I suppose you could call it the District of Columbia Full Employment Act.

This is how the Republican opposition graphically portrays what will happen if the plan is enacted in its present form:

Just for laughs, let’s highlight some of the new czars, boards, commissions, and task forces that will likely emerge from this attempt at reform:

A new “Health Choices Commissioner” would head a new “Health Choices Administration.” This would be separate from the now existing Department of Health and Human Services, Centers for Medicare and Medicaid Services, the Veterans Health Administration, and the Indian Health Service. What do those guys know about health care anyway?

There would be a “Public Health Investment Fund” and a “Health Insurance Exchange Trust Fund.” Naturally, the politicians would be appointing their friends and family to run these “funds.”

Moving on, a new “Bureau of Health Information” would be born. Apparently, the already existing National Center for Health Statistics isn’t doing its job.  This new Bureau needs a new bureaucrat, the  “Assistant Secretary for Health Information.” This person would  work with the  “National Coordinator for Health Information Technology”, a recent creature of the stimulus plan. Let’s not forget that this new Bureau would get its own personal “ Office of Civil Rights” and “Office of Minority Health.”

Need a job?  How about “Senior Advisor for Health Care Fraud” and “Senior Counsel for Health Care Fraud Enforcement?” These are new positions created by the plan. So what if we already pay for a federal “Health Care Fraud and Abuse Control Program?” Those guys are so old school and certainly can’t be expected to control the new-fangled fraud that’s coming.

I haven’t mentioned any “councils” yet. Any health care bureaucracy that’s worth anything needs at least one of those. Not to worry – Obama Care has the “Health Care Program Integrity Coordinating Council.”  I’m guessing that’s to make sure that the right friends get the right jobs. If not, the proposed new “National Health Care Workforce Commission” can handle it.

I’m sure I’ve left a few out. No offense intended to those future bureaucrats.

Can you image trying to identify the person within this maze that you will need to call to get a medical bill paid?

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The easiest way to review the bill is using the HTML version posted by the Library of Congress. It is well organized, easy to read, and simple to navigate.

Although Mr. ToughMoneyLove is also a pundit of sorts, here are my suggested sections for “must see” reading:

• Prohibiting Exclusions for Pre-Existing Conditions  (Section 111)
• Required Benefits Package (Section 122)
• The Public Health Insurance Option (Section 221)
• Health Coverage Participation Requirements (Sections 311-312)

Pay particular attention to the potential effects on small business, including the requirement in Section 312 that the employer pay at least 65% of an employee’s premium for full family coverage.

After you review the Bill, don’t forget to read the cost estimates for the proposed “reform” as provided by the Congressional Budget Office. According to the CBO, the new reforms will not be deficit neutral as promised by the White House.

I believe that the essential provisions of the law will remain as now stated in H.R. 3200. What will be left for most of the debate and reconciliation process is how to pay for it.

Let me know what you think.

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On the other hand, I get tired of reading about Congress extending unemployment benefits yet again for the millions of unemployed.  And today the Conference Board predicted that another two million jobs could be lost in 2009.

It’s not that I don’t want the unemployed to have some income when they can’t find a job.  It’s that I’m not sure that the system we have in place to finance unemployment benefits is a good one.

First, a little review.  The unemployment insurance system is jointly operated by the state and federal governments.  It is financed by state and federal payroll taxes.  Under the Federal Unemployment Tax Act (FUTA), the federal tax rate is 6.2% of taxable wages applied to the first $7,000 of income.  Most of the federal payroll tax can be offset by state unemployment taxes, which vary from state to state, as do the benefits.  All of the state and federal unemployment insurance payroll taxes are paid by the employer.  This is the part that I question.

I am part owner of a small business and have some familiarity with the unemployment insurance system.  For one thing, the state payroll taxes in many states are experience rated.  This means that if an employer has an ex-employee claim and receive benefits, unemployment taxes go up.  This creates incentives for employers to fight unemployment claims made by employees who quit or who are fired because they do a lousy job or suffer from frequent bouts of the Napa Valley flu a/k/a recurrent hangover disease.  (Yes, we had one of those working for us for a while.)  The problem is that to fight a claim, you could end up having to appear in front of a state hearing officer or administrative law judge for a mini-trial, etc.  That’s usually more trouble than it’s worth.  I actually represented our business at one of those hearings.  Without going into detail about the testimony from the former employee, the word “fabrication” sticks prominently in my mind.

Now let’s say you are a small business in Massachusetts, which is relatively generous in its benefits.  (No surprise there – it’s the ancestral home of the Kennedy clan as well as dear Barney Frank.)  The unemployment tax rate in Massachusetts can go as high as 10.3% and the weekly benefit can be as much as $900 (if you have lots of dependent children).  I don’t know about you, but I could do OK for a while on $900/week tax deferred.  We have had a few employees go through the same analysis with not so generous benefits.  Quitting (or forcing a termination) and claiming unemployment is sort of like a mini-vacation to them.  You can tell when that happens because a new job suddenly materializes only when their unemployment benefits run out.   Meanwhile, our tax rate goes up.

So why don’t employees pay unemployment insurance premiums?  Is it fair that employers carry all of the risk even when some employees can obtain benefits by quitting or getting fired?  When employers are forced by economic conditions to reduce payroll, whose fault is that?  And when Congress decides to extend enemployment benefits (like it has been doing serially in recent months), we are all paying for that with our tax dollars because there are not enough employer-financed premiums in the system.

I think maybe we should treat unemployment insurance taxes like the Social Security payroll tax but with a twist.  Employers and employees each contribute, just as they do for Social Security.  That way, they share the risk.  The twist is that some of the unemployment payroll taxes are credited to the employee’s personal account.  If the employee and employer do well and no one loses their job, perhaps some of the unemployment insurance taxes can be invested and returned to the employee as an extra retirement benefit.  That creates a positive incentive for all employees to work hard and stay employed.

FUTA has been around since 1935.  The tax rates and wage base hae been tweaked but not much else has changed since then.  I’m not an actuary so I might be overlooking some critical factor in my analysis.  Maybe someone can explain to me why the present system of financing unemployment benefits is the only one that works.  Considering that the government designed the system to begin with, I doubt it. 

How about it readers?  Do you think change is needed?

Image credit:  Ayhan YILDIZ

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Unfortunately, I have been reading articles in my local paper and elsewhere that some people are saving money in ways that are shortsighted and financially risky.  That got me thinking that maybe someone should point out those mistakes and perhaps prevent others from doing the same things.   So I appointed myself – Mr. ToughMoneyLove – to do that job.

1.  Don’t save money by cancelling you car insurance.  Yes, I’ve read that there is a big upsurge in people dropping their automobile insurance.  There are several very good reasons not to do this.  

First, many states require that owners of vehicles registered in their state carry liability insurance.  In fact, some states will not even register a vehicle without that proof.  At the least, if you are pulled over for a traffic violation and are not insured, you will get an extra ticket and fine.  

Second, most lenders and lessors require that you carry insurance covering any car that is financed or leased.  If you breach the loan or lease agreement, an aggressive lender/lessor can call the loan or cancel the lease.  

Third and foremost, you need at least liability insurance to protect your assets in case of an at-fault (or alleged at-fault) accident.  Even if you are not at fault, just having to hire an attorney on your own to defend you can cost you thousands.  You also need to keep your uninsured motorist coverage to protect yourself in case an uninsured driver hits you.

If you want to drop collision coverage (if your loan or lease agreement permits) and/or raise your deductibles, fine.  But do not cancel your insurance altogether.  

2.  Don’t save money by cancelling your disability insurance.  If you are employed, and particularly if you have dependents, long term disability insurance is critical.  You are much more likely to experience a period of disability than you are to die.  If you become disabled, who will pay the mortgage, pay the rent, or buy food for you and your family?  If you have a substantial emergency fund, perhaps you can reduce the premiums on your disability policy by increasing the waiting period.

3.  Don’t save money by cancelling your life insurance.  This admonition applies only if you have dependents who will suffer financially if you die.  Do not sacrifice their long term future to save a few bucks now.  If you have whole life insurance, see if you can convert it to term.  Alternatively, if you cannot qualify for a new term policy, see if you have enough cash value in your existing whole life policy so that your premiums can be paid from policy dividends.  Sometimes your agent won’t let you know that this is an option.  It is for many policies.  If not, then perhaps you can borrow against the cash value to get the money you need.  This keeps the protection for your dependents in place.

You can probably see a pattern here.  Most insurance is intended to help you manage financial risk.  In many cases, if you don’t have those financial risks under control, your Plan B is bankruptcy (for you and/or your dependents.)  In this age of economic uncertainty, risk management should be right near the top of your routine planning agenda.

This week my writing appeared in the Carnival of Personal Finance.  You should have a look at all of the excellent articles.

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We are now in the peak holiday party period.  You and I are being confronted regularly with arrays of tempting food and drink, most of it not good for us.  I am trying very hard to be a good boy since I lost 52 pounds earlier this year and I do not want to backslide.  (Had to throw that one in – it is my birthday present to myself.)

This is also the time of year when people start contemplating the ubiquitous (and rarely to be complied with) New Year’s Resolutions.  I haven’t researched this but I feel comfortable in stating that “lose weight” and “save money” probably run in the top 5 on most lists.

Well it turns out that money and weight are more closely tied together than perhaps some of use were aware.  

As reported in a Wall Street Journal blog,  a study of overweight adults concluded that those who were paid to lose weight were much more effective in accomplishing their weight loss goals than those who did not receive a financial incentive.  In other words, for the obese and overweight in this study, money makes the pounds come off.  And those actual health benefits from weight loss?  In comparison to money, who cares?  (if you are interested, here is the actual JAMA study abstract.  Thanks to reader Matt for the tip on this.)

If you think about it, that is a very sad commentary on human motivation in our society.  Mr. ToughMoneyLove likes money as much as the next guy but please folks, let’s look at ourselves in the mirror and not let dollar signs obscure those muffin tops and extreme love handles.

So how does this psychological curiosity affect the rest of us, including those who are not overweight?  Most of us pay for health insurance, either directly or indirectly.  For private or business group insurance, our premiums are based on the health experience of others in the group.  Unfortunately, most of those “others” in the group are and will continue to be overweight.  Some experts predict that based on current trends, 86% of Americans will be overweight by 2030.  In money terms according to those same experts, almost a trillion dollars will be spent on weight-related health conditions, representing one of every six dollars spent on health care overall.  Wow.  Can you say pass the gravy?

I don’t know about you, but I am not interested in spending my tax dollars and insurance premiums supporting other folks’ fat maintenance programs.  And yes, it will cost all of us.  With the Obama team on the way, the move toward a national health insurance and/or health cost sharing program will accelerate.  As that happens, increasing attention should be paid toward the cost factors associated with being overweight.  In fact, some state governments with lots of fat people on the payroll (sorry Alabama, too much barbecue and cornbread I guess) will be charging overweight employees $25/month for health insurance that is provided free to employees who are not overweight.  (Do you think they read that weight loss incentive study?)

Some people don’t think that being overweight is a good reason to be charged more.  Our dear friends at the ACLU have already coined a phrase for this:  ”lifestyle discrimination.”   The ACLU has decided that it doesn’t think much of lifestyle discrimination in the workplace.  You can be sure that the ACLU “fat people action team” will be telling the Obama health care team not to make the overweight pay any more than the rest of us for workplace or government sponsored health care.  Maybe we all should send copies of the JAMA study to our Congresspersons so that they will know that money can be a powerful weight loss incentive.

Be ready taxpayers.  This will be a huge issue and an important one for your wallet and tax bill.

In response to the ACLU position, I enjoyed this tongue-in-cheek comment left at one news article about what the state of Alabama is planning for its overweight employees:

This is discrimination plain and simple. Fat people are not responsible for their physical state. Alabama should tax KFC, McDonalds, and the cable TV companies to cover the cost of health insurance. Fat people unite!

I couldn’t have said it better myself.  What do you have to say about it?  (And stop eating those Christmas cookies.  No?  How about if the government gives you a quarter?)

Related posts:

1. Money Advice for Parents of Kids who are Grad School Wannabees

Long-Term Care Insurance is Not Just for the Elderly

Before you browse away from this page thinking that you are too young to be thinking about long-term care insurance, please consider the following:

58% of claimants under long-term care policies are under age 65.

15% of long term care claimants are under age 45.

The majority (66%) of insured long term care is provided in the home; only 17% is provided in a nursing home.

The number one cause (30% of claims) for needing long term care is cancer, not dementia or other age-related ailment.

(Source:  UnumProvident Study)

The AARP provides this data on the average U.S. cost of long term care:

$5,566 a month for a semi-private room in a nursing home

$6,266 a month for a private room in a nursing home

$2,968 a month for care in an assisted living unit

$19 per hour for a home health aide

I trust that these statistics have persuaded you to keep reading.

The Recent Market Collapse Creates a Need for More Financial Risk Management

Millions of working adults have experienced dramatic declines in their retirement savings.  Many of them do not have pensions and are within 10-15 years of anticipated retirement.  These folks may need to take increased investment risks in an attempt to more quickly recover from their losses.  To consider taking on more risk on the investment side, responsible investors should compensate by reducing risk in other areas.  That’s where long-term care insurance can play a role.  A worst case scenario is to lose everything to a health disaster while trying to regain what has been lost in a market disaster.  You want to insure against such a scenario.   Stated another way, the more that you can insure against a financial risk, the less you need to be concerned about having a retirement nest egg large enough to cover that risk.

Long-Term Care Partnerships Make Insurance More Valuable

One of the biggest problems and dilemmas in considering long term care (LTC) and LTC insurance is the role of Medicaid.  Stated simply, Medicaid regulations require the sick or injured person to effectively exhaust all personal assets before Medicaid can be used to pay for long term care. Healthy adults considering LTC insurance will mentally weigh the premium costs against the value of the assets that would be at risk before Medicaid could be used.

The Deficit Reduction Act (DRA) of 2005 changed the game somewhat.  Under the DRA, a state can adopt insuranceregulations that establish Long Term Care Partnerships applicable to residents of that state.  The “partnerships” are between long term care insurance companies and the state’s Medicaid-qualified long term care program.  The primary benefit of the Partnership is to allow a beneficiary of long term care to retain more assets yet be eligible for LTC reimbursement by Medicaid. This is done by purchasing a long-term care policy that meets Partnership regulations.  If you do, then you can obtain Medicaid LTC benefits without depleting all of your assets.

It works like this.  Assume that you are insured under a LTC policy that pays you $300,000 in benefits, after which the benefits are exhausted.  You can then become eligible for long term care under Medicaid.  However, instead of having to spend down all of your own assets to achieve eligibility, you are allowed to retain an amount equal to the insurance benefits you received.  In this example, you could retain $300,000 in personal assets while receiving Medicaid long term care.  That’s quite a difference.  It puts you in a much better permanent financial position compared to someone who did not have long term care insurance.  Those folks must still render themselves almost penniless before they are eligible.

More states are implementing insurance regulations that create these Long Term Care Partnerships.  Our state did so, effective October 1.  You should check with your state Department of Insurance to determine if your state is on board or if it will soon join the Partnership program.

It’s important to understand that not all long-term care policies are eligible for the Partnership program.  An important requirement of the regulations is that, for those under age 65, the policy must include compound inflation adjustment of the benefit. That adds cost to the policy but it’s a worthwhile feature.  Make sure you inquire about this issue when discussing a new policy with an agent.

Group Long-Term Care Coverage is More Affordable and Accessible

Another reason why Mr. ToughMoneyLove is actively exploring long term care insurance is the discovery that group LTC coverage can save a lot of money and a lot of underwriting. Our firm is in discussions with a major provider of long-term care insurance.  We are being told that with a minimum number of employee participants, we can obtain LTC coverage for employees and employee spouses, at a discount of 25%-35%. These LTC policies are also transportable, meaning that when I retire, I can take the policy with me, as long as I keep paying the premiums.

Another important feature of the group long term care policy is that there is virtually no underwriting.  You answer four simple health questions and that’s it.  That is critical to me because Mrs. ToughMoneyLove has chronic health problems that would likely disqualify her from obtaining a separate LTC policy.  For the group policy, none of the four health questions relate to the problems she has.  This means that I will be able to purchase the LTC insurance for her and at normal rates.

A last point about group long-term care coverage is that you don’t need your employer to pay for all or even very much of it.  If you are in a small business like ours, a group of interested employees can come together and seek out a plan that would work for them, then present it to the business owner as an option to consider.

As perhaps you can see, although we remain invested for the long term, recent economic events have prompted me to explore other money strategies and tactics to help us reach our financial goals.  Using long-term care insurance to cover a significant financial risk is one of those strategies.

Are any of you looking to insure against financial risk?

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To everyone in Texas who suffered a personal loss from Hurricane Ike, Mr. ToughMoneyLove extends you sympathy and hope for a rapid recovery. 

I also hope that you have excellent insurance and that you are current on your premiums.  

I hope that we don’t end up paying your insurance premiums in the form of another increase in the federal deficit.  We’ve already done this in response to the Katrina debacle (and I’m sure the federal government is still bleeding money to the Katrina “victims.”) 

But Please Move Somewhere Else 

Finally, our hope is that you find another place to live that is not near Galveston. 

Do I sound frustrated?  Well I am frustrated.  The hard truth is that Mr. ToughMoneyLove is disturbed that our government has assumed the role of insurer of first and last resort.  (Did I say “our” government? It doesn’t really feel like it belongs to me.  I only get the bills.)  What is worse, so many people now expect this behavior, including for natural disasters that are 100% certain to occur.  It’s wrong and I’m sick of it. 

An Epidemic of Government Rescues and Bailouts

Just in 2008, the government committed billions to the Bear Stearns rescue and the Fannie May and Freddie Mac takeovers, effectively providing financial insurance to these grossly mismanaged enterprises.  The feds are plotting as I am writing this to do something for Lehman Bros.  Ford, GM, and Chrysler are no doubt carefully putting together their respective government bailout strategies.  The list seems never ending. 

I fully expect that the taxpayers are going to get a huge bill for re-building Galveston and environs.  The people of Galveston are good, tough folks who deserve help but I don’t want to pay to rebuild a stick of Galveston?  Why?  Because there shouldn’t be anyone living there.  It’s a weather disaster waiting to happen.  Statistically, Galveston is affected by a hurricane every 3.04 years.  Hurricane disasters have happened to Galveston before Ike and they will happen after Ike.  And I for one don’t want to pay for it.  I also don’t want to see people killed because they don’t have the sense to move or even evacuate when told.

You Can’t Stop Mother Nature with Money 

As of August 2006, Congress had enacted $82 billion in emergency supplemental appropriations for Katrina related rebuilding, including going to extraordinary lengths to fortify substantial areas of New Orleans against the natural movement of water.  This is on top of diversion to New Orleans of billions of already budgeted FEMA and other government funds.  Those people shouldn’t be living there either.  It’s gonna happen again, as the forces of nature are always superior to futile attempts to control them.   It’s the same for financial disasters caused by gross mismanagement. 

The Oil Companies Can Solve Their Own Problems 

Now readers are thinking “What about the refineries? Who will work there?”  My answer is that I don’t care.  They will find folks willing to make the drive or they can move their refineries somewhere else.  I have lost all empathy and respect for the oil industry, starting with OPEC and Hugo Chavez, right on down to our local gas stations that jerked retail gasoline prices over $4.00 before Ike even hit the coast.  The oil companies have plenty of money and a heckuva lot better cash flow than our federal government.  Let them handle their own problems, including building and staffing refineries where people don’t have to endure hurricanes on a regular basis.  The net cost to me will be less.  Any pennies I save on gas by having refineries adjacent to tanker ports are easily sucked up by disaster relief funds.  The lives that will be saved are worth it no matter the cost of gasoline. 

OK, I feel better after my rant.  I’m curious, is anyone else upset by the increased role of the Uncle Sam All-Risk Insurance Company?

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