Thursday, March 11, 2010

Why are companies still cutting jobs?

Although the U.S. economy is clearly recovering from "The Great Recession", companies are still cutting jobs. Why is that? There are a bunch of distinct causes:

  1. There are still plenty of weak companies that formerly thrived on overly-easy and overly-cheap credit. That credit has evaporated and will not be coming back. The weaker companies vanished quite quickly. The stronger companies, especially those with cash in the bank or optimistic investors, have lasted longer. Some of them will successfully restructure and adapt to lower amounts of more-expensive credit. Many will not, but they will try. As their remaining resources gradually drain away, they continue to shed workers. Eventually that process will end, but there was simply a huge amount of that easy and cheap credit over a significant number of years.
  2. Ongoing commercial construction projects shed workers as they near completion, with few new projects to employ those workers, even with all of the federal "stimulus".
  3. State and local governments do not have the federal government's ability to issue vast amounts of debt, so they continue to lay off workers as they struggle to close budget deficits as tax revenues fall short of expectations. They may have held off with many layoffs in the hope that the economic recovery would be stronger or sooner, but the reality of lower tax receipts forces their hand and the pink slips continue to flow and will continue to flow until the private sector starts creating enough new jobs to lead to net growth of tax receipts at the state and local level. Falling home prices will also be a drag on property tax revenues.
  4. Many vendors had been getting a significant portion of their revenues from state, local, and federal governments. Spending cuts (including the federal government) result in layoffs at these vendors.
  5. Productivity improvements. Newer technologies and more-focused management enable companies to deliver the same level of product and service output with fewer employees. So, even as the economy recovers and output increases, that does not necessarily mean an immediate increase in employment. Offshoring of work is a drag on domestic employment as well.
  6. Incremental population growth soaks up "new" jobs with little room for accommodating workers who have lost jobs. Although experience has some value, companies are eager to sign up young, flexible, energetic, healthy, and enthusiastic kids.
  7. Ongoing pressure to improve operating margins force companies to shed workers that they ordinarily might have been seeking to hire. Cost of benefits, including health insurance, is a distinct drag on operating margins.
  8. Intense uncertainty about the near and medium-term economic outlook forces companies to have a more pessimistic attitude towards hiring and firing, resulting in an extreme bias against hiring and keeping workers.

How long before these negative factors end or at least moderate? Actually, these factors will continue for some time, maybe even several years, but the hope is that as the overall economic recovery gains traction, "new" jobs, especially at new companies pursuing and employing new technologies, will gradually be created at a faster pace than the ongoing shedding of "old" jobs.

In the near term, we are seeing weekly unemployment insurance initial claims in the 475,000 range. That is over two million jobs lost every month. Two million. The good news is that recently the net of new minus lost jobs has been less than a net loss of 50,000 jobs, so we actually are seeing quite a few new jobs being created, or at least companies rehiring for positions that they shed over the past two years. Unfortunately, we are also seeing a lot of discouraged workers dropping out of the workforce as they encounter extreme difficulty finding jobs.

To be sure, the U.S. economy is creating lots of new jobs, but the net of creation minus shedding is still not strongly positive and probably will not be for months to come.

-- Jack Krupansky

Wednesday, March 10, 2010

$185,000 for health insurance?!?! (well, for 10 years)

I currently do not have any health insurance. That actually works out fairly well since I happen to be healthy. But just out of curiosity, I decided to check to see how much health insurance costs. After all, if so-called "health insurance reform" passes, people such as me will supposedly be "required" to purchase health insurance (or pay a "fine.")

So, I go to Google, enter in the keywords "health insurance", and the first result is for I click to that site, enter a little info and it shows me some results, ranging from $176 (junk insurance?) to $1,228 (Cadillac plan?).

Actually that $176 is for a hospital-only plan that does not include doctor visits or treatments or prescriptions outside of the hospital. Interesting. That is actually a very interesting data point about where health care costs go or don't go.

Both plans are from Empire Blue Cross Blue Shield. The hospital-only plan is called "Tradition Plus Hospital Program." The expensive plan is called "Empire Direct Pay HMO." Hmmm... "HMO"... that's considered evil, right? ("Empire... evil", "Evil... Empire", oh, I get it!).

I had to enter some personal contact info somewhere along the line here and a rep called me to ask if I had any questions. I just said I was doing research for health reform and she left me alone. But she also emailed me some info and links. One link takes me to a table showing three plans, those two, and a third plan, even more expensive, called "Direct Pay HMO/POS" for $1,549 per month that has lower copays, limited out-of-network coverage, and some other extras.

Now, in truth, I have no clue as to how to evaluate and compare all of these plans. My goal here was to focus on the price of the Cadillac plan. After all, if I were to get health insurance, I would want it to cover, well, everything.

So, $1,549.30 per month works out to $18,591.60 per year. Gulp. Ummmm... last year I earned only $19,000 from work. Hmmm... the math doesn't seem to "work" for me.

And, $18,591.60 per year works out to $185,916 over ten years. YIKES!! And that is assuming premiums don't go up -- right!

I am sorry guys, but there is no way that I am going to pay $185,000 over the next ten years, for services that I probably won't need.

Actually, I probably only need nine years of insurance since I'll turn 65 in just over nine years and get admitted to the promised land of Medicare, but that does not change the overall picture here.


That is a very big number, to me.

I do not even have that much money put aside for retirement.

Granted, insurance may be lower under health reform, but even half or a third or even a quarter of this amount is still way too much.

So, how much will the "fine" be if I don't buy health insurance under "health insurance reform." Actually, that is still up in the air, and depends on how the House and Senate Bills are "reconciled." Given the president's latest proposal, if my income was low, it would be a fixed dollar amount (increasing each year), in the range of $325 to $695, but for a reasonable income level it would be a percentage, currently 1% in 2014, 2% in 2015, and 2.5% in 2016 and after. So, if I had $100,000 of income in 2014 and beyond, I would pay an "assessment" (technically, not a "fine") of $1,000 in 2014, $2,000 in 2015, and $2,500 in 2016 and beyond. And, key point, I would pay this money to the U.S. government for whatever purpose it deems fit, not to some insurance company.

At least to me, right now, paying $2,500 to Uncle Sam is infinitely preferable to paying even $0.01 to any insurance company. The insurance companies of America need to radically rethink their approach to customers before they can get my attention, even under health insurance reform with "mandatory" insurance.

-- Jack Krupansky

Sunday, March 07, 2010

How to cope with runaway end-of-life health care costs

There was an interesting article this week on Bloomberg by Amanda Bennett entitled "End-of-Life Warning at $618,616 Makes Me Wonder Was It Worth It" which chronicled her personal saga with dealing with end-of-life health care for her husband. The article also appears as the cover story of Business Week entitled "Lessons of a $618,616 Death - Two years after her husband's death, Amanda Bennett's cover story examines the costs of keeping one man alive".

Ultimately she seems to conclude that spending all of that money was worth it since she believes that it bought her husband another 14 months of life beyond the three that his doctors expected:

... those 17 months included an afternoon looking down at the Mediterranean with Georgia from a sunny balcony in Southern Spain. Moving Terry into his college dorm. Celebrating our 20th anniversary with a carriage ride through Philadelphia's cobbled streets. A final Thanksgiving game of charades with cousins Margo and Glenn.

She also tells us how it was a very personal struggle for both her and her husband. In other words, different people might have dealt with the same situation in a different manner.

Was it really worth it? She tells us:

Would I do it all again? Absolutely. I couldn't not do it again. But I think had he known the costs, Terence would have fought the insurers spending enough, at roughly $200,000, to vaccinate almost a quarter-million children in developing countries. That's how he would have thought about it.

Lucky for her, she had good insurance:

Terence and I didn't have to think about money, allocation of medical resources, the struggles of more than 46 million uninsured Americans, or the impact on corporate bottom lines. Backed by medical insurance provided by my employers, we were able to fight his cancer with a series of expensive last chances like the one I asked for that night.

How expensive? The bills totaled $618,616, almost two- thirds of it for the final 24 months, much of it for treatments that no one can say for sure helped extend his life.

In just the last four days of trying to keep him alive -- two in intensive care, two in a cancer ward -- our insurance was charged $43,711 for doctors, medicines, monitors, X-rays and scans. Two years later, the only thing I know for certain that money bought was confirmation that he was dying.

Some of the drugs probably did Terence no good at all. At least one helped fewer than 10 percent of all those who took it. Pharmaceutical companies and insurers will have to sort out the economics of treatments that end up working for only a small subset. Should everyone have the right to try them? Terence and I answered yes. Each drug potentially added life. Yet that too led me to a question I can't answer. When is it time to quit?

This is a difficult issue. On the one hand we don't want the insurance companies (or the government) deciding when to "pull the plug on granny", but if it is really true that a significant number of Americans will incur upwards of $500K to $750K for end-of-life care, how is that expenditure to be financed? And people wonder why health insurance companies would dare to raise rates by 40%.

So, who is to pay for all of this? Ultimately, all of us do, one way or another.

In my view, sooner or later we as a society are going to have to draw a line and give a hard answer to that question of "When is it time to quit?" In Ms. Bennett's case, they quit only when no other options were available, at any price. I do not see that as a sustainable approach. As a society we need to come up with a robust model for when and how to "pull the plug" in terms of when to simply let nature take its course and fall back on simple palliative care. To my mind, the focus should be more on moderation and moderate measures and less on extreme and extreme measures. In my view, desperation should not have any role in any stage of health care.

Nonetheless, Ms. Bennett's article does put both a personal and human as well as financial face on the issue of end-of-life care.

-- Jack Krupansky

Thursday, March 04, 2010

Is Washington really dysfunctional?

The general sentiment seems to be that our federal government in Washington is "broken" and "dysfunctional", but I disagree. Yes, there is plenty of conflict between the major parties and interest groups in Washington, but that by itself does not mean that the government is dysfunctional. The government mirrors the people of the country. America is a very diverse country with a lot of strong and often divergent interests. Sometimes these divergent interests can come together and compromise and agree to changes in laws and regulations, and sometimes not. Compromise can sometimes be a very good thing, but sometimes interests are too far apart and compromise cannot be achieved at any given moment of time. That is a real part of real life, and neither necessarily good nor bad nor even "evil."

People throw the term "gridlock" around as if it were necessarily dysfunctional in government, but it simply means that there is not agreement sufficient to pass a particular legislative agenda. Sure, maybe some particular compromise might have prevented gridlock, but maybe that compromise would not necessarily be what is best for the country. Not all change is necessarily good or appropriate. The function of government is to balance and moderate change and the status quo. Even if "change" is expected or perceived as needed, that does not mean that any particular legislative agenda is necessarily "good" or "best" compared to maintaining the status quo.

Not everybody is happy with the speed (or lack thereof) at which Washington operates, but that is not necessarily a bad thing, and rapid action is not necessarily an indication of the quality of an action. Remember the Gulf of Tonkin resolution?

Instant gratification and "the urgency of now" or labeling a given initiative as "the change we need" should never be used as excuses to short-circuit the balancing mechanisms built intentionally into our system of government in Washington. Maybe some people would prefer a dictatorship or even a monarchy. Fine, but that is not the system we have. Deal with it. Accept it.

Sure, the sight of a single Senator holding up some very needed job and construction money can be disheartening, but it would be even more disheartening if there were no way for a lone voice to appeal (briefly) against a perceived tyranny of the majority.

Looking at it up close (as one might inspect a sausage factory) on a daily basis is a very, very poor way to judge Washington. Washington, as any large institution, should be judged by the test of time, over a very extended period of time, judged over decades and even generations. Besides we, the people, have a strong say every two, four, and six years as to whether we are content with our congressional representatives, senators, and even the president.

We have a representative democracy, so let our representatives do their jobs and let Washington do its job of balancing competing interests. Come November 2010 and November 2012 we can all "vote" our displeasure if needed, but otherwise we should all just back off and let our elected leaders and representatives do the jobs we pay them so handsomely to do.

Sure, we can all imagine an "ideal" government which all sorts of wondrous things, but we live in a real country, not some perceived ideal country.

So, much of the anxiety and "voter anger" is simply hyped, generated, and incited by the media (and quasi-media commentators, like us bloggers and representatives of political parties and interest groups) for their own profit and agendas. By all means, please let your elected leaders and representatives know how you feel and what you expect on all issues that you care about, but DO NOT allow the media or these quasi-media commentators to dictate to you what those issues should be or what your positions on those issues should be. And just remember that if you do allow the media to define or control or in any way influence what you believe or how you feel about any issue then you have effectively abdicated your primary responsibility as a citizen and a voter since Washington will ultimately be no better than the voters who send leaders and representatives to it.

Washington is us. So if you still believe that Washington is dysfunctional, maybe it is you yourself who is dysfunctional or at least out of sync with the rest of the country. There is a lot of conflict and uncertainty around, between, and within us, and that will be reflected in our government. Deal with it. Accept it. It is you. It is us.

Even in the best of times, on our best days we each encounter and deal with conflict and uncertainty. It's what we do. It is what we are designed to do, both as individuals and as a country. It is what we do best. Maybe in some limited cases our response is simple, but frequently it is not so simple even if mentally we paper it over and brush it off. But, then, sometimes we struggle and allow others (the media, et al) to con us into believing that all hope is lost. What nonsense.

At least from where I sit, I see a Washington that is truly a thing of awe. That so many interests can be brought together and achieve anything at all is, to me, truly amazing.

Sure, various groups struggle for power and control in government in the near-term, but that in no way detracts from the overall vision and mission of what Washington is really all about, serving the long-term needs of the people.

-- Jack Krupansky