Selected Newsletters
OPEN LETTER
My Two Cents on the Health Care Debate
By Jerry Reiss
- Published on Linkedin on June 23, 2017
I started my career as a Health Actuary in the early 70s. The problem with runaway costs began with the introduction of "Usual and Customary" by Blue Cross & Blue Shield. The coverage before that provided a fixed schedule of benefits (see page 6 of treatise). The schedule of benefits controlled costs because the consumer had limited funds and only sought services that could be afforded. Usual and Customary gave ordinary people access to huge sums of money and it is responsible for an explosion of expanded services largely responsible for increased longevity. But it also led to runaway costs. I had been working on the solution to the problem (in the early 70s) which involved identifying and controlling the two drivers of cost: Incidence and Utilization.
Incidence is the rate by which people incur illness in the insured population. Utilization is how often they use the insurance. The solution was remarkably simple. The Affordable Care Act identified what those drivers are and sensible solutions. What was enacted fell far short of what is needed because politics got in the way. We will not be able to solve the problem with only market-based solutions, nor will it be solved without a 100% mandate, nor can it be solved without addressing limiting utilization for end of life care. Without limiting the latter, restricting what kind of profit players can make, and severely eliminating the ability to sue, the rich in their 80s are provided more affordable coverage at the expense of the working poor having less or no access to health care. People of means can always opt out of insurance coverage and get more quality care if they pay for it themselves. Once and for all we must decide as a society whether health care is a right or a privilege. The lobbyists have always turned this question on its head.
Surely, what we have provides the best care in the world, which is why the very rich come here for care. At the heart of this question is not whether we have the best health care system, but what percentage of our population has access to it (as discussed in the Newsweek article, which you can access by the link provided above). This is why we need to pay far more attention to how the World Health Organization rates our health care (ranked 38 overall behind 37th ranked Third World Costa Rica and dead last among western civilizations) than how the Heritage Foundation rates it. Even the Affordable Care Act had it shortcomings providing three levels of coverage based on economic circumstances. Because longevity is correlated with where you live, your level of education, and your economic situation, we must compare what we have against what Europe offers, not based on availability of coverage, but based on access to care and what care most of our citizenry are provided.
Had the studies in the 70s been implemented with the intended solutions, we would have solved the problem with the creation of HMO's. Health Maintenance Organizations were supposed to follow those principles, which were to control costs by keeping people healthy. If people are healthy they do not need expensive procedures nor do they need to use health insurance that often. They did not because instead of operating under the long view, where controlling costs were the main objective, they instead opted to maximize profits each year, which works diametrically opposite to the reason the HMO was created in the first place: controlling costs by keeping people healthy. This was accomplished by encouraging wellness visits by paying 100% upfront coverage.
The sick population doesn't magically disappear when you change the public policy on how costs should be managed. This forces prices up before they can decrease. You start new policy with scores of sick people. Implementing this new policy cannot be done in a pure vacuum, meaning costs go up temporarily before utilization of services and incidence of illnesses decrease, driving costs down. This is the inherent problem in seeking a market-based solution, which involve corporation that have stockholders who don't give a damn about people's health.
Conservative politics sees market -based solutions as a panacea to all the ills of the world. This runs countermand to the way most western countries view these issues. Inasmuch as they have far lower infant mortality, and health care rated far higher than we rate under the World Health Organization, and at a much lower per capita cost, just maybe they are right and we are wrong.
FEATURED NEWSLETTER
WHAT IS DEFERRED COMPENSATION AND WHAT IS NOT
By Jerry Reiss
Family Law attorneys are making huge mistakes dividing non-deferred Compensation programs as deferred compensation programs, thereby employing circular reasoning and committing malpractice. What is Deferred Compensation and why mislabeling it cause such concern is the focus of this short newsletter?
Deferred Compensation, generally refers to deferring taxation on earnings. As something may be earned in the first place, it becomes an acquired asset with the normal presumption attached that it was acquired during the marriage. Deferred Compensation is normally associated with Retirement and Welfare Benefits but it can also include non-qualified stock and stock options. The confusion begins with retirement plans because, to qualify as a retirement plan the benefit must vest upon satisfying the conditions for retirement, and all retirement plans must contain a definition of what is earned, when it was earned, how it is earned, and that what is earned can never be reduced. While normally the last requirement is restricted to qualified plans, here in Florida State statute prevents cutback of earned retirement benefits. Branca v. City of Miramar, 634 So. 2d 604, 607 (Fla. 1994) citing 4th DCA Branca, 602 So.2d at 1378 (Farmer J., dissenting). None of these attributes apply to Welfare Benefits or other deferred compensation benefits programs. Anderson v. Morrell, 830 F.2d 872, 876 (8th Cir. 1987) citing Winer v. Edison Bros. Stores Pension Plan, 593 F.2d 307, 310 (8th Cir. 1979). "Employee Welfare Benefit Plans were expressly excluded from these sections ..." Anderson v. Morrell at 876 citing Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cor. 1984). To be clear, only retirement benefits contain earnings definitions, and only these benefits must be paid. This is why determining what's marital property with all other deferred compensation programs requires detailed analysis working the terms of the benefit to determine what was earned and when it was earned. Jensen v. Jensen, 824 So.2d 315, 317-320 (Fla. 1st DCA 2002)
Retirement Benefits include defined benefit plans and defined contribution plans. Defined benefit plans include traditional monthly benefit plans, floor and floor offset plans and cash balance plans. Defined Contribution plans include Profit Sharing and Defined Contribution Pension Plans. Profit Sharing plans include discretionary contribution plans with or without corporate profit, 401(k) plans, or its government equivalent, 457 Plans, ESOPs, and Thrift Plans. Defined Contribution Pension Plans include money purchase pension plans or its government equivalent, 403(b), and target benefit plans. There are other plans that are hybrids of one or more general classifications. All of these plans have earnings and vesting definitions, must vest upon attaining the conditions for retirement, must vest upon plan termination, and what was earned can never be reduced.
Welfare Benefit Plans need not ever vest (and seldom do) and do not contain earnings definitions. These plans are generally insurance type plans, like Health and Disability Insurance Plans and Life Insurance. Benefit rights flow from events randomly occurring in nature like, accident, illness or death. For that reason prepaid legal service is a welfare benefit. Coverage can be withdrawn based on the contract and the contract alone and all rights terminate except those establishing benefits based on these random event occurring while the contract was in force. The only marital property associated with these benefits are cash value rights created during the marriage or in some cases payments made during the marriage. Weisfeld v. Weisfeld, 513 So.2d 1278, 1281 (Fla. 1989) citing Goode, 692 S.W. 2d at 757; In Re: the Marriage of Burt, 494 N.E. 2d at 868; Lukas, 404 N.E. 2d at 505; Johnson, 838 S.W. 2d 703; Quiggins v. Quiggins, 637 S.W. 2d 666; 668-69 (Ky 1982); Platek, 454 A.2d at 1059; Orszula, 356 S.E.2d at 114; see Queen, 521 A.2d at 324.
Other deferred compensation programs need never vest because they are often unfunded and seek to reward employees for future services that may or may not be paid. Because Welfare and non-retirement deferred distribution benefits may not be paid, may never vest, and often don't have clear definitions of what was earned, when it may be earned, vesting may substitute for what was earned except when it can be shown by the way the benefit works that vesting involves tangential effort. Tangential effort can involve great effort but be passive because the effort did not result in earning the asset or the growth. Thus, this entails a thorough understanding of the four types of effort recognized under Florida Law: Passive (little or no effort), Tangential, Active (significant effort, yet passive), and a Foundation of Active Efforts during various measurement periods.
But not all compensation paid in the future fits into F.S. 61.075(6)a.1d. If an asset has yet to be created, it may not create marital property even though it may create property in the future. A clear example of that is when a right to the property is created after the cutoff date, such as the adoption of a 61.075(6)a.1d program developed after the cutoff date which awards benefits or compensation after the cutoff date, but may give earning credit during the marriage. When deferred compensation is used loosely where nothing has been acquired, simply categorizing it as deferred confuses whether the asset was acquired. In the instance of deferred compensation programs, a contract or plan was acquired before the cutoff date, and whether something was earned and how much may befall on the person who participates in the contract or program to demonstrate a non-marital portion because then at least a future right was acquired during the marriage. But when it is not a F.S. 61.075(6)a.1d asset, it must be scrutinized to understand the compensation purpose. If for example it is compensation rewarded if an injury occurs after the cutoff date, it is not marital property. Such might be triggered by an executive agreement delineating what occurs on firing or constructive firing pursuant to a merger/acquisition. But that same merger/acquisition may vest a right to a stock option, and there it is 100% marital property, not based on the actual merger/acquisition but because vesting it upon said occurrence makes the company so much less saleable demonstrating vesting is a golden handcuff because its vesting works against the company's interest, speaks volumes that the award was fully earned when granted. If it's based on disability, it's a 61.075(6)a.1d asset excluding income after the cutoff date. See Weisfeld.
But many compensation programs may be designed as signing bonuses (as is often accomplished with forgivable loans), which could create marital property or be created when conditioned are met because the purpose of many such programs is to sell a book of business at retirement. Then, the property right has not been created, and when it is created, that book of business involves personal goodwill, and not marital property (See Thompson v. Thompson, 576 So.2d 267, 270 (Fla. 1991) citing Taylor v. Taylor, 386 N.W. 2d 851, 858 (Neb. 1986)) the existence of which is revealed by non-compete clauses extending into retirement. Held v. Held, 912 So. 2d 637, 640 (Fla. 4th DCA 2005) citing Williams v. Williams, 667 So.2d 915, 916 (Fla. 2nd DCA 1996). When the purpose is to buy a book of business at retirement it can involve two separate compensation programs because what that business is worth is determined by two things: 1) The general revenues produced at the moment of transfer, and the persistency of what clients remain, which will require working those clients after the transfer takes place. That is why it can involve multiple programs coordinating with one another and different non-compete clauses with each of the coordinating programs.
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Over the last four years about half of my testimony deals with these complex financial instruments and at least a third deals with post judgment contract disputes. In April of this year my testimony was favored over a national consulting actuarial firm dealing with a benefit rights dispute applying to a class of employees. My testimony has been favored in every single trial this year and this has been a very active year for trials.
* D/b/a Jerry Reiss, ASA. Enrolled Actuary Member of the American Statistical Association. Listed in Best Experts in America: Family Law 2007-2012; Employment Law 2006-2012.
COMMENTARY
Are Professional Organizations Operating Like Criminal Enterprises?
Are Professional Organizations like the Society of Actuaries, that exist ostensible to feed itself by collecting enormous fees from its members, operating as a criminal enterprise when it uses its power to prevent former members from doing any type of work without paying them tribute. Is this a violation of RICOH? I think so. Here’s my story.
I passed the associateship level of the SOA in 1982 and joined the Society of Actuaries and became a member. At that time membership was voluntary. I passed 7EA in 1983. Thereafter I applied for and became a federally licensed pension Actuary. In 1984, I started my own firm. Defined benefit plans started to become scarce after the Tax Reform Act of 1986 became fully effective in 1989, causing me to look for another profession. I applied my skill to forensic work in 1993 and fully transitioned into that line of work by 1999 when I closed my TPA, terminating my last defined benefit plan. That was when I stopped paying the Society of Actuaries dues. I still provided another firm actuarial certification until it terminated its last defined benefit plan, which was before 12/31/2000. Thereafter, I did not make one dime from actuarial work from 1/01/2001 through 12/31/2007. Shortly thereafter, I created my website.
The Great Recession affected many businesses and especially those that depended on new clients for their current income. My income was slashed by more than 70%. That caused me to update my site and advertise my credentials to see if I could attract a large pension company to offer me a job. It did do just that but because I allowed my enrollment status to go inactive, no one was going to wait for me to activate it by acquiring the necessary continuing education requirements, which would have taken and did take about six months. I reactivated my status as of April 2011 and sought actuarial certification work to pay continuing education credits and nothing more. My income as one of the nation’s top experts fully rebounded by 2015.
In January 2015, a trader making $1,000,000 per year was forced to pay back child support in a proceeding that I was involved as an expert witness. My role in that case was showing that his compensation included forgivable loans, which is a rather typical way people on WallStreet are paid today. Owing more than one-quarter million dollars and having to pay he swore vengeance against me in court that was overheard by many. He reported the matter to the Joint Board, of which I was a member, which refused to discipline me because I did nothing wrong. He made the same complaint to the SOA that began to investigate me as a non-member. It ordered me in writing to remove all references to passing the actuarial exams unless I applied for reinstatement. It also ordered me to change my business name, Jerry Reiss, ASA, advising me it had a trade mark of it and therefore advised me I was in violation of that trademark. I complied with all they asked to avoid litigation but refused to change my business name which I had been using since 1993.
I checked in 2015 and learned that it had no such trademark rights on neither the ASA designation nor the FSA designation, but 50 other organizations did, including the American Statistical Association, which I since joined, and the American Society of Appraisers, which conducts a vigorous examination process, similar to the actuaries, and its ASA designation is the most prestigious in America for business valuations. Since I refused to change my business name or pay them tribute (involving over $10,000 in back dues) it threatened litigation and first applied for trademark rights three months before it filed against me in federal court on December 1, 2016. As it was not economically viable over a mere $10,000 I was used to no doubt send a strong message to the 100s of other pension actuaries who stopped paying dues. How is what they do different than what the American Mafia did for so-called protection rackets?
SELECTED NEWSLETTERS
When to Value Retirement Plans: The Correct Answer
newsletter 45 Orlando.doc Dividing Cash Balance Plans with QDRO'S newsletter 44 Orlando.doc Determining the Non-marital Portion of Retirement Plans II
newsletter 43 orlando.doc The Quagmire Surrounding Real Estate Valuation, Part II
Newsletter 39 orl.doc Structuring the Marital Settlement Agreement for Division by QDRO Part 1
Newsletter 36 (south Florida) rev.doc Valuation Discipline on Alimony Newsletter 35.doc Apportioning Marital Interests of Stock Options: Has Reason Melted into Madness? Newsletter No. 30 Orlando.doc Measuring the Marital Standard of Need P III: Imputing Income
Newsletter No. 29 Fort Lauderdale.doc Measuring the Marital Standard of Need PII
Newsletter No. 25.doc Measuring the Marital Standard of Need
Newsletter No. 24 PSL.doc Reviewing QDRO'S Part III: New Concerns
Newsletter No. 23 final.doc Alimony Guidelines: A Dangerous Frontier For Men Facing Divorce
Newsletter No. 20 Orlando.doc 61.08 and 61.14 Defense
Identifying & Quantifying Professional Exposure
Newsletter No. 17.doc
Newsletter No. 15.doc The Anatomy of Double-Dipping
Newsletter No. 14 final (orl).doc Double-Dipping Problems with Alimony Calculations
Newsletter 12.doc Municipal Retirement Plans