Saturday, December 26, 2009

IMHO: Health “Care”

Like most Americans who have health insurance (and most do), I’m reasonably happy with what I already have. And like many Americans, I’m willing to take the President at his word from the campaign trail—that if you like the insurance you have, you’ll get to keep it. But as I study the text in the two bills that will have to be merged to create legislation to fulfill that promise—well, I have to tell you, I’m not sure how that’s going to happen(1).

That matters, IMHO, not only in the here-and-now world of paying for health care versus saving for retirement (and there’s plenty of evidence to suggest that many participants are making those trade-offs), but even more so in the post-retirement world where those burgeoning health-care costs stand to siphon so much from nest eggs that are perhaps already insufficient.

But make no mistake—I’m all for health-care reform, just not for what is currently proposed under that banner in Washington.

“For” Score

I’m all for some kind of safety net for those with preexisting conditions, more equitable treatment (and costs) for those who don’t have access to employer-sponsored plans, the ability to buy insurance across state lines (as we do with car insurance), and, yes, some kind of tort reform.

I think we all need some kinds of protections against bearing the cost of “insuring” those who can afford, but choose not, to buy insurance (by some estimates, half of the 30 million that the Senate bill purports to extend coverage to fall into that category)—and, heartless as it may seem to some, I do not see why we must bear the cost burdens for those who are not legally entitled to be here (the “you’re already paying for it” argument doesn’t wash with me). I also think that a lot of our current cost problems with health care aren’t necessarily a product of a bloated healthcare system or profit-mongering insurance companies – but are a function of what state law(s) require that insurance cover; things like hair plugs, Viagra, etc. And, yes, I think there should be a difference between procedures performed by a doctor that are truly medically necessary and those that are, at least effectively, “cosmetic.”

However, one cannot credibly say that the current system is “working.” Everyone who wants health insurance can’t get it, those with preexisting conditions have trouble obtaining—and keeping—the coverage they have, and the current cost trends are unsustainable for us all. IMHO, Americans with health insurance are too well-insulated from the cost consequences of their choices(2)—and doctors are more worried about the litigious aspects of their proscriptions than they are the costs of their prescriptions. Until those dynamics change, I see little hope for bending, much less breaking, the cost line trends in health care.

That said, I don’t see anything to address any of that in the bill that has passed the House, or in what I have thus far been able to discern in the bill that, just last week, passed the Senate. This is serious business—and it deserves better than the process that stands ready to undermine the protections that the vast majority of Americans enjoy with their health care for a distinct minority that do not.

That’s why I’m hoping that this current effort stalls out—to give us a chance to step back, and truly examine the things that need redress as we try to fix what’s broken (and not everything is), and keep what works (though not everything does). That, as we do so, we acknowledge and respect the breadth of impact that these decisions will have on our nation and our lives—and that lawmakers consider the interests of the many, as well as the few.

In short, I’m hoping that this current effort comes up short—not because we don’t need health-care reform, but because we do.

Nevin E. Adams, JD

(1) For those who see a role for the federal government in bringing about change as a competing force (the so-called “public option”), I’m not yet able to see the benefits that that not-so-invisible hand has exerted as a force for change in the 48% of the nation’s health-care costs it already influences (via Medicare/Medicaid). For those who see an opportunity in expanding those already-strained programs as a means of dealing with the current “crisis,” I wonder about their ability to take on an even larger responsibility. For those who champion the opportunities to be afforded by wringing “waste and inefficiency” from the system, I say—why wait?

(2) As I changed employers a decade ago, I learned a couple of key lessons about health care and health-care insurance. First, I gained a whole new level of appreciation for the costs of health-care insurance—even costs buffered by the provisions of COBRA (ever since, I have maintained that every employee ought to “go on COBRA” for 30 days). However, my second insight came from an encounter at our local physician. My wife took our kids for the regular wellness checkups she had been doing routinely for years—and when the time came to pay, she informed the clerk that we no longer had the insurance card/coverage, but that we’d be writing a check for the services. With no additional explanation, that dear clerk basically ripped up the invoice that would have been paid by our insurer—and presented us with a bill that was a fraction of the “standard” cost. This, despite my wife’s assurances that I was still employed, and that we could afford to pay the standard rate; there was, apparently, a different charge for those that had insurance, and those who didn’t.

Sunday, December 20, 2009

Naughty or Nice?

Editor’s Note: There’s so much going on in the world of retirement saving and investing that I never feel the need (or feel like I have the opportunity) to recycle old columns – but this one has a certain “evergreen” consistency of message that always seems appropriate – particularly at this time of year.

A few years back—when my kids still believed in the reality of Santa Claus—we discovered an ingenious Web site that purported to offer a real-time assessment of their "naughty or nice" status.

Now, as Christmas approached, it was not uncommon for us to caution our occasionally misbehaving brood that they had best be attentive to how those actions might be viewed by the big guy at the North Pole. But nothing ever had the impact of that Web site - if not on their behaviors (they're kids, after all), then certainly on the level of their concern about the consequences. In fact, in one of his final years as a "believer," my son (who, it must be acknowledged, had been PARTICULARLY naughty) was on the verge of tears, worried that he'd find nothing under the Christmas tree but the coal and bundle of switches he surely deserved.

Naughty Behaviors?

One might plausibly argue that many participants act as though some kind of benevolent elf will drop down their chimney with a bag full of cold cash from the North Pole. They behave as though, somehow, their bad savings behaviors throughout the year(s) notwithstanding, they'll be able to pull the wool over the eyes of a myopic, portly gentleman in a red snow suit. Not that they actually believe in a retirement version of St. Nick, but that's essentially how they behave, even though, like my son, a growing number evidence concern about the consequences of their "naughty" behaviors. Also, like my son, they tend to worry about it too late to influence the outcome—and don't change their behaviors in any meaningful way.

Ultimately, the volume of presents under our Christmas tree never really had anything to do with our kids' behavior, of course. As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we expected it to modify their behavior (though we hoped, from time to time), but because, IMHO, kids should have a chance to believe, if only for a little while, in those kinds of possibilities.

We all live in a world of possibilities, of course. But as adults we realize—or should realize—that those possibilities are frequently bounded in by the reality of our behaviors. This is a season of giving, of coming together, of sharing with others. However, it is also a time of year when we should all be making a list and checking it twice—taking note, and making changes to what is naughty and nice about our savings behaviors.

Yes, Virginia, there is a Santa Claus—but he looks a lot like you, assisted by "helpers" like the employer match, your financial adviser, investment markets, and tax incentives.

Happy Holidays!

Nevin E. Adams, JD


The Naughty or Nice site is still online (at An improved site and much better internet connection speeds produce a lightning fast response – more’s the pity. I used to like the sense that a computer was actually having to crank through the data!

Saturday, December 12, 2009

'Holding' Patterns

In one of the more challenging economic years in memory, it is not surprising that the pace of change set in motion in defined contribution plans by the Pension Protection Act slackened. If anything, IMHO, it is remarkable that the adoption of devices such as automatic enrollment and contribution acceleration did not decline.

That said, among a record number of respondents to PLANSPONSOR’s annual Defined Contribution Survey, the pace of automatic enrollment basically flatlined—just 30.8% of plan sponsor respondents said they now employ that approach (though more than half of the largest plans now do), compared with 29.8% a year ago. And, even after the encouragement afforded by the PPA, among those that have adopted automatic enrollment, only about four in 10 extended that to all workers (the rest applied it to newly hired workers only). Perhaps as a result, the average participation rate declined—slightly—to 72.3% this year from 73.8% a year ago, but was nearly unchanged from the 72.7% in the 2007 results.

Despite all the headlines about a variety of firms’ 401(k) match suspension, only about 5% of this year’s respondents had reduced the company match/contribution, with a like number saying that they had eliminated it. Another 5% each were contemplating either cutting or suspending the match. The most encouraging news was that nearly eight of 10 had no plans to reduce, suspend, or eliminate the match, and that, even among those that had, nearly one in four planned to restore it for 2010, while roughly 60% said they planned to remain at the cut or suspended level next year.

Is change in the air? Some, apparently—and for the very most part, it is about “more,” not less: 15.5% have already added investment funds, and 17% have increased the frequency of their participant education. Roughly 9% had changed their qualified default investment alternative or QDIA (likely to a target-date fund), and nearly as many had increased their investment manager due diligence, slightly more than the 7% that had hired, fired, or changed their investment consultant. As for plans for change in the remaining months of this year (the survey was taken over the summer), the trends were much the same—though IMHO not surprisingly, in view of the recent attention focused on target-date funds, an intention to increase due diligence on their target-date option’s glide path registered much higher on the “to do” list.

Speaking of target-date funds, historical performance may not be a guarantee of future results, but for plan sponsors, that was nonetheless the highest-ranked criterion (6.07 on a 7.0 scale). However, advisers can take heart from the finding that the second-most valued criterion was the recommendation of a financial adviser (trumping fund-family reputation, risk profile, glide path, and fees).

Interestingly enough, the lowest-ranked criterion was the recommendation of their DC provider. That doubt showed up in another telling statistic: Nearly 28% of this year’s respondents said they were “not sure” if the target-date funds offered by their provider were the most appropriate (that was, however, down from the 35% that expressed that opinion a year earlier—BEFORE the market plunge).

Without question, the past 12 months have brought much in the way of change to our industry—and much of that not change for the better. And yet, all in all, it is, IMHO, amazing how resilient employers and their plan designs have proven to be. We have perhaps not made much forward progress in the past year—but there’s something to be said for being able to hold the line.

—Nevin E. Adams, JD

Saturday, December 05, 2009

Question Errs?

Several years back, we decided that our family was ready to upgrade to a high-definition TV (in fairness, that “decision” was in no small part predicated on the untimely “death” of the big-screen projection TV that we had purchased not too long after we married).

So, I did what any reasonable consumer would do— – I went to my local appliance warehouse to see what was available. In short order, I was able to enlist the support of a trained professional (a “professional,”, it should be noted, who turned out to be younger than the TV that we were replacing). Not that he wasn’t helpful, after a fashion. But there in that “showroom,”, it was hard for me to see (or appreciate) all the subtle differences that purported to explain the occasionally significant variances in price. Moreover, he spoke in alien terms that were clearly something I was supposed to understand— – but didn’t. And, while I don’t mind probing for explanations, after a while, even the most diligent shopper gets tired of sounding – stupid. Ultimately, he was telling me the things that he (or the TV manufacturer) thought were important, – but I had no context for what those meant to me. Furthermore, while he seemed perfectly willing to answer any questions I had, - I didn’t even know the right questions to ask.

Like my broken projection-screen TV, when it comes to workplace retirement plans, – problems— – or, more accurately, a desire to remedy them— – all too often are the driving force behind making a provider change. But, while that “necessity” may force that shopping excursion (rousing many a too-busy plan sponsor from their daily challenges), it is precisely the wrong environment in which to make a thoughtful, reasoned, and, dare I say, prudent choice.

But, in the search/evaluation process, it’s worth noting that, IMHO, there is no "best" provider. There is, however, a best provider for each plan. That said, no matter how good a match you make today, odds are there will come a time when you will want—or need—to validate that decision. The reasons are myriad: circumstances change, people leave, programs grow, budgets fluctuate, and expectations expand. Oh, and if common sense alone were an insufficient reason, the Department of Labor itself reminds us that fiduciaries “should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements.”

But before you rush into the search process, it is imperative that you first understand what you are looking for.

IMHO, that process starts by understanding and evaluating the services you currently receive— – and knowing what you like and wish to preserve, – as well as what areas you’d like to improve and/or expand on. It starts by understanding and evaluating what you are currently paying for those services you currently receive, and deciding how much more you’d be willing (and perhaps able) to pay to expand those offerings.

And, yes, it starts by knowing what choices might now be available to you, – perhaps at little or no cost; – choices that you might not even think to ask about, choices that you might think are— – and perhaps once were— - beyond your price range.

It starts, as did my “search” for a new TV, with a sense of the right questions to ask.

Because knowing the right questions to ask is, IMHO, essential to getting the right answers.

- —Nevin E. Adams, JD