In Washington D.C. growing worries about the fiscal cliff has led to debates on raising Medicare’s eligibility age to reduce the government’s huge deficits.
For years numerous ideas about controlling the exploding cost of entitlement programs, such as Medicare, have passed between party members but growing concerns about Fiscal Cliff have brought them in to perspective. Medicare, a $590 billion annual program is one of the most expensive and popular federal programs, that has long been untouchable and rarely trimmed. A change in age eligibility would not alter traditional benefits, but would not be available to all senior citizens 65 and older. Medicare’s popularity makes proposed changes a much harder sell amongst voters.
The most frequently discussed proposals that would affect Medicare’s 52 million beneficiaries are more means-testing, meaning higher costs for wealthier retirees, and raising the Medicare eligibility age by two years to 67 years old.
Regardless, of increasing age eligibility both the White House’s deficit reduction proposal and the Republican counter offer, submitted on Monday, propose trimming Medicare.
Republicans and Democrats disagree on what, where, and how to cut the program. Many Republicans, notably, House Speaker John Boehner, R-Ohio, openly support hiking the eligibility age to 67. It is estimated that increasing the age would reduce Medicare’s spending up to 5 percent annually, which would save hundreds of billions of dollars over time. These proposed cuts, in addition to others to additional healthcare programs including the Medicaid, could result in $400 billion to $600 billion in savings over a decade as part of a deficit-cutting agreement Congress and the White House must reach to avoid the so-called fiscal cliff.
Not everyone supports the proposed changes, people like Senator Dick Durbin, D-Ill., says that increasing the age would create numerous oversights and could make the program too expensive for some seniors.
A recent study by the AARP identified more negative windfalls if Medicare’s age eligibility is upped to age 67. There is a possibility that this could lead to higher monthly premiums for those on Medicare. Not allowing younger and healthier 65 and 66-year olds would raise the others’ costs, but the increase would only be around 3 percent. This would also lead to more expensive premiums for private coverage as well. This is because older adults would have to remain using private insurance for an additional two years before using Medicare. This older age group, compared to younger adults, is also more costly to insure. In total, this would lead to higher healthcare costs for two out of three adults whose entry into the Medicare program would be delayed. Medicare age eligibility wouldn’t just affect people, but also businesses. This would lead to an increase in employer costs as senior workers would stay on company insurance plans.
The Congressional Budget Office estimates that raising the eligibility age could save $148 billion in Medicare spending over the next decade, but there are drawbacks. It has also been estimated that the number of uninsured citizens would also increase. Highly populated states like Texas that won’t accept Obama’s Medicaid expansion in his health overhaul would create millions of uninsured citizens. Critics claim that these cutbacks would hurt business by placing the burden of these costs onto employers. This would lead to an increase in employer costs as senior workers would stay on company insurance plans.
The threat of this country toppling over the fiscal cliff has enabled Republican’s campaign to cut Medicare to perhaps have its first success. But, it remains to be seen if these changes will take affect and if the positive outcomes will outweigh the negative ones.
-Suzanne Bernard
Weekly Update
There are some things I’ll never understand. Here’s one:
Why would my lovely wife, Marea, purchase two new pairs of sneakers and throw my old ones out without asking me first?
“You need to replace sneakers regularly and alternate them between your daily power walks,” she informed me.
I do? Who knew?
I walk for 3.5 to 4 miles for almost an hour practically every day. Apparently, according to my wife, this qualifies me as a highly tuned athlete who needs cutting edge footwear to maintain peak performance for my upcoming heat in the Senior Slow-Walk Olympics.
I wonder if Bill Russell and Bob Cousy alternated specifically designed point guard and center sneakers between games.
“Oh, and they should be replaced every 300 miles,” she added.
So I have to throw my sneakers away after every 75 walks? How do I keep count? Maybe sneaker companies can embed a hidden odometer in the soles of sneakers. Or, the foot engineers could inject a color fading dye in heels indicating when a new pair is needed. I believe toothbrush manufactures have the color of bristles fade away when it is time to buy a new brush. Why not sneakers?
Reflecting upon last week’s Update, I may have been wrong when I stated that women and women alone drive the global economy. The power of advertising is truly incredible! Not only is it innovative enough to sell designer sneakers for different purposes, it supports an infinitely sustainable business model by making consumers believe that they need multiple pairs of footwear for the same activity.
We consumers love advertising terms such as introducing, new, improved, best, original, customized, exclusive, doctor recommended, proven, free and finally, as Pandora states in its tag line, unforgettable.
And there is no reason for the creative marketing minds to stop there. I was looking through the December issue of SHAPE magazine and learned that New Balance markets training footwear just for the winter; skechers makes GOwalk footwear available so women can “GO like never before;” and best of all, Amy Schlinger, a writer for SHAPE highlighted the need for “Socks That Rock.” That’s right, activity specific socks for hiking, running, crossfit (whatever that means), yoga, and skiing.
How about this one? Gap markets pants that have a “perfect performance fit!” I should get a pair of performance fit pantaloons to wear under my suit at business meetings and, of course, while making my investment decisions. That should exponentially increase the annual performance of Marea’s portfolio.
Switching gears as we enter the New Year, I reviewed investment guidelines first published last year and concluded that it made sense to once again share them with Update readers.
Investment Guidelines:
• Stay diversified and don’t place all of your assets in one stock, bond, or fund.
• Invest globally with a concentration in the USA. (The portfolios publish in the Update do have global exposure through an international fund and large U.S. firms that sell products and services throughout the world.)
• When buying individual securities, concentrate on industry leaders offering dividends, which ultimately provide a cushion during corrections and remember, dividends generate approximately 40% of market performance.
• When increasing equity exposure, execute trades on down market days.
• Hold a cash position between 5% and 20% of a portfolio’s value.
• Fixed-income concentration should be in short to intermediate bond funds.
• Populate portfolio with both equity and bond funds charging low expenses and a better than average three and/or five-year track records.
• Know a security’s investment philosophy, objective, and style prior to purchase.
• A position/portfolio must meet personal suitability standards based on objectives, volatility, and investment time horizon.
• In a taxable account, be aware of the potential tax exposure.
• When considering bond funds, a low expense ratio is extremely important to overall annual performance.
• Index product performance should basically track its long-term category average.
• Monitor investments weekly. (For example, Yahoo finance allows you to compare the performance of your funds to its peer group over multiple periods of time.)
• Analyze a product’s performance over time (year-to-date, one year, three years, five years).
• Monitor sector investments closely.
• Performance must be assessed on a risk/return basis. (For example, Investor “A” generates a 5% return; Investor “B” generates a 10% return; which portfolio was the better performer? It completely depends on the level of risk inherent in each portfolio.)
• Note that raw performance benchmarks including the Dow, S&P 500, NASDAQ, and the Russell 2000 do not incorporate trading costs, fund expenses, and advisory fees.
• Let’s assume equity markets are up 10% and fixed income and cash are both flat at 0%. You have 50% invested in equity, 50% in fixed income and cash, and total expenses of 0.5%; a reasonable return for your portfolio would be approximately 4.5%.
• Be aware that markets tend to overreact to news, good or bad.
• Realize that absolutely no one knows how markets will perform next week, next month, or next year.
• So, my guess is that the market will generate an 8% return in 2013. (By the way, 10% is about the average stock market annual rate of return.)
• Be aware of a portfolio’s potential worst 1, 3, 5, and 10 year case scenario based on historical data.
• Unless you are willing to do your homework weekly, consider hiring a financial advisor.
• Dialing your equity allocation up (increased volatility) or down (less volatility) will ultimately increase the probability of capturing more or less of both the upside and downside of market performance.
• Wear performance fit pants when analyzing your investments.
• Do not
o Purchase any investment product you do not understand.
o Sell a fund because of poor performance over a limited period of time. (If a fund under performs for a couple of months, place the fund on a watch list for at least 30 days prior to making a decision to hold or sell out of the position.)
o Buy bond funds with higher than average expense ratios.
o Select a stock simply because of a potential high-dividend payout. (Make sure the company has the cash flow necessary to pay the dividend.)
o Allocate more than 5% to 7% per individual sector.
o Try to time the market.
o Overreact to the news of the day.
o Chase performance. (Performance is relative based on asset allocation, risk inherent in the portfolio, and expenses including trading costs, a fund’s expense ratio and advisory fees.)
Have a productive Week.
The Update is written by Chris Leone and Ron Mastrogiovanni