Monday, April 30, 2012

What Would You Do With $100,000?

All of us fantasize about getting a large sum of cash and all the awesome things we would do with it.  When it comes to making the right financial decision with money it can get a bit difficult and even stressful. Sure the money can be used to buy a nice car and a vacation but if we want to preserve the money and multiply it things can get a bit overwhelming. You have to consider how big of a risk you are willing to take and where you want to place the money. Your age also has to come into consideration the older you are the less risky you may want to be.

Real Estate

Although $100,000 can not buy you a house in NYC it can put a down payment on one.  Real estate can be a way to grow the money in the long run and it can also provide a steady source of income.  A bad real estate market usually means people are more likely to rent and that gives you the property owner the upper hand.  With your new windfall of cash you can get more credit from the bank and they are more likely to give a loan to someone with plenty of cash.  Buying land can also be a nice way to invest if buying a home is not something you want right now.


You can also invest in more education not necessarily in a new degree as this can be very expensive but you can enroll in different classes.  You can take science or culinary classes and discover new passions.  The new skills learned can lead to a career change or new friends and this can make you happier. 

All of the recent uncertainty in regards to the global economy has made stocks very volatile and this can be good if you are a day trader.  If you are in it for the long term you must consider how you would handle seeing your money fluctuate violently.  To see what you are in for let us consider if you had invested $50k in 2004-06 you may have seen your money fluctuate in a $48k - $55k range but in a high volatility market you may see that $50k investment fluctuate in a $35k -$60k range.  Ask yourself if you can sleep comfortably at night seeing your $50k investment turn into $35k in a few days.  Not everyone has the stomach to handle the high volatility (^VIX) which is here to stay.  The VIX reached 80 in October 2008 in the roaring 90’s the volatility index mostly stayed in the low teens and low twenties.    
If you decide to invest 40% in stocks you should invest it in different companies at different times.  Timing is everything and by entering at different time periods you increase your possibilities of generating more money in the long term. 

One of the best ways to increase your wealth is by starting your own business there are plenty of stories of people becoming millionaires in a short period through their business.  I haven’t heard too many stories of people making it big working a 9-5 job.  This can be a great experience and although your first business may not be a success your 2nd and 3rd may be.  You can allocate as little as $5k of your $100k to start and if you have a job you can do both while your business gets off the ground.
Collecting art can also be a pretty good investment.  The Impressionist and Modern Index was up 17.01% for year end 2011.  In 2010 the Mei Moses All Art Index beat the S&P for annual returns. Investing in different genres and buying what you believe will appreciate can be a lot of fun.  If you don't want to buy art directly invest in Sotheby's (BID) it has gone up in value since the start of the year. 
Most people don’t consider trading currencies as a way to spend/invest a $100,000 windfall.  Trading currencies may not be for everyone but it doesn’t take much money to start you can trade comfortably with $1k -$5k.   It is a short term investment currencies should not be held for the long term the high leverage and high fluctuation make for some fast gains or losses.   The educational value is what is most important once you get into the game you will see the world in a different way.  The yuan reached an 18 year high in February 2012 at 6.2885 yet it is still weak enough to give China an unfair advantage in trade according to president Obama.

Finally I like the use of a CD as a way to park your money while you decide where to allocate it.  You don't have to have an answer right away and you don't have to make a decision right away.
Sample $100k Breakdown:

Art 10k, Currencies 5k, Business 10k, Stocks 40k, Education 10k, CD 25k or 100k in real estate

Sunday, April 22, 2012

Doctors and Health Insurance Companies

Whether you see the doctor at a small practice or a hospital it pretty much requires the same process to get health insurance companies to pay for the services rendered.  It is a complicated dance and the health insurance companies are the ones on top, running the show.  They decide how much a procedure costs and how much they will reimburse the doctor, anesthesiologist and hospital.  Merritt Hawkins & Associates conducted a survey on the viewpoints of physicians and found that 49% of doctors age 50-65 are planning to either eliminate or reduce the number of patients they treat due to frustration with reimbursement intricacies.  If doctors were more connected they could bargain for better rates but that is not the case.

Once you see the doctor at a private practice or hospital you must have that claim submitted to bill the procedure to the insurance company.  The doctor gets paid via a CPT code which is linked to a diagnosis or ICD-9 code which can then be broken down to DRG or APC  codes for inpatient or outpatient hospital stays. Medicare and Medicaid pay the least amount of money and sometimes doctors end up losing money with the government insurances.  The private insurance companies that people pay monthly premiums to have very strict rules when it comes to accepting claims.  They have to be free of error and a simple misspelling, wrong birth date or incorrect code number can result in a rejection or denial.  For private practices receiving prompt reimbursement is crucial that is why some of the small clinics pay separate agencies to handle the billing aspect of their practice. 

All the paperwork and different codes as well as intermediaries result in higher premium costs.  If you are a patient ready to see a doctor at a local clinic and have cash do not think you can get a discount.  A customer paying out of pocket will not need to go through the billing process but if the doctor's office gives a discount then the insurance companies will accept that new discounted rate as the new standard reimbursement rate for all his/her patients.  Doctors want to be able to get the insurance companies to pay as much of the claim as possible. 

When health insurance companies merge they become powerful and can bring fear to doctors they know they will have a hard time getting claims paid at the rate they want.  The stronger the insurance companies become the less bargaining that can take place.  As a patient you may not care if a doctor receives less compensation, sure they are well off, but lower reimbursement rates to a doctor can mean higher premiums for the patient.  Very few doctors can evade being at the mercy of health insurance companies and having to wait to receive compensation.  Only the best doctors in the world can demand getting paid in cash only, they know people from all over the world will come and pay for their services.  Those few doctors can receive payment immediately and relieve themselves from insurance companies.

According to the New England Journal of Medicine 40% of medical malpractice suits in the U.S. are meritless. This leads to doctors having to practice defensive medicine and order unnecessary tests to evade law suits.  This cost then passes on to the patient that is why some states have reduced the amount of excessive damages that can be awarded in frivolous suits.  Texas premium rates fell by 30%-40% as a result of the tort reform.  For years doctors have complained that the Department of Justice and the Federal Trade Commission have brought antitrust lawsuits to doctors and hospitals yet the laws were written about 40 years ago when health insurance companies were not as powerful.  If the system continues the way it is some doctors may just start looking for career changes. 

Saturday, April 14, 2012

Germany's Economy

One of the few economies in the euro zone that was considered stable during the 2008-09 recession was Germany.  Germany’s GDP is worth $3310 billion it is 5.34% of the world economy according to the World Bank.  The country’s economy is the largest in Europe and the 5th largest in the world in purchasing power parity terms according to The World Factbook.   Germany is an export-oriented economy it leads in exporting machinery, chemicals and vehicles.  Their GDP contracted by 5% in 2009 and grew 2.7% in 2011.  The increase was led by more manufacturing orders and exports that came from outside the euro zone.  According to Forbes there were 55 German billionaires reported this year that is the fourth highest number worldwide.
The central bank in Germany projects their GDP will grow about 0.6% in 2012.  It is no secret that Europe is hurting right now but then again so are the rest of us we are not out of the water just yet. The fact that the U.S. stock market recently took a fall starting the day the fed announced no signs of more stimulus makes it obvious.   Although Germany is strong it cannot take on the burden of the European financial crisis without taking a significant hit to their own economy. 
The German unemployment rate was steadily falling before 2008-09 and slightly increased due to the great recession then it continued to drop but starting in 2012 it has picked up and was last reported at 7.4%.  The country’s consumer confidence increased from 5.4 in February 2012 to 22.3 last month.  Germany’s inflation rate is currently at 2.1% and since it is part of the EU it is pegged to the Euro Area interest rate.  The interest rate is currently at 1% these decisions are taken by the Governing Council of the European Central Bank.
The DAX is a major stock market index that tracks the largest companies based in Germany, it has declined 253 points in the last month.  It was last trading in the 6,552.32 – 6,743.01 range one of the top performers was Merck KGaA a pharmaceutical company that researches drugs in neurodegenerative as well as autoimmune and inflammatory diseases.
Europe is still in a financial crisis, the strong players are not immune and neither is the rest of the world.  China is also slowing down and they are getting pressured to let the Yuan appreciate.  The U.S. is starting to see slow growth but it still needs to improve its job market.  Despite the clouds there may be a pleasant surprise in store for us inflation though is the wild card.  Will it affect our recovery?

Saturday, April 7, 2012

Russia's Economy

Russia's GDP is worth $1480 billion it makes up about 2.39% of the world economy according to the World Bank.  A large part of the federal budget revenue comes from payments and taxes from the fuel and energy sector.  Russia's unemployment rate has been declining it is currently at 6.6%, poverty has continued to go down and this has led to the expansion of the middle class.  According to Forbes there were 96 Russian billionaires reported this year that is the second highest number worldwide.

Consumer confidence has been improving in the country, Russian interest rates are currently at 8%.  The decision over interest rates are taken by the Central Bank of the Russian Federation.  Russia's inflation rate is currently at 3.7% and the USD/RUB is trading at 29.5802, the ruble has appreciated during the last month.  The Russian Government Bond 10 Year Note is currently at a 6% yield.  The INDEXCF is a major stock index that tracks 30 of the most liquid stocks of Russia's most developed and biggest companies from 10 economic sectors.  It declined about 91 points during the last month.  It was last trading within the 1,494.66 - 1,529.72 range the top performer was OGK-3 which generates and distributes thermal energy and electricity in the Republic of Buryatia and other parts of the Russian Federation.

Russia is the second-largest producer of natural gas and holds the world's largest natural gas reserves according to The World Factbook.  It also became the world's leading oil producer beating Saudi Arabia in 2011, the country is the third-largest exporter of steel and primary aluminium.  The Russian economy was severely hit by the 2008-09 great recession as oil prices plummeted, The Central Bank of Russia had to spend $200 billion of international reserves in 2008 to slow the devaluation of the ruble.  As a result of high oil prices in 2011, Russia was able to reduce the budget deficit that was created in 2008-09.

Sunday, April 1, 2012

Medicaid and Long Term Care

As people start aging and diseases are more likely to affect their lives it is important for them to start strategizing for the future.  It is a must to have a few pieces of paperwork prepared such as a Living Will, Health Care Proxy and Power of Attorney.

Once the forms have been covered eligibility for long-term care should be considered.  Medicare requires people to be 65 or older to start receiving coverage, if someone is disabled they can receive coverage earlier.  Medicare does not pay for long-term care it pays only for medically necessary skilled nursing facility.  When speaking of long-term care we refer to support services such as bathing, getting dressed and using the bathroom.  Medicare does not pay for custodial care which is non-skilled care, diabetes monitoring would fall under this as well.

Although long-term care can be needed by anyone at any age the majority of people that need it are 65 or older.  According to this year about 9 million people over the age of 65 will need it and by 2020 the number will reach 12 million.  Individuals that are 65 have a 40% chance of entering a nursing home according to a study by the U.S. Department of Health and Human Services.

Medicaid spending for long-term care has increased incredibly and it will soon overtake Medicare as the fourth largest federal budget item.  It is no surprise why it is difficult to qualify for it and why people often have to resort to elder law attorneys to evade financial ruin.

Medicaid eligibility varies from state to state. In NYC a single person can only have income of $812 a month and assets worth $14,250.  For a married couple the monthly income is set at $1,179 and assets at $20,850.  If you will receive long-term care at home then you will not have to worry about the 5 year look back it may be something like 3 months.

When speaking of institutional Medicaid which will cover nursing home care the 5 year look back kicks in.  The 60 month period starts when the person applies for Medicaid therefore every financial transfer conducted within that time period will be analyzed.  For example if you transferred $100,000 3 years ago and the average cost of receiving nursing home care is $10,000 per month the person will be penalized for 10 months ($100k /$10k = 10).  That means if that money was given to a family member and they spent it all you will not receive long-term care until you get $100,000 and pay for your first ten months only then will Medicaid start paying.

There are strategies for people to protect some of their wealth from easily being destroyed by the need of long-term care.  Preparation is a must, if the money has already been transferred before the 5 year period there is no need to worry.  Few people can accurately predict when they will develop a disease so they can resort to gifting, private annuities and protective trusts to protect some of their wealth.  To evade handing over monthly excess income to Medicaid a pooled income trust can be set up. 

Long-term care insurance is an alternative that may work as well but I recommend looking at the fine print and seeing what type of insurance will work best for you and your needs.  A progressive disease like Alzheimer's will only worsen over time and the amount of long term care needed will only increase.