Crisis in Massachusetts nursing homes: MassHealth/Medicare payments are below cost.

One of the worst scandals of MassHealth's various instances of misconduct is its failure to pay the actual costs of the destitute nursing home patients who fall under their purview.  An OpEd article in today's Boston Globe highlights this.  Massachusetts has the dubious honor of being the fourth worst of the fifty states in paying these costs.  As a result, costs are shifted to private patients, the quality of care is short-changed for everyone, and nursing homes are going bankrupt.

Here is a paragraph for the article, "Nursing homes need funding as well as oversight" by Richard Bane, a former nursing home manager.

"The real story is that over the last decade Massachusetts Medicaid reimbursement of nursing homes has been stagnant, resulting in our Commonwealth having the dubious position of being the fourth worst state nationally in underfunding skilled services. For the two-thirds of residents in a nursing home in Massachusetts who are paid for by Medicaid, the state pays $37 per day below cost, at a rate of only $8 per hour of care."

The article can be accessed by clicking on the melancholy image below:

Online retirement calculators and Procrustes' bed

The Saturday, February 20th issue of the Wall Street Journal had an article that questions the validity of retirement calculators.  Researchers at Texas Tech in Lubbock, Texas looked at many examples, including from Fidelity, AARP, T.Rowe Price, Vanguard and Market Watch.  The researchers found that the calculators often found the users to be in good shape for a decent retirement when a more detailed analysis showed that they were in trouble.  The calculators were usually too optimistic.

I have noticed this problem with the calculators.  They focus on average costs and aspirations rather than on the user's actual costs and plans.  This makes sense is you're average, but very few people are. I was reminded of the Greek myth of Procrustes's bed.  Procrustes was a brigand who stopped travelers between Athens and Eluesis when they passed by his mountain stronghold and offered them a bed for the night.  If the bed did not fit them exactly, however, he would cut off the legs or stretch them to make them fit.  He had a weird sense of humor.

In like manner, the calculators try to make the prospective retiree fit into a set size.  For those of us living in high cost regions, like Massachusetts, a higher-than-average income is a necessity.  What this means is that it would make a lot of sense for retirees to plan to move immediately when they retire.  Don't wait for a few years and use up all your savings before you are forced to make the change.  Even moving from the Boston area to the wilds of Berkshire County at the western end of the state can reduce costs dramatically.  Iowa might be even cheaper.

You can access the article by clicking on the image below:

The article evoked some interesting comments.  Here is one of my favorites, from a financial planner named Ginny Butterworth:

"THE best retirement planner is a pencil and piece of paper. As a financial adviser the first step for my clients was to have them prepare a budget of their present financial life, next a budget based on (presumably) reduced expenses in retirement and only then look at income sources and how to finance their retirement expenses. The problem? most clients have no idea how much they spend, much less what expenses are optional and the bigger problem, few people want to take the trouble to prepare a budget. So folks, if you plan to retire someday, start planning now by preparing an annual budget and identifying some $ you can save every month, however small."

Long-term hospice care a boon for the elderly with severe dementia and other terminal conditions

A lengthy article in today's Wall Street Journal deals with the rapid growth of spending by Medicare on hospice care.  As you know, Medicare pays 100% of hospice costs and this is available to all seniors.  To qualify for hospice, a senior must have a terminal illness and must agree to forego attempts to prolong life. The goal is to make the dying person as comfortable as possible. Most hospice takes place in the patient's own home with nurses, aides, counselling, etc. paid by Medicare.

Medicare spending on hospice doubled over the nine years ending in 2013, to $15 billion.  The main reason is that patients with dementia are increasingly qualifying for hospice and living a long time with a lot of services. Traditionally hospice had been for people with incurable cancer.

Hospice is an excellent service.  Families of frail or dying seniors should consider hospice care. Many seniors go in and out of hospice, which as I said is usually in their own homes, several times and sometimes recover enough to go off hospice.  Hospice relieves the family and the senior of the cost of this expensive level of care.

You may access the article in question by clicking on the graphic image below:

MassHealth/Medicaid cuts endanger nursing home residents

There has been a lot of ink in the newspapers about deficiencies at Massachusetts nursing homes. These deficiencies are real, and MassHealth is quite correct in coming down hard on nursing homes that exhibit problems.  What is not sufficiently addressed, however, is that MassHealth is largely responsible for these problems by underfunding nursing homes to the point that  most of them in the Commonwealth are now losing money.

There was a good letter to the editor in today's Boston Globe.  You may access the the letter below or by clicking on the text to go to the Globe's web site:

Margolis' useful summary of 8 more ways to protect your home from the claws of MassHealth/Medicaid

In his blog, Harry Margolis, Esq., one of Massachusetts' leading estate attorneys, lists eight ways to protect your home from Medicaid claims if a family member is in a nursing home and no previous planning has taken place.  (It is better to plan ahead, however.  In a previous blog he had written of using trusts five years or more prior to requiring nursing home care.)

The eight ways are the following:

1. Rent out the house
2. Transfer to a spouse
3. Transfer to sibling with equity interest
4. Transfer to a caretaker child
5. Transfer to a disabled child
6. Transfer to a trust for a disabled individual under 65
7. Transfer to anyone if not in a nursing home
8. Hardship waiver

The full article is worth reading and can be accessed by clicking on the image below:

Realistic Retirement Savings goals

How much you need to retire depends on the level of spending you anticipate in retirement.

The table below assumes that you will be receiving social security or the equivalent.  It is interesting, and good, that inflation is assumed.  (These are investment amounts, not net worth, so what's tied up in your houses and cars don't count unless you cash them in.)

"The return of the tontine." A 16th century solution to a 21st century problem

In my book Nursing Home Nor’ Easter I discussed the history of the tontine, which are named after a Neapolitan banker, Lorenzo de Tonti, who flew to France after participating in an unsuccessful revolution around 1650. The tontine is a 17th century French invention much like an annuity except there is no insurance company involved. A group of people, perhaps thirty, of roughly the same age each contributes a set amount of money to a pot, let us say $1,000 each, for a total of $30,000. If this is invested at 5%, then $1,500 is distributed each year to members of the group, which is called a tontine. So the thirty are getting $50 each. As tontine members die, their income is divided among the survivors, so the $50/year income increases with each death, until eventually there is only one person. That person gets the $1500/year income or the $30,000 principal. This would be an astounding return on his investment of $1,000. It also solves the problem of inflation because people are assured of getting increased income over time should they be still living.  Think of it! As the member of a tontine, you would have income for life and that income would increase over time.

This is a wonderful solution to retirement except for one thing: there is an incentive for members of the tontine to knock one another off in order to increase their income and odds of getting the pot at the end. Because of this, tontines, which were prohibited in the US and some other countries in the 19th century.

I mention this because I just saw an article in the Los Altos Town Crier with the title “The return of the tontine: a means to diversify retirement income.” Tontines are being recommended by Moshe Milevsky of York University in Canada. This would be an excellent solution to the retirement problem, provided that we can get over our hang-ups about the occasional murder that would inevitably result.

The Real Marigold Hotel vs. The Bates Motel: Our choice

A few years ago a friend of mine moved his mother, who was suffering from dementia, from a nursing home in New Hampshire to one in Mexico.  The facility in Mexico was like a luxury resort where each guest had a private room, and in this it compared favorably to nursing homes in the US. The most striking difference, however, was the great respect with which the guests were treated and the loving and caring atmosphere.  In addition, it was cheaper, although this was not the motivation in this case.

I thought of the Mexico alternative when I read this article in the U.K.'s Telegraph newspaper:

Here is an excerpt from the article:

The Real Marigold Hotel

"One reason I loved The Real Marigold Hotel, which concluded last night on BBC Two, is because its uproarious cast of famous pensioners found a country where elders are respected, care is good and easily affordable and old age is something to be savoured instead of feared.

"That country is most definitely not the UK. Frankly, euthanasia looks like a cheerful option compared to the living death that awaits too many of our own senior citizens in extortionate “care” homes."

The author points out that ordinary nursing homes in the UK now cost more than sending a student to Eton. It sounds like the situation in the UK is much like that in the US.  We have one advantage: Mexico is much closer to us than India is to the UK.

Click here or on the picture to read the article, with is rather amusing.

What do you recommend to a client with elderly parents where the client is about to go to prison for a long time?

I saw the following question on Quora: "I'm about to go to prison. Maybe for a long time. My mom & dad are old. What should I do?"  (You can click on the question to read the discussion.)

The key word in this question is "about."  There is little one can do at this point.  The situation of this individual is instructive for others, however.  It is always worthwhile to prepare for eventualities well in advance, particularly if you are in a profession where there is an above-average risk of imprisonment.  But any individual could find himself in prison for one reason or another.

It is a good reason to put as much money into retirement accounts, which are generally protected in bankruptcy and in life insurance and annuities, which sometimes are.  Also, be sure to file your house as a homestead.  In Massachusetts this filing costs less than $100 and protects the primary residence. This is important because in prison there isn't any income and bankruptcy is often the result.

Why do we patronize super-expensive nursing homes that are cold and sterile?

Maybe it's because we don't think we have any choice.  With nursing home care costing $100,000-$150,000 per year, however, one would think that some of them at least could provide a warm and caring environment.

Here is a quotation from an interesting article in today's Washington Post:

"{To Bill Thomas, a geriatrician who is working to change American attitudes about old age, the promise [no nursing home] is a red herring. “It’s actually the only thing we know how to do because we don’t have the actual language to say what we’re really asking: ‘Promise me you’ll protect my dignity, promise you’ll protect my privacy, promise to make sure I don’t live in pain.’

“'Ironically the promise has led to significant amounts of abuse and neglect, because there’s a limit to what people can do.'

"It wouldn’t be necessary, he points out, if people demanded more from the nation’s nursing homes.

“'The nursing home industry has, ironically, benefited tremendously from the low expectations people have,” Thomas said. “They have successfully persuaded people that you’ve got no other choice — it’s got to be cold and sterile and rigid.'”

This is a matter that must be urgently addressed.  There are alternatives: A friend of mine, dissatisfied with the care in a New Hampshire nursing home, moved his mother to a luxury facility in Mexico that was not only cheaper but which provided a warm and loving environment in a resort hotel setting.  If that is possible in Mexico, why do our nursing homes resemble the ward in One Flew over the Cuckoo's Nest?

Please click on the picture below to read the full article:

Low interest rates force Genworth to suspend sales of life insurance and fixed annuities

It was bound to happen sooner or later, and now that it has happened we should expect a great deal more of the same.  Genworth, the country's biggest seller of long term care policies, has been experiencing big losses in life insurance and annuities due to low interest rates.

While I have not examined the financial statements of Genworth, we have known for some time that insurance companies, perhaps including Genworth, have been offering terms that are better than implied by current interest rates in the expectation that low rates would not go on forever.  They are probably right because nothing goes on forever, but low interest rates have gone on a great deal longer than almost anyone expected and some insurance companies have locked in a lot of losses.

Genworth has thrown in the towel.  They are cutting their losses.  They have decided to stop throwing good money after bad.  So they are out of the life and  annuity business until further notice.

We should anticipate that other companies will follow suit.

Here is the article about Genworth.

Crisis is Massachusetts Home Care for Elderly: State's costs up 82%

MassHealth is the Massachusetts name for Medicare.  Governor Baker has proposed a budget of $15.4 billion for MassHealth for next year, which would make MassHealth 40% of the Commonwealth's next budget of $38.5%.   Total Massachusetts spending on Health & Human Services is $20.3 billion, compared to $7.3 billion spent in 2000.  HHS has been described as "the blob that ate the budget."

The Boston Globe reported on February 4th that the governor had asked the attorney general to look into the 82% increase in home health care costs in the past two years for cases of fraud.  ("12 home health agencies probed") The state is on track to spend $755 mn this fiscal year for home care.  In addition to the investigation, the state has stopped paying some of the bills from home health care providers, jeopardizing their existence, according to the article.

This is very unfortunate.  It is true that MassHealth costs are out of control, but home care is part of the solution.  The state, operating under a Medicaid waiver, subsidizes home care in order to avoid the more expensive alternative of nursing home care.  This is also generally regarded by seniors as a much better choice in terms of the quality of their lives.  Of course home care is growing rapidly; this is because it is a success.

We must all agree, however, that supervision is appropriate provided it does not shut down or otherwise constrain the program's legitimate mission.

Looking at the bigger picture, MassHealth needs to be radically restructured if it is not to collapse as unfinanceable in a few years.  Good luck Governor Baker!

Sorry, retirees: You have a 30%-50% chance of running out of money before you die.

A recent study quantifies the risk of running out of money in retirement:

"What Causes EBRI Retirement Readiness Ratings to Vary: Results from the 2014 Retirement Security Projection Model®" By Jack VanDerhei, Ph.D., Employee Benefit Research Institute

The Employee Benefit Research Institute is a serious think tank in this fields and we usually do well to pay attention to its findings.  The report is fairly long, but one chart got my attention.  It is the following:

Even 15% of the top quartile people will run out of money.  Let's hope our kids will take care of us.

(You can see the full report by clicking on the graph above.)

Retirees spend less than when they were working, but is this voluntary?

There have been a number of articles recently that point out that retirees tend to spend 70% or 80% of what they did when they were working.  This message is intended to reassure people that their savings may not be as inadequate as they feared.  Maybe the social security plus a $1000/month annuity payment will be enough?

Of course, you can't spend more than you have.  The typical 65 year old retires with a net worth of only about $130,000 and is constrained by this.  Most healthy retirees would like to travel more and do more things than they did during their working years, but they haven't got enough money, so they make do on less.

The big wild card is health care costs.  If we were to remain fairly healthy and then die at home one night unexpectedly at 85, the numbers might work.  On the other hand, almost no one has enough money for the most expensive costs, like prolonged nursing home stays, so why bother saving?

The present system is dysfunctional.  We need a better Medicare system that covers such things as nursing home care and prolonged home care with reasonable deductions and copays, just like is done in all the other advanced economies.

Here is the upbeat Wall Street Journal report on retirement spending.  Please click on the picture.

My back is killing when I get up in the morning; yours may, too.

Here is a video from AARP with some good back advice.  In a nutshell, the good doctors say, "Keep moving." I would add that being a fidgeter is a good thing.  Welcome the opportunity to go back upstairs when you forget something because that is a chance for beneficial movement.

Don't forget, activity prolongs independance.

Policy leaders present ideas to meet long-term care crisis. But the ideas need to become policies

The Bipartisan Policy Center launched an initiative that it describes as follows:

"In December 2013, BPC launched a Long-Term Care Initiative under the leadership of former Senate Majority Leaders Tom Daschle and Bill Frist, former Congressional Budget Office Director Dr. Alice Rivlin, and former Wisconsin Governor and Secretary of the U.S. Department of Health and Human Services Tommy Thompson. BPC’s Long-Term Care Initiative seeks to raise awareness about the importance of finding a sustainable means of financing and delivering long-term services and supports, and to improve the quality and efficiency of publicly and privately financed long-term care."

The participation of Tom Daschle, Bill Frist, Alice Rivlin, and Tommy Thompson is worth of note. The study can be access by clicking on the image below:

The problem is long-term care for seniors and others who might be disabled.  The study notes that long-term care insurance is not working for the following reasons:

1. It is not affordable.
2. Coverage has become increasingly restrictive.
3. Insurance companies have been losing money on this sort of coverage as costs have skyrocketed. (I would note that most insurance companies have gotten out of the business.)

The report, which is preliminary and not yet very substantive, does make the following excellent recommendations:

1. Long term care insurance premiums should be made tax-deductible.
2. Some sort of long-term care, including home care and nursing home care, should be made part of Medicare.
3. The use of Medicaid-paid at-home alternatives to nursing homes should be expanded.

The long-term care crisis is enormous.  At  least people are talking about it now.  Perhaps something will eventually be done.

Mass. Attorney General Healey threatens to sue over high drug prices

Gilead Sciences Inc. makes two hepatitis C drugs, Sovaldi and Harvoni, which work but which cost $84,000-$94,500 for a 12-week treatment.  10% of hepatitis C sufferers, the most severe cases, are treated with these drugs.

What is unusual is that she is threatening to invoke a consumer protection law that has never before been applied to an established drug price, only to changes in prices.

These drugs certainly are too expensive.  I think we should ask ourselves why.  Some informed observers say that the FDA drug approval process, where it can easily cost $100 million and take many years for approval, costs which the drug company must eat if the drug is not approved, is the root cause of sky-high prices.  There are two reasons for this:

1. The costs are so high that drug prices need to be high to recover those costs.
2. The costs and delays create a barrier to entry that restrict competition.

In the meantime, people die.

Here is the article:  (click on the image.)