January 2011 - Posts - Kahler Financial
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Kahler Financial

January 2011 - Posts

  • Health Care Bill and Health Costs

     Reforming the health care system isn’t new. Many presidents and Congresses have tried and failed, most recently Bill Clinton. Why, then, did health care reform pass under this administration?

    According to Jamie Orlikoff, of Orlikoff and Associates, who addressed a gathering of community leaders in Rapid City, South Dakota, in December and whose consulting firm specializes in health care issues, past attempts may have failed simply because the status quo was still acceptable. This time around, the broad view was that the status quo was unacceptable and the American economy would eventually collapse if nothing were done.

    However, the health care bill Congress passed in March 2010 didn’t completely address the unacceptable elements of the status quo. In particular, says Orlikoff, the issue of cost is still largely unaddressed.

    The December 2010 report of the bipartisan National Commission on Fiscal Responsibility and Reform, tasked with finding ways to reduce the deficit, said the health care bill didn't go far enough in cutting costs. The single largest category in the commission's recommended cuts, four hundred billion dollars, was health care.

    Health care, notes Orlikoff, is the largest expenditure of government and of the Pentagon. If we are serious about cutting the debt, we must turn our attention to health care costs.

    Health care also represents a large segment of private sector spending. It’s the largest component cost of an American car or tractor, while the largest component cost of a Chinese or Japanese vehicle is steel. No wonder: China spends 4% on health care, India spends 2%, and the U.S. spends 17.5%. Orlikoff suggests this is one reason American retailers can sell imported products so cheaply.

    According to the Institute of Medicine, 30% of what we spend on health care adds no clinical value. That’s a whopping 5% of GDP. The Agency for Healthcare Research and Quality, part of the Department of Health and Human Services, reports that 4.4 million hospital admissions, costing thirty billion dollars a year, could be prevented.

    Exacerbating the inefficiency of health care is that there are huge geographic disparities, with pockets of efficiency. One commonly cited example is the contrast between two Texas towns. Despite similar demographics, McCallen has one of the country's highest health care spending rates and El Paso one of the lowest.

    When it comes to end-of-life care for patients with terminal illnesses, Orlikoff notes that UCLA/Hopkins spends an average of $90,000 per person and Cleveland Clinic/Mayo an average of $55,000. The difference in spending results in no difference in patient experience or outcome.

    Orlikoff is also concerned that our burgeoning health care expenses will eventually spell the end of the US economy. “The dust bin of history is littered with economies that fell apart because one sector consumed the economy.” He cites the USSR and its over-concentration on defense spending.

    One of the problems with the bill, says Orlikoff, is that 25-year-old, sleep-deprived kids on Red Bull wrote most of it. Some parts were written by people who could write and understood health care, some by those who couldn’t write. For example, one three-page section of the bill has no verb.

    Still, if the bill is repealed, which is highly unlikely prior to 2012, we are left with market reform instead of legislative reform. Orlikoff points out that market reform is much more random; however, my belief is that it’s much more effective.

    As experts like Jamie Orlikoff continue to tell us, health care reform is nowhere close to achieving a satisfactory status quo. Clearly, we need to continue discussing what we want and need to make our health care system one of the best in the world.

    Rick Kahler, Certified Financial Planner(r), MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!

  • "Just-in-time" Purchasing

    It's a method of inventory management used by some manufacturers to control warehousing costs and avoid being stuck with unusable components. It can be a cost-saving practice for certain types of businesses.

    Unfortunately, according to a Wall Street Journal article from November 24, increasing numbers of consumers are using just-in-time purchasing in their personal lives. This is merely swapping one set of poor financial behaviors for another.

    Prior to the crash, when credit was easy, stocking up was a simple matter. It was not uncommon for savvy consumers to buy several of an item that was on sale, or bulk items that were cheaper than individually packaged items.

    The global financial crisis has left many Americans, 70 percent of whom live month to month, strapped for cash. So now, rather than buying in bulk or stocking up on sales, more consumers are buying only what they need. As a result, they are also increasing their number of trips to the store.

    Companies have quickly adjusted to the new trend by decreasing the number or size of goods found in the packages. While purchasing less of an item may give consumers some short-term relief on the total grocery bill, the sad reality is that in the long run, it’s costing them more. Buying a number of frequently used items when they are on sale or purchasing in bulk can save consumers money. Sometimes the savings amounts to a lot of money.

    For example, I eat a half-cup serving of oatmeal almost every morning when I am in Rapid City, which is about 36 weeks a year. That amounts to about 252 servings a year. I have several ways to purchase my oatmeal.

    If I chose to do just-in-time purchasing, spending the smallest amount up front, I could buy a box of 12 individually packaged servings of Quaker Oats for $4.15. That would be 35 cents a serving. Over 36 weeks, it would require 21 trips to the store and a total expenditure of $87.15.

    Another option would be to buy the 42-ounce carton of oatmeal, which provides 31 servings. It isn’t as convenient, requiring me to own a measuring cup and measure out my daily allotment. It also costs a little more up front, $5.00. The per-serving cost, though, drops to 16 cents. My 36 weeks' worth of oatmeal would require eight trips to the store and a total expenditure of $40.
     
    Finally, since oatmeal isn’t highly perishable, I could buy it in bulk. In addition to owning a measuring cup, this would also require having a place to store a 25-pound bag. This is the most expensive option in the short term, costing $17.23 at our local food co-op. Figuring 295 servings in that 25-pound bag, however, the per-serving price is just under six cents. My entire 36 weeks of oatmeal would cost less than $15 and take only one shopping trip.

    To summarize, just-in-time purchasing for my oatmeal would cost $72 more over 36 weeks than bulk purchasing. That's for just one small product. Now, imagine the savings if you purchase as many items as possible in bulk.

    This illustrates one of the benefits of having a spending plan and saving for various expenses like food, car repairs, travel, gifts, etc. Having a margin in your budget and saving for consumer purchases allows you to be much more flexible about buying in bulk or on sale. The result is significant savings.

    Thinking short term might save a little on this week's grocery bill, but it costs a bundle in the long run. My advice? Just say no to just-in-time purchasing.

    Rick Kahler, Certified Financial Planner(r), MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!

     

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