to buy any Medigap policy sold in your area, beginning on the first day of the month after turning the age of 65. You do have to be enrolled in Medicare...

When your broker doesn’t want you anymore

Across the nation, various financial institutions, affected by the new “fiduciary” rules issued by the Department of Labor, are making some tough decisions. Don’t be surprised if your broker informs you they can no longer manage your company’s 401 (K) or other defined contribution plan. This happened to one of our clients just this week. The couples, both self-employed, had used one of the nation’s largest brokers to house and manage their money purchase plans at their companies. A money purchase plan, for those who don’t know, is like a pension plan where employees make contributions based on a percentage of annual earnings. This is standard stuff along with profit-sharing plans, 401(k) s and the like. Corporations use these plans as fringe benefits to reward and encourage retirement savings for owners, managers and employees. All of the above are tax-deferred savings plans and as such fall under the Department of Labor’s new rule (starting in April of this year). The rule requires financial professionals who give advice on retirement accounts to act as fiduciaries for their clients. This means they must act in their client’s best interests ahead of their own financial gain and that of their company’s. They will be required to disclose their compensation and any conflicts of interests as well. In our case, since we are already fiduciaries, we were able to swiftly transfer both the husband and wife’s accounts (worth over $1 million each) to our care and expertise without skipping a beat. We expect that as more brokers and insurance companies come to grips with these new responsibilities toward their client base, we will...

The gym is counting on your New Year’s resolution

It’s that time of the year again when people like me; hate people like you. January is the month when all those good intentions to get healthy and fit translate into a 12% bump in health club memberships. If only all those Americans who join gyms this month would stick with it. Sadly for them (but not for me) all those goods intentions dissolve by the end of the first quarter. The health clubs of America get back to normal by March. Actually, 4% of new members won’t make it past the end of January and 14% drop out by the end of February. Well over half of new members will fade by the end of the quarter. The gym owners have no problem with that. They assume that only 18% of new members will hang in there and use the gym regularly. You see, the idea of fitness (as opposed to actually doing it), is extremely popular here in America. We all know that, regardless of our good intentions, the population of unhealthy and overweight Americans grows larger all the time. Over 70% of Americans are overweight, according to the latest statistics. That leaves the fitness industry with a practically inexhaustible pool of potential buyers of their services. Statistics for 2016 indicate that worldwide revenues in the health club industry grew to $81 billion. Over 151 million members visited nearly 187,000 clubs. As you might expect, the U.S. leads all markets in club count and represents about 55 million memberships. Brazil and Germany are our runner-ups.  But health club memberships are also strong in both the Middle East...

Annuities and the new fiduciary rule

  In April, 2017, the Department of Labor’s new rules go into effect. Essentially, the regulation will require the financial sector to act as a fiduciary when advising consumers on their retirement plans and accounts. For those who sell annuities, this will fundamentally change their industry. Let me first state that I am not a fan of annuities (whether fixed or variable), and have written several columns over the years warning investors away from these instruments. I have received a great deal of hate mail from the insurance industry as a result. So be it. I think they are expensive, illiquid, the sales materials misleading and not appropriate for most investors. The crux of the matter is that thanks to the DOL ruling, brokers (insurance or otherwise) will no longer be able to sell these investments to retirement plans and accounts based on suitability alone. Next year, in order to sell these products, a broker must prove that their purchase is in the client’s best interest. That is going to require a comprehensive client analysis similar to one that is usually performed by a financial planner. Issues such as whether a broker is giving “prudent” advice (as opposed to simply acceptable advice) will come into play as will loyalty to the client. Most consumers are not aware that the sale of annuities was not governed by Federal suitability rules. Instead, individual states regulated annuity products and what was suitable varied from state to state. Now a whole host of factors will need to be examined. Questions such as the desire of a client for income and how much and...