advice from a fake consultant

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On The Costs Of Care, Or, You Don’t Want Every Item On This Menu June 16, 2009

I don’t know if you’ve been thinking about it, but the costs of long-term care have been on the mind of some friends of mine lately.

For reasons that we won’t go into here, they are in the process of pricing long-term care at care facilities…and yesterday afternoon, we had a chance to have a look at the “menu” of services (the facility’s term) that can be purchased at this particular location.

If you are facing this issue in your own family, if you are a taxpayer thinking about how we plan to fund long-term care in the future…or if, one day, you expect to be old yourself…this conversation will surely matter.

To protect the innocent, I won’t be mentioning names today, but here’s what you need to know:

The location in question is an “assisted living facility” located near Seattle, it is somewhat upscale, but by no means ”posh”, and it is a residence of substantial size, with dozens of clients living there. It is not a “mom and pop” business run out of a house, but instead a more corporate operation.

The first thing you are charged for is the “apartment” in which you reside and some basic services to go with it. Those services include “finishing the place” with blinds and appliances, weekly housekeeping and linen, and the power and the water and the cable (“Basic Extended”).

You’re also paying for the 24-hour staff presence, “recreation” services, and scheduled transportation.

Also included: two meals daily, but not breakfast.

Telephone charges are not included.

The cost, for a single person: $1900 per month for a studio, $2300 for a one bedroom, and $2800 for a two-bedroom. There are nicer “views” available, which add about $400 to each price. Adding a second person costs $600 extra every month.

You will note that this price does not include medical and “personal” services…and for that, we will turn to the actual “menu”.

“Old wood to burn! Old wine to drink! Old friends to trust! Old authors to read!”

Francis Bacon, Apothegms. No. 97.

Start with the basics: a daily wake-up call is $50/month; having a load of personal laundry washed every week or having a staff member make the bed daily adds $70 monthly. Housekeeping is $30/hour…so hopefully the resident can clean their own apartment.

Breakfast is $95 each month.

To determine what additional needs you might have, a nursing assessment is conducted at the time of admission.

If it’s determined that the resident needs bathing assistance, costs work like this:

If the resident can wash themselves, but need to be watched during the shower, that service, once a week, is $165 monthly. If the resident needs a staff member to help them shower, add $60 (If two staff members are required, that’s an extra $140 monthly).

Can the resident dress themselves?

A daily reminder to change clothes costs $100/month. If a staff member needs to spend under 10 minutes a day to help the resident dress, that’s $175/month, if 15 – 20 minutes of assistance is required, that’s $250 monthly.

Can the resident take care of their own personal grooming? If they can’t, that adds $150 to the monthly charges.

There are also “toileting programs”.

Having the staff remind you to go to the bathroom costs $200/month (this also covers the occasional incontinence event), and having a staff member monitor you in the bathroom raises the rate to $275 (this also covers the occasional “bowel accident”).

A “structured toileting program” runs $350…and if you need to be checked for bowel accidents regularly, or need someone to wipe for you, or have regular accidents requiring changes of clothing, that’s $425 a month added to the bill.

Some people have had surgical procedures that require them to use a bag attached to their colon for waste removal. The site where the bag is attached is called a “stoma site”, and the service associated with stoma care is at least $250 monthly at this facility. Supplies (such as colostomy bags) are not included in this price.

Can the resident walk to meals on his or her own?

If yes, but they need a verbal reminder to go to meals, that’s $175/month. If the resident requires assistance to get to the dining room, that’s $225 monthly…and if it takes longer than 5 minutes on average to assist the resident, that adds $275 to the bill each month.

Special diets, prescribed by a physician, add $500 to the monthly bill.

Can the resident take their own medications?

If not, the minimum charge is $230 monthly, which covers up to 5 medications daily, “served” two times a day.

If the client takes more than five meds daily (or takes meds more than twice daily) that cost could potentially increase by another $165/ month.

Oxygen service: add another $150 monthly.

While all that seems expensive…we haven’t come to the big-ticket item yet.

There will be residents who will require “memory support”.

The simplest form of this service provides “redirecting, reassurance, orientation to surroundings, responding to questions/concerns that arise from diminished short term memory” and several checks daily to ensure the resident is on the property. Those who receive this level of service are also physically escorted to meals. The service costs $300 per month.

For $400 the resident is walked back from meals, and a staff member provides verbal cues to get the resident dressed. The resident will also be “convinced” to bathe, if need be.

If the resident requires physical cues to perform the same tasks, the cost jumps to $550 (and at this stage the resident might require two staff members to get them to perform personal hygiene).

The highest level of care also provides someone to check on the resident every two hours, and costs $800 monthly.

This is hardly a complete list: for example, there are charges for making appointments and other “clerical” services, for “concierge” service, and for other incidentals.

However, there’s one other significant charge about which you should be aware, and that’s the cost for nursing services.

Wound care that involves changing a dressing, and takes less than 5 minutes, is $15 for each occurrence. This service must be provided by a licensed nurse…and if you add it up, it works out to $180/hour that the facility is charging you for the services of an LPN/LVN (depends on where you live) who is not likely to be making above $25/hour. (Each dressing change that lasts from 5 – 10 minutes costs $20; meaning at least $120/hour.)

Add it all up, and the chances that you’ll be paying at least $3000 a month are (in the words of Johnny Mathis) awfully good.

“If Mr. Selwyn calls again, shew him up; if I am alive I shall be delighted to see him; and if I am dead he would like to see me.”

–Henry Fox, the First Baron Holland

So how is all this relevant to politics, you might ask?

How about this: we are about to enter an age where millions of Americans will require this sort of long-term care…and many of us do not have $3000 per month available to pay for this kind of care.

How many? It is estimated that 70 million Americans will be 65 or over by 2030, and if the numbers from 1999 continue to be valid, roughly 30% of those people will be living in an institutional setting.

20 million people, at $3000 a month, equals $60 billion that will be required to cover the cost of long-term care for this group—each and every month. That’s $720 billion a year.

So how do we deal with the problem when it hits us?

I don’t know…but consider this: it is going to be tough to reduce these costs, if only because these are tasks that are not well suited for automation. These are services, for the most part, that require one-on-one care (or even two-on-one care)…and those who provide the care will want pay raises…which we will want to provide, in order to help keep the quality of care at a high level.

You should also know that there are substantial costs associated with “fixing broken workers”. The fact that workers are often required to assist clients that are physically large or physically awkward puts a lot of these workers out on injury leave…and the unhappy fact is that understaffing is a common way to try to control labor costs in nursing facilities, adding to the injury problem these workers face.

How bad is the healthcare injury problem? Ironically, the Bureau of Labor Statistics tells us health care facilities are the most dangerous work environment in the United States.

“General medical and surgical hospitals (NAICS 6221) reported more injuries and illnesses than any other industry in 2007—more than 253,500 cases.”

To put it another way, there are basically two kinds of healthcare workers: the ones with back injuries…and the ones who don’t yet have back injuries.

As we wrap this thing up, let’s ask that question we ask almost every time: what have we learned today?

If you hadn’t already been thinking about it, it is fantastically expensive to have to receive care at an assisted-living facility, and soon there may be as many as 20 million Americans who will be in that situation…or something even more expensive, such as “skilled nursing facilities” (more commonly referred to as “nursing homes”).

We could be looking at having to find $720 billion (in today’s dollars) to cover the annual cost of that care.

It is going to be very tough to reduce those costs, unless you can develop ways to deliver the same care in a less-expensive environment…or you can find a way to reduce the number of people who will require such care.

Considering the cost of “memory care”, money invested in Alzheimer’s mitigation today might pay huge dividends later.

So that’s the deal: there is a giant bill that’s coming due, we better be thinking about it now…and one way or another, this will become one of the biggest fights in American politics as we move into the middle third of this century—so we can either get ready for it now, or we can all act surprised later.

Of course, if enough of us require “memory care”…then I guess that surprised look on our faces won’t be an act, eh?

 

On Crying Wolf, Or, Why I Don’t Want To Give You $700 Billion September 24, 2008

As this is being written we are in the midst of the second day of testimony before Congress by Ben Bernanke and Henry Paulson in support of the Administration’s proposed financial rescue package.

The basic sales pitch is that the Nation’s financial problems are at this moment so severe that the only solution is to expose to risk $700 billion dollars of taxpayer money to buy assets with a currently unknown price…and to give the absolute and total power over what those valuations are, what should and should not be bought, what repayment terms will be sought—and additionally, what happens to any money recovered–to one man, Henry Paulson.

There are those who are not on board. They have critics, who continue to stress the dire consequences of inaction.

With all due respect to those critics…we have been down this road before with this Administration—and last time, they weren’t so big on telling the truth…or getting the job done effectively.

We’ll cover that ground, we’ll talk a bit about “mark to market” issues—and on a positive note, we’ll address the role of “warrants”, the negotiating power of Warren Buffett, and how the taxpayer could actually see substantial recoveries of money down the road.

So let’s start with the biggest elephant standing in the Plan’s way:

Weapons Of Mass Destruction.

This Administration flat-out lied to the American people to justify the current Iraq adventure. “Just trust us” was the basic message at the time, followed by “we absolutely know that Saddam is an imminent threat because of his Weapons Of Mass Destruction”, followed by “this will cost maybe $50, 60 billion…maybe as much as $200 billion”–which turned out to be possibly the worst estimate in the history of budgeting–followed by variations on The “I’m not the Commander-in Chief, General Petraeus is” Theme…followed by flag-draped caskets that the Administration still hides from public view.

All of this to find not one single operable WMD.

Now comes before us Federal Reserve Chairman Henry Paulson and Treasury Secretary Ben Bernanke, who tell us of imminent threat, who tell us to just trust them…who tell us that they are the most qualified people to understand the issues and take the appropriate action…and who, to top it off, must be left to the task unsupervised and uncontrolled, otherwise the plan will fail.

We are also being told that if we were just economically sophisticated enough we would understand why this plan must be put into place, and that our objections must be related to our economic ignorance.

To which I pose a question to the Joe Kernans of the world (well, one of them anyway): what if the public fully understands that the system is at risk…but we don’t trust the leadership?

(Ever watch “Sex And The City”? This would be the part where they would cut to Carrie’s laptop screen and we would see the words appear as she types them…)

…What if we think the Administration is lying?

I have heard so many lies from the President and his advisors that if Jesus Christ was Treasury Secretary and Mohammed (PBUH) was Chairman of the Federal Reserve I would have doubts about this proposal.

Back in March, Paulson (who, it turns out, is not a Deity) was telling us that “the worst is behind us”…meaning he either does not really understand what is going on here—or that somebody is trying to blow smoke up some unpleasant places, using Paulson as a sort of economic “General Petraeus” who is intended to divert attention from the real economic Commander-in-Chief.

So can this Administration be trusted to handle this without outside supervision?

“Trust, but verify”, Ronald Reagan used to say, and without outside oversight this proposal should be instantly dead on arrival to the Congress.

This might be the most critical issue surrounding this entire plan…and we must demand Congressional oversight. This is far too big a process for any single individual to manage—and too big for any single branch of Government, as well.

Go watch this satirical slap at Bernanke from a wannabe Bernanke.
It’s hilarious—and revealing.

That issue resolved, some economic education is in order:

What, you may ask, is “mark to market”?

Holders of assets are required, for accounting purposes, to report the value of those assets based on what they are worth at the current time. Normally you do this by seeing what “the market” thinks your asset is worth—something that is fairly easily done if the asset is, for example, your house.

On a larger, corporate scale, this marking to market each accounting period can cause the state of your company’s balance sheet to lurch around and gyrate from time to time—sometimes violently…which is the source of much complaint from corporate interests, but for the most part, it all works out. Recently, it has not.

The challenge in today’s economic environment is to figure out what an asset is worth when no market exists for that asset.

Banks are holding quibzillions © of dollars worth of paper that represent streams of mortgage payments that will continue for years into the future…but some unknown number of those mortgages will not be repaid.

The concerns about what can be repaid (or not) and who is holding how many of these “nonperforming” loans has caused virtually all the normal buyers of these kinds of assets to run away in fear, which is the simplest way to explain the “credit crunch” we hear so much about.

The Paulson proposal is based on you and I buying some portion of those assets, today, from the current holders and reselling the assets later. This will allow banks and other institutions to begin making loans, and will hopefully create the confidence needed to induce investors to again buy “pools” of those loans from those banks…after which, the lending cycle begins anew.

The hoped-for outcome, from the perspective of ordinary mortals such as you and I, is to minimize any losses to the taxpayer…or maybe, if we get lucky, generate a profit.

The hoped for outcome, for the current holders of these assets, is to minimize their loss.

So how do you decide what price the taxpayer will pay for these assets?

Picture, if you will, a $100 US Savings Bond. If you bought that bond today, it would cost you $50, and in 17 years the US Treasury will pay you $100, representing the interest income to you from that loan to the Treasury.

The “hold until original maturity” value of that bond is $100.
The “mark to market” value, if you’re “marking” it the day you bought it, is $50.

If you became convinced the Treasury might not pay back the loan, or all the interest, you might sell the bond for less than the original $50, just to recover something from the deal.

That process will work as long as someone else is willing to believe the bond will be repaid, and is willing to put up enough money on that bet to get you to sell.

If no buyer can be found, your bond’s value becomes either “unknown” or “zero”, your personal assets decline—and maybe, down the line, your credit score is affected by some small amount.

Picture that on a massive, quibzillion © dollar scale, and you can see what is happening in the mortgage market today—and to the investors, all over the world, that hold the debt from our collective mortgages.

When the Treasury prepares to buy a CDO or some other mortgaged-backed security from an investor in the near future, Paulson will have to decide, with no help from any market mechanism, if that paper is worth the “hold to maturity” value, zero, or somewhere in the middle…and he has no way to know if the pool of mortgages he’s buying with our money will be 100% repaid, 0% repaid, or something in between.

This issue will be one of the most contentious parts of the entire deal (and the most ripe for abuse…as it would be very easy indeed to reward friends and punish enemies in a system with no oversight), so watch carefully to see how it plays out.

Hint: when asked about this today, I heard Bernanke answer that he expected the Treasury to pay prices similar to what are seen “…in a more normal market…”.

Another satirical video: “Damn, it feels good to be a Banka”.

What’s a warrant?

It sounds all technical and tricky, but actually it’s not.

Warren Buffet invested $5 billion dollars this morning in Goldman Sachs, and as part of the deal he got the right to purchase up to $5 billion in Goldman Sachs stock, at a time in the future of his choosing, for $115 a share (roughly 43.5 million shares). That right is referred to as a warrant.

At this moment, the stock’s last trade was at $130.48. The difference between $115 and $130 is the current available profit to Buffett if he were to “execute” this warrant right now (which is just over $650 million profit in less than 12 hours)…but it’s not the maximum potential profit executing this warrant might bring.

In November of ’07 Goldman Sachs traded at $250 a share…and if Buffett is able to someday execute the warrant at that “strike price” (fancy technical term) the profit on his 43.5 million available shares would be $5.8 billion.

When we take assets from banks and other investors with depressed stock prices, we as taxpayers need to make the same deal Warren Buffet made—we need to demand warrants, and later, sell that stock back to the market, reducing the cost to the taxpayer over the long term…and maybe even making us actual profit….which could help to repay some national debt, perhaps?

There is precedent here. In the 1980’s the US did a bailout deal with Chrysler that involved issuing warrants…and the profit to the Treasury was substantial.

This is an additional huge part of the deal…and you can bet that there will be investor stockholder groups that will lobby—and lobby hard–to stop us from getting warrants.

We need to demand that we get our cut of the profit our tax dollars create…and to do that we need to get warrants as part of these deals…so bug your Member of Congress loudly and quickly on this one.

So, for the moment, let’s recap:

If the Administration wants to sell this plan they better acknowledge that it isn’t economic ignorance that’s the issue…that, instead, the problem is the basic element of distrust that they previously created by lying about matters of war and peace and Katrina…and if you want any plan at all, this is the issue you need to fix first.

Next, we need confidence that the prices paid for bad assets are not going to be excessive, we need oversight that allows us to be confident this isn’t another typical “reward and punish with taxpayer dollars” operation; and finally, we need to demand warrants, the tool that could make this something that turns the transactions, for a change, to the advantage of the taxpayer.

If we insist on these sorts of protections we have the chance to make this at least a fair deal for the taxpayer—and maybe even a good one. After all, if Warren Buffet can get good terms for a mere $5 billion investment…imagine the negotiating power $700 billion should be able to get us.

Even without the Priceline Negotiator, we should still demand the best deal possible…and if the currently frozen financial services industry doesn’t like that, perhaps they should borrow $700 billion somewhere else.