Category Archives: Retirement Planning

Ideas to help preserve and grow your money

Rioting In The Streets Of Gainesville?

retirement_roadMy Comments: The blog post title above comes from me; the one that actually accompanied the article is Public Pensions Face New Challenges As We Live Longer. Huh?

As a financial planner, I try to make people aware of the existential threats we face as we all grow older. These threats are things that “might” happen, may not happen, but if they do can be devastating to individuals and families. If you are already dead, you can skip this blog post, but if not, then…

No one seems upset that modern medicine has resulted in more of us living longer lives than could have been expected when we were born. Along the way, many of us worked for organizations such as the State of Florida or somewhere in corporate America. Or maybe the City of Gainesville or the Sherrif’s Department. We participated in a pension plan that promised benefits based on our years of service and sometimes our level of pay.

The promise typically included a schedule of monthly payments for either our lifetime, a number of years, and might have included a contingency benefit to our spouse. All well and good. But the calculations to make those promises did not take into account the fact that our lives now end much later than they did in years past.

The net effect of this is a shrinking of the pool of money available to make those payments. I’m not talking about Social Security here, where there is an obvious parallel, but the pensions paid to the millions of Americans who toiled for years at large companies like General Motors and the hundreds of thousands of smaller places.

Non-public pension plans are grossly underfunded across this nation. Part of that is the very low interest rates that ‘safe’ investments earn and have earned for the past decade. And pension funds are required to invest their pools of money in ‘safe’ investments. Revenue is going to have to come from somewhere or there is likely to be rioting in the streets.

My personal opinion, having watched this growing problem for a number of years, is that the author is somewhat blind to the problem and suggesting there is no reason for alarm. Tell that to the elderly couple whose pension check from a local plumbers union somewhere in Ohio just got cut in half.

There are millions of people across these 50 states with situations like this and to pretend they don’t exist is a potential violation of the social contract all of us have as citizens of these United States. Unfortunately, too many of them rely on Fox News to help them interpret what is going on.

April 10, 2015  by Marlene Y. Satter

Certain mortality projections would increase life expectancy by 2.3 years and reduce the funded ratio of the nation’s public pension plans to 67 percent.

That’s according to a just-out brief from the Center for State and Local Government Excellence, “How Will Longer Lifespans Affect State and Local Pension Funding?” which concludes that, while the impact of longer lives is not exactly a positive for funds, there’s no imminent threat to pension funding levels.

It explores what public plan liabilities and funded ratios would look like under two alternative scenarios:

1. If public plans were required to use the new mortality tables designed for private sector plans; and

2. if public plans were required to go one step further and fully incorporate expected future mortality improvements.

The brief’s key findings include:
• Using the private-sector standard, public plans underestimate life expectancy by only 0.5 years, reducing the 2013 funded status of state and local plans from 73 percent to 72 percent.
• Incorporating future mortality improvements would increase life expectancy by 2.3 years and reduce the funded ratio of public plans from 73 percent to 67 percent.
Plans’ liabilities are affected, of course, by the longevity of their members, and the brief explores the degree to which liabilities are affected, calculating that “state and local pension plans would see their liabilities increase by 3.5 percent for each additional year of life expectancy.”

When the differences among longevity tables are factored in, it becomes clear that some plans, because of the way they calculate life expectancy, will be more greatly affected by a change from one table to another, while other plans will not see such drastic effects.

The public sector, the brief said, is going to great efforts to make sure its life expectancy assumptions are up to date. Reassuringly, the brief said, “The question underlying this analysis is whether outdated mortality assumptions are a serious problem among state and local plans. The answer appears to be ‘no.’

Dear Future Me: Please Listen!

crow+wheelMy Comments: There’s a pharase about not letting the closing door hit you on the ass as you leave the room. It’s also a metaphor for life.

April 6, 2015 By Bob Seawright

Bob Dylan hit on a universal truth when he sang about his son and the attraction of remaining young.
May your hands always be busy
May your feet always be swift
May you have a strong foundation
When the winds of changes shift
May your heart always be joyful
May your song always be sung
May you stay forever young

Dylan’s voice was best described, famously by Joyce Carol Oates, as if sandpaper could sing, but he was, according to Time magazine, “the guiding spirit of the counterculture” and the voice of his generation. Today that generation—my generation, the baby boomers, including Dylan—isn’t young anymore. And none of us is going to defeat Father Time. As Dylan’s friend John Mellencamp sang in “Life is Short Even on Its Longest Days,” “one day you get sick and you don’t get better.”

Those of us lucky enough to live so long will see our bodies and minds slip and in many cases slip badly. Studies confirm what most of us have seen among our families and friends, even if we’ll never admit it about ourselves. The ability to make effective decisions declines with age. Thus those age 60 and up unnecessarily lose nearly $3 billion to fraud annually. To put it starkly, the research shows that financial literacy declines by about 2% each year roughly after age 60.

Despite that decline, our self-confidence in our financial abilities remains undiminished (and may even increase) as we age. I’ve seen it personally (and tragically). The aged and infirm drive too long, buy too many needless things from the unscrupulous, and simply aren’t as good at making decisions as they once were.

As cognitive impairment increases, the aging remain certain that they’re really OK and become belligerent when anyone suggests otherwise. We all like to think we’re highly competent and desperately want to maintain our independence. Trying gently to let aging loved ones know that they need help can readily turn into an ugly confrontation.

In 1999, David Dunning and Justin Kruger published a paper that documented how, in many areas of life, incompetent people do not—cannot!—recognize just how incompetent they are, a phenomenon that has come to be known as the Dunning-Kruger effect. Subsequent testing has shown that people who don’t know much tend to grossly overestimate their prowess and performance in a wide variety of areas, including logical reasoning and financial knowledge. Aging makes that tendency even worse. Thus, for example, elderly people applying for a renewed driver’s license overestimate their driving competence by a lot.

This seemingly inevitable conflict between the aging and those who love them about the extent and nature of the mental decline and what should be done about it plays out horribly every day among families of every sort. New Orleans Saints and Pelicans owner Tom Benson, who is 87, was recently ordered to undergo a mental evaluation by three different doctors despite his strenuous objections, to decide if he remains competent to control his businesses and to make decisions in litigation brought by his daughter and grandchildren.

Not surprisingly, the dispute centers upon a much younger new wife and Benson’s decision to fire his daughter and grandchildren from their long-held positions with his companies, cut off contact with them and disinherit them (to an extent). The results of the examination are to remain secret (appropriately) and we cannot know how true the various allegations are. But this sort of fight is all too common.

Benson maintains that he is still sharp and in control. He may well be. His children and grandchildren say that he’s not what he once was and is under the sway of a much younger wife who is not their mother and grandmother. They may be right. They may all be right to an extent. The one certainty is that it is a major mess—an ugly and expensive mess that we’d all like to avoid.

Note to Self

So I’ve spent a good deal of time thinking about what I might do to limit the chances that I will fall prey to this dreadful decline scenario. Since I am fortunate enough to have the opportunity to write this column, I’m writing this particular column with a very specific purpose. In effect, I want this column to serve as a letter to my future self. Since I’m blessed with children who are smart, honorable and financially literate, this is a reminder to my future self simply to listen to them and to keep listening to them when they tell me I need some help.

By way of this column I’m asking them—begging them—to show me this column if I resist them in any way. Since psychologist Hal Ersner-Hershfield has found that those who most identify with their future selves do a better job planning for the future, this exercise should help even if I (wrongly) ignore this column and my children’s advice in the future. But, more than that, I’m hoping and praying that this column—put in front of my face and read aloud if necessary—will be enough to convince my future self to listen to the people who love me when they (I hope gently) let me know that I could use more help than I’m allowing.

So Bob, when the kids tell you to stop driving, give them the keys. When they tell you to run major decisions past them, set up a system that enforces your cooperation (requiring a co-signer on checks for example). When they tell you to consider whether you ought to keep living without help, look into getting care or moving to an assisted living facility (and take their advice as to which option is best). When they—horror of horrors—offer financial advice, take it. You have three fantastic kids who have made you proud every day of their lives. Trust them to watch out for you and to love you, even when you don’t like it.

Matt Sly and Jay Patrikios created FutureMe.org in order to store and deliver self-addressed emails on whatever far-off date the emailer chooses. The book “Dear Future Me” includes some especially compelling ones. For example, an Alzheimer’s patient emails his future self regularly in order to try to maintain some sense of continuity. A common theme is the presumption that our future selves will have more courage and more willpower, that we’ll be better and smarter. As if.

But every reader can write a letter like this to his or her loved ones and guardians to show to their future selves. I encourage you to send a copy to FutureMe.org too. When the time comes, odds are we’ll reject the help we need when we need it most. We need to do what we can to prevent that from happening. Maybe this column or a letter to our future selves will help.

Dear future me, as much as it may pain you, listen to your kids and the people who love you. Please.

The Monetary Illusion

Global Nominal GDP Growth, as Measured in Dollars, Is Projected to Decline

global-growthMy Comments: It has been argued that Wall Street is corrupt and greedy and doing its best to create further income inequality in this country and across the globe. And that as a result, we should hold Wall Street accountable, send people to jail and reform the system. It’s suggested that only the Democrats can do this if they control Congress and the White House. I’m a liberal, and it’s not that simple.

Wall Street is playing the cards it has been dealt. I’ll agree they have done their level best to get good hands, but the responsibility for this falls on us as voters. If you want a more level playing field, you cannot avoid the voting booth. They say ignorance is bliss, but ignorance in this case will also be painful.

Until recently, during my 50 years as a marginally productive citizen in these United States, I’ve enjoyed an increasing standard of living. I feel that standard is now eroding, and by the time I’ve died, the prospects for my children and grandchildren will be less promising than were my prospects when I was their age. I’ll do my best for them, but I’m running out of time.

March 27, 2015 by Scott Minerd, Guggenheim Partners

The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

A version of this article first appeared in the Financial Times.

As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal U.S. dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.

In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policymakers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency.

With politicians lacking the willingness or ability to implement labor and tax reforms, monetary policy has perversely morphed into a new orthodoxy where even central bankers admittedly view it as their job to use their balance sheets as a tool to implement fiscal policy.

One argument is that if central banks were not created to execute fiscal policy, then why require them to maintain any capital at all? Capital is that which is held in reserve to absorb losses. If losses are to be anticipated, then a reasonable inference is that a certain expectation of risk must exist. Therefore, central banks must be expected to take on some risk for policy purposes, which implies a function beyond the creation of a monetary base to maintain price stability.

Global Nominal GDP Growth, as Measured in Dollars, Is Projected to Decline
With a surging U.S. dollar and growth remaining sluggish in much of the world, Bank of America Merrill Lynch forecasts that world output measured in dollars could fall in 2015 for the first time since the financial crisis. Over the past 34 years, this has happened just five times.

What kinds of risk are appropriate for a central bank? Well, the maintenance of a nation’s banking system would plainly be in scope, given the central bank’s role as lender of last resort. The defense of the currency as a store of value and medium of exchange is another appropriate risk. This was the apparent motivation of Mario Draghi, European Central Bank president, for his famous promise to defend the euro at all costs in the summer of 2012. The central bank balance sheet has proven a flexible tool limited in use only by the creativity of central bankers themselves.

In response to those who argue against the metamorphosis of monetary policy into fiscal policy, one need only point toward the impact of quantitative easing (QE) on interest rates. The depressed returns available on fixed-income securities, largely as a result of QE, are acting as a tax on investors, including individual savers, pension funds, and insurance companies.

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.

The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as highyield debt and global equities should continue to perform strongly.

Life Insurance and Retirement

rolling-diceMy Comments: This is not an easy idea to talk about. The article came from someone critical of Dave Ramsey and Suze Orman, who argue that premiums for life insurance in retirement are an extravagance.

Some of the assumptions made by the author can be questioned, but the overall theme is essentially correct. Personally, I’ve made a similar choice, as there is absolutely no way I can replicate the benefits to my wife and/or children, regardless of when I die. That’s assuming I die first, which is not a given. But it provides me with huge peace of mind, and the certain knowledge setting aside money today will contribute to the financial freedom of those I leave behind.

by Tom Martin on March 6, 2015

Dave Ramsey, Suze Orman and scores of other financial pundits in the media scorn the idea of having life insurance in retirement. Their rationale seems to make sense on the surface: Life insurance is designed to replace your earnings when you die. Once you retire (and have no earnings) you are living off your investments. When you die, your investments don’t die with you, so what is the purpose of using valuable funds to pay for unneeded coverage?

Life insurance clearly plays an important role for very wealthy clients to efficiently transfer their estate, but are the media pundits correct when they advise that the average family to dump their coverage in retirement? Probably not.

Let’s consider the following statistics:
• The average American approaching retirement has retirement assets to replace only 10 percent of his/her pre-retirement earnings.
• 55 percent of Americans over age 65 rely on Social Security to provide more than half of their income.
• The maximum monthly Social Security retirement benefit for a person reaching full retirement age in 2015 is $2,642.

These statistics clearly show that Social Security is a vital source of retirement income. When we view our Social Security benefits statements, we tend to discount the importance of this benefit, as benefits are expressed in “today’s dollars.” In reality, our actual benefits will be much larger due to inflation. By contrast, when we consider how much savings we will have at retirement, we often fail to consider that the values of those dollars will be similarly reduced due to inflation. Consider the following example.

John and Jane Doe, age 50 and 45 respectively, plan on working to John’s full retirement age of 67. John is making $150,000 per year and Mary earns $70,000 per year. John and Jane both contribute to a 401(k) plan and, based on their investment assumptions, they figure that they will have $1,000,000 in retirement funds by the time John reaches age 67. Assuming a 5 percent withdrawal rate, they will be able to withdraw about $50,000 per year.

John receives his Social Security statement and sees that his retirement benefit will be the maximum, which is $2,642 in today’s dollars. Jane’s benefit is projected to be $1,450 if she claims at age 62 (same year John retires). John and Jane incorrectly assume that Social Security will provide about half of their retirement income, which is $49,000 from Social Security and $50,000 from retirement accounts.

In reality, both will receive much larger Social Security checks, since these amounts will be indexed for inflation. If we assume 3 percent inflation, John’s actual benefit will be about $77,000 per year and Jane’s will be about $40,000 per year. In comparison, assuming a 5 percent withdrawal rate on their retirement assets, they will have $50,000 income from the retirement funds. In reality, despite a respectable retirement account balance, Social Security will actually provide about 70 percent of their income.

Since Social Security benefits continue to increase with inflation, by the time John is age 80, his Social Security benefit will have risen to $113,000, at which point Jane’s benefit will be about $59,000.

Let’s assume that John dies at age 80 and Jane lives to age 85. At John’s death, Jane will assume John’s benefit and lose her own benefit. The total Social Security benefit will drop by $59,000 per year. Since Jane will spend 10 years as a widow, this loss amounts to $590,000!

What’s more, consider if John dies at age 75 and Jane lives to age 90. John’s death would cost Jane well over $1,000,000 in lost Social Security benefits.

Even though they have a sizable retirement account, it only represents about 30 percent of their income. Such a substantial reduction in Social Security benefits is likely to cause a substantial reduction in Jane’s lifestyle.

The financial pundits would be quick to recommend that John purchases a term policy today to cover his “temporary” insurance need. They figure that once John retires, he has no earnings to protect. In reality, his death after retirement will cause a substantial reduction in household income. John should consider some form of permanent insurance for at least part of his insurance portfolio now in order to mitigate the eventual loss of the Social Security benefit. If Jane predeceases John, John would lose Jane’s benefit. Even if the permanent insurance was just on John’s life, he could still utilize his policy to replace the benefit he lost on Jane. He could use the policy to provide a tax-free income stream through withdrawals and loans. He could cash the policy in, replace it with an annuity, or even sell the policy as a life settlement. Either way, a permanent policy on John could create a useful cushion regardless of who dies first.

In summary, life insurance can play a critical role in helping couples meet their retirement goals, whether it is through utilization of the policy’s cash value or in having the death benefit replace the lost Social Security benefit.

Why Invest in Real Estate?

home mortgageMy Comments: This is a topic about which I know relatively little. But it’s real, people do make money, sometimes lots of it, and over the few years since the crash that started in 2008, some folks have made tons of money.

The dramatic opportunities are probably behind us for a while as after several years, life tends to move on. But I have clients who would like to allocate some of their money to real estate. This is a helpful introduction if this is you.

By John Miller, posted in Real Estate on 02/28/2015

Real estate is one of the most stable and wisest investments you can make for your personal finances. Unlike bonds and other non-material investments, land and homes are material products that don’t go away.

In fact, real estate values remain quite high, and their rates improve with time. Many people have become millionaires because of real estate investments.

It takes a lot of money and capital to start out in real estate. People with big real property investments usually start out with the profits they get from their own businesses, from the gains they get from the stock market, or from other sources of income.

Some people think that real estate investments are an easy way to make money. Some think that one can just sit back, relax, and watch the profits grow. On the contrary, real estate requires a lot of dedication, hard work, and patience. Real estate investments do not grow overnight; you need a lot of skill and dedication to make earn profits from a real estate investment.

Where to Get Real Estate Deals
Any property for sale that has land in it has a great potential to be a serious money maker. If you’re only starting out to invest in real estate, you would do well to consult with an experienced real estate broker or investor who can guide you through your first land purchases.

Books, magazines, and other print resources can help you greatly just in case you don’t know what you’re doing with your real estate investment. Like any investment, you shouldn’t put your hard-earned money on land that will not rake in good profits.

Keys to Success
The trick to making the most of real estate is to buy the best land at exactly the right place at exactly the right time. Remember that real estate purchases are relatively permanent. You should also consider how much you’re willing to spend. Land costs millions, and you don’t want to end up with a piece of real estate that doesn’t pay for itself very well.

5 Annuity Questions With Rational Answers

Piggy Bank 1My Comments: Every year, many BILLIONs of dollars flow from the pockets of Americans into a financial contract called an “annuity”. Originally, the idea was to give an insurance company some of your money, and they would agree to send it back to you, with interest, over time.

Over the years, the sophistication of these contracts has grown exponentially and they come in more flavors than seems possible. The latest have features that appeal to many of us who are increasingly older, fully understand the temporary nature of life, and are unwilling to simply curl up in a ball and hope for the best.

They are not always cheap, ie the internal costs can be serious, but we both know that most good things in life are not cheap. But you have to either know how to evaluate what you are paying for or find someone you trust to help you. The fact that so much money is flowing into them suggests there is are rational reasons to use them. (I’ve edited this slightly since it was written for advisors and not the general public.)

Jan 21, 2015 | By Chris Bartolotta

It’s no secret that there are a lot of misconceptions out there about annuity products. You make it clear that you’ve got some preconceived (and often incorrect) assumptions when you ask the following questions.

1. Aren’t fixed annuities bad for clients?

Let’s get this one out of the way first. Even setting aside the fact that there are numerous different types of annuities, and hundreds of products of each type, there is no such thing as a category of financial products that is inherently “bad.”

That’s not to say that annuities are right for everyone; that would be equally absurd. As with most things in life, the answer lies somewhere in between. What is good or bad for a client depends heavily upon their individual circumstances. The ideal client for a fixed annuity is typically at or near retirement age, has $100k or more in liquid assets, and has a low risk tolerance. Even within that subset of the population, though, there are myriad options available. Should they look at a SPIA? A DIA? An indexed annuity? Should they buy an income rider or not?

Saying that all annuities are bad is like saying all cars are bad. If you have a one-mile commute to work and don’t travel much, you probably shouldn’t be driving an SUV. If you’re a contractor who regularly hauls heavy equipment on the job, a coupe isn’t going to work well for you. The same principle holds true for annuities, or any other financial tool.

2. What’s the interest rate on this SPIA?
Somewhere, an actuary is reading this section header and laughing. Asking about the interest rate on a SPIA points to a fundamental misunderstanding of what a SPIA is and what it’s supposed to do, which makes it all the more unnerving to the annuity-savvy advisor that this question gets asked all the time.

A SPIA, shorthand for Single Premium Immediate Annuity, is what most people think of when they hear the word “annuity.” If you need to explain it in one sentence, it’s an exchange of a lump sum of cash for a stream of payments over a certain period of time, typically the client’s lifetime.

Since an insurance carrier doesn’t know the exact day you’re going to die, it would be extremely difficult — not to mention downright irresponsible — for them to try to price it for maximum earnings over the agreed-upon time period. It’s true that a carrier will sometimes try to be consistently the best in a certain client sweet spot — females aged 64 to 69, for example — but if you’re using SPIAs to try to earn tons of money, you’re not using them correctly. They should be used to cover known, fixed expenses. Accumulation of interest is best left to a deferred annuity or to investments.

3. How can I get a hybrid annuity?
The answer to this one is very easy. You can’t.

The term “hybrid” often gets thrown around by websites purporting to be about consumer advocacy, which typically tout market upside without any downside risk. While this technically does describe certain aspects of a fixed-indexed annuity, these are not “hybrid” products in any sense of the word. They are a well-defined class of annuities that are distinguished by certain features, just like any other product.

The theory these sources will claim is that, because the product is tied to a market index but protects against loss, you have a combination of the best parts of a fixed and a variable product. The reality is that while it’s true that a market index is used to determine gains in a given year, at no point is your money actually being invested into the stocks (or commodities, in some cases) in that index. They also often paint a rosy picture where the client can catch all of the booms in the market without suffering any of the busts. In reality, because it is still a fixed product, it can do better than a traditional fixed rate, but single-digit interest is still going to be the norm. This actually leads nicely into the next question you should immediately eliminate from your annuity lexicon …

4. How much should I invest in a fixed annuity?

Another easy answer here. Nothing.

That isn’t to say your clients shouldn’t buy annuities. It’s likely that some of them absolutely should. The issue here lies with thinking of fixed annuities as an investment, when in fact they are an insurance product. After all, you need a life license to sell them, not a securities license.

When your clients think of their fixed annuity as an investment, this creates the probability that they will begin comparing it to an actual investment, in which case the interest earned will start to look poor in a hurry. It behooves you to remind them that they are purchasing this product for guarantees, not to get rich. To put it another way, explain to them that fixed annuities are the mirror image of life insurance. Their life policy insures against the financial consequences of an early death; their annuity insures against the financial consequences of a long life.

5. Aren’t annuities expensive?
No trick question this time. The answer to this one is: It depends.

Annuities are often decried as being a poor choice due to the high fees involved. A base fixed annuity contract with no riders included, however, will have no fees at all.

Now, it’s true that a fixed annuity can have fees. Most indexed annuities and a handful of traditional fixed contracts have the option to add an income rider, and the vast majority of those carry an annual fee. It’s usually slightly under one percent, though some are more expensive, and some less or even free. Other types of riders, such as an enhanced death benefit option, may also be available and carry their own fees. It’s up to the agent or advisor to ensure the consumer knows what they are so they can decide if they’re worth the cost.

Medical Identity Theft Rising Fast

rolling-diceMy Comments: If ever there was a 21st century crime, this is it. We’ve all read about what happened to Target Stores and others where customer information was stolen. What we don’t often think about in this context are our own medical records, scattered across the health care landscape which we inhabit.

I’ve been aware of it’s significance since becoming aligned with a firm in Duval County called Caduceus Consulting. They’ve developed a professional liability policy that provides legal help for any physician or dentist exposed to a cyber threat. You can find an overview of it here:

The threat is real, and it can be expensive to remedy. Even if you only suspect a breach, EVERY possible patient whose name and records are in your records must be notified and advised. For the owners of a medical practice, to which law firm do you turn for help? Who has the technical undestanding and skills to help make the problem go away? Can you make it go away? How many thousands of dollars will it cost?

To the extent you are a physician or dentist in Florida, I have a very low cost solution to mitigate this threat to your future financial security.

Feb 25, 2015 | By Dan Cook

Medical identify theft increased by nearly 22 percent in 2014 compared to 2013. And this tough-to-contain realm of fraud will likely continue to grow due to conditions that have created fertile ground for this particular crime.

That’s one major takeaway from the fifth annual study of medical identity fraud released by the Ponemon Institute and the Medical Identity Theft Alliance, nonprofits dedicated to investigating the causes and ramifications of medical identify theft and finding ways to counter its spread.

The report does not take into account the Anthem hack, in which as many as 80 million consumers had their personal data stolen.

“Medical identity theft is costly and complex to resolve,” the groups’ study concludes. The study attempts to estimate that cost and outlines the reasons for its stubborn persistence.

Among the major outcomes of this study:
• Health care providers are not doing enough to secure patients’ medical records;
• Health care providers don’t respond in a consistent or timely manner when fraud is suspected or has occurred;
• Medical identify theft victims frequently don’t learn that their ID has been stolen until three months following the theft;
• Once they find out, it often takes months — and an average of 200 hours — to resolve a case;
• The cost to resolve the average incident is $13,500, a cost often paid by the victim;
• Many victims either don’t know who to report theft to, or are afraid to report it for a variety of reasons;
• Many victims report their identify was stolen by someone they knew, most likely a relative;
• Consumers and health care organizations believe the Patient Protection and Affordable Care Act has made medical identify theft more common due to insecure insurance websites;
• Theft generally occurs to access medical services and products, not to steal a patient’s identity for more general purposes.

The study’s authors said that, while such theft can’t be prevented, there are steps that can be taken to reduce its spread. They include:
• Monitoring of credit reports and billing statements for evidence of theft;
• Check in periodically with the primary care physician to ensure accuracy of medical records;
• When a consumer suspects identity theft, one should contact a professional identity protection provider for follow-up;
• Education of insured individuals about the risks of sharing medical identity information even with close relatives;
• Health care and other organizations that are responsible for securing patient information should have systems in place to authenticate all patients seeking services.

The full study, which is chock-a-block with details about this growing threat, can be found here