Ak lifetime costs #1

Ak lifetime costs #1

Aryeh

2/12/2001

Sorry for taking so long to report on the cost of an AK for 50 years, but
I was quite pre-occupied. That being said, here below are the responses,
ranging from the editorial to the technical.

I might explain that in this particular environment, the lawyer's access
to professional actuaries for this type of consultation is limited, if it
exists at all. I established a quote for a higher performance prosthesis
with components readily avialable in the client's area, planned average
replacement every 4 years with one socket replacement in-between each
prosthesis replacement, factored 5% for medical inflation to allow for
increased cost of technology and general cost-of-living inflation.

Now comes the interesting part. After totaling the cost of prosthesis and
accessories for the next 50 or so years, the parties have to decide how
much to pay this person NOW. My accountant friend suggested that an
annuity calculation was the way to go. You pay someone enough to get
their initial treatment plus some more. The more is invested with the
assumption that the investment will pay 2% more than inflation. As the
years progress, the client's real equity slowly erodes at a rate that
after 50 years will exhaust the principle. During this 50 years the
client uses this annuity fund to provide for this care. Interestingly,
the actual amount of the up-front payment varies much more with the
assumed gap between inflation and return on investments than with the
cost of the care. The greater the gap, the less the up-front payment.


The replies received:


Your first assumption should be that anything provided will never replace
the leg he lost. Based on that, he deserves the best technology available
on
any future fittings. Technology will improve and cost will increase.
Figure
at least 3% per year for inflation and about 5% per year for improvements
in
technology. If you want to back this up, look at average reimbursement
from Medicare for a limb over the past 15 years. Also consider Medicare
numbers low due to Managed Care and level of technology supplied.
What makes me an expert? Been there, done that, settled my case too low
12 years ago. Think of it this way, if he walked into your shop today,
would
you fit him with 1951 technology at the 1951 price? Good Lord willing,
someone will fit him in 2051. You bet can he will want 2051 technology
and they
will want 2051 prices.


I have been an amputee since 1970, on average I have required a new
prosthesis every 2 to 2 1/2 years. To say that one becomes less active
with the passage of time may be true for some. However I am just as
active as
I was then perhaps a little slower (grin). The larger point in all of
this
is changing costs. The first prosthesis that I got was around $1300. Yes
that's all. The last several that I have received have been over $16,000.
So how can one determine the advances that may be made, or what happens
when inflation makes a large run again as it did in the late 70's. My
insurance has been very lucky over the years because I entered the
prosthetic field
and have received numerous test legs. Not to mention working for
component manufactures whom have only been to happy to donate them to me.
So it
would in the long run be very hard to fairly write out that check.


I have written some of these letters myself and have always used the ratio
of a new prosthesis every 4 years with socket replacements every two years
in between the prostheses. Make sure you state very clearly that the life
expectancy #,s presented reflect today's current reimbursement levels with
no inflation factored in. Also state very clearly that the #,s presented
are reflective of today's technology and do not factor in advancements
that
are sure to come in the future. Seeing that it is an 18 yr old I would
calculate on a fairly expensive prosthesis with a vertical shock pylon
system or at least a multiaxial dynamic response foot, ultralight,
alighnable, covering system that will need to be replaced yearly, periodic
adjustments to keep the socket fitting for two years, etc... Even then
you may be surprised how low the figure will be, and you can bet that
figure
will get chewed down in court or a settlement process. I have seen it
happen. I know of a 21 yr old that settled for only $150,000. and is a
BK with extensive burns and highly active. I think that amount would
last
him to middle age at best. The lawyers on both sides don't seem to
understand
this and always seem to settle low. Good luck.