Good, bad and the ugly of Kaiser

My new Aussie puppy reminds me of the dog-training book, “Good Dog, Bad Dog.” Meanwhile, the flood of e-mail after my column on Kaiser Health suggests that it’s time for a book “Good Kaiser, Bad Kaiser.”

If you want to see the fur fly, say something good about Kaiser.

Plenty of people were quick to disabuse me of the thought that Kaiser was vastly improved as a result of all that money they have been making. Several pointed out instances of sloppy, inattentive care and misdiagnosed illnesses. A few of these stories sounded horrendous and inexcusable.

In the same vein, others pointed out that Kaiser has several different benefit levels which can leave people in some situations with an unlimited amount that they might have to pay. Prescription drugs, in one example, were covered up to a limit which meant that the patient had to pay for everything over that limit. In the individual insurance market, Kaiser, of course, requires that applicants prove their insurability by having no pre-existing conditions.

One especially important arrow in Kaiser’s quiver, in theory at least, is the practice of preventive care. Unlike most other insurance programs, an HMO like Kaiser has an economic interest in early detection and prevention of illnesses. HMO, after all, stands for Health Maintenance Organization.

A few people wrote to tell me that those physical exams were woefully inadequate — the worse they had ever received by one account.

Examples? No coughing check for hernia or PSA test for starters. In one case, a new Kaiser enlistee, disgusted with what experience told him was a second-rate physical, asked for another Kaiser doctor at another location. He came away extremely pleased and said, “You just have to do your homework.”

Kaiser is having no trouble filling doctors’ jobs. One e-mail noted that doctors coming out of the nation’s medical schools have selected Kaiser as one of the most popular possible job options. A recent top job had two finalists — one from the Stanford Medical School’s faculty and another from Harvard’s. They picked the Harvard guy.

One wonders why we haven’t heard more about the Kaiser model as part of the debate on national health care. After all, their patient record-keeping is 100 percent computerized while the rest of the industry is at less than 10 percent. Computerization is supposed to be the key to holding down costs. The answer was supplied by yet another e-mail as follows: A portion of Kaiser is an insurance company like everyone else. They belong to an association of similar insurance companies that they don’t want to antagonize. Throughout this national debate on improving a dysfunctional system, the HMO has remained largely below the radar.

I would offer a more cynical reason. The longer the rest of an inefficient industry continues to raise prices in their regional oligopolies, the greater the advantage for Kaiser. The status-quo is serving them well, so why would they step up to the plate and offer to solve problems on any kind of national scale? Why step right into a buzz saw?

What I would like to see is a collaborate effort on the part of private industry to offer health care to everyone with no proof of insurability. This would solve the major problem for early retirees and the unemployed who find themselves without coverage and at risk of losing everything in the event of even a minor illness.

Retirement Boot Camp now begins

To spend or not to spend? Do we enjoy life to the fullest and accept what it costs, or do we save for retirement? We can try to build up those retirement coffers still further, but what if we get hit by a bus?

All that parsimony and grinding self-sacrifice might be for naught. Maybe there’s a case for instant gratification and then letting the chips fall where they may when real retirement rolls around. On the other hand, if we create a self-imposed Retirement Boot Camp of sorts for at least some period, rigorous discipline for a few years may allow us to eventually have it all.

We can start by making a list of what we want to do that costs money. It may turn out that a “bucket list” for the Simple Life just won’t cost that much. For the rest of us, there are things we want to do with our spare time plus a few extravagances we have denied ourselves for many years. With a handle on some of this pre-retirement discretionary spending, we can then calculate how much of it we can afford at the expense of our future retirement nest egg.

Now for the money part: We review our spending obligations and anticipate what they will be in retirement. Then, setting aside the equity in our homes, we calculate how much we currently have in IRA’s, 401(k)s and other retirement accounts. Add up all after-tax (non-retirement) investable assets. Combine the two numbers and recognize that if the total grows at a rate of 7.2 percent per year it will double every 10 years.

Then, if we are dollar-cost-averaging at a rate of $10,000 per year from this point forward, and earning 8 percent on the money, we should accumulate an additional $150,000 in 10 years; $500,000 in 20 years, and $1.2 million in 30 years. If we’re contributing, say, half this much then the accumulation numbers are half of the above. At double, or $20,000 per year, the numbers all double. It’s a low-tech planning approach — crude but effective.

If a combination of your present money compounded plus your future contributions add up to $500,000 by a hypothetical retirement date, we could at that time start safely spending 6 percent per year without eating into the principal. This would be $30,000 of annual income. Coupled with Social Security, our income would be in the $50,000 range. If we decide we want more, we can decide to work longer or save more.

Another option is to refinance or downsize the house and add the cash to the lump sum above. This is a great time to get a fixed rate 30-year mortgage at historically low rates. The mortgage cost will be fixed for a lifetime, but inflation will increase future Social Security income.

For retirees, the experience of having no job income rolling in can be traumatic even for those with plenty of money. One way to prepare is to determine future income based on the above projection, and see what it feels like to live on that amount today. For most people, it would be substantially less than their current spendable income and would create tough budget requirements. We can all spend less money if we try. The way to enforce discipline would be to go to the maximum on all retirement plan contributions.

The valuable by-product of this exercise will be a lot more money in the kitty to fund whatever eccentric personal lifestyle the “bucket list” demands.

Kaiser may be future of health care

My recent column on the health care crisis brought anecdotal experiences out of the woodwork. My favorite was the guy who called and said that his doctor had recommended a new skin cream. When he picked up this small tube of paste at the pharmacy, he asked the pharmacist what the insurance company had been billed. The answer? $385.

Who would have known or cared? Most of us are totally disconnected from our health care costs because they are paid for by insurance companies and the monthly premium is largely paid by our employer. Whenever we don’t receive a bill and don’t have to write a check, we don’t seem to care.

I wonder what Kaiser Permanente would have paid for it. One of my calls was from a physician at Kaiser who pointed out that they, in fact, are not barred from negotiating drug prices with major pharmaceutical firms. Kaiser has a team of people who grind away on the drug industry. Now that I think about it, I’m surprised that Kaiser hasn’t been mentioned much at all in this great debate on health care. Isn’t it a single-payer, health care provider? If Kaiser is what a government-run, health care provider would look like, why hasn’t it been subjected to a barrage of criticism?

A brave fellow business owner with about 100 employees recently switched everyone to Kaiser. No choice in the matter. He is saving about $100,000 a year. He found that the people who “hated Kaiser” were only the people who had never tried it. The owner himself “walked the plank” to show some leadership by example.

What I also know, from further anecdotal comments, is that many people at Kaiser received large surprise bonuses last year because of the organization’s financial success.

So, here’s an analogy from my childhood that may explain what’s happening.

In the small New England town where I grew up, there were three famous machine tool companies that sold products throughout the world. One of the three companies was a union shop and the others two were nonunion. The union shop would strike periodically, and the result would be higher wages for its workers after a prolonged, expensive walkout. Wages for the nonunion shops would then rise to meet the town’s demand for labor, but the other two shops’ employees never had to bear the cost of a strike.

In a similar fashion, Kaiser can play off its competitors and price its health care services about 10 percent below the insurance company competition and entice business owners such as my friend to move to this single-payer system.

 The insurance and for-profit hospital systems set the cost bar so high that Kaiser can still make plenty of money after underpricing the rest of the market. Kaiser can even afford what today might be far superior care with the free cash flow and profit margin that they have left after their discount from competitors’ pricing. The health maintenance organization is operating in a market that is so inefficient and overpriced that it can offer a discount and still make a fortune.

If Kaiser is any example, a government-run health care service could probably price itself at 30 percent below current market and still “make a fortune” for us taxpayers. There are some pretty bright managers at the highest civil service levels who can make things happen for far less than $1.4 million per year, and we can change the law that prevents us from negotiating drug prices. The time has come.