Do you understand where this is going? One

One of my TAB Board meetings has an insurance broker who followed the reform debate closely. The discussion was illuminating.

It is one of many that I’ve had in the last three months, and it’s all beginning to come together. I will discuss this in short posts over the next few days.

Health insurance age related risk premium differential is limited to 3:1 in the reform bill. That means that if you currently pay $125 for a young healthy male employee, you won’t pay any more than $375 for an old guy who is overweight and smokes.

In reality, the premiums for those old guys right now would be more like $550 – $600 today. So the insurer has two choices. he can drop the old guy’s premium to $375, or raise the young guy to $200. Let’s say he compromises. $175 and $525,

The problem is, the young guy is the one making $10 an hour. His employer is paying the legally mandated minimum 60% of premium to avoid penalties. So the $175 premium means $35 more every two weeks out of the young guy’s paycheck. About 2 cases of beer from each paycheck. Does the young guy (who right now declines coverage entirely) pay the premium, or does he opt out of he company plan into the government exchange with a full subsidy for anyone making less than $22,000 a year? No brainer. Most employers reading this know exactly what the answer would be.

The people who wanted a public option didn’t get it in the bill, but they got something pretty close. This is just one of a number of things that are happening very quickly on a number of fronts that will change the complexion of our economy for a long time to come. More later.

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The 7 Sins of Entrepreneurs on TV

My interview with Eyewitness News in San Antonio about “The 7 Sins of Entrepreneurs” is up on You Tube. Take a look. http://www.youtube.com/watch?v=o8knGXIRXUE

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Just sign here

In January of 2000 I was asked what I thought the first big change would be in the new century. I said (and it’s been documented elsewhere) that we would have a national health care plan by 2011. It wasn’t a brilliant conjecture. If you follow the percentage of GDP that we are expending on medicine as closely as I do, it has been obvious for a long time that what we have been doing up until now is unsustainable.

I further predicted that small business owners would lead the charge to Washington to demand relief from benefit premiums. I was wrong. As time goes on, I’m becoming less sure that small business owners will ever lead a political charge on anything. Instead they chose to opt out of the system in large numbers. Perhaps I should accept that as the driving force it became in reform. Business owners voted with their feet, and it was heard.

Many of our clients are asking me, “What does the health reform bill mean to us?” I don’t think I can predict the outcome of 2,000 pages (plus reconciliation bills) of new law. It will be challenged in the courts and interpreted by the regulators.Attorneys and medical billing consultants will find loopholes, and the government will acts (slowly) to close them.

I’ll admit I’m surprised that the bill passed without a national option. As a matter of principle I’m happy not to have another bureaucracy, but I haven’t seen anything in the current system to make me comfortable with pouring more money into it. The lack of meaningful cost controls is my biggest disappointment, and the one that scares me the most. I think we may have just bailed out the hospitals, insurance companies, pharmas and device manufacturers big time. Their executives can join the banks and hedge funds giving themselves huge bonuses from taxpayer dollars.Call me naive, but I figure there was a reason that all of the above industries spiked a new high on Wall Street on the day the Senate passed the bill.

Public sector employment and spending will account for 44% of the GDP this fiscal year. At 51%, if the government is officially bigger than the private sector, do we change our name to the People’s Republic of America? That doesn’t include most health care spending, of course, which is still officially “private” outside of Medicare/Medicaid. Health care is 18% of the GDP, and growing at two to three times the rate of the economy as a whole. You figure it out.

I had a screening procedure done last week. It was minor, but required general anesthesia. After I was prepped, just as they were putting me under, the doctor walked in (first time I met him) and said “If we see anything that needs taking care of, we’re just going to do it, OK?” What are you supposed to say after fasting for 39 hours, in a nightie with your butt hanging out and an IV in your arm? “No doc, I’d prefer that you wake me up, we’ll talk about it, and then if I agree I’ll go home and start this whole process again next week.”

Well surprise, surprise if it didn’t turn out that I needed something done! A couple of things, as a matter of fact. A small benign polyp was snipped (“Not a problem if we left it, but you never know for sure about these things.” $828 additional before lab fees) and my esophagus was a bit constricted, so “we” did a balloon dilation. ($1100)

Esophageal dilation is relatively new. At least I hadn’t heard of it, no one had briefed me on it prior to prepping, and it wasn’t mentioned a few years ago when I was last screened. In case you didn’t know it, unlike drugs there is no process in the US for approving new medical procedures. If someone thinks up something that they believe will work, they try it out. If they think it has good results (no studies or statistical analysis required) they start spreading the word. You may not be surprised to find that many new procedures are conceived by the device manufacturers.

So a couple of years ago the GI docs were at a conference, and the device reps paid for a nice dinner at which another doc, paid by the device companies, stood up and told them how happy he was with the new procedure. Afterwards, reps took the doctors aside and told them “This is a recommended (by whom?) procedure for any esophageal constriction over XX millimeters. It tales an extra 3 to 4 minutes while you are doing the screening procedure, and you can add $1,100 to XX% of your bills.” That is EXACTLY how it works. I’ve been there and watched it happen dozens of times when I was a consultant in that industry.This how fee for service medicine functions.

Does the procedure work? Who knows? I’m sure it is necessary in some folks, brings moderate benefit in others, and doesn’t do any harm (Hippocratic Oath) in 99.9%, so why not? An I’m certain an extra $330 a minute in incremental margin is tough to sneeze at.

When I woke up, I was pretty groggy, but they were in a big hurry to move me out of there. I had signed a form (one of many) on my way in agreeing to take payment responsibility for anything my insurer refused to cover. At the time of signature my estimated co-payment was about $285. When I woke up it was more like $1,800. They pushed the forms and credit card slip in front of me. Wait a minute! Didn’t I also sign a form before agreeing not to drive or execute any contracts for at least 8 hours after anesthesia? Wasn’t signing to pay a couple of grand a contract? Apparently that doesn’t count.

It occurred to me that my procedure was a lot like the health care reform bill. We went into it with the best of intentions. It will probably bring benefit to a lot of people. We really have no idea how much the final bill will be, and aren’t quite sure how the process will work. We do know that it will cost a lot more, that we will wind up paying for it, and that we won’t be in much of a position to make good decisions when the costs are incurred.

Just sign here.

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They bite the hand that feeds them

On Friday a local columnist in the San Antonio Express News, Rhonda Templeton, wrote about a recent survey of employees lying on the job. I quote: ” Bending the truth is a long time tradition in U.S. workplaces- as the saying goes, ‘There are no ethics in business.'” This inane “quote” (if it’s an axiom it is one I’ve never heard before) surprised me because it was on the front page of the business section, but was far from shocking.

Ms. Templeton should know better. Business ethics are inherently assumed in hundreds of millions of transactions around America every day. When you drop off your clothes at the cleaner’s, you trust that they will do their best to launder them and return them unharmed. When you order in a new restaurant you trust that they will use decent ingredients and reasonably sanitary methods to prepare your meal. When you hire someone to perform services for you, you trust that they can do the work without incident.

Sure, it doesn’t always work out that way, but that is the exception. I’ve been to countries where you cannot assume any of the above about the business you are dealing with. It isn’t fun. One of the things that makes our economy thrive is the tacit assumption that total strangers subscribe to the same general set of business ethics a you. Government regulators can set rules, but they can’t enforce them effectively. Our economy is too big and too complex to pretend that we are motivated to act the way we do in business from fear of being caught.

Earlier in the week, Jay Goltz, a blogger for the New York Times “Your the Boss” small business blog, wrote a piece about keeping a happy workplace. In it he explained that his formula for happy employees included a strategy for removing the unhappy ones. I was happy to note that most of the comments supported his position, but some writers completely vilified him as a sweatshop owner and Gordon Gecko clone.

Small business owners are the great underclass in the United States. They provide 65% of the jobs, but are regularly slammed as money grubbing low lives. Television and film portray the employer-employee relationship as a one-way street of unfair advantage and exploitation. Speaking of Gordon Gecko, I just saw a trailer for the Wall Street sequel. In it Gecko is gloating that what he went to jail for in the 80’s is legal now.

I think Ayn Rand’s Atlas Shrugged was a prescient look at the world today. I don’t subscribe to all of the beliefs of Objectivism, but watching the current Congress debate how to raise revenue to help the “poor” is frightening. As one Congressman put it, “If we raise taxes, business owners will figure out how to make more money anyway. It’s what they do.”

If you mention Rand to educated liberals, however, they quickly decry it as some Neanderthal apologia for avarice. If, as they claim, it is merely for knuckle draggers who pine for a lost age of acquisitiveness, there were 500,000 such who were willing to fork up hard cash for the book in 2009 alone. That would mark a huge hit for any 1200 page tome. For some reason, it never places in the NY Times bestseller list.

I ask small business owners if this prejudice bothers them, and get very little reaction. “I watch those (workplace-based) shows,” they say. “They’re funny, and no one thinks they are real.” “I read that column, but what’s the point of writing a letter? The media isn’t interested in our point of view.” And the comment I hear the most? “I can’t pay attention to that, I’m too busy trying to run my business every day.”

Small business owners are a classic version of Spiro Agnew’s Silent Majority. Like Hank Rearden in Rand’s book, we just keep pushing forward doing what we love, and assume the rest of the world can’t be so foolish as to destroy the value we create in an attempt to harness it for their own benefit. We shouldn’t be so sanguine.

When business columnists can lightly toss off a bon mot like “There are no ethics in business.” and neither the editor nor the readers snap to attention, we’ve gone far down the road that Rand predicted.

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One Response to They bite the hand that feeds them

  1. Louise says:

    Stunning article! You are absolutely right. Unfortunately, there are far too many who leave their values at the door when they go work, and we only see a very limited amount of ethics, seemingly, just enough to get by. But there are many, many more who walk the walk and do what is right, regardless of who is watching or what the cost is. My hat is off to these honorable ones!

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Technology- Investment or Expense?

I regularly hear one of my small business owner clients saying something like this. “Dammit! I have to buy another computer. I just spent (fill in) on this one just (fill in) years ago.”

Why are we so offended at the need to regularly buy new technology? Big corporations rotate hardware on a scheduled basis, but most small business owners see corporate America as terribly wasteful anyway. The need to buy or upgrade our computers has been with us for at least 25 years. We change cell phones every couple of years, and many of those cost about the same as a PC. No one would imagine trying to function with a cell phone that was the size of a brick. Why do we still act as if replacing computers is a “new” problem?

There are a couple of reasons. We still think of computers as a capital investment. Twenty-five years ago a Macintosh Plus cost $2,600. IBM released the PC-AT with a 286 chip (8 Mhtz). WordPerfect was released, for a cool $500 list price. Microsoft released DOS 3.2, which could support the new 3.5 inch “hard” floppy drives, holding a full 720KB of data. (A 4 GB flash drive has the capacity of 1,400 of those floppies.)

I owned an auto parts wholesaler then, and computers (green screens) were on each sales and admin desk. Warehouse guys could come in and check inventory on a terminal. But we were really advanced. Most of our small business customers invested in one computer for bookkeeping and billing. That was it.

Since then, most of us have bought at least 5 generations of new computers, and many of us more than 10. They cost a fraction as much in real terms (that basic word processing software alone would be about $1000 in today’s dollars.) Computers have become faster, better, more dependable, cheap, and ubiquitous. So why do they tick us off?

I think there are two problems in our perception. The first is “Out of sight, out of mind.”  Our computers work almost flawlessly 98% of the time we throw the switch. They require little maintenance, or at least let’s say they continue working for a long time when under-maintained. They do not show physical signs of wear and tear.

Compare your PC to a truck. We know the truck requires regular service, or it won’t last as long. It has an odometer that tells us how far it’s gone in it’s productive life. It gets dinged, dented and scratched- unmistakable signs that it is doing the job. We’re usually happy if it lasts a “free” year past it’s original financing. The monthly payments (each the cost of a new computer) keep us aware of it’s value.

But which one produces more for your business? The computer’s contribution is tougher to calculate. Without the truck, you can’t do the work. Without the computer, you can’t bill for it. The truck gets your employee to the job. The computer makes sure he’s going to the right job, at the right time, and tells you if he’s getting the work done on schedule.

You need both, and it’s obvious that the computer pays back far in excess of the truck in relation to its cost. Sure, you did the work before you had a computer, but you didn’t do as much, as fast, or manage it nearly as well.

The second problem is a realistic understanding of the costs. Let’s say the salary of an employee is $35,000 a year. Add taxes, benefits, overhead and regulatory burden (currently estimated annually at $7,000 a head for small businesses) and it’s at least $50,000. That’s roughly $250 per working day. So a new computer costs about as much as 2 days of lost productivity.

It would make sense, then, to have a new computer loaded and ready at all times. But if you had a new, “spare” computer, how many employees would want to replace theirs immediately? That alone is a message.

Over a three year period, a computer is a $2 or $3 daily investment in keeping your employee productive. That’s less than providing them with free soft  drinks. If you are still thinking of technology as capital investment that needs to be squeezed to the last possible moment, you are probably wasting more in salary than the cost of replacement. The big corporations have figured that out. It’s time small business owners did as well.

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