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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Monday, August 31, 2009

Ted Kennedy's Liturgies

We watched the "Irish Wake" for Ted Kennedy and his funeral, fine pieces of liturgy both, each in its own way contributing to the commemoration of the Senator and to the needs of his family and friends -- and even us -- to express our emotions over his passing.

Among the tributes, we took special note of those by John McCain and Orrin Hatch. Senator Hatch is, of course, a right-wing conservative, and as he reminded us, he maintains a vastly different style of religious observance than the Kennedys. But they are great personal friends, respecting and enriching each other despite and perhaps because of these basic differences. In such relationships, there can be no presumption, nor can either party take the other for granted. Everything has to be on the table. Senator McCain, for his part, can be as rambunctious as Senator Kennedy, and he told the wonderful story about how he and Kennedy once staged a mock, but highly spirited, debate on the Senate floor, taking advantage of their inherent differences in a joint, mutual effort to give lessons in priorities and decorum to junior Members of the body.

Perhaps this has been said enough times in recent days, but we need to add our own sentiment. In such a sensitive time for the country as this, with the economy so very fragile, our troops suffering the most deadly month so far in Afghanistan, legislation pending that will reform a basic part of our lives, the incumbent ruling party in one of our staunchest allies, Japan, decisively turned out of office and numerous other issues looming, may these coming weeks be a time when our leaders can all take advantage of their inherent differences to forge stronger, richer relationships and to formulate joint, mutual efforts at accomplishing the tasks at hand.

Kennedy's casket was escorted out of the church Saturday to the strains of "America the Beautiful". The last verse, highlighting his own sentiment that “the dream will never die”, appeals:

O Beautiful for patriot dream
That sees beyond the years
Thine alabaster cities gleam,
Undimmed by human tears!
America! America! God shed His grace on thee,
And crown thy good with brotherhood
From sea to shining sea!

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Monday, August 24, 2009

Health Care: Town Halls and Diverse Populations

Hasn't this summer's clamor over health care legislation been something? We've watched with amazement the videos of the Town Halls conducted by Senators and Representatives; events that in the past have been modest, ho-hum conversations turned this time into overflow crowds filled with emotional outbursts. We weren't able to listen in last week to the online conference call with President Obama, but 140,000 other people did. Click on the link, to listen for yourself, if you like.

We've continued to read and study about health care in the U.S. since we wrote about it in late July. We have to confess, though, that we haven't read the [in-]famous bill, H.R. 3200[1]. The texts of Congressional bills just start; there isn't any "preface" or "table of contents" with page numbers. There is a list of "Titles", but that just goes on and on, so you never really know when you get into the actual heart of the matter. So we're put off just by the format and can't really give the material a good critique. Does it really include "end of life counseling" as a mandate? Does it really cut $500 billion out of Medicare? Would it really lead to fixed treatment regimens for this case or that? These are all good questions that are upsetting people, but we just can't tell, can we?

We have read a couple of opinion pieces we like, both from business leaders, who in today's scheme of things, are the chief middle-men in the health care payment stream. Interestingly, both are executives in the grocery business whose chains provide health insurance to their employees. Food retailing has a low profit margin, with expenses usually running around 98-99% of sales, so they'd probably like to find ways to reduce those expenses, and we might expect them to be stingy with employee benefits. But their two companies, Safeway and Whole Foods, have health insurance plans that cover 74% and 89%, respectively, of their labor forces.

Two weeks ago, John Mackey, a co-founder and CEO of Whole Foods, incurred the wrath of some of his liberal friends by making some strong statements in a Wall Street Journal op-ed[2] about the fact that nobody should believe they have an inherent right to health care. Unfortunately, these remarks and the consequent reaction took away from some very constructive material in his article. He suggests eight ways to restrain health costs; these include more use of health savings accounts that are partially funded by employers, equalizing the income tax treatment of health insurance costs so both employers and employees have the same tax deductibility, enactment of tort reform, mandates for price transparency from providers, facilitating the inter-state sales of health insurance, and other items. Several of these factors can help lower or at least restrain what we called before the "production cost" of health care. And other of his suggestions can encourage – or "incentivize" – people to find the most cost-effective health insurance arrangements.

Steven Burd, the CEO of Safeway, in a Wall Street Journal piece back in June[3], approaches the issue from a different perspective, but his ideas would also help the underlying situation. Safeway's plan is "contributory", that is, employees pay some of the premium, as well as deductibles and co-pays. Four years ago, the store began to charge individual employees different premiums based on their own health behaviors: non-smokers pay less, people who work at losing weight pay less, people who follow a program to lower their blood pressure and/or cholesterol pay less. These actions diminish the risks for major chronic conditions that absorb substantial fractions of health expense: cardiovascular disease, cancer, diabetes and obesity. Burd points out that such differential premiums are patterned on the same principle as auto insurance: good drivers who avoid accidents and violations of the law pay lower premiums; thus, bad drivers' outsized claims are not subsidized with good drivers' premiums.

Burd's employees like the financial incentives in their insurance plan, they report. This finding agrees with an independent survey by the accounting firm Deloitte & Touche. In their 2009 "Survey of Health Care Consumers", their Center for Health Solutions reports[4] that "3 in 5 say financial penalties . . . would increase their adherence to their chronic treatment regimens; 76% . . . say they would participate in a health/disease management program . . . if a financial incentive was offered." The Safeway CEO tells that his program has worked, showing notable results in just the first four years: the company's health insurance costs have held flat since 2005, in stark contrast to the substantial increases most everyone is experiencing, and the employees have become healthier. Indeed, the insurance program includes screening tests. Some employees learned they had high blood pressure. Some who score out of the range initially get retested a number of months later. If they've improved, they get a refund of the extra premium they've paid. Obesity and smoking rates among the employees have fallen to 70% of national averages. This "sounds like a plan" to us and Safeway employees seem fortunate to have it.

Two other findings of the Deloitte survey are of immediate interest. We commented last time that we see electronic medical records and other applications of Internet technology as beneficial for health-care cost-cutting. Many people responded to Deloitte that they like researching their conditions on websites, contacting their plan personnel for information and advice, and they already have a "personal health record". Thus, it looks that a good proportion of people are already getting accustomed to this practice and it could well be expanded.

We also noted last time that the U.S. population is highly diverse. But apart from ethnic diversity, the Deloitte survey found that people have differing relationships with the health care system itself. One group is "compliant" and does best with a dictatorial doctor; another group is "out and about", utilizing alternative medicines and new treatments, but distrusting of what the doctor says; a third is "online and onboard", technically attuned and open to nontraditional outlets, such as having their blood pressure checked at Wal-Mart, and knowledgeable about medications and new devices. There are six of these groups all together, six statistically distinct styles of patients who interface very differently with medical personnel and the health system as a whole.

Some who argue for the "single-payer", more centralized approach to health care in the U.S. assert that one of the current faults of the system is its fragmentation. But such fragmentation can be a strength. We can get health care in a variety of ways, through private physicians, clinics or co-ops, the same way we can make many other choices in our lives. One size doesn't fit all, the same way we don't all drive the same cars or attend the same colleges, even though cutting those from the same cloth might make them cheaper too. What we have to be sure of is that whatever we use, we make the most of it and help it run as efficiently as it can.
[1] Here is the bill.

[2] Mr. Mackey's article:

[3] Mr. Burd's article:

[4] Deloitte Center for Health Solutions, 2009 Survey of Health Care Consumers: Key Findings, Strategic Implications. Published March 2009. Accessed August 24, 2009.


Tuesday, August 11, 2009

Downtick in Unemployment; Pickup in Productivity

First, today, a couple of you have written nice notes lately, telling us that our discussion, particularly of health care, was "clear and easily understood" and that we had managed "not to sound like either a cheerleader or a naysayer". We find these comments very gratifying and we thank you for offering them. This is exactly what we're trying to do: help you understand and get some context for complex issues. In this regard, if there's ever anything you DON'T understand, let us know right away, and if we misspeak, let us know that really fast!

We'll have more to say on health care very soon. In the meantime, it's been several weeks since we talked about the economy, and since there was just another employment report from the Labor Department, we want to give some update.

Official "Unemployment" Declines in July
The unemployment rate actually went down in July, to 9.4% from 9.5% in June. We heard a Congressman on TV Friday night assert that the numbers had been massaged to achieve this result, but it's highly unlikely that there were any dirty tricks. These data come out of a survey sample of about 60,000 people* around the country; the figures have long history and are closely monitored, both in and out of the government. You can have a high degree of confidence in their quality. What did happen was that 422,000 would-be workers pulled out of the labor market in the month, so that even though 155,000 workers lost their jobs, the number of people reported as officially "unemployed" also fell. While we might bemoan the artificial light this arithmetic puts on the final ratio, it's also significant that other measures of unemployment also fell. The number of "discouraged workers" has been flat for three months, so that a broader measure of unemployment that includes them edged back from 10.8% to 10.7%. Also, employment in this survey of workers is seeing a moderation in its decline, with the last four months averaging 212,000, compared with 814,000 per month the previous four months.

One other comment about these: the number of workers filing for unemployment insurance, a completely separate tally, conducted weekly by a different Labor Department office through reports from state employment agencies, has also been declining. This led some business economists to forecast that the monthly unemployment rate might actually stabilize or go down. So there's some substance to the less-bad labor force news, and not just smoke and mirrors.

Payroll Jobs Have Smallest Cut in 11 Months
The Labor Department conducts still another compilation of jobs data in which they survey the payroll departments of a large sample of companies to inquire about the number of people they employ. That measure of payroll employment declined by 247,000 in July, the smallest decrease since August 2008. Part of this relative improvement came from the re-opening of Chrysler plants that had been closed during their bankruptcy proceeding in June. But even apart from that factor, fewer job cuts compared favorably with much bigger numbers back in the winter and early spring, especially in such industries as finance, business services and leisure and hospitality. Jobs in this last sector actually rose by 9,000 in July. Apparently, if people can, they're still wanting to play and take vacation. And maybe it was helped by the Episcopal Church's General Convention, which occurred during the week when the data were collected! [That's not totally a joke. It took a lot of people to run that convention center as well as the convention itself. Our meeting surely didn't hurt the travel industry at an otherwise rough time.]

We keep hearing complaints that the fiscal stimulus isn't doing anything. We warned you a couple of months ago that media and others would be impatient. We hope just this discussion of the employment data show that there's some improvement. It isn't great, and people will probably return to the labor force before there are many new jobs to be had, so the unemployment rate is quite likely to rise again, perhaps to over 10%. But we need to walk before we can run into a recovery.

Higher Productivity Lays Base for Renewed Growth
Another precursor to recovery has fallen into place. Reported just this morning, "productivity" in the second quarter surged at a 6.4% rate, the strongest gain since the middle of 2003. Companies laid off so many people in the face of the collapse in business that total hours worked fell more than total output, raising output per hour markedly. This cut production costs sharply both in total and per unit of output. So profits have started to recover after a dramatic plunge in the fourth quarter 2008, the steepest, most chaotic part of the recession. More profits data will come at the end of the month, but the important point now is that a necessary condition has emerged for renewed growth in output and the workforce. Until companies' cash flow turned around, they couldn't begin to anticipate spending more money on production. At the same time, we caution, the higher productivity – that is, more output per unit of labor input – means that output will need to expand for a while before new hiring is likely to begin. I know, we're impatient. But businesses operating on a lower-cost basis will be much healthier going forward, yielding a more solid, sustainable recovery.
*corrected from 70,000 mentioned in original post.


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