Life and Worklife Expectancy Calculations in Valuations. Scott Kush, CPA, ABV, CVA Jeremy Sharpe, MBA

Transcription

1 Life and Worklife Expectancy Calculations in Valuations Scott Kush, CPA, ABV, CVA Jeremy Sharpe, MBA

2 DISCLAIMER All rights reserved. No part of this work covered by the copyrights herein may be reproduced or copied in any form or by any means graphically, electronically, or mechanically, including photocopying, audio/video recording, or information storage and retrieval of any kind without the express written permission of the CTI, NACVA,and the presenter. The information contained in this presentation is only intended for general purposes. It is designed to provide authoritative and accurate information about the subject covered. It is sold with the understanding that the copyright holder is not engaged in rendering legal, accounting, or other professional service or advice. If legal or other expert advice is required, the services of an appropriate professional person should be sought. The material may not be applicable or suitable for the reader s specific needs or circumstances. Readers/viewers may not use this information as a substitute for consultation with qualified professionals in the subject matter presented here. Although information contained in this publication has been carefully compiled from sources believed to be reliable, the accuracy of the information is not guaranteed. It is neither intended nor should it be construed as either legal, accounting, and/or tax advice, nor as an opinion provided by the Consultants Training Institute (CTI), the National Association of Certified Valuators and Analysts (NACVA), the Institute of Business Appraisers (IBA), the presenter, or the presenter s firm. The authors specifically disclaim any personal liability, loss, or risk incurred as a consequence of the use, either directly or indirectly, of any information or advice given in these materials. The instructor s opinion may not reflect those of the CTI, NACVA, its policies, other instructors, or materials. Each occurrence and the facts of each occurrence are different. Changes in facts and/or policy terms may result in conclusions different than those stated herein. It is not intended to reflect the opinions or positions of the authors and instructors in relation to any specific case, but,rather, to be illustrative for educational purposes. The user is cautioned that this course is not all inclusive NACVA 5217 South State Street, Suite 400 Salt Lake City, UT, ALL RIGHTS RESERVED. The Consultants' Training Institute (CTI) is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted through its web site: learningmarket.org. 1

3 Life Expectancy and Worklife Expectancy Calculations in Valuations Scott Kush, MD, JD, MPH Scott is a medical researcher and a life expectancy expert. His focus is on life expectancy in general medical conditions, persistent vegetative state, traumatic brain injuries, cerebral palsy, and spinal cord injuries. He is a Fellow of the American Academy for Cerebral Palsy and Developmental Medicine. He has worked as an expert on hundreds of cases and testified in numerous depositions and trials. He regularly serves as a life expectancy expert and as an expert witness in the U.S. and abroad (including Canada, Australia, and South Africa, and the UK).

4 Jeremy Sharpe, MBA Jeremy is a principal of the Lone Peak Valuation Group and has been primarily responsible for computing personal injury, medical malpractice, wrongful death, and wrongful termination cases. These engagements have involved the analysis of many types of professions, including economic losses from business interruption. He is also involved in a wide variety of commercial litigation and business consulting engagements. Jeremy has an economics degree and an MBA.

5 Special Purpose Valuations & Related Issues Personal Injury Inputs Life Expectancy & Worklife Expectancy Calculations in Valuations Scott J. Kush MD JD MPH Jeremy A. Sharpe MBA Please set pagers, cell phones, etc. on vibrate mode or turn them off. Please complete and hand in the Presenter Evaluation forms. Don t forget to complete your CPE Attestation Form. Add your Membership Number (located on your name badge) and sign it. Keep the white copy for your records. Turn in the yellow copy at the Registration Desk. 2 DISCLAIMER All rights reserved. No part of this work covered by the copyrights herein may be reproduced or copied in any form or by any means graphically, electronically, or mechanically, including photocopying, audio/video recording, or information storage and retrieval of any kind without the express written permission of the CTI, NACVA,and the presenter. The information contained in this presentation is only intended for general purposes. It is designed to provide authoritative and accurate information about the subject covered. It is sold with the understanding that the copyright holder is not engaged in rendering legal, accounting, or other professional service or advice. If legal or other expert advice is required, the services of an appropriate professional person should be sought. The material may not be applicable or suitable for the reader s specific needs or circumstances. Readers/viewers may not use this information as a substitute for consultation with qualified professionals in the subject matter presented here. Although information contained in this publication has been carefully compiled from sources believed to be reliable, the accuracy of the information is not guaranteed. It is neither intended nor should it be construed as either legal, accounting, and/or tax advice, nor as an opinion provided by the Consultants Training Institute (CTI), the National Association of Certified Valuators and Analysts (NACVA), the Institute of Business Appraisers (IBA), the presenter, or the presenter s firm. The authors specifically disclaim any personal liability, loss, or risk incurred as a consequence of the use, either directly or indirectly, of any information or advice given in these materials. The instructor s opinion may not reflect those of the CTI, NACVA, its policies, other instructors, or materials. Each occurrence and the facts of each occurrence are different. Changes in facts and/or policy terms may result in conclusions different than those stated herein. It is not intended to reflect the opinions or positions of the authors and instructors in relation to any specific case, but,rather, to be illustrative for educational purposes. The user is cautioned that this course is not all inclusive NACVA 5217 South State Street, Suite 400 Salt Lake City, UT, ALL RIGHTS RESERVED. The Consultants' Training Institute (CTI) is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted through its web site: learningmarket.org. 3

6 Special Purpose Valuations and Related Issues Scott J. Kush MD JD MPH Thursday, June 19, 2014 Personal Injury Inputs Life Expectancy and Worklife Expectancy Calculations in Valuations Jeremy A. Sharpe MBA 4 Why Is this Topic Relevant? If you are calculating damages for litigation and there is an element of: How long a person is or was expected to live How long a person is or was expected to work And... The facts of the case and impact on damages is significant, you should consider/discuss the retaining of a life expectancy expert 5

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8 Goals and Objectives Life Expectancy Define life expectancy and survival time Identify a life table Differentiate between mortality rates and excess death rates Identify situations in which life expectancy is likely to be affected Worklife Expectancy Calculations List common methodologies used to estimate worklife Understand the basic components of estimating worklife in two examples Calculate customized worklife expectancies based on alternative life tables 7 Life Expectancy Misconceptions 8 Life Expectancy / Survival Time Life Expectancy is defined as the average survival time across a large group of similar individuals. Survival time is defined as the exact amount of time lived by an individual in days/hours/minutes. No one on the planet can tell you what your survival time will be. We can provide reliable information about life expectancy. 9

9 Life Table History Use in determining life expectancy Source: Series of Gresham lectures on 350 th anniversary of John Graunt s text

10 The Life Table then Source: Entire Graunt text transcribed by Ed Stephan: 11

11 The Life Table now Source: Arias E (2014). United States Life Tables, National Vital Statistics Reports. Vol. 62, No

12 Mortality and Excess Death Rates Mortality rate is the death rate. It measures the number of deaths per exposure time. Excess death rate is the excess rate of death above and beyond the general population (or study population in comparison). The safest year of an individual s life: Age 10 to 11 Ayear with very high risk: Age 0 to 1 13 Applying Life Expectancy Examples: Cerebral Palsy Spinal Cord Injury Traumatic Brain Injury Minimally Conscious / Vegetative State Cancer, cardiovascular disease, chronic illnesses, and other general medical conditions We are biological machines and our bodies are meant to be in motion. To the extent our bodies are not in motion we suffer as a result. 14 Worklife Expectancy a measurement of the cumulative duration of remaining activity in the labor force Worklife Expectancy = P(life) x P(activity in the labor force) Measurement of the probability of labor force activity Source: Richards H, Donaldson M (2010). Life and Worklife Expectancies, Second Edition. 15

13 Concepts relevant to Measuring Lost Earnings Are you measuring Expected Earnings or Earning Capacity? Expected Earnings reflect a combination of a person s Abilities Opportunities Preferences or Choices Earning Capacity reflects a combination of a person s: Abilities Opportunities Source: Horner SM, Selznick F (1999). Journal of Forensic Economics. 12(1): pp

14 Worklife Data by Gender and Education Level AVERAGE RETIREMENT AGE Males Females WORKLIFE EXPECTANCY AT AGE 35 Female Male <HS HS SOME COLLEGE COLLEGE DEGREE Source: U.S. Bureau of the Census, Current Population Survey, 1962 Source: Life and Worklife Expectancies, Second Edition, p

15 Methods of Determining Worklife Source: Brookshire ML, Luthy MR, Slesnick FL (2009). Journal of Forensic Economics. 21(1): pp

16 Two Methods of Measuring Worklife 1) Increment Decrement (Markov) Worklife 2) Life Participation Employment (LPE) using disability data 19 Increment Decrement Model (Markov) Measures the number of years of worklife adjusted only for: Prob. (Life) Prob. of being active in the Labor Force Measures the probabilities of transitioning between being in and out of the Labor Force (CPS) Specifically measures the worklife expectancies for persons who are in or out of the labor force at the time of the incident. 20

17 Increment Decrement Model (Markov) Source: Skoog GR, Ciecka JE, Krueger KV (2011). Journal of Forensic Economics. 22(2): pp

18 Increment Decrement Model (Markov) Source: Skoog GR, Ciecka JE, Krueger KV (2011). Journal of Forensic Economics. 22(2): pp

19 LPE (Life Participation Employment) Measures the number of years of worklife adjusted only for: Prob. (Life) Prob. of being active in the Labor Force (ACS & CPS) Prob. of Employment (ACS & CPS) Gamboa Gibson Worklife Tables look at employment and participation rates based on disability. 23

20 LPE (Life Participation Employment) Worklife Expectancy for Female Age 50, Not Disabled, All Levels of Education A B C D E=C/D F G=E*F Prob. of Prob. of Life Employment Age Years Base Age End Age (L) (PE) Prob. (LPE) ,445 95, % ,445 94, % ,445 45, % Source: Gamboa AM, Gibson DS (2010). Gamboa Gibson Worklife Tables. 24

21 LPE (Life Participation Employment) Worklife Expectancy for Female Age 50, Not Disabled, All Levels of Education A B C D E=C/D F G=E*F Prob. of Prob. of Life Employment Age Years Base Age End Age (L) (PE) Prob. (LPE) ,445 95, % ,445 94, % ,445 45, % Source: Gamboa AM, Gibson DS (2010). Gamboa Gibson Worklife Tables. 25

22 Takeaways Life expectancy can be severely impacted in major medical conditions Worklifeexpectancy is measurement of the cumulative duration of remaining activity in the labor force When using worklife tables, you are making an assumption about the life expectancy of the plaintiff Measuring damages for an individual with a life expectancy that is significantly different from the average population can have a large impact on damages. 26 The HUGE Takeaway If all you know is age & sex and/or the person appears average for the general population If the person has a significant medical condition and/or is seriously injured Use a condition specific life table based on the medical records and the peer reviewed literature 27 Thanks! 28

23 References 1. Series of Gresham lectures on 350th anniversary of John Graunt's text: 1. Entire Graunt text transcribed by Ed Stephan: 2. Arias E (2014). United States Life Tables, National Vital Statistics Reports. Vol. 62, No Richards H, Donaldson M (2010). Life and Worklife Expectancies, Second Edition. 4. Horner SM, Selznick F (1999). The Valuation of Earning Capacity, Definition, Measurement and Evidence. Journal of Forensic Economics. 12(1): pp U.S. Bureau of the Census Current Population Survey, Center for Retirement Research at Boston College. 1. Brookshire ML, Luthy MR, Slesnick FL (2009). A 2009 Survey of Forensic Economists: Their Methods, Estimates, and Perspectives. Journal of Forensic Economics. 21(1): pp Skoog GR, Ciecka JE, Krueger KV (2011). The Markov Process Model of Labor Force Activity: Extended Tables of Central Tendency, Shape, Percentile Points, and Bootstrap Standard Errors. Journal of Forensic Economics. 22(2): pp Gamboa AM, Gibson DS (2010). Gamboa Gibson Worklife Tables: By Gender, Level of Education Attainment, and Type of Disability. 1. Arias E (2007 & 2010). United States Life Tables. National Vital Statistics Reports. Vol. 56, No and Vol. 58, No

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25 Journal of Life Care Planning Volume 12, Number 1, 2013 Elliott & Fitzpatrick, Inc.

26 Life Expectancy for Life Care Planners By Scott Kush, Steve Day, and Robert Reynolds Link to article: