PHILADELPHIA REFLECTIONS
Musings of a Philadelphia Physician who has served the community for six decades

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Insurance in Philadelphia
Early Philadelphia took a lead in insurance innovation. Some ideas, like life insurance, flourished. Others have faded.

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Financial Planning for a Long Retirement

How should an individual investor ensure they have enough money for retirement?

Such a person is often a professional or entrepreneur who has worked to accumulate wealth. Legions of "advisors" are lined up to take this money and manage it or else to sell "products" that promise to solve some problem or other.

A person who has created their career and their wealth from scratch by intelligence and hard work can also manage their investments themselves, or at least supervise the process from a position of strength created by knowing what needs to be done.

This collection of articles explains to the individual investor how to take control of their wealth. They may eventually decide to look for help from an advisor but they will retain control of their assets and they will know what to do.

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Old Age, Re-designed
A grumpy analysis of future trends from a member of the Grumpy Generation.

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An appraisal of the Affordable Care Act and-- with some guesswork-- its tricky politics. Then, a way to capture major new revenue, even paying down existing Medicare debt, without raising premiums or harming quality care. Then, an offering of reforms even more basic, but more incremental. Finally, the briefest of statements about the basic premise.

(www.Philadelphia-Reflections.com/topic/134.htm)

Right Angle Club 2011
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Philadelphia Economics (3)
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Competitive Institutions: Paying for Assisted Living

Around the turn of the 20th Century, it was the fashion to build specialty hospitals, devoted to a single disease like tuberculosis or polio, or one specialty like obstetrics or bones and joints. Eventually, it was realized that almost any disease is handled better if a full range of services is readily available to it. Around 1925, some inspired philanthropists made it possible to combine specialties within a medical center, and it is now generally agreed this is a better way, when population density permits it. On the other hand, it is likely a source of price escalation. Time marches on, and the problems of excessive bigness are also beginning to predominate. The idea immediately occurs, to winnow out the routine cases which do not need so much technology, so that we can concentrate and devote high technology (and costs) to patients who will really benefit. And, immediately the perplexing outcry is heard that such rationalization is "cherry picking", which will soon bankrupt the finest institutions we can devise. The validity of such assertions needs to be examined impartially.

At the same time, the horse and buggy era has been left behind, causing new separations along class lines, the flight to the suburbs, and the migration of philanthropy toward the exurban sprawl, as well as into urban centers. In all this commotion it was overlooked for a long time that medical care was not merely following the patients to new locations, it was becoming more of an outpatient occupation. Inpatient care was shrinking, and somehow expensive hospitals were swallowing their smaller (and less expensive) competitors. It wasn't a necessary development; Switzerland still favors small luxury "clinics" of ten or twenty beds, usually containing wealthy patients of a celebrity doctor. Local customs like this, will change slowly. What America appears to need is more hospital competition and more ambulance competition; the two may actually be somewhat connected issues. For amusement, I once studied the patients in the Pennsylvania Hospital on July 4, 1776, when historical notables were congregating three blocks away. The diseases were remarkably similar to what is seen in hospitals today; problems with the legs, mental incapacity, major injuries, and terminal care. People are treated in hospitals because they can't care for themselves at home.

A BLUE-RIBBON COMMITTEE NEEDS TO STUDY INSTITUTIONAL COMPETITION IN HEALTHCARE.

This is a complicated issue, and may take several years, or even several studies to sort out. What is useful for urban settings may be inappropriate in exurban ones; local preferences must be separated from special pleading, and that is not always easy. However, the continuing care center seems to be a permanent direction which is growing in popularity, as is also true of rehabilitation centers and retirement communities. Many of these institutions might incorporate doctors offices for their surrounding community, using the same parking facilities and many of the same medical specialties for both the neighborhood and the core facility. There seems no reason to oppose either rentals or private condominium-style ownership, nor any reason to resist group clinics. Exclusive arrangements, however, are more questionable. All of these arrangements should be studied, and unexpected problems flushed out. No doubt the preliminary studies would lead to pilot and demonstration programs. And some practices which initially seem harmless, should in fact be prohibited. We have a lot to learn before we start overturning the existing order. But nevertheless, some arrangements will prove to be superior to others, almost all of them are regulated in some fashion, and the regulations should be examined, too. It should accelerate needed changes to know in advance which ones are ready to be tested, and tested before they are demanded.

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CCRCs

Everyone knows Americans are living thirty years longer because of improvements in health care, and some grumpy people are waiting with glee to see if Obamacare will put a stop to that sort of thing. It must be left to actuaries to tell us whether the nation saves money or not by delaying the inevitable costs of terminal illness. But one consequence has already made its appearance: people are entering retirement villages in their eighties rather than their seventies. Presumably, people in their seventies are feeling too well to consider a CCRC, although other explanations are possible.

Accordingly, a great many CCRCs are seen to be building new wings dedicated to "assisted living". A cynic might surmise there must be some hidden insurance reimbursement advantages to doing so, but the CCRCs are surely responding to some kind of increased demand when they make multi-million dollar capital expenditures. Assisted living is a polite term for people with strokes or Alzheimers Disease, or some other condition making it hard to walk, or, as the grisly saying goes, perform the activities of daily living. One really elegant place in Delaware has suites with servants quarters, but for most people the only affordable option is to be in a room designed around the idea of assisting an invalid. It's generally smaller and more austere, but fitted out with railings and bars and special knobs. Meals generally have to be supplied by room service.

Not everyone is destined to have a protracted period of decline, but it's fairly frequent and universally feared, so it's a comfort to know your present residence is attached to a wing which provides for it. The question is how to pay for it. There are two main approaches currently in use, adapted to the limited financial resources of the aged and the particularities of CCRC arrangements.

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Obama Care

In the first arrangement, there is no increased charge for moving to assisted living, which helps overcome resistance to going there. However, the monthly maintenance charge for others who remain behind in "ambulatory living" is increased, usually about 20%, to provide funding for those who eventually need special assistance. That's a financial pooling arrangement, sort of an insurance plan, and like all insurance it has a tendency to increase usage unnecessarily. It also increases the cost to those who enter the CCRC at an earlier age, because they make more monthly payments before they use them. Although the monthly premium probably goes up as the costs rise with inflation, there may be some savings hidden in applying an earlier payment stream at a lower rate. That's called "present value" accounting, but like just about all accounting, its unspoken advantages and disadvantages contain a gamble on unknown future inflation.

In the other common financial arrangement, you pay as you go, when and only if you actually use the assisted living quarters. Because of the likely limit to resources, there is usually an attached agreement to garnishee the initial entrance deposit if available funds prove insufficient. The one thing which won't happen is being thrown out in the snow for non-payment; there's a law prohibiting that. Bigger apartments with large initial returnable deposits are of course better off paying list prices. Those with smaller apartments may have smaller deposits, and favor payment by a percent withdrawal. Some places haven't thought this through and offer no choice. In that case, more attention should be paid to those list prices and the percentage markup from audited cost. Better still is to have a free choice of both options, with cost transparency.

The remaining choice is between two CCRCs with differing options, made at the time you enter. The Obamacare fuss has made a lot of people acquainted with "adverse risk selection", which is largely based on the idea that an individual has a better idea of his health future than an institution does, since that includes family history as well as earlier health experiences. But in general, a young healthy person is going to live longer without needing assisted living than an old geezer who going to need it pretty soon. A hidden adverse incentive is created for younger healthier people to set the choice aside, and come back in ten years, providing they remain alert to the underlying reason the monthly fee is then somewhat higher than in some competitive CCRC. At the far end of the age spectrum, an incentive is created to go into assisted living quarters a little earlier in life, generally regarded as an undesirable choice.

All this financial balancing act can seem pretty overwhelming to an elderly person who isn't entirely comfortable with the CCRC idea in the first place. Rest assured that everything has to be paid for somehow, and after you die you won't care what choice has been made. If you trust the institution to have your best interests in mind, the only consideration of real importance is whether your money will last you out. The institution cares about that even more than you do, so while they aren't likely to offer unrealistically bargain choices, they may offer a few which are too costly.

America has had a ninety-year romance with insurance, because it is so comforting to be secure and oblivious to finances. This is just another example of the struggle between the search for security, and the struggle to devise ways to pay for it. While no one can be positive about it, we're all in this together.

(2112)

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