Why I often Give Away my Advice for Free

Here’s a great post from the Self-Pay Patient blog:

I’ve written about medical bill negotiators in the past, but I don’t know that I’ve specifically described CoPatient and how they work. The process as described on their web site is pretty straightforward and has one helpful service that I’ve not seen before from a medical bill negotiator. Here’s how they describe their services after people create an account and submit their bills:

  1. Organize all your paperwork. We match your provider bills to your EOBs. You get access to a consolidated view of all your bills.
  2. Review your bills and insurance coverage. We use technology. industry know-how and knowledge generated from other consumers like you to uncover the many errors that happen in medical billing.
  3. Provide you with a report. You can then go in and see a nice snapshot of what you owe and what we think you can save.
  4. Get the errors fixed and recoup or lower your expenses. We fight insurance denials and negotiate your doctor and hospital bills. We have the experience and relationships to do this and you don’t have to spend all day on the phone. We charge a small percentage of what you save as a fee.

One of the interesting things about CoPatient is that they provide you with a report before you pay anything, meaning if someone wants to they can use the information to try to negotiate a discount on the bill themselves. They address this in their ‘Frequently Asked Questions’ section:

Are you concerned the individuals will take the free audits and contact providers or payers directly? Our goal is to create an environment where consumers take a larger role in their healthcare management, and that starts by understanding medical billing. Our philosophy is that if a consumers shares their medical bills with CoPatient — which in turn helps our system grow smarter and faster — then we want to give them something of value in return. Some consumers may want to take action on that data, and we encourage them to fight for what is fair and accurate. However, others opt-in to our appeal service to let our Billing Advocates make the phone calls, send the letters and follow-up with their providers and health plans to fix errors and overcharges.

Needless to say, ‘free’ is a pretty good price for such a valuable report! But the thing that really caught my eye was the fact that CoPatient will also review patients insurance coverage and appeal adverse decisions by insurers to deny payment.

In the modern world of bureaucratic medicine, there are few more frustrating experiences than having medically necessary treatment denied by an insurer. Having someone like CoPatient to help navigate the insurance appeals process seems like a terrific option for self-pay patients who do have some form of insurance!

Similarly, the more a 401(k) plan sponsor shares with me, the more I learn about the industry – which helps me grow smarter and faster – so I want to give them something of value in return.  Some plan sponsors may want to take action on the advice I provide and use it to negotiate a better arrangement with their existing providers, and I encourage them to fight for what is best for themselves and their participants.  However, others decide to engage my services and either have me deal with their existing providers or recommend new providers.

In the modern world of bureaucratic 401(k) plans, there are few more frustrating experiences than having to ask your service providers what you are paying them and then having to hire a consultant just to understand their response!  It’s like someone picking your pocket and then selling you back your own watch – after breaking it – and then providing a manual that only a watch expert can understand .  Having someone who actually acts as your advocate seems like a terrific option for plan sponsors who would otherwise be in the dark.

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Book review: Simple Wealth, Inevitable Wealth: How You and Your Financial Advisor Can Grow Your Fortune in Stock Mutual Funds

1.  The main premise that returns are primarily driven by investor behavior is a good one.  Investor behavior is definitely not often driven by a rational and disciplined approach, so I share Murray’s view that the best way in which an advisor can provide value is by protecting investors from themselves.  In fact, I recently sent each of my clients this article that reflects this view:

Conflicts of Interest and Mutual Fund Advice –
http://www.cbsnews.com/news/conflicts-of-interest-and-mutual-fund-advice/

The last part is insightful:

“A client called up his advisor, wanting to know what he should do in reaction to the plummeting market. “Nothing,” said the advisor. The next year, he called again, wanting to know what he should do in response to the soaring price of gold. “Nothing,” was the advisor’s response. In year three the client called again, wanting to know what he should do to take advantage of the soaring bull market. “Nothing,” said the advisor again. “Excuse me,” said the client, “but every time I ask your advice, you tell me to do nothing. Remind me again what I’m paying you for.” “You’re paying me,” said the advisor, “to keep you from doing something.”

And therein lies the true value of advice.”

He went on to rightfully criticize all of the unnecessary hype and unfair criticism of financial advisors from journalists who promote a do-it yourself approach that can be reckless at worst and irresponsible at best that promotes active trading which has an inverse relationship with growing your portfolio.

I also liked the behavioral psychology insight about how people have such an aversion to and fear of losing money that it will outweigh their desire to make money.  This type of behavior is evident when people sell at the bottom – the worst possible time to sell.

2.  I enjoyed the empirical evidence Murray provides to support the idea that investing in equities is actually a safer way to protect your wealth in the long-term than investing in cash and bonds.  I have made this claim as well, but it’s nice to have more evidence to back it up.

3.  His discussion as well as empirical evidence of the value of dollar cost averaging was useful.  When you look at investing this way, bear markets are great because now you can purchase investments on sale!

4.  It was nice to see that Murray took a balanced and unbiased approach to the active vs. passive debate.  Murray correctly pointed out that index funds (depending on the fund) can be more volatile and expensive than some actively managed funds that focus on long term returns and minimizing trading and volatility.  He also points out time periods when most actively managed funds outperformed the S & P 500 as well as thinly traded asset classes like small cap that are more likely to outperform the index benchmark.  On the other hand he warns against accidentally creating your own overly expensive index fund by investing in several large actively managed funds that collectively replicate the market.

5.  While Murray pointed out the pejorative way in which the media refers to financial advisors as “brokers”, he completely ignored the distinction between a broker and a registered investment advisor who acts as a fiduciary and is legally required to act in a client’s best interest as opposed to a broker who is subject to the suitability standard and does not have to act in a client’s best interest.  The main difference is that a registered investment advisor cannot take any kickbacks from a third party whereas a broker can only earn percentage-based kickbacks from financial products known as 12b-1 fees.

For more information on the subject, I would suggest watching the two videos along with reading the article below:

Butchers v Dietitians Brokers v Advisors Suitability v Fiduciary:


Retirement Gamble:

http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

Suitability vs. Fiduciary Standard:  It’s a Big Deal:

http://www.401khelpcenter.com/401k/chamberlain_401k_suitability_fiduciary.html#.VJrwFkDBUA

6.  Murray does give a brief mention to various organizations one can contact if he needs to find a financial advisor, one of which was an association of fee only planners.  However, the focus of his book was on the idea that it is generally a good idea to pay an approximate 1% ongoing fee to a financial advisor while ignoring the fact that you could get the same level of service for a flat annual fee or hourly fee that would not necessarily be every year, as a portfolio doesn’t necessarily have to be reviewed literally every year.  The two attached articles go into more detail about this issue.

Furthermore, there are still conflicts of interest with an asset-based fee, even if it is charged by a registered investment advisor.

This article elaborates:

There are Conflicts of Interest Inherent in Assets-Under-Management Pricing –

http://www.investmentnews.com/article/20111127/REG/311279984

Here are some highlights:

Charging clients on an AUM (assets under management) basis, however, presents more-serious conflicts of interest than those faced by brokers, because the conflicts may involve much more money than the value of a trade.
Here are some typical situations where asset-based fee compensation poses conflicts for advisers:

• When advising a client to roll over a 401(k) for the adviser to manage, even when the client has equivalent and less costly options if they leave their funds with the employer’s fund manager.

• When advising not to pay off a mortgage (thus diminishing assets), even when the mortgage carries a high interest rate.

• When advising against making a large charitable contribution to get a tax deduction (but decrease assets under management).

• When advising not to give large gifts to children to avoid estate taxes.

• When advising not to buy a larger home.

• When advising not to buy an annuity or set up a charitable annuity.

• When advising not to invest in real estate.

He also should have mentioned how significant a 1% can be, as the Department of Labor explained:

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

http://www.dol.gov/ebsa/publications/401k_employee.html
7.  Murray also ignores the vast body of research that suggests not that passive is better than active, but that broker sold funds on average significantly underperform direct sold funds because the funds in the broker channel invest far more heavily in sales and marketing activities vs. the direct channel which invests more in the expertise of the fund managers.  This article elaborates:

Does New Study Seal the Deal for Fiduciary Standard – or Just Warn Plan Sponsors? (about broker sold funds):

http://fiduciarynews.com/2011/01/does-new-study-seal-the-deal-for-fiduciary-standard-%E2%80%93-or-just-warn-plan-sponsors/

8.  When discussing the benefits of a financial advisor, Murray should have also mentioned perhaps the most significant reason to use a financial advisor – tax loss harvesting.

http://www.investopedia.com/articles/taxes/08/tax-loss-harvesting.asp

For your non 401(k)/IRA investments, I would consider using Betterment – https://www.betterment.com/.  They do charge based on a percentage, but it is low – only 0.35% and only 0.15% for assets over $100,000.  They focus on using low cost ETFs which are similar to index funds.

https://www.betterment.com/resources/investment-strategy/etfs/good-investment-selection-science-art/

I do not earn any compensation if you use this firm.  I just like their approach.

For your IRA investments, however, there is not as much value to using a firm like Betterment because the tax loss harvesting does not apply.  I would consider an index fund such as the Vanguard Total Stock Market Index Fund (VTSAX) or replicating one of Betterment’s portfolios.

This article shows how firms like Betterment are changing the industry:
The Rise of Robo Advisors:

http://www.fa-mag.com/news/the-rise-of-the-robo-advisors-17370.html

Are Health Sharing Ministries a Better Alternative to Traditional Health Insurance?

I normally write about issues pertaining to qualified retirement plans, but health care also plays a major role in our retirement, so I believe I need to address this issue.  I recently learned about health sharing ministries at an event put on by the Heartland Institute, a Chicago based think tank promoting public policy based on individual liberty, limited government, and free markets.

I was immediately interested upon reading the description of the event which mentioned how self-pay patients can find more cost effective healthcare alternatives.  Since I try to avoid solving medical problems through unnecessary and potentially harmful prescription drugs and prefer to take a more holistic approach to health and wellness, I was eager to hear what Sean Parnell, the event speaker and author of The Self-Pay Patient had to say, and I wasn’t disappointed.

For one thing, I was surprised to learn about the extent of the potential difficulty in getting reimbursed by an insurance company.  Parnell relayed a story about his wife’s terrible experience with her health insurance company because of migraine headaches she had been having, which resulted in years worth of wasted time, energy, and exasperation along with mounds of paperwork several feet high!  While a story like this may not necessarily be the rule, I wondered how many other people had this type of experience.

When he finished speaking, I had the opportunity to ask about what someone like me, a healthy 36 year old who does not wish to participate in the corrupt and conflict ridden medical system, could do to protect myself in a cost efficient manner.  At the time, I was paying $163 per month for an individual policy with a $5,000 deductible that covered very little with the exception of emergency care.  And because of the Affordable Care Act, I knew my premiums were going to continue to increase significantly.  In fact, I learned that my policy was soon going to be phased out because it did not meet the requirements of this new legislation, and that I would soon be forced to purchase a more expensive policy and therefore more fully participate in a health care system that I didn’t believe in.  So I was pleasantly surprised when Parnell responded that I could consider a health sharing ministry as an alternative which would be exempt from the fines levied by the Affordable Care Act.

I did some research on health sharing ministries and came across the following information:

http://selfpaypatient.com/category/health-sharing-ministries/

http://money.usnews.com/money/blogs/my-money/2014/10/24/cant-afford-obamacare-consider-a-health-care-sharing-ministry-instead

http://www.washingtontimes.com/news/2013/jun/6/obamacare-alternative-exemptions-offer-way-out/?page=all

http://usatoday30.usatoday.com/news/religion/story/2012-07-08/health-insurance-sharing-ministries/56083586/1

Here are some highlights:

U.S. News article:

“A health care sharing ministry (HCSM) provides a health care cost sharing arrangement among persons of similar and sincerely held beliefs,” the Alliance of Health Care Sharing Ministries states on its website. “HCSMs are not-for-profit religious organizations acting as a clearinghouse for those who have medical expenses and those who desire to share the burden of those medical expenses.”

According to the HCSM, health care sharing ministries currently cover 300,000 people in all 50 states.

Instead of deductibles, participants are subject to annual unshared amounts. For example, some plans pledge to cover medical expenses after a family spends $1,500 out of pocket for their own medical care, while others don’t begin offering benefits until you spend $5,000. However, unlike health insurance plans offered through the ACA, health care sharing plans are not required to cover some medical procedures – including certain procedures the group finds morally objectionable. 

Of course, there are other differences between traditional health insurance and sharing plans. For example, health care sharing ministries reserve the right to deny applicants due to pre-existing conditions, which is in stark contrast to new guarantees offered by the ACA. Sharing plans also often come with lifetime caps on coverage that range from $250,000 to as much as $1 million depending on the plan you choose, and participants are required to pay for their own well visits and preventive care.

Washington Times article:

Typically, a hospital patient paying out of pocket for major surgery needs a long-term payment plan, so when Gary L. Edwards‘ friend paid off his $30,000 emergency hernia operation tab in about a month, it left hospital officials flabbergasted.

Mr. Edwards and his pal are members of Samaritan Ministries International, a “health care sharing ministry” in which Christian members pay for each other’s health care needs through monthly shares.

While most Americans next year will have to grapple with the intricacies of President Obama’s health law and the “individual mandate” requiring residents to have health insurance, Mr. Edwards and more than 160,000 others who use health-sharing ministries will be exempt.

They’re one of nine exemptions built into the health care law, covering everyone from illegal immigrants to prisoners; those who have religious conscience objections, such as the Amish; and health care sharing ministries members like Mr. Edwards.

USA Today article:

Ellery Hunsley doesn’t have health insurance. But eight years ago, when his daughter went through treatment for a brain tumor, the assistant pastor at a local church didn’t worry about the medical bills.

Hunsley paid every bill out of pocket, largely thanks to the help of strangers — people who, like himself, participate in an alternative to insurance, a health care sharing ministry.

Reading this was great news to someone like me, and finding out about Liberty HealthShare – http://www.libertyhealthshare.org, a non-denominational organization, was even better news as I am not Christian.

Here is a sample of what Sean Parnell wrote about Liberty HealthShare:

One of the interesting things about Liberty HealthShare is that they are organized around ethical beliefs and not religious beliefs. Most people don’t know that the Obamacare exemption for sharing organizations must be composed of members who “share a common set of ethical or religious beliefs…”

By establishing a set of ethical criteria that members must subscribe to, Liberty HealthShare has found a way to expand the number of Americans who can opt for this low-cost alternative to conventional health insurance.

Liberty HealthShare isn’t just unique in its expanded membership eligibility. Unlike the other three ministries, they handle payment of medical bills directly. The other three ministries distribute the shared funds directly to the patient (or their family), who then pay medical bills directly.

http://selfpaypatient.com/2013/10/23/liberty-healthshare-a-health-sharing-ministry-for-all-faiths-or-no-faith-at-all/

Because health sharing ministries like Liberty HealthShare have lifetime caps and membership restrictions, they are able to control their costs so members won’t see significant annual cost increases.  As someone who is young and healthy, I am willing to accept a lifetime cap in exchange for a lower monthly sharing amount.  Furthermore, my network spinal analysis chiropractic treatments are very important to my health and personal development, because Liberty HealthShare does not have networks,  it fully shares the cost of 12 annual chiropractic treatments, regardless of which chiropractor a member uses – and unlike having a $5,000 deductible, each Liberty HealthShare plan has a $500 annual unshared amount (like a deductible).  This type of structure is valuable to me because I would not have received any cost sharing at all with a traditional health insurance provider because I would not have met my deductible and my chiropractor was not within the network of my old plan.  And Liberty HealthShare even pays a $50 referral fee for each new member you refer!

Health sharing ministries may not be a fit for everyone, but our health care is too important not to include them as part of our evaluation when making health care decisions.  Here are two excellent resources for those who are looking for information that will allow them to make more informed health care decisions:

http://selfpaypatient.com/

http://www.healthcaresharing.org/