Saturday, January 30, 2010
Loving the Unloved Annuity
NYT has an article on annuities. Bush's Social Security reform failed because it failed to take into account the annuity nature of Social Security. Unlike a 'lump sum' which you will hopefully accumulate, the annuity lasts your whole life.
This is both a good and bad thing. If you're 65 with $100,000 in your 401K you can live it up for a year or two or three. Great if you die at 67 or 68...which some people do of course. But if you live to 92 you're in trouble. Not counting interest, your nest egg will give you maybe $4K per year until you die. An annuity, though, lasts your whole life. But if you give $100,000 at 65 to get a monthly payment of $600 it's not a great deal if you die at 67.
Coupled with this is the ever growing pension problem America has. On the state level and with many companies workers earn pensions for their years of service. In order to guarantee workers a lifetime payment when they retire, states and companies contribute to their own unique pension plans. Pension plans are chronically underfunded, though, opening the door to massive gov't bailouts in the future.
A solution might be to group together insurance companies and offer a standardized annuity. It will be sold in small increments, maybe $100. For $100 you will purchase, say, $0.50 a month starting at age 65 (of course this will vary with age, if you pay the $100 at age 20 it might be $1.25 a month, at age 64 $0.005 a month). The plan will be administered by insurance companies by competitive bid and fully funded at all times. Instead of trusting 50 state governments, numerous local gov'ts and multiple companies to run thousands of individual pension plans, pension benefits will be purchased directly in real time from this independent agency. Not only can employers purchase the units but so could individual workers either for themselves or as gifts. In effect you have a beefed up US savings bond.
The advantages I see are:
1. You're not tied to the economic fortunes of your employer, state or company. A company or state facing fiscal difficulties is likely to try shorting their pension plan payments. Here your pension is purchased as you go so even if your company is bankrupt your pension is not.
2. You build the annuity portion of your retirement in small increments. You don't have the psychological burden of giving up your $100,000 401K balance at 65 to buy an annuity. You can split your 401K between annuities and 'lump sum balances' as you work thereby making a balanced retirement.
3. The moral hazzard issue with pension plans is modified. Right now the incentive in place is for states and companies to underfund their pension plans and make up for it with riskier investments. If they pay off great for everyone but if they fail its the workers who get screwed as well as the taxpayers. Here the charge per unit of annuity is directly tied to what is needed to payoff the promised benefit. If a company lacks funds it will simply not be able to purchase the annuities.
This is both a good and bad thing. If you're 65 with $100,000 in your 401K you can live it up for a year or two or three. Great if you die at 67 or 68...which some people do of course. But if you live to 92 you're in trouble. Not counting interest, your nest egg will give you maybe $4K per year until you die. An annuity, though, lasts your whole life. But if you give $100,000 at 65 to get a monthly payment of $600 it's not a great deal if you die at 67.
Coupled with this is the ever growing pension problem America has. On the state level and with many companies workers earn pensions for their years of service. In order to guarantee workers a lifetime payment when they retire, states and companies contribute to their own unique pension plans. Pension plans are chronically underfunded, though, opening the door to massive gov't bailouts in the future.
A solution might be to group together insurance companies and offer a standardized annuity. It will be sold in small increments, maybe $100. For $100 you will purchase, say, $0.50 a month starting at age 65 (of course this will vary with age, if you pay the $100 at age 20 it might be $1.25 a month, at age 64 $0.005 a month). The plan will be administered by insurance companies by competitive bid and fully funded at all times. Instead of trusting 50 state governments, numerous local gov'ts and multiple companies to run thousands of individual pension plans, pension benefits will be purchased directly in real time from this independent agency. Not only can employers purchase the units but so could individual workers either for themselves or as gifts. In effect you have a beefed up US savings bond.
The advantages I see are:
1. You're not tied to the economic fortunes of your employer, state or company. A company or state facing fiscal difficulties is likely to try shorting their pension plan payments. Here your pension is purchased as you go so even if your company is bankrupt your pension is not.
2. You build the annuity portion of your retirement in small increments. You don't have the psychological burden of giving up your $100,000 401K balance at 65 to buy an annuity. You can split your 401K between annuities and 'lump sum balances' as you work thereby making a balanced retirement.
3. The moral hazzard issue with pension plans is modified. Right now the incentive in place is for states and companies to underfund their pension plans and make up for it with riskier investments. If they pay off great for everyone but if they fail its the workers who get screwed as well as the taxpayers. Here the charge per unit of annuity is directly tied to what is needed to payoff the promised benefit. If a company lacks funds it will simply not be able to purchase the annuities.
Sunday, January 24, 2010
Medical Errors and Malpractice Reform
Hello all, I know the best laid planes of mice and men....everytime I think about creating more of my own posts I end up getting caught commenting on other people's posts on other blogs. Well let's try some posts on my actual blog.
New York Times today has a good article on accidental radiation overdoses. The machine at fault is a fascinating contraption. Basically it works like hand puppets on a wall. Metal 'leaves' block the radiation. Software adjusts the control the shape of the radioactive beam so that the only radiation that hits the body is what is needed to hit the tumor. (See this excellent animation/graphic).
The problem in the worst cases seems to be the machine opened all the 'leaves' giving fatal doses of radiation to the patients. In less extreme cases, the beams were the wrong shape or even targeting the wrong areas resulting in needless exposure to patients (thereby increasing the risks of additional cancers later in life) and/or not treating the actual cancer they have as effectively as possible.
This raises two questions for me:
1. Advocates of malpractice reform in place of real health care reform almost always overstate its usefulness. Nonetheless, they ignore malpractices real purpose which is to punish and deter medical errors. There is a huge amount of medical errors (see this book review for a take on how many errors can be cut by using simple and cheap checklists) that happen. What mechanism should be used to confront them? Malpractice is probably the most market orientated mechanism to confront medical error.
2. A more obvious question, why does this machine have a setting that even allows all its 'leaves' to open thereby giving the patient a fatal dose of radiation? I can't delete a file on my computer without a bunch of 'Do you really want to do this' pop-ups. Why wouldn't this machine be designed with a fail safe prohibiting massive, uncontrolled radiation doses?
New York Times today has a good article on accidental radiation overdoses. The machine at fault is a fascinating contraption. Basically it works like hand puppets on a wall. Metal 'leaves' block the radiation. Software adjusts the control the shape of the radioactive beam so that the only radiation that hits the body is what is needed to hit the tumor. (See this excellent animation/graphic).
The problem in the worst cases seems to be the machine opened all the 'leaves' giving fatal doses of radiation to the patients. In less extreme cases, the beams were the wrong shape or even targeting the wrong areas resulting in needless exposure to patients (thereby increasing the risks of additional cancers later in life) and/or not treating the actual cancer they have as effectively as possible.
This raises two questions for me:
1. Advocates of malpractice reform in place of real health care reform almost always overstate its usefulness. Nonetheless, they ignore malpractices real purpose which is to punish and deter medical errors. There is a huge amount of medical errors (see this book review for a take on how many errors can be cut by using simple and cheap checklists) that happen. What mechanism should be used to confront them? Malpractice is probably the most market orientated mechanism to confront medical error.
2. A more obvious question, why does this machine have a setting that even allows all its 'leaves' to open thereby giving the patient a fatal dose of radiation? I can't delete a file on my computer without a bunch of 'Do you really want to do this' pop-ups. Why wouldn't this machine be designed with a fail safe prohibiting massive, uncontrolled radiation doses?
