Tuesday, January 20, 2009

Understanding and Controlling Your Finances [Incentives ]

One of the very hardest things about "controlling your finances" is getting started down the path. During high school and college, and even after college for most people, finances are mysterious and maddening. There is never enough money.

One way to start down the path of control is to give yourself some sort of incentive to do so. If you feel that you are getting something from controlling your finances, then it is much more likely that you will do it. Different incentives work for different people. Let us try two approaches that might incent you to at least look into the prospect of starting to control things better.

Approach 1: Becoming a Millionaire

Many people find it hard to believe, but becoming a millionaire is fairly easy. Becoming a millionaire overnight is more difficult, but doing it over time is a reachable goal for every American citizen who is 25 years old.

Here is how you can become a millionaire. Start at age 25 and simply deposit $20 every week in an account that earns 12% interest. $20 is not a lot of money. If you smoke, it is the amount of money you are probably spending on cigarettes each week. If you go out to eat for lunch every day, it is less than what you are probably spending on your lunches. It is less than $3.00 a day. Every American - even homeless Americans begging at a New York subway stop - can put together $3.00 each day.


If you added that much money to an interest bearing account earning 12% every week, and you did that starting at age 25, then by age 65 you would have a million dollars. If you started at age 20 instead of 25 you would have a whole lot more.

Here is another way to think about it. Imagine your first child. Imagine that your first child is to be born tomorrow. If, on that day, you opened an account earning 12% and deposited just $20 per week in that account, then at age 20 you would be able to write your child a check for about $80,000. Hard to believe but true. Small amounts of money, accumulated consistently and earning interest over a long period of time, really add up.

You probably have three questions:

  • What, are you kidding? That is all I have to do?
  • Why didn't anyone tell me?
  • Why didn't my parents do this for me when I was born? I sure could use $80,000!
One other question you need to ask is, "Where can I find an account that pays 12% interest?" We will discuss this question later in this series.

The point is, with just a little discipline over time you can accumulate huge amounts of money. That is what "control" is all about. You will learn a lot more about accumulating wealth in the other articles in this series.


You can use the Weekly Investment Calculator to help you calculate the future value of small weekly contributions to an account. You will be amazed. (To run this calculator you will need a web browser that understands JavaScript. The later versions of NetScape, the MS Internet Explorer, etc. all do)

Approach 2: Getting Something You Really Want

Let's say that the thought of a million dollars in 40 years doesn't do anything for you. You want something now. Here is another way to think about your finances.

Television is a funny thing. The technology behind it is simple and seemingly harmless: television transmits moving pictures to your home. What could be the problem with that? The weird thing about television is that if the proper images are transmitted to your home, they can change the way you think. In particular, they can increase your desires. Take, for example, the Salad Shooter. Would it have ever sold without the mind-bending influence of TV? No. At the same time television tends to encourage you to satisfy all of your desires immediately. That is why, two weeks after you have purchased a brand new car, commercials can make you believe that you need another one.

Let's try to imagine an alternate and parallel universe without television. In this universe, a person who wants something stops and says, "in order for me to have that something, I need to save up enough money to buy it first. Then I will go purchase it." Would this work? No it would not in some cases. For example, is it worthwhile to wait 30 years until you save up enough money to buy a house, and then go buy one? No. See the section on buying a house for a discussion of this particular purchase. Is it worthwhile to save money for five years before you buy a car? Not necessarily, mainly because you have to have a car to survive in most American environments.

But let's say that on all other desires in your life you were to follow a "save first, buy later" rule. What would happen? Two things: first, you would notice that your desires might suddenly change dramatically. Second, you would have to find a way to accumulate money over time and hold it so you could realize your desires.

It is this simple but fundamental change of thinking - the "save first, buy later" rule - that can lead to the concepts of "controlling your finances" and "accumulating wealth". If you can make that change, it will cause you to modify your thinking so much that in a short period of time things like stocks, bonds, CDs and all the rest suddenly become interesting and relevant.

You may find yourself thinking one of three things right now:

  • "There is no way I want to live my life that way. It is too constricting."
  • "There is no way I can organize my life enough to live that way. Things are too chaotic."
  • "There is no way my life will ever be organized that way. I'm too far in debt now to ever get out of it."

If you find yourself thinking one of those things, let me ask you simply to put the idea on hold for a few minutes. Suspend your disbelief long enough for a new concept to enter your mind.

In order to organize your life in this "save first, buy later" way, you have to determine your financial priorities. This can be hard, and to do it right it helps to have some experience with other financial concepts. Therefore, a later article will help you to see how to do it right. In this article let's ignore doing it right and simply try out the concept to gain some experience with the process.

To determine your financial priorities, the first thing you have to do is think of the things you would like to have in the future, and then organize them. Therefore, I would like you to try taking 15 minutes to come up with a list of "things you would like to have one day." Simply take out a sheet of paper and list as many of your desires as you can think of. It may take a few minutes to get started; if you find yourself staring at a blank sheet of paper here are some thoughts to help you get started:

  • Do you want or need a new car?
  • A new house?
  • New furniture?
  • An encyclopedia?
  • A computer?
  • A new spring wardrobe?
  • A comfortable retirement?
  • A new riding lawn mower?
  • A deck or swimming pool?
  • A college degree for your kids?
  • A trip to Paris?
  • An engagement ring for your girl friend?
  • No more payments on your credit card?
Just start imagining all the things you would love to have one day, and write as many of them as you can think of down on the sheet of paper. For most folks, if you think about all of the things you want to have both short- and long-term, you end up with a pretty long list. If you have a spouse create the list together. Come back in about 15 minutes.

Now you have a list. Take another five minutes and write down prices next to everything. If you don't know the exact number, write down an approximate number. If you don't know an approximate number, just guess and then double that number.

Now take your list and find the one thing on that list that you REALLY want. The thing that would make you happiest or solve the most problems or bring the most joy to you or a friend. On that list there is one thing that brings the biggest smile to your face when you think about it. Put a big star next to it and focus your attention on it.

Now here is an important fact: You can have that thing. It will take some work but you can have it, and you will have it if you can gain control of your finances.

Let's go back to Bob from the previous article. He made his list. He put prices next to everything. Then he took about half an hour to think about everything on the list and discovered the one thing that he really wants, more than anything, is a pilot's license. Bob wants to learn how to fly. He can't exactly explain why. He just wants to get his license and he has wanted it since age 13. He called a local airport, and it costs about $4,000 for a person to get a private pilot's license. So what Bob needs is $4,000. And his question is this: "This is great. Now I know exactly what I want, and I can taste it I want it so bad. But where in the world am I going to get $4,000???"

You may find yourself thinking exactly the same sort of thing. In the next article we will discuss this problem and how to solve it.

Understanding and Controlling Your Finances[The Basics ]

Part of the problem with the "world of finances" is that it is a huge space with hundreds of options and its own peculiar vocabulary. If you take it step by step, however, you actually can penetrate this field and completely understand it. So let's start at the beginning and see how the most basic things in life directly affect you and your finances.

If you are like most normal folks, you have a job. You go to your job every day. Every week or two weeks or month you get a pay check for some amount. For the sake of example let's imagine a fictitious person named Bob, a 24 year old computer programmer out of college two years. Bob is paid $3,000 each month, or $36,000 per year.

You have taxes. The government, in an effort to make your life easier, politely lifts something like a third of your pay check without your having to do a thing. Poof, it's gone - you never even get to touch it. The federal government takes perhaps 23%. The state government takes perhaps 7%, depending on the state. The social security administration (FICA) and Medicare take another 7.5% or so. Bob's $3,000 paycheck therefore diminishes to perhaps $1,850 by the time he sees it:

         $3,000 gross income
- $ 690 Federal income tax (23% of gross)
- $ 210 Typical state income tax (7% of gross, depending on state)
- $ 250 FICA, medicare, and other witholdings
------
$1,850 Bob's net take-home pay

The amount subtracted depends on whether Bob is married (and if so whether his wife works), whether he owns a house, and so on.

You have expenses. As you live your life it costs money. A normal person in America has some pretty typical monthly expenses. Bob is a single guy, and his monthly expenses look like this:

  • Rent: $700
  • Car payment: $300
  • Car maintenance (gas, insurance, repairs, etc.): $200
  • Power: $80
  • Phone and Long distance: $50
  • Cable TV: $50
  • Cell Phone: $50
  • Groceries: $120
  • Entertainment, eating out, etc.: $300

[For many people it would mark a major financial milestone if they could create a simple, clear monthly vision of their expenditures like this one. See the article on "Understanding your current position" for details.]

The total expenditures shown here are $1,850 per month. If that were all there were to life, Bob would be set to some degree, because in this example expenses exactly match income. Unfortunately in life there are two other things…

You have problems. For example, you get a speeding ticket one day. The court fines you $60 to begin with, and then your insurance goes up $30 per month. Or your car blows a gasket and it costs $500 to repair. Or you meet "special friend" and feel compelled to take him or her out to dinner 14 times in one month, tripling your entertainment budget. Or you lose your job.

Then you have desires. All humans do, some more than others. You might desire new living room furniture, a new TV or stereo, a nice gift for your mother or spouse at Christmas, a special piece of jewelry, new clothes…. Whatever. You may desire all of it all at once. Occasionally you cannot control yourself and one of your desires is filled. Perhaps one month Bob buys a $400 TV without realizing it.

Therefore you have debt. Debt makes up the difference between income and expense. For most people day-to-day debt goes on a credit card, and large items like cars and houses are handled with more formal loans. Debt itself is not bad. The problem arises when debt accumulates for no apparent reason. In Bob's case, problems and desires would push his credit card balance upward each month because there is no other place for the money to come from. Since his expenses match income in a normal month, any abnormal spending will go on the credit card.

Notice what Bob does not have in the above scenario. There is no mention of a "savings program", for example. Nor a "retirement plan". There is no particular hope of reaching future financial goals (in fact, no goals to begin with). No "safety net." And most importantly, no peace of mind. Let me make an assertion: For a thinking person, it is very difficult to feel comfortable when you have no savings and a rising credit card balance. It feels uncomfortable because you know it cannot last; it is not sustainable. It also eliminates any sense of control, and most thinking people would like to have control of their lives and therefore their finances. It is as simple as that. This is a bad place to be because there is not a lot of future in it.

Let's say I waved my magic wand and doubled Bob's salary. Wouldn't that be nice? It would indeed, except that 99% of us (Bob included) would feel an irresistible urge to double our expenses at the same time. In fact, it is likely that if I told 100 people that their salary would double in six months, 99 of them would begin doubling their expenditures immediately, in anticipation of the actual funds. They would immediately move to a nicer place, drive a nicer car, buy more stuff, and so on until they got in exactly the same expenditures-are-greater-than-income position again. Clearly, making more money is not going to solve this problem, because we seem to have a natural tendency to spend what we earn in the same way that we eat everything on our plate and fill all available closet space. It is normal. That is why there was a "welcome to the club" message in the introduction to this series. The vast majority (90% or 95% of the people in the U.S.) live their lives just this way.

So is there a solution to this problem? The answer is "maybe." It requires a big mental shift. If you are willing to make the mental shift the answer is "yes." It turns out there is a different way to live life. This way of life involves figuring out what you really want to do, and what is really important to you as an individual, and then working toward those goals rather than proceeding randomly. What you gain in the process is a sense of control and satisfaction, and a sense of achievement, that is difficult to beat.

UnitedHealth Agrees To Pay $350M To Settle Class-Action Lawsuits Filed Over Alleged Underpayment For Out-of-Network Services

UnitedHealth Group on Thursday agreed to pay $350 million to settle three class-action lawsuits filed by physicians and health plan members over allegations that the company underpaid for out-of-network medical services, the New York Times reports (Abelson, New York Times, 1/16). On Tuesday, UnitedHealth agreed to settle an investigation by New York state Attorney General Andrew Cuomo (D) that found health insurers understated the portion of reimbursements for which they are responsible for such services by as much as 28% in some cases, or hundreds of millions of dollars over the last 10 years.

Health insurers pay for a certain percentage of the usual and customary rates for such services, based on an estimate of the cost for such procedures in the same geographic area. Ingenix, a subsidiary of UnitedHealth, operates the Prevailing Healthcare Charges System, a database used by most health insurers that determines the usual and customary rates. The database contains information on more than one billion claims from more than 100 health insurers. Health insurers compare out-of-network claims with those found in the database and reduce the claim to a "reasonable" amount before they reimburse providers or members.

Under the agreement with Cuomo, UnitedHealth will pay $50 million to finance the development of a new database that an undetermined university will operate (Kaiser Daily Health Policy Report, 1/13). The latest settlement, which requires court approval, will pay health plan members and physicians for out-of-network services provided since 1994 (Fuhrmans, Wall Street Journal, 1/15). UnitedHealth will admit no wrongdoing under the settlement.

Reaction
Reed Tuckson, chief medical officer and a vice president at UnitedHealth, said, "We are so pleased to put the issue behind us so we can focus on the important work of assisting physicians."

Nancy Nielsen -- president of the American Medical Association, which participated in a federal class-action lawsuit filed against UnitedHealth in New York state -- said, "The Ingenix database has corrupted the system for paying out-of-network medical bills, resulting in patients and physicians being cheated by health insurers" (Japsen, Chicago Tribune, 1/15).

Plaintiff attorney Barbara Quackenbos filed an objection with one of the judges involved in the lawsuits over concerns about the amount of the settlement. She said, "We believe the amount agreed to is inadequate and does not reflect as meaningful a settlement as could be negotiated."

Objections from Quackenbos and other plaintiff attorneys raise questions about whether the two judges in New York state and New Jersey who have overseen the lawsuits will approve the settlement, the Times reports (New York Times, 1/16). According to the Chicago Tribune, the settlement could prompt other health insurers that use the database operated by Ingenix to reach similar agreements (Chicago Tribune, 1/15).

Aetna
In related news, Aetna on Thursday agreed to contribute $20 million to help finance the development of the new database, the AP/Minneapolis Star Tribune reports (Murphy, AP/Minneapolis Star Tribune, 1/15). Aetna will pay the $20 million in installments over five years.

Cuomo said, "With this agreement, the tide is turning against the corrupted reimbursement system that took hundreds of millions of dollars from the pockets of patients nationwide," adding, "Health insurers will no longer be able to distort their data, leaving patients with unfair bills" (Levick, Hartford Courant, 1/16). In addition, Cuomo said, "We will not stop until the entire industry has been reformed. We are aggressively pursuing the other health insurance companies" (Yaniv, New York Daily News, 1/16).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation.

House Democrats Announce $825B Economic Stimulus Package With $157B For Health Care


House Democrats on Thursday announced a two-year, $825 billion economic stimulus package that includes more than $157.5 billion for health care programs, CQ HealthBeat reports (Carey/Attias, CQ HealthBeat, 1/15). The package includes a provision that would provide $87 billion to increase temporarily federal funds for state Medicaid programs (Herszenhorn, New York Times, 1/16). In addition, the package includes funds for a provision that would allow low-income workers who lose jobs that did not include health insurance to apply for Medicaid through 2010 (Wayne, CQ Today, 1/15).

The package also includes a provision that would provide $39 billion in federal subsidies for COBRA -- which allows recently laid-off workers to retain their group health insurance, provided that they pay 102% of the premiums (Hall/Lightman, McClatchy/Miami Herald, 1/16). Under the provision, workers who lost their jobs and their health insurance after Sept. 1, 2008, could receive subsidies to cover the cost of two-thirds of their premiums under COBRA (Taylor, AP/Philadelphia Inquirer, 1/16). The package also includes a provision that would extend the period of time recently laid-off workers ages 55 or older could retain their health insurance under COBRA (McClatchy/Miami Herald, 1/16).

The package also includes provisions that would provide $20 billion for health care information technology and $1.1 billion for comparative effectiveness research conducted by the Agency for Healthcare Research and Quality.

Other Health Care Provisions
Other provisions in the economic stimulus package related to health care spending include:

  • $550 million to modernize technology at Indian Health Service hospitals and health care facilities;

  • $3.75 billion for construction of new Department of Defense health care facilities and $455 million for renovations of such facilities;

  • $950 million for repairs and renovations of Department of Veterans Affairs health care facilities (CQ HealthBeat, 1/15);

  • $2 billion for renovations at NIH facilities and new agency research grants and $1.5 billion for renovations at university laboratories that conduct research sponsored by the agency;

  • $3 billion to promote preventive care and wellness programs;

  • $1.5 billion for renovations and expansions of community health centers;

  • $600 million to train primary care physicians who agree to enter the National Health Service Corps;

  • $900 million for research into an experimental pandemic flu vaccine and countermeasures for potential chemical and biological attacks; and

  • $462 million for construction and renovations of CDC facilities (CQ Today, 1/15).

Prospects for Passage
House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) said that they seek to complete work on the economic stimulus package before the Presidents Day recess. The House Appropriations Committee and the House Ways and Means Committee plan to hold mark ups on the package next Thursday, with the House scheduled to vote on the package on Jan. 28. The Senate plans to consider the package during the first week in February. According to the Washington Post, Senate Democrats have said that that their "stimulus wish list" could include many provisions not included in the House version of the package and cost as much as $900 billion (Murray/Kane, Washington Post, 1/16).

Reaction
According to the New York Times, the package announced by House Democrats "emphasized mostly Democratic principles," such as "helping the unemployed pay health care costs," and raised concerns from Republicans (New York Times, 1/15). House Minority Leader John Boehner (R-Ohio) said that the package appears to "be grounded in the flawed notion that we can simply borrow and spend our way back to prosperity" (Bendavid et al., Wall Street Journal, 1/16). House Appropriations Committee ranking member Jerry Lewis (R-Calif.) said, "This legislation appears to blanket government programs in spending with little thought toward real economic results, job creation or respect for the taxpayer" (Dennis/Kucinich, Roll Call, 1/15).

Paul Ginsburg of the Center for Studying Health System Change said of the provisions in the package related to COBRA, "That is a pretty dramatic health policy step to address the difficulty some near-elderly have in getting health coverage" (USA Today graphic, 1/16).

Robert Bixby, executive director for the Concord Coalition, said, "These may be worthwhile things like health care, technology and scientific research," but "these are all things that require some long-term strategy." He added, "I question whether shoveling money out the door in a stimulus bill is the way to do it" (Hook/Puzzanghera, Los Angeles Times, 1/16).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation.

Thursday, January 1, 2009

N.Y. medical education assessment to rise

Employers with workers living in New York will pay more in 2009 to help fund a state pool used to pay for graduate medical education, among other things.

The pool is funded by a so-called covered-lives assessment on employers with employees in New York. The highest assessment will be imposed on employers with employees living in New York City. Their annual assessment will increase in 2009 to $543.20 for employees with families, up from $494.50, while the annual assessment for employees choosing single coverage will rise to $164.61 from $149.95.

The amount of the assessments is lower in other parts of the state. For example, the annual assessment for family coverage in 2009 will be $102.08—up from $87.28—per employee for employers with employees living in Western New York, which includes Allegany, Erie and Niagara counties, while the assessment per employee for those choosing single coverage will be $30.93, up from $26.54.

Those annual assessments are levied in addition to a special, six-month supplemental assessment that expires in April 2009. For example, employers with employees in the New York City region pay an additional supplemental assessment of $22.60 for each employee choosing single coverage and a supplemental assessment of $74.58 for each employee opting for family coverage.