Tuesday, December 10, 2013

ObamaCare Thoughts

One reason conservatives hate the Affordable Care Act (aka Obama Care) is that it’s not called “Bush Care” or “Reagan Care.” The ACA is a product of congressional compromise that made it more complicated than it should have been. It's less “socialistic” than Medicare or Social Security. How many Tea Partiers refuse government benefits from either of these?

Had I been in charge, I'd have put everyone on Medicare and concentrated on how to pay for it and how to fairly compensate providers. Medicare's infrastructure, website and integration with private insurance companies is already in place. As a friend recently said, if a new health care plan had been marketed as "Medicare for All" it would have had massive popular support.

Obama Care isn’t about changing the health care system; it’s about paying for the health care system. Is there really nostalgia for the "old" system? My premiums increases averaged 20% per year for 6 years.

What about those new government mandates? Yikes! "This is a very slippery slope," as commentators love to say. Next thing you know Americans will be taxed on their income and have to stop their cars at red lights.

Every major piece of legislation needs fine tuning. If Congress repeals ObamaCare, what is the alternative? Let's work on fixing ACA's problems rather than trying to demonize it for political gain.

Tuesday, August 6, 2013

Medicare Rocks

I turn sixty five (65!) this month. This designates me as officially OLD, but it does provide my biggest birthday perk since I turned 21. I'm now covered by Medicare. This will reduce my health insurance premium by several hundred dollars a month. Gone is my $3,500 deductible health plan with premiums that have increase by over 20% per year for the past five years. The provisions of Medicare reduces the likelihood of such premium inflation and lowers barriers to switching coverage or companies.

The current insurance-company-centric health-care funding system is a disaster. ObamaCare was a reaction to some of its largest flaws: pre-existing conditions, rigid underwriting requirements, multiple administrative layers and exploding premiums. I wish that President Obama had proposed that all Americans be covered by Medicare, a system with a sound structure of Medicare that has worked well for nearly fifty years.

Instead, we are being phased into the Patient Protection and Affordable Care Act (PPACA-a lousy acronym), a compromised, complicated, and constantly-threatened program known as ObamaCare.

So what is Medicare? Here's what Wikipedia has to say:

Medicare is a national social insurance program, administered by the U.S. federal government since 1965, that guarantees access to health insurance for Americans aged 65 and older and younger people with disabilities end stage renal disease and Lou Gehrig’s Disease. As a social insurance program, Medicare spreads the financial risk associated with illness across society to protect everyone, and thus has a somewhat different social role from for-profit private insurers, which manage their risk portfolio by adjusting their pricing according to perceived risk.

Yikes, that sounds a lot like Socialized Medicine. I'm sure every Fox News-watching conservative has opted out of this dangerous program.

In 1965, Congress created Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history. Before Medicare's creation, only half of older adults had health insurance, with coverage often unavailable or unaffordable to the other half, because older adults had half as much income as younger people and paid nearly three times as much for health insurance. Medicare also spurred the racial integration of thousands of waiting rooms, hospital floors, and physician practices by making payments to health care providers conditional on desegregation.

Forty-eight million Americans are covered by Medicare. Many of those would be bankrupt without it. Medicare and Social Security are in urgent need of adjustments to make them sustainable for future generations, but math-challenged politicians of both parties are unwilling to accept that expenses must be controlled AND taxes must be raised to fix these issues.

Here's a quote from "Why we need to fix Social Security now," by Mary Beth Franklin in InvestmentNews (June 10, 2013):

By 2033, reserves in the Social Security trust fund will be exhausted and revenue from payroll taxes will be sufficient to pay just 77% of promised benefits. The disability trust fund is in worse shape, projected to exhaust its surplus in just four years, at which point it could pay just 80% of promised benefits. And Medicare is now expected to limp along through 2026, two years later than previously projected.

Medicare and Social Security are sacred social contracts between various generations of Americans. As with the budget deficit, these issues get worse if neglected. Share your thoughts with your elected representatives.

Wednesday, July 17, 2013

Fear of Bonding?

When clients want to discuss bonds with me on a daily basis, I know bond angst has made the mainstream. Bonds are supposed to be boring, but they can become un-boring, in a bad way, when interest rates start to rise rapidly. My clients' eyes nearly always glaze over when I talk about how bond values fluctuate when interest rates change.

Bonds are simple debt investments that you are supposed to use more frequently as you approach or enter retirement. Bonds are in the news recently because interest rates are starting to increase after years of impossibly low rates. As rates rise, values of bonds and bond funds will decline. The longer the duration of the bonds, the steeper the decline.

So it must be time to sell all of your bonds, right? Probably not, unless you will need to spend these funds within the next two years. Panic is rarely the best strategy.

Bond funds, over time, tend to compensate for their loss in value as higher yielding bonds replace lower yielding ones. If you don't need your funds for five years or more, hanging on to what you have is probably the best strategy.

There are several strategies if you want to sell your bonds:

1) Convert your money to cash, but then your earnings are low and vulnerable to inflation. At some point you need to decide when to invest again.

2) Convert your long-term bonds to very short-term or adjustable-rate bonds. This decreases volatility, but also reduces yield.

  3) Invest in stocks or real estate or gold, but these are not without their own risks and volatility.

In conclusion, as I end most of my commentaries, my advice is to invest for the long-term, rebalance and diversity. Also remember: when nearly all the experts agree on what will happen next, they are sometimes wrong.

Wednesday, May 29, 2013

Time for a Correction?

"Correction" is a cute word that describes a stock market decline of 10-20%. This is a normal part of unpredictable stock market cycles. The good thing about corrections is that they only happen after the market has risen substantially. 
That's what the Standard and Poor's 500 Index and the overall stock market has recently done. So far in 2013, the S&P has risen 14% with only two short 3% dips. Since January of 2012 the market is up 31% despite drops of 8% and 10%. 
Just to remind those who call President Obama a "socialist," since he took office in January of 2001, the S&P has doubled its value. The oil man from Texas who preceded him ended eight years in office with the S&P lower than when he took office in 2001.
I love it when the stock market is on a prolonged upswing. My clients' accounts grow in value, though not as fast as the S&P since most accounts are well diversified, not 100% in large stocks that the S&P represents. Still, I get nervous when the market is this happy. A correction is sure to come; it's just a matter of when and by how much.
What has amazed me most during the last year or two is that so many people are still avoiding the stock market, having been severely traumatized by the corporate misbehavior of 2007 and 2008. This caused many to lose faith in the stock market, assuming it is a rigged game. It was hard not to come to that conclusion. The stock market is not fair, but what are the alternatives: gold, real estate, bonds, bank accounts, cash in a mattress? All these have their risks. "Safe" alternatives such as savings accounts and CDs pay just a fraction of 1% in interest while the buying power of that money shrinks due to inflation. The interest rate game is truly fixed because rates are set by the Federal Reserve.
Back to the coming correction. It might be caused by concern that stock prices are over-valued, having risen too high, too fast. Bad economic statistics, a tragic incident or a global political event could trigger this, too. 
When the correction comes, remember what has happened lately. Don't let it become an excuse to stay away from the stock market for years to come. The stock market will get happy again, just like it is as I write this.

Tuesday, February 5, 2013

Tax Wealth or Income?

As I begin my 41st year of preparing income taxes, I once again contemplate the complexity, even lunacy, of the Internal Revenue Code.  I have two thick volumes of The Code on my bookshelf, almost 5,000 pages.  I rarely open them, but they look so impressive.

Income tax policy serves at least three purposes: 1) to collect money so the government can pay its current bills and past debts, 2) to encourage certain types of economic behavior such as buying homes, contributing to charities and buying business equipment to stimulate the economy, and 3) to encourage low income earners to work by providing eligible individuals with an earned income credit so they can receive tax refunds in excess of their withholding (i.e. a negative income tax). 

Alternatives to the current system are regularly proposed: flat tax, value-added tax, national sales tax.  These have their merits and flaws, but most taxpayers are unwilling to trade the current system they dislike for one where they might have to pay more. 

One interesting alternative or supplement to the current system is to tax wealth rather than income.  Robert Reich, Clinton's Secretary of Labor, recently discussed this concept in a blog post: The Myth of Living Beyond our Means. I believe he should have been President Obama's Secretary of the Treasury instead of Tim Geithner, but that was an early tip-off that President Obama was not going to be very liberal.        

Anyway, here's a quote: 

"Wealth has become even more concentrated than income (income is a stream of money, wealth is the pool into which it flows).

The richest 1 percent now own more than 35% of the nation's household wealth, and 38 percent of the nation's finances - including stock and pension funds.

Think about this: The richest 400 Americans have more wealth than the bottom 150 million of us put together.  The 6 Wal-Mart heirs have more wealth than the bottom 33 million American families combined."

Reich's blogs are worth following; here's a link to the full text.