With people living longer and pension plans on the decline, individuals are forced to create their own retirement plan that may last 10, 15 and even up to 30 years. Adding other generations into the mix, as well as needs for insurance and long term care planning, individuals have obstacles to clear out. The Affordable Care Act is making a mockery for some individuals to obtain health care insurance in retirement, but it may create a strong example for preparing for retirement.
Part of the Affordable Care Act is intended to reduce the rapidly increasing health care costs. In order to accomplish this, the government is changing how they pay hospitals for services. Medicare is paying a lump-sum, rather than paying the hospital, the doctor for medical service, and paying each time they do a procedure for a person.
If you go into a hospital for a carotid artery, which results in a potential stroke because the operation unleashed clots in your system, Medicare is only paying once. Previously, the doctor and hospital are paid each for the carotid artery and then for the stroke. But now this scheme is no longer existent.
The incentive system is changing and this is causing a change in how doctors and hospitals operate.
In a recent story by Planet Money on NPR, 3 Ways Obamacare Is Changing How A Hospital Cares For Patients, by Lisa Chow on November 26, 2013, Summa Akron City Hospital in Ohio, doctors are preparing for a new way of doing business that could be a model for preparing for retirement. By incentivizing doctors and hospitals to do it right the first time, the hope is that the cost of health care falls.
At Summa Akron City Hospital, three approaches are being used to profit from this new Medicare payment. First, doctors will use checklists. Second, doctors and hospitals are teaming up. And last, there is a string of follow-ups the hospital will perform to keep the patients out of the hospital for 30 days after the surgery.
I see these examples as another way for helping individuals plan for retirement as well.
1. Checklists
Atul Gawande, a doctor and professor at Harvard Medical School, popularized checklists in The Checklist Manifesto. Since 2009, when the book was published, doctors and hospitals have begun using checklists more.
Checklists help reduce simple error. They produce a consistent product or service each time for a client. Also, checklists reduce the cost of providing service.
Take, for example, the radio personality, Dave Ramsey. He advocates a simple checklist called the Seven Baby Steps: $1,000 emergency fund, pay off debt, 3 to 6 months of expenses in savings, invest 15 percent into retirement accounts, college fund for children, pay off mortgage, build wealth and give.
Doctors carrying checklists are not typical, but research shows that the checklists help.
2. A Team Mentality
It is difficult to be an expert in all things. Preparing for retirement involves collaboration from estate planning attorneys, tax specialists, investment specialists and insurance specialists.
Paying a team to work for you, rather than paying the hospital and doctors separately is intended to create a culture of cost savings improved service.
3. Preparing for the Long Term
With Medicare changing how they pay hospitalization expenses for clients, maybe individuals should think about paying their advisors based on fee for success, rather than having a flat fee or commission.
Last, it's in the best interest of Summa Akron City Hospital and their doctors to make sure that they don't see the patient return in 30 days. In this case, it impacts their wallets and pocketbooks. Back at Summa Akron City Hospital, Ken Berkovitz, a cardiologist at the hospital, said this: "Everybody in the health care system gets rewarded for doing more, rather than rewarded for doing the right thing."
Obamacare is changing how doctors operate. After all, maybe there is a benefit to be found in the Affordable Care Act. The key is to look at what is helpful and useful and for individuals to learn what is right about the Affordable Care Act and, finally take those learnings and apply them when preparing for retirement.
About the author: James (Jamie) Cornehlsen, CFA is an investment advisor with Capstone Investment Financial Group and Chief Investment Officer and Managing Director of Dunn Warren Investment Advisors, LLC. He is a member of the CFA Society of Colorado.
To learn more about Jamie Cornehlsen, view his Paladin Registry profile.
