Tag Archives: financial advisor

An Affordable Care Act Idea

healthcare reformMy Comments: Based on my background in economics, finance and a professional interest in health insurance, on balance I have strong, positive feelings about the Affordable Care Act. Here is one reason why.

Our culture has evolved to where instant gratification is in high demand, to where there is an assumption that any solution more sophisticated than the last one is by definition a better solution, and a real concern that more and more regulation is not helpful.

Health care costs and best outcomes have been going in opposite directions for many years. As a professional observer, the trend lines had to be reversed. I had, and have, no hope that they will be reversed if the landscape is left to corporate America in the form of drug manufacturers, the hospital industry and/or the insurance industry. Their bottom line trumps what is in our best interest as a society.

Buried in the Affordable Care Act was a strategy to improve the financial outcomes for physicians working in the primary care arena. In the near term, some of it may come at the expense of specialists. Over time, if there is financial pressure on specialists and a corresponding financial incentive for primary care docs, then we will slowly move toward preventive care and away from trying to keep people alive at any cost. This long article by THirt, an MD practicing in Ohio, explains some of this.

THirt – Oct 27, 2013

Most people are aware of the main provisions of the ACA: elimination of pre-existing conditions, kids allowed to be on their parents’ insurance until age 26, coverage without cost for preventative healthcare, expansion of Medicaid for states willing to accept billions of dollars from the federal government, and of course, http://www.healthcare.gov and its insurance exchanges.

However, there is a smaller part of the ACA that has potentially far-reaching effects on all of primary care, and I’ve hardly heard a thing about it in the media. It is helping primary care physicians transform how we deliver care to our population of patients and it is actually kind of exciting.

Read on if you’re interested in hearing a little more about the Comprehensive Primary Care initiative that just might save lives, provide better care, increase satisfaction for patients, doctors and their staffs, and might also, gasp, save a bunch of money.

For a brief piece of background, I am a family practice physician in a multi-specialty group of about 60 doctors, mostly primary care.

I think most people would agree that the American healthcare system has a lot of flaws. One of the biggest flaws is our fee-for-service system in general. It doesn’t make any sense, but I get paid the same to see someone for an ear infection as I do to see someone with high blood pressure, high cholesterol, and diabetes.

Someone comes for an appointment, and based on the level of detail I obtain in the history, the level of detail needed in physical examination, and the complexity of medical decision-making, that determines the fee for the visit. So as you can imagine, an ear infection or sore throat requires a LOT less work than managing three or more chronic problems, and the medications, labs, monitoring tests, etc. that go along with them. But again, you are paid the same to see the ear infection patient as you are to see the person with uncontrolled diabetes, high BP, and high cholesterol.

On the surface, that makes no sense at all, but the thinking is that it probably costs too much for the ear infection, too little for the diabetes/BP/cholesterol patient, but it all evens out in the long run. The rules for ‘coding’ a level of service for an appointment govern the fees, and they are relatively simple, as otherwise it would just be too complicated to have a different fee structure for every diagnosis. Anyway, the idea is that it all comes out in the wash. That might be true in a simple world, but of course we live in a complex world with a lot of moving parts.

As you can see, the fee-for-service environment does not really incentivize physicians to focus their efforts on chronic disease management. I’m not implying that physicians are not trying to do a good job or are just in it to make as much money as possible, but let’s face it: if you make the same amount per patient, and you can see 30 patients with ear infections or 15 diabetic/hypertensive/hyperlipidemic patients, which would you choose? How would you set up your schedule?

Everyone agrees that prevention is the most cost-effective way to keep people healthy. Vaccines, for example, are arguably the single most cost-effective thing in all of medicine (get your flu vaccine if you have not already done so, by the way!). Preventative care is now covered without a co-pay because of the ACA. That is awesome. However, better care/control of chronic disease doesn’t pay well, as discussed above. But better control of diabetes, of BP, of cholesterol, of COPD, of asthma, of heart failure will save lots and lots and lots of money in the long run because complications of all these diseases are expensive. It costs a LOT to be in the hospital, to have a heart bypass, to have dialysis, etc. A rough estimate is that a well-controlled diabetic costs the system an average of $4,000 per year to take care of, but an uncontrolled diabetic will cost $16,000 or more. So why would we pay doctors the same for an ear infection as we would to take care of serious chronic disease?

Part of the answer unfortunately is that people switch insurances and by the time they develop more significant complications, they are on Medicare anyway, so UHC, Humana, Anthem don’t need to worry about paying for dialysis. In the long run, though, it saves us all money if we do a better job of taking care of chronic illness. So it makes sense to try to incentivize doctors to improve our chronic disease management instead of incentivizing doctors to just see as many patients as possible in the day.

So enough background. Here’s the good stuff. The ACA provides funding and guidance for a new way to approach health care. The Comprehensive Primary Care initiative is a program that involves about 500 practices across the country, in several geographic areas. Southwest Ohio/N. KY, New Jersey, Arkansas, Colorado, New York, Oregon, and Oklahoma have participating practices. Practices were selected based on a number of factors, including past willingness to participate in such things as NCQA quality recognition, and patient-centered medical home (PCMH) certification. You can read more here: http://innovation.cms.gov/…

Basically, CMS (center for Medicare and Medicaid services) provides funding outside of the fee-for-service environment for practices to do a better job of chronic disease management. There is/was a detailed application process, and multiple milestones you have to meet, but a lot of it boils down to CMS providing additional monies for practices to use as they see fit in order to help improve the care for their patients, particularly (although not exclusively) those with higher risk chronic illness.

The whole thing is actually really interesting. While there are quite a lot of specifics, there are also a lot of areas open to interpretation. CMS is partnering with multiple private insurance carriers to provide a monthly fee (outside of any appointment or fee-for-service interaction) to physician practices in order to help those practices invest in infrastructure which will help improve patient care. The amount per patient per month is based on risk assessment. Basically, the more diagnoses, and the more complicated a patient is, the higher the monthly fee. A well-controlled diabetic would have a lower fee than a diabetic with chronic kidney disease, heart disease, and neuropathy. So right off the bat, you can see how this is a paradigm shift from the traditional fee-for-service environment. You may actually be paid more to take care of a more complicated person and try to keep them out of the hospital.

However, and this is a BIG part, the money from this CPC initiative can NOT be paid to physicians as compensation. It is to be used to improve infrastructure. This is actually pretty cool because instead of just paying doctors more and saying, “hey, if we pay you more, you’ll do a better job, right?”, CMS is saying, “we will give you money to use as you see fit (within the structure of our program and its milestones) to improve patient care which should improve outcomes, decrease severe complication rates, improve patient satisfaction, and eventually decrease overall costs through an investment up front.”

If you hadn’t already guessed, my group has several practices involved in the CPCI program and we are excited about it. I don’t know what the other 490-some practices across the country are doing, but we have used the money to hire more staff, including what we call Care Coordinators for each office, an RN who can reach out to patients before, during and after appointments to see how we can better coordinate care. We try to have labs drawn before folks come for appointments, so we can have already reviewed the results before walking in the room. This allows for more efficient care. If someone’s cholesterol is the goal, for example, we can increase the dose of their cholesterol medication while sitting with them and explaining why an LDL goal of under 70 is the target. This works a lot better than a medical assistant calling someone and playing phone tag three days after their appointment to try to make sure they know that the new dose is 40 mg instead of 20.

Anyway, the Care Coordinator can help reach out to people who might need help paying for meds and see what assistance programs might help someone. She can help someone who was recently in the hospital understand their new medication regimen and help set up their follow up. If someone doesn’t go for the colonoscopy or mammogram that we ordered, she can call them and find out why and/or encourage them to go (and maybe mention that preventative care is covered 100% now!). She can review their chart ahead of time and put in a reminder for the doctor that the patient is due for a pneumonia vaccine or a shingles vaccine. This is all part of the team-based approach to care which is helping to improve patient outcomes. Our practice would not really been able to afford a Care Coordinator without the CPCI monies. Our group has also decided to hire a diabetes educator. Insurance is often squirrelly about paying for diabetes education, despite study after study clearly showing the benefits. Now we will be able to offer diabetes eduction free of charge to all of our patients. This is pretty great all around. The doctors get more help, the patients get more individualized attention and care, outcomes improve, which specifically means someone didn’t have a stroke. Someone didn’t lose their vision because of diabetes. Someone had a precancerous colon polyp removed instead of being diagnosed with metastatic cancer a couple years later. Someone’s grandmother didn’t lose her foot. Oh, and all that stuff also saves money.

That’s the other piece of the CPCI, which is a multi-year venture: “shared savings.” You can calculate how much a population of patients is likely to cost over say, three years, based on how sick they are. If people get their blood pressure, cholesterol, blood sugar, asthma under better control, they will cost less to take care of because they will have fewer ER visits, fewer hospitalizations, fewer procedures. Sure, they might take more medications, get more frequent lab tests, maybe more frequent (outpatient) doctor appointments, but this leads to an overall reduction of the cost of care. So for the additional work to do a better job of taking care of patients, practices in each region get a chance to share in the $$ saved by providing more efficient care. This will be calculated and distributed equally among the 75 or so practices in each region.

There’s of course a lot more to the story, but this diary is already rather lengthy. I’m excited about the program though. It really is a win-win. It has a lot of the things that us progressives like: government-initiated innovation. Science-based (or to use the medical buzzword, evidence-based) care. Regulations on how the money can be used, with the greater good in mind. Short term investment for long term success (I didn’t mention that the money is eventually phased out with the hope that the infrastructure improvements will lead to overall better reimbursements, and a focus on “pay-for-performance” or better pay for better quality care). Using government dollars to help those who need it most (ie sicker patients). Shared benefits in the long run for all of us. If we are all healthier, we cost less to the healthcare system. We are more productive workers. We have fewer people on disability. We end up putting more $$ back into the economy and indirectly increase government revenue (if you can work more and make more money because you are healthier, you end up paying more taxes and of course can purchase more goods and services).

Anyway, it’s a relatively small part of the ACA, and unless you go to a practice involved in the CPCI, you likely would never hear about it. But in the long run, the idea is that the extra $$ will help to transform how we provide care, therefore leading to a sea change in primary care across the country. If you get better outcomes, improve patient satisfaction AND save money while practicing a certain way, every practice is going to want to adopt these methods. Over the next few years, the 500 practices will be sharing (HIPAA-compliant) data, successes and failures, to try to come up with “best practices” we can all use to keep people healthier longer. Because everyone benefits from that, and that is really what the Affordable Care Act is about.

The View From Across the Atlantic

My Comments: Sometimes it’s difficult to see the forest for the trees. When that happens from time to time, it’s helps me to get another perspective. This one is from England.

It’s about the chaos in the political party not now in the White House. This party is searching for new leadership and reading this article reminds me how dangerous it is for any of us to become complacent.

Edward Luce – October 11, 2015

The problem with labels is they shut down thought. According to Webster’s, a conservative is someone who embraces “the value of established or traditional practices”. It is hard to find a worse description of US conservatives today. At rare moments, conservatism blesses rebellion against the ancien régime — to overturn the tyranny of Louis XVI for example, or George III. In the past few years, this exception to regular order has been expanded to include Barack Obama. The US Republic’s 44th president is anti-American they say. Now the Jacobins — call them the Tea Party, Trumpians, the Fifth Awakening, whatever — are devouring their own children. Any leader who acquiesces in Mr Obama’s presidency is a traitor to the movement. They are bundled off to the guillotine.

Of course, it is careers, rather than heads, that roll. Last month, it was John Boehner, the Republican Speaker of the House of Representatives, who gave up his futile quest to lead his own party. Mr Boehner was followed last Thursday by Kevin McCarthy, his chosen successor. A shell-shocked Mr McCarthy said his party had yet to hit “rock bottom”. Whoever emerges next risks a similar fate.

Obvious choices, such as Paul Ryan, the former vice-presidential candidate, deny any ambition. In fact, the smart instinct is to run a mile from the most powerful Republican job. Mr Ryan wants to be president. Becoming speaker would risk killing his standing with his own base, or with the electorate. You can’t please both. “I’d rather be a vegetarian,” said Republican Mac Thornberry when asked whether he planned to throw his hat into the ring.

The pace is dictated by a small group of Republicans — the House Freedom Caucus, which makes up about a sixth of the party’s seats. What it lacks in numbers, it makes up with zeal. Its formal membership is secret, but it is growing.

The group’s true leader is Ted Cruz, the Texan presidential hopeful. Donald Trump is too heterodox. Mr Cruz is their Robespierre. His methods are less bloodthirsty than the French radical’s, but the logic is similar. Like Robespierre, Mr Cruz reserves his venom for fellow travellers. In his telling, it is the Republican leadership, rather than Mr Obama, who are betraying the republic. They are Mr Obama’s enablers. Every head that rolls is a victory.

Though he has blocked almost everything Mr Obama has proposed, Mitch McConnell, the Senate majority leader, is the next Republican target. Decapitations can be carried out by legislators or activists. Every Republican of note fears being ejected in a primary. “Must the footsteps to freedom be gravestones?” said Danton. Quite so, says Citizen Cruz. The tree of liberty must be refreshed with blood.

Those who observe that scorched earth tactics will cost Republicans the White House in 2016 are told to respect history. Barry Goldwater, the hardline libertarian, lost badly to Lyndon Johnson in 1964. Yet his kamikaze campaign marked the return to true conservatism. It paved the way for Ronald Reagan’s election in 1980. Moreover, the White House is an overrated prize. Congress, not the White House, holds the purse strings. Grover Norquist, the anti-tax campaigner and ringmaster to the movement, says it is far more important to control Congress — and particularly the House — than the presidency. A true Jacobin, Mr Norquist cautions against the siren song of monarchism.

The enemy is clear. The ends justify the means. The vocabulary is war. Those who deviate are traitors.

It is not as if accommodation has been working. Republicans have lost the popular vote in five of the last six presidential elections by nominating moderate candidates, such as Bob Dole in 1996, John McCain in 2008 and Mitt Romney in 2012. Not to mention George HW Bush in 1992. Why would voters be any likelier to fall for his country club son, Jeb? In the meantime, the imperial presidency continues to expand. Mr Obama may have added a new entitlement in the Affordable Care Act but the powers of the executive branch grew dramatically under Jeb’s older brother, George W Bush. If this is what Republicans do in office, why would Democrats behave any different? If leaders, like Mr Boehner, think it is their job is to trim their sails to Mr Obama’s agenda, it is the duty of true conservatives to rebel.

Their worldview is highly seductive. The enemy is clear. The ends justify the means. The vocabulary is war. Those who deviate are traitors. But it suffers from the same deficiencies afflicting all fanatical movements. “Freedom” can mean pretty much what you choose it to mean. Their thirst is impossible to quench, which means the revolution is never-ending. At this point, the freedom agenda means once again holding the federal budget — and the US sovereign debt ceiling — hostage unless conditions are met. That includes further budget cuts. It could also mean defunding any support for family planning. Ultimately, government must be shrunk to a size where it can be drowned in a bathtub.

The bigger problem is that it damages the spirit of the constitution, in whose name it fights. The Founding Fathers made it impossible for one branch of government to impose its will on another. It insists on deal making. The constitution’s unofficial motto is that politics is the art of the possible. In contrast, Mr Cruz, and his followers believe that extremism in the pursuit of liberty is no vice. Their tactics will boomerang. In the process, however, they are making a sorry spectacle of US democracy.

Desperate in Damascus

CharityMy Comments: The world is ‘a changin’. This was written just a little over two weeks ago. And now we hear Russia has sent cruise missiles from its’ navy ships into Syria. NATO is paying very close attention, given that Turkey is a member nation; this could get really ugly before its over.

By Fred Kaplan Sept. 22 2015

The presence of Russian troops, tanks, and planes in Syria isn’t something to shrug off, but it’s not worth a lot of worry, either—or, to the extent it might be, it’s not for the reasons that the neo-Cold Warriors find so alarming.

It’s true that, much as Russian officials claim they merely want to help the world fight ISIS, their main motive is to shore up the regime of their ally, Syrian President Bashar al-Assad. However, those two goals are not mutually exclusive: Moscow does have an interest in crushing radical Islamist groups that might spread to the heavily Muslim regions of southern Russia. Either way, the uptick in military supplies to Syria (on top of the billions of dollars in arms sales and aid over many years) marks not an expansion of Russia’s influence in the Middle East but rather a last-ditch effort to preserve its one last bastion—an extremely shaky bastion, at that.

In the past decade, Russia has lost erstwhile footholds in Libya and Iraq, failed in its attempt to regain Egypt as an ally after the fall of Hosni Mubarak, and would have lost Syria as well except for its supply of arms and advisers to Assad—whom it still may lose, despite its desperate measures.

The portrayal of Vladimir Putin as a grand chess master, shrewdly rebuilding the Russian empire through strength and wiles, is laughable. Syria is just one of two countries outside the former Soviet Union where Russia has a military base (the other being Vietnam, and its naval facility there, at Cam Ranh Bay, has shrunk considerably). His annexation of Crimea has proved a financial drain. His incursion into eastern Ukraine (where many ethnic Russians would welcome re-absorption into the Motherland) has stalled after a thin slice was taken at the cost of 3,000 soldiers. His plan for a Eurasian Economic Union, to counter the influence of the west’s European Union, has failed to materialize. His energy deal with China, designed to counter the west’s sanctions against Russian companies, has c One school of thought contends that Putin is seeking a way back in to the international community—the sanctions seem to be hurting his cronies, as well as certain sectors of the Russian economy—and that his moves in Syria, along with rumors of a conciliatory speech at the upcoming session of the U.N. General Assembly, are meant to be part of this campaign. At best, though, this is only part of the story: Even if Putin joins the fight against ISIS (which is in his interest to do), and even if he’s willing to let Assad go, he will want a say in choosing a successor—another reason for putting more boots, treads, and wheels on the ground.

Or maybe his motives are entirely cynical. One way to find out is to talk with him—to scope out the possibilities of cooperation (or at least of exploiting our converging interests) and to spell out the consequences if his actions turn hostile. This is clearly what Israeli Prime Minister Benjamin Netanyahudid when he spoke with Putin on Monday, arriving in Moscow with his top general and intelligence chief in tow. (The general and his Russian counterpart set up a coordination group to prevent unintended confrontations between the two countries during military actions over Syria.)

It’s what Secretary of State John Kerry did when he talked with his counterpart, Sergei Lavrov, over the weekend. It’s what President Obama may do if and when he talks with Putin at the U.N. next week. Max Boot laments all this as “genuflecting”; a better description would be “cautious engagement,” and there’s nothing wrong with that, especially since it’s Putin who’s holding the weak hand here.

The notion, expressed by some of the candidates at the last Republican presidential debate, that Putin might use his strengthened position in Syria as leverage to pry the Saudis, Jordanians, and Egyptians into his fold—how to begin toting the absurdities? His position in Syria is hardly strong; if these Sunni Arab leaders were remotely inclined to go in with Moscow (which they aren’t), they would hardly find Putin’s ramped-up alliance with Assad as cause to reconsider.

There are, however, three genuinely worrisome things about Putin’s latest move, even assuming less-than-hostile intentions. First, after the first reports last week of Russian troops and weapons moving into Syria, a senior administration official told me that he would be concerned if those weapons included anti-aircraft missiles, since neither ISIS nor the other rebel groups have airplanes. Two days later, it turned out that the weapons did include such weapons. So who are the Russians’ intended targets? If they mean to assure Assad that they will shoot down American, Turkish, Israeli, or Gulf State airplanes that try to bomb the Syrian government’s assets (or Hezbollah targets), it’s worthwhile to spell out, to Putin or his generals, the consequences.

Second, if the Russians do join the fight against ISIS, they are likely to fight against other anti-Assad rebels too—including rebels (among them Syrian Kurds) that the United States is supporting. If Russia really does want some form of partnership in this, it must agree not to cross certain lines in the sand; even if Putin really doesn’t want to be partners, it’s worth letting him know what lines not to cross, if he doesn’t want to provoke a larger conflict, with us or other countries.

Third, it’s possible that Russia’s entry could set back the war on ISIS by galvanizing new waves of jihadists—especially from the area around Chechnya and the heavily Muslim states on Russia’s southern border whose hatred of Moscow dates back to their decades of subjugation under the Soviet Union. In other words, under the best possible scenario, Putin’s urge to help could, on balance, hurt. Aimen Dean, a Saudi-born security analyst with deep background in the region’s conflicts, goes so far as to predict that, for these reasons, “Russia’s mission creep in Syria will only produce catastrophic results across the region and beyond.”

Gatorade 50 Years Later

My Comments: I had the pleasure, and the good fortune, to know Dr. Cade personally. Along with other friends and associates, we enjoyed lunch together over countless days. We told stories, talked business, sports, and shared gossip. He was delightful to be with and those days leave lasting good memories for me.

The headline of the following article references the $1B plus in royalties paid to the Gatorade Trust over the past 50 years. Today, I’m proud to play a small role in the distribution of some of those dollars. They flow through a local organization that is close to my heart, the Community Foundation of North Central Florida. Thanks to Mary and Robert Cade and members of their family, it benefits individuals, organizations and ideas whose success is critical to the quality of life we all enjoy here in north central Florida.

I was here when Gatorade became part of our language. There is every reason to think the next fifty years will just as exciting and rewarding, in large part thanks to Gatorade and those who helped make it possible.

By Darren Rovell and ESPN – October 2, 2015

Fifty years after the invention of Gatorade, the men who developed it, their families and friends have now made more than $1 billion in royalties from its sales.

Although details of the royalties given to the Gatorade Trust, which was formed in May 1967, are not public, the University of Florida, which receives a 20 percent cut from the royalties, reported this week that its total take from its piece in Gatorade had risen to $281 million.

That would mean the trust, which originally had nine members including doctors, two trainers and a lab technician, has benefited to the tune of more than $1.1 billion since it was sold to Indianapolis-based Stokely Van-Camp in 1967.

The $1 billion number is a remarkable sum of money considering what it took to get there. Gatorade was invented by Dr. Robert Cade and his medical fellows Dr. Dana Shires, Dr. Alex de Quesada and Dr. Jim Free in a University of Florida lab in 1965.

“I think we’d all be living well without it,” said Free, who is the one credited with coming up with the Gatorade name. “But it has enabled us to do things like establish a family foundation and a family office. It also has its challenges in that we cannot let what we have spoil us.”

Lawyers of Bingham Greenebaum Doll, who manage the trust, would not say what the royalty structure is, aside from the 80/20 split, or how much it has changed over time.

A document filed to the Securities and Exchange Commission by Stokely Van-Camp, then a subsidiary of Quaker Oats — in a contract with the trust that began in January 1993 — once revealed that the trust would receive a royalty of between 1.9 percent and 3.6 percent, depending on how much Gatorade was sold in a given year. PepsiCo then acquired Gatorade with its Quaker Oats acquisition in 2000.

After his team’s formula was used by the school’s football program for two years and received great publicity, Cade offered the product in its entirety to the university’s head of sponsored research in 1966 in exchange for $10,000.

When the university passed, the drink was brought to Stokely Van-Camp, which turned down the doctor’s offer to sell the product for $1 million and instead agreed to pay the doctors $25,000 up front, a $5,000 bonus and a five-cent royalty on every gallon sold.

Stokely Van-Camp rolled out the drink in July 1967 and paid $25,000 to be the official drink of the NFL.

Soon the product that the school’s head of sponsored research thought didn’t have much potential was a marketing phenomenon.

But the school wasn’t done. “They told me Gatorade belonged to them and all the royalties were theirs,” Cade wrote in his autobiography. “I told them to go to hell. So they sued us.”

In the lawsuit, filed in July 1971, the University of Florida said its labs, its football players and its mascot’s name were used in the formation of the product.

But the school had a couple of problems with its case.

Cade and the other doctors were funded by National Department of Health grants and, perhaps more significantly, Cade had somehow never signed the standard invention agreement, which in most cases assigned about 75 percent of the earnings from a deal reached by a University of Florida employee back to the school.

The government, which funded the doctors, also sued the Gatorade Trust, but that lawsuit was dismissed when the doctors agreed to back off three patents they had filed for the drink and published the formula in a medical journal.

Content not to have the bickering drag on further, the Gatorade Trust settled with the school with the first royalty period beginning in September 1972.

In the first four years, the school reported receiving a total of $460,014 in royalties.

As the sports drink market grew, Gatorade continued to dominate, and sales in recent years have surpassed $5 billion a year.

“Things really took off when Quaker Oats bought the brand [in 1983],” Free said. “They really knew how to connect it to what was going on on the field and had all the deals with the major sports.”

In celebration of the 50th anniversary of Gatorade being used in a game, Shires, de Quesada and Free will be honored Saturday at Florida’s home football game against Ole Miss.

The Gators will use specially created Gatorade squirt bottles at the game to mark the occasion.

Cade, who died at 80 in 2007, will be represented by his daughter Phoebe Cade Miles.

Miles is breaking ground on a new $10 million museum of creativity and invention dedicated to her father on Friday in Gainesville, Florida.

“Borrowing” from Retirement Savings

house and pigMy Comments: There is a fundamental truth to be gleaned from demographics. A great majority of us live well into our 80’s and beyond. And given the nature of our society, it’s better to have more money than less money.

Accounts like an IRA, or a 401k or any number of other titles, implies that money in those accounts has not yet been taxed. It’s an incentive given us by the IRS to accumulate a pile of money to use down the road. According to this article, over 30 million of us have tapped into our retirement savings early.

It’s rarely a good thing to remove money from these accounts until you have stopped working for money, ie ‘retired’, since your chances of putting it back and having enough when you cannot work is typically slim to none. That so many have reached into their accounts suggest that our children and grandchildren are going to be thoroughly pissed off when they have to come up with the money needed to keep us alive.

by Tyler Durden on 09/24/2015

The ongoing oligarch theft labeled an “economic recovery” by pundits, politicians and mainstream media alike, is one of the largest frauds I’ve witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery,” which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here’s an excerpt:

Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

Of course, it’s not just “alternative financial services.” Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a “recovery.”

From Time:
With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic—a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

So now we know what has kept meager spending afloat during this pitiful “recovery.” A combination of “alternative loans” and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.

The Fed’s Dilemma

moneyMy Comments: Last week the Fed board of governors met and nine of the ten voted to NOT raise the Federal Funds Rate. That’s the rate charged to commercial banks who borrow money from the Federal Reserve. It’s the fundamental tool used by the central bank to influence the economy.

For those of you who are confused, the only other tool available to the government to help or hinder the economy is called ‘fiscal policy’. This is when the Congress chooses to spend or not spend money. It’s in our best interest as consumers and citizenry to limit the potential for massive ups and downs that disrupt lives and lead to social chaos. It’s far from perfect, but no one has yet found a better way to make it happen.

A decision by the Fed to increase interest rates is going to happen. The bigger question is when. It’s impact will be felt globally for the next two decades, at the very least.

September 15, 2015 – Guggenheim Partners

As appeared in the Financial Times global print edition, September 15

Twice in the past 30 years the US Federal Reserve has faced the prospect of prematurely abandoning tightening during market turmoil. Today, global currency devaluations, market volatility and plunging commodity prices have trapped the Fed in a similar policy dilemma.

In 1987, the central bank aborted rate rises and reversed course after a stock market crash. Again, in 1998, after the failure of Long-Term Capital Management, a highly leveraged hedge fund, the Fed abandoned its planned rate increases to stabilize markets and avoid a global crisis. In both cases, the unintended result of delaying was inflated asset prices, which ultimately destabilized the economy and led to severe financial consequences and recession.

In 1986, inflation slowed as oil prices collapsed, raising serious concerns about US economic expansion following the worst postwar recession up to that time. Policymakers were slow to raise rates, allowing for a surge in equity prices in early 1987 as energy prices rebounded.

After falling behind the curve, aggressive Fed actions to address inflation inadvertently pricked the stock market’s speculative bubble. In October 1987, US equities plummeted more than 30 per cent. The Fed quickly reversed course and reduced rates.

By mid-1988, markets stabilised and the Fed again raised rates to head off inflation. By this time, more than four years of accommodative monetary policy had led to a commercial real estate boom with a glut of new properties. As the economy tumbled toward recession in 1990, a sharp decline in property values caused defaults and the failure of financial institutions. The government-sponsored Resolution Trust Corporation was set up in response to resolve troubled banking assets.

After the ensuing recession and another period of accommodation, the Fed again raised rates in the mid-1990s. During this time, many Asian nations had pegged their currencies to the US dollar. By 1997, the pressure to maintain these pegs amid rising US rates became too much for some. Thailand was first to break its peg, allowing the baht to collapse and increasing pressure on neighbouring economies in a dramatic round of competitive devaluation.

By 1998, contagion from emerging markets reached the United States, pressuring domestic markets. A collection of 14 major financial institutions convened by the Fed intervened to stem the collapse of the LTCM hedge fund that threatened the solvency of the global financial system.

Once again, the Fed aborted plans to raise rates, allowing equity prices to skyrocket. When the Fed finally tightened, stocks began a long, deep slide. Numerous companies that flourished amid the speculative wave failed.

Today, policymakers are caught in this familiar dilemma. Labour markets are moving toward full employment, and declining energy prices and a stronger dollar have resulted in languishing inflation. Still, questions remain about the viability of sustained economic expansion in the United States and around the world, and volatility is rising.

At the same time, currency devaluation, particularly in Japan and the eurozone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices and increasing deflationary pressures, escalating the risk of financial contagion abroad.

The Fed is hard-pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages.

At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.

A pre-emptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising US rates could exacerbate foreign economic turbulence. But while prices and wages remain tame, the risk of another asset bubble is increasing. If policy remains highly accommodative, the likelihood grows that asset classes including commercial real estate, equities or certain categories of bonds could become dangerously overvalued.

Regardless of the path the Fed chooses, after seven years of accommodation and now facing volatile global markets, the likelihood of regret is high.


My Comments: I think I found this article published in Medical Economics some months ago. I apologize for my inability to provide accurate sourcing. That aside, all of us have a ZERO obligation to pay more in taxes than absolutely necessary.

Just remember, the IRS has a responsibility to collect taxes. It’s up to us to figure out legitimate ways to NOT pay taxes. That puts the burden of compliance on us as taxpayers, so don’t expect the IRS to wave flags here and there that say “no taxes are necessary if you do this”. It’s not going to happen. Here’s the text I found:

Since 2001, the tax code has undergone 4,680 changes—an average of more than one change per day. Even worse, physicians are paying more in taxes. Because of these trends, intelligent tax preparation has become essential, not optional.

To help, some changes in U.S. tax laws are highlighted in this article. This is by no means a complete list, but identifying strategies for dealing with these areas represents a big step to creating to a solid tax strategy.

On New Year’s Day 2013, the Bush-era tax cuts expired. Now the rich pay more (or are supposed to.) The top tax rate for individuals earning $400,000 or more, and married couples filing jointly earning $450,000 and up, is 39.6%. This is the highest rate in nearly 15 years.

Capital gains rates also increased under the same “fiscal cliff” deal. The wages of individuals earning more than $200,000 ($250,000 for married couples), now are subject to Medicare surtax. This will be tacked on to wages, compensation, or self-employment income over that amount. The surcharge is .9%.

There is not much to be done about these increases, which were a long time coming and received bipartisan support. While taxes can’t be eliminated altogether, they can be significantly reduced with proper preparation. Such preparation may include structured trusts, limited partnerships and other legal entities.

Another tax is the net investment income tax, under which individuals earning $200,000 ($250,000 for couples) may now owe more. Taxpayers with net investment income and modified adjusted gross income (AGI) will likely pay more. Net investment income encompasses: income from a business, dividends, capital gains, rental and royalty income, and/or interest.

Depending on any business or investment activities outside your practice, there may be circumstances where you owe more. Be sure to check with a professional to assure all income outside of your medical practice is accounted for appropriately. Please note that wages, unemployment compensation, operating income from a non-passive business, Social Security, alimony, tax-exempt interest, self-employment income, and distributions from certain Qualified Plans are excluded—for now.

In addition, personal exemptions (PEPs) for high earners may be eliminated. The phase-out of the personal exemption affects individuals with adjusted gross incomes of more than $254,200 and $305,050 for married taxpayers. They end completely for individuals who earn $376,700 or more and $427,550 for married taxpayers. While PEPs are generally a drop in the bucket for high earners—it was only $3,950 in 2014—it’s a lost deduction that can add up over several years.

Interestingly, while the definition of marriage is decided by individual states, the Internal Revenue Service recognizes a legally married same-sex couple in all 50 states, no matter what their legal status is in their home state. This can affect tax, estate, legal, and charitable planning.

Savvy estate planning for all married couples and individuals may involve various types of trusts, such as a charitable-lead trust. When created and structured properly, the charitable-lead trust earns an immediate tax deduction, avoids taxes on appreciated assets, and may provide an inheritance for heirs later.

A charitable-remainder trust potentially avoids capital gains taxes on appreciated assets, allows you to receive income for life, and provides a tax deduction now for your future (posthumous) charitable contribution. For large, significant charitable gifts, donating appreciated stocks or mutual fund shares (provided you’ve owned them for over 366 days) is a way to boost your largesse.

Under IRS rules, the charitable contribution deduction is the fair market value of the securities on the date of the gift—not the amount you paid for the asset. And there is no tax on the profit. This only works for assets that have appreciated in value, not for those on which you have a loss.

Now for the good news: You may be able to benefit from Tax-Free Education Reimbursements for continuing medical education (CME) via a Section 127 educational assistance plan, depending on the way your practice (or your employer’s practice) is structured.

If you are an employee and your employer does not pay for the CME, it is considered a miscellaneous itemized deduction subject to the 2% AGI limitation. Under this scenario it is better to negotiate to have your employer pick up the costs. Then it is a deduction for the employer and nontaxable to the employee.

If your practice is a sole proprietorship or a single-member LLC, than the cost should be deducted on your Schedule C, and is a deduction from AGI (and self-employment tax). If the practice is a multi-member LLC, partnership, or S corporation, it is best for the entity to pay the expense. Doing so reduces the flow through income from the entity and effectively reduces AGI.

Under the partnership scenario (or an LLC taxed as a partnership), if the operating agreement states that the expense must be paid by the partner/member and that the entity will not reimburse the costs, then the expense can be deducted on Schedule E of your tax return (thus reducing your AGI). This treatment is not available to an S corporation.

The conversion privilege for Roth individual retirement accounts (IRAs) continues. Converting a traditional IRA into a Roth account is treated as a taxable distribution from the traditional account with the money going into the new Roth account. The result of this conversion is a larger federal income tax hit (a larger state tax hit is also likely).

But the benefits may outweigh the extra money owed. At age 59½, all income and gains accrued in the Roth account can be withdrawn free from federal income taxes, provided at least one Roth IRA has been open for more than five years.

In the event that future federal income tax rates rise, the Roth IRA’s balance isn’t affected. Provided the account is over five years old, if you die, your heirs can use the money in your Roth account without owing any federal income tax. And unlike traditional IRAs, Roth IRAs are exempt from required minimum distribution (RMD) rules applied to other retirement accounts, including traditional IRAs.

Under the RMD rules, you must start taking annual withdrawals after age 70½ and pay the resulting taxes. But you can leave Roth IRA balances untouched for as long as you wish and continue earning federal-income-tax-free income and capital gains. And there is no income restriction on Roth conversions: Everyone, no matter their income, can do them.

Selling a home may be excluded from tax. How? Suppose an individual sells a primary residence. She or he may exclude up to $250,000 of gain. A married couple may exclude up to $500,000.

There are a few caveats, however. Principal ownership of the property, for at least two years during the five-year period ending at the sale date, is required. Also, the property must have been a primary residence for two years or more during the same five years. The maximum $500,000 joint-filer exclusion requires at least one spouse to pass the ownership test; both need to pass the use test.

Regarding previous sales, if gains from an earlier principal residence sale were excluded, there is typically a wait of at least two years before taking advantage of the gain exclusion provision again. Married joint filers may only take advantage of the larger $500,000 exclusion if neither spouse claimed the exclusion privilege on an earlier sale within two years of the ¬latter.

There is also positive news regarding the dependent care credit. If you employ child care for one or more children under the age of 13 so that you can work (or, if you’re married, you and your spouse can work), you may be eligible for this credit. Affluent families receive a credit equaling 20% of qualifying expenses of up to $3,000 for one child, or, up to $6,000 of expenses for two or more. The maximum credit for one child is $600; for two or more it’s $1,200.

The credit is also available to those who incur expenses taking care of a person of any age who is physically or mentally unable to care for themselves (i.e., a disabled spouse, parent, or child over the age of 13).