Posted by Marc Hodak on September 30, 2010 under Unintended consequences | 
McDonald’s wrote the government complaining that the loss ratio guidelines mandated by ObamaCare were uneconomical for their “mini-med” plan, and would force them to drop the plan altogether, which would leave about 30,000 of their hourly employees without health care coverage.
Last week, a senior McDonald’s official informed the Department of Health and Human Services that the restaurant chain’s insurer won’t meet a 2011 requirement to spend at least 80% to 85% of its premium revenue on medical care.
McDonald’s and trade groups say the percentage, called a medical loss ratio, is unrealistic for mini-med plans because of high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims.
Democrats who drafted the health law wanted the requirement to prevent insurers from spending too much on executive salaries, marketing and other costs that they said don’t directly help patients.
McDonald’s move is the latest indication of possible unintended consequences from the health overhaul.
Unintended, perhaps, but not unforeseeable. The lawmakers were warned that not all policies could economically support an 80% to 85% loss ratio. But when the term “economically” comes up, congresspersons eyes glaze over, and they simply move on because they can. “Let the little people worry about the ‘economic’ stuff. We have financially illiterate voters to cater to, and an innumerate MSM through which to reach them.”
I used to think that Congress truly didn’t intend for “unintended consequences” to occur. I have long since realized that they either don’t care about those consequences, or they fully intend for them to occur because it will give them a political advantage. They can create economically unsustainable mandates for insurance carriers, then blame the insurance companies for dropping those lines so their CEO can make a few more bucks. And the press generally let them get away with that, if not encourages it, because greed is a much easier and better story than economic incompetence. The average reader doesn’t have to be educated on what greed is.
Posted by Marc Hodak on September 21, 2010 under Government service, Unintended consequences |
No, this isn’t a story about health care (yet):
Lillian Daniels had the walls of her home in Detroit insulated in July 2010, almost a year after she had applied. The 80-year-old retired nurse practitioner had forgotten she had requested the help by the time she received a call from the community group telling her that workers would be coming.
The whole article here is like one long joke about how the government tries to help us with our money.
The basic choice in the “stimulus” was offering tax breaks to the private sector, including targeted tax breaks to certain industries, or to funnel taxpayer dollars through various agencies and community organizations with all the constraints they must face to maintain a semblance of accountability.
The state Department of Human Services and the Detroit agency exchanged several versions of Detroit’s advertisement before its language was approved. It was January 2010, more than a year after the first advertisement had gone out, before the Detroit agency had a new one to post…
Along with the money came new rules that tripped up even officials familiar with the old program.
States were required to draft new plans detailing how they would use the extra weatherization money, which were then reviewed by the Energy Department…
Weatherization isn’t the only stimulus infrastructure project slowed by bureaucracy. Awards worth $8 billion for high-speed rail connections were announced in January, but the Federal Railroad Administration has only distributed 7% of the funds to date… Few recipients of awards to expand the nation’s broadband network have actually started laying cables; the rest are performing work such as environmental assessments and getting local approvals to attach fiber to utility poles…
Much of the blame goes to new rules pushed by organized labor:
A major reason for delays in the program was a provision in the stimulus bill to apply the Davis-Bacon Act, which requires that workers be paid the local “prevailing wage,” as determined by the Department of Labor.
Democrats have routinely sought to apply the Davis-Bacon Act to federal spending, supported by labor unions, who say that contractors would otherwise be encouraged to lower their bid prices by cutting workers’ pay. Opponents say that the act is inefficient and inflates costs.
In this case, it was far more inefficient than inflating, but it certainly increased costs for everyone involved in terms of delayed employment.
The snags in launching the weatherization effort left construction companies in limbo.
“We didn’t think it was ever going to happen,” said Darnell Jackson, owner of Detroit’s Ampro Construction, who had to lay off three of his eight workers last year. He has since hired them back, and added seven new workers.
Many other construction companies in Detroit are still expanding slowly. Some have slowed down the rate at which they take on stimulus work, because they can’t afford to pay workers weekly, another new requirement in the stimulus bill’s labor provisions…
For newly trained workers, the delays have been hard. Jennifer Wallisch, a 30-year-old former auto worker, hadn’t had a steady job since 2004. She enrolled in a course run by the non-profit WARM Training Center in January after hearing about the $30 million of stimulus dollars that Detroit was getting for weatherization.
She studied energy-saving principles, practiced drilling holes into walls and blowing in insulation, and learned how to install windows. She graduated in March, at the top of her class.
For the next four months, she couldn’t find work.
“I was hanging on by a thread,” said Ms. Wallisch. In July, she was hired for energy-conservation work funded not by the stimulus plan, but by Michigan’s utility companies.
One can go on, and the article does.
Lesson: When a private company can’t get its act together, it eventually fails, succumbing to better managed competitors. Competition raises everyone’s game. There is no competition for the U.S. Department of Labor, or Health and Human Services, or Energy. The government can’t go out of business. If the providers of government capital (i.e., taxpayers) don’t like the return they are getting, the best they can do is choose another president in a few years, or pressure the current one to appoint a different department head, call their congressperson, etc. That’s not exactly zero accountability for performance at the agency level, but it’s pretty close to it.
Posted by Marc Hodak on September 8, 2010 under Executive compensation, Reporting on pay |
Eddy Elfenbein, commenting on the market reactions to Hurd leaving HP then showing up at Oracle:
But an interesting question is, how much does a CEO really add to a company’s business? When you get right down to it, I don’t believe it’s that much. Steve Jobs, sure. But others, I’m not so sure. I think culture and where the firm and industry are in their life-cycle can also be very important.
By my judgment isn’t what counts, it’s the market’s and Oracle’s market value has increased by $8 billion today. Henry Blodget notes that that’s about half of the $14 billion that HPQ lost when they fired Hurd.
Elfenbein makes a good point about the market value impact of Hurd’s departure and arrival. Not so much about his personal sentiment that CEOs are not worth “that much,” although he expresses a widely held sentiment.
Those market value changes he cites–$14 billion drop at HP and $8 billion gain at Oracle–imply that Hurd is worth about one percent per year in return on capital to those respective organizations (Oracle happens to be about 8/14ths the size of HP). Is it possible that a CEO besides Steve Jobs can make a one percent difference in a company’s return on capital. Anyone who really doubts this (once they have the numbers in front of them) is pretty clueless about business and management.
In a rational world, knowing the reality of how much the best versus the next-best CEO can be worth should eliminate the deep concern of couch-bound critics about whether or not the board should have “given away” that last few million to keep the boss.
HT: John McCormack
Posted by Marc Hodak on September 2, 2010 under Reporting on pay |
New York Times reader
A NYT editorial today commented on the new disclosure requirement emanating from the Frank-Dodd pile that firms need to calculate and disclose the ratio between the pay of their CEO and that of their average worker.
How does the pay gap between the boss and the workers figure into performance? Are companies efficiently providing goods and services or are they being run for the enrichment of the few? Disclosure of the gap could help provide answers and in the process, help investors, policy makers and the public understand the forces that are shaping business and the economy.
That’s called an assertion without any basis in logic or fact. As someone who studies all kinds of ratios for all kinds of companies, I can assure you that no single ratio can help a serious analyst deduce a single, meaningful thing about that company’s performance, let alone the forces shaping business and the economy. What does the fact that WalMart has always had a lower profit margin than K-Mart tell you? What does it tell you that the best performing railroad in the 1990s had the worst operating ratio (a common measure in that industry)?
In all the discussions about this ratio, not one person has articulated what shareholders would get out of it. Remember the shareholders–the purported beneficiaries of these disclosures that their companies must bear the cost to prepare?
The big lie in this editorial is not that this disclosure won’t help neither investors, policy makers or the public; it is the gross omission of the real reason for this disclosure: that it’s intended use, and the sole reason it was inserted into the law, is to give the unions and their media supporters, like the NYT, another crowbar with which to beat management. Such an omission is a serious lack of disclosure.
Corporate opponents of the law insist that pay-gap disclosures would be misleading. A company that outsources its low-wage work, for example, could have a smaller gap than a company that employs low-wage workers, even though the outsourcer is not necessarily a better-run company. That misses the point. The point is to calculate, disclose and explain the gaps as they exist for the way a company does business.
I always love it when someone who is horribly missing the point says “that misses the point.”
