Leaving the Evidence Behind: the Obama administration response to Anthem Blue Cross

It had been 19 days since my last post about health care. There hadn't been much material for musing or ranting since the election of Massachusetts's Scott Brown. There was so little material about health care that I was even debating a post on the commercial real state of affairs based on the obvious failure of the new complex next to my office. The creation of a new reality TV show, Obama and the Republicans talking health reform on TV, didn't trigger any new material even though those on the right would call it a spin-off of Big Brother and those on the left would compare it to Fear Factor.

However, readers are spared my analysis of commercial real estate failures based on my proposal that a 7-Eleven can't be the anchor store or yet another reality TV show suggestion. The savior is the Obama's decision to lay the smack down on Anthem Blue Cross's 39% price hike on its 800,000 Californian individual insurance members. Basically, Anthem had a very profitable year but filed this large rate increase with the state insurance division. Although, regulating Anthem's insurance filings is the responsibility of the California state insurance division, the federal government wants to be a part of the action.

What I find disturbing is that while we try to promote evidence-based practice on the provider side of the health care system, we're throwing out the evidence-based practices on the insurance side. Insurance prices are determined by actuaries and their rigorous mathematical analysis. Even after the application of all that math, actuaries sign an attestation while they solemnly swear that their numbers were objectively derived. In other words, using actuarial science to calculate the cost of insurance is evidence-based. Using political pressure to get prices that you like better is debased.

We've made progress in terms of becoming a nation of health care wonks, but I know that the phrase "actuarialy speaking" may still result in some blank looks. In the case of the Obama administration response, he's basically telling Anthem's actuaries that they suck, their mathematical models suck, and their sisters would have sucked if he had- well you get the picture.

The individual insurance market is generally a break even market for insurance carriers at best. Administrative costs are often 20% of the price compared to 5%-8% in the larger group market. It's much cheaper to enroll 1,000 people on one data file and send the bill to one employer then it is to enroll and bill 1,000 people individually. With such high administrative costs, there isn't as much room for profitability as there are for mid-sized groups or other lines of business because it's tougher to add additional margin. If the individual market is subsidized with the profits from the mid-sized group market, then that mid-sized group is paying more than it should. However, given that employer groups don't have to pay taxes on their health insurance and individuals do pay taxes, this subsidization might not be a bad idea.

If anything, Anthem's 39% price increase marks some point of the potential insurance death spiral. Health care has gotten so expensive that it's only beneficial to buy insurance for those who are going to use a lot of it. The Obama administration generally understand this principle which is why health care reform has been rightly framed as an economic issue. However, demanding to see the homework assignment that the Anthem actuaries turned in to the California insurance division is not economics but just politics. But maybe this could be turned into some kind of reality TV show with actuaries?

Being Frugal is really Personal

Since I was fairly critical of one of Penelope Trunk's blog posts about the value of college as measured by job placement, I am pleased to balance the karma scales by praising one of her recent posts. I really like Trunk's post about "Frugality as a career tool" and equally enjoyed the comments.

The post is about Trunk's approach to frugality and the connection to overspending or investing in aspects that can limit future mobility or entrepreneurship. The comments included a range of opinions on what was considered to be frugal spending and what was not. There was agreement, disagreement, other opinions, questions, and in general it was better than Cats. Generally, we all think that we're frugal and our neighbor is not.

I think that I'm frugal because I have only bought about 9 books since the Y2K implosion that never was but read hundreds. I've read more books in the book store coffee shop than I've purchased. I also think that I'm frugal since my vacations involve camping trips and I've slept in my car more time than I have slept in a hotel. Some call sleeping in your car an example of homelessness, I call that my home away from home. Finally, my furniture reminds me of my childhood since it was my parent's furniture when I was a child. My sister got the furniture that reminded me of being a teenager.

However, I buy cars that are new and own a house that currently has an unoccupied bedroom. I went to a fancy college and MBA program. Based on this, some might accuse of me of blowing money like a Jersey Shore socialite. Even this MBA, who blogged about getting foreclosed might have congratulated himself on his frugality.

Some have called this prioritization as opposed to frugality but frugality is a better word. It's not about what you're spending money on but what you're not spending money on. Ultimately, it's about not trapping yourself with your purchases. In other words, don't buy anything big 1) that you can't sell if you need to, 2) that you could pay off if you lost your job, or 3) that doesn't lock you on a career path that is difficult to leave and makes you miserable.

However, our current political parties will probably agree on something significant before there is consensus on even these 3 vague principles that I outlined. For the first, sometimes you have to sell something in a week or you just need to sell it eventually. Illiquid assets from houses to a herd of llamas to a kilo of crystal meth are dependent on their market.

For the second, the bigger question is what percent of savings should be used to pay off a debt and what are the consequences of not paying off the debt? For houses that are worth less than their remaining mortgage, banks are trying to use a moral argument to guilt people into not walking away since there isn't the economic argument. The image of banks taking a moral high ground reminds me of the George of Arrested Development's conversion to Judaism.

The third creates the biggest argument as it's another way of asking about the ROI on graduate school. I've posted links about the 20 year salary trend of MBA's by programs and the unemployment rate by professional degree in support of graduate school. Others can probably post some dismal information about the number of law school graduates who are still working in the field. I'll offer the political third way which is that graduate degrees will help move you forward if you stay within your field. That requires a fair amount of soul searching before picking a graduate program. Or do what I did and apply to a dual degree program (MBA and Masters in Social Work) so you improve your odds.

By the way, the political fourth way is to be the first to call your opponent a Nazi.

In conclusion, a post about the right kind of frugality for a career is a really good blog post because it triggers a lot of debate, anyone can participate, and there is no right answer. Like the, "Why do you want an MBA" essay question it forces people to develop a game plan and really think about their answer before responding otherwise their argument will fall flatter than the latest CEO apology.

The only really solid answer that I have come up with for not trapping yourself with your spending is to insure yourself really well and find a really good arsonist. Then you'll always to be able to walk away.

My New Favorite TV Show that starts with "G" but is on the ABC Family Network

Until Glee resumes programming, I am hooked on the TV show, Greek, that airs on the ABC Family Network. No, I didn't know the ABC Family Network existed either and I don't know what channel it's on or its other programming. I picture a lot of School House Rock and after school specials. Maybe it does "Where are they now specials" about the cast of Saved by the Bell or Nickelodeon's You Can't do that on Television. I watch all my TV on Hulu on my computer. Our only remaining TV, a mid 90's classic with a built in VCR that my sister gave me, lives in my closet.

Back to the topic on hand, which is a digression from my usual fare of health care and the business world. I try to write 8 posts per month, it's the end of the month and I'm a post short, and I want a break from those more serious topics.

Greek (only the E's are replaced with pretend Greek letters) is about the fraternity and sorority life at the mytical Cyprus Rhodes University. The creators envisioned a Gray's Anatomy with a college age cast, focus, and no melodramatic musical montages (not that I'm not a fan of a good musical montage). Essentially it replaced the niche that has been largely untouched since the Beverly Hills 90210 cast entered college. Greek is either a comedic drama or a dramatic comedy and does both parts equally well.

The wikipedia link describe the basics of the show but the reason that I dedicated a post to praising a TV show on an obscure network is:

Characters routinely break their stereotypes: The main characters rotate between taking the moral high road and falling to their most basic vices. No character is consistently wise or consistently wicked. One character will provide brilliant wisdom to a friend about their relationship and than destroy their own relationship with a selfish maneuver. No one is completely evil or good or competent or an idiot. In other words, its characters are pretty realistic.

They've balanced out who sleeps with who: The main failure of most TV shows with an attractive cast of sex-obsessed characters is that eventually every character sleeps with or wants to sleep with every other character and every combination has been exhausted. At that point, new characters are brought in just so everyone can sleep with someone new. Greek balances this out well with gay male characters who don't sleep with the female characters. Other characters are limited by love triangles to only sleep with one or two other characters. Other characters are are more innocent and don't sleep with the other main cast members. Finally, a few characters are designated to be huge sluts and sleep with everyone. A brother and sister round out everything nicely. It's a simple but elegant formula that keeps new relationships and sexual conquests interesting and creates new plot lines rather than recycle them.

The ridiculous is balanced out with the sublime: Regular characters such as the perky and popular female lead, her best friend side kick, the nerdy genius who just wanted to be accepted, witty slacker, and cutthroat future CEO president of the popular fraternity are balanced out with ridiculous characters that allow for the unexpected and the funny. There is a fraternity member who wears mascara, never speaks, and is routinely admonished for creepily watching people sleep. An awkward sorority girl curses all the time and eats obsessively. A southern baptist who takes a purity pledge reveals secret desires to be on the cheerleading squad and sleeps with his cougar-esque landlord. A large muscular, "George-from-Of-Mice-and-Men" fraternity guy gets stumped trying to figure out if the cilantro on his nachos are a vegetable or not. Okay, the last one was pretty stereotypical but is an enjoyable character.

Some suspension of disbelief is required. The show is supposed to take place in Ohio but since it is filmed in California, it never snows. The genius characters scientific discoveries violate most laws of physics let alone the capabilities of a typical freshman engineering major. However, the writing is quality (the slacker character has some really good dialogue) and the humor fresh enough ("He's smart. He goes to an Ivy League School! Okay, it's Brown but that's pretty close to Ivy league.") to make up for it.

College and the MBA: Not Dead Yet

Penelope Trunk's blog is one of my guilty internet reading pleasures. I balance out reading her posts about a train wreck personal life and deliberately controversial advice by reading Fred Wilson's thoughtful venture capital blog.

Trunk's latest post on the value of a college education led me to think about the topic since I promote education as an admission consultant for MBA programs. Trunk's post proposes that the availability of information on the internet and work experience available through social media has resulted in private colleges no longer being worth the cost when measured by job placement. She attacks college career centers which is kind of like going after the punter, the smallest player on a team, in a football game.

Trunk linked to Ben Casnocha's post on the topic which analyzes other aspects of the college experience besides job placement including the arguments against "signaling" studies. Google couldn't find the original researcher for me but the signaling theory is essentially that someone who is motivated to achieve the highest or most prestigious education sends a signal to future employers of their skills or level of motivation. All in other words, it's why someone will hire a Harvard MBA over a less recognized program even though they study the same material.

The drivers that resulted in this discussion are:

• Colleges may be pricing themselves out of the market: Colleges have joined health care as the two industries whose costs have increased at twice the rate of inflation for too long. What was once thought to be a very inelastic, price-insensitive market is starting to stretch.
  
• Colleges have more competitors: Performance in college had been the best way to evaluate the capabilities of an 18-22 year old who doesn't have a great jump shot or can't run the 40 yard dash in under 4.5 seconds. It's measurable, can be benchmarked, and takes 4 years. The 4 years is actually probably the more important piece because it requires sufficient dedication and reliability to complete a degree. Peace Corps used to require a college degree (or 5 full-time years in one profession like farming) mainly because if someone spent 4 years and finished college, they were more likely to finish their 2 year Peace Corps assignment. Now, college has more competitors. People in their 20's can demonstrate their website portfolios that show similar levels of commitment and talent as a college degree. Additionally, community colleges have done very well with focused vocational programs and raising their reputation.
  

However, while a college degree or graduate programs are being questioned, this will still be the dominant destination for people in their 20's because:

• People will college degrees are more likely to be employed and make more money: Data shows that you are twice as likely to employed if you have a college degree compared to a high school diploma. Sure Bill Gates dropped out of college and did pretty well but can you think of anyone else who doesn't have a good jump shot or crossover dribble?
• Social Media careers have their limits: My standing comment on posts that worship social media like a golden calf is to ask about social media market penetration. Does even 5% of the Western world use twitter? Do 10% of the Western world blog and do 20% read blogs regularly? Until social media reaches double digits as a distribution channel, it won't even replace direct mail. It will receive a few percent of the budget from direct mail but that won't fund too many positions. The conversion rates and ability to track response may look cool but you'll still reach the largest audience with Google or traditional methods. Social media needs more volume for it to become as viable a skill as the critical thinking of a liberal arts degree.
  
• As do web portfolios: As far as web portfolios, the danger is that they are made by people in their 20's and can contain career killer content like calling a business WTF Consulting or writing articles like this (note the comments section). If anyone has any Generation Y web portfolios that reflect the equivalent effort as a college thesis, please send them to me and prove me wrong. Most web portfolios that meet this threshold are written by older individuals that well, have college or more advanced degrees
  
• The Value of an MBA: To bring this back to my secondary job of MBA admissions consulting, the MBA degree still is the best options in two areas. First and foremost, it is the best option to career switch into a business sector due to the dedicated 2 years to learn a new field, get internships, and access to companies. Career coaches have told me that you can switch industry or function but never both without an MBA or industry specific training. Second, it provides the most job training of any non-licensed (like medicine) graduate degree as students learn about how to write resumes, interview, and other nuts and bolts of job finding. There are other advantages, such as networking, access to alumni, and "signaling" that I described above. However, the first two are aspects of the MBA that will survive the disappearance of the investment banking industry or the competitors that colleges are facing. It's possible for an MBA program to price itself out of the market but the other options for these two aspects have not yet emerged.
  

A Musical Montage of the end of Health Reform

After reading about Scott Brown's Senate victory in Massachusetts, I riffed a Don Mclean American Pie cover on my Facebook status of "I can't remember if I cried/When I read what Mass voters decide(d)/Something punched me deep inside/The day that health reform died". Based on the empathetic comments that I got, my friends sensed my apparent deep inner pain. However, readers of this blog might have been confused by this rather poignant poetic lyrical display since my posts have always found something to criticize about health care reform. I compared Medicare Advantage cuts to the worst thing to happen to seniors since the end of Denny's early bird dinner special and the nicest thing that I said about the Public Option was that it was a marginally better idea than Death Panels.

To this confusion, I respond with Joni Mitchell's song Big Yellow Taxi (otherwise known as They paved over paradise and put up a Parking Lot) "Don't it always seem to go/ That you don't know what you've got/Till it's gone". Now that the possibility of reform is disappearing faster than Gilbert Arenas's basketball career, I now realize the amazing potential of what this country had.

For the first time in a long time, we were grappling with tough questions about our health care system. We became a nation of health policy wonks. Radio programs analyzed the true drivers of health care costs and how requiring everyone to buy insurance would impact costs. More importantly, people with conditions that would prevent them from ever being accepted to an individual health insurance plan sensed an end to their fear of losing access to health care if they ever lost their job. The fact that the bills ensured that everyone could be insured outweighed their weak cost controls and clumsy handling of the Medicare program. As Crosby Stills Nash and Young sang, "If you can't be with the one you love, love the one you're with."

Now as Slate's Timothy Noah pointed out, health reform will likely not happen. The Democrats will not ram their bills through and the Republicans will not offer any solutions or help. The Republicans solution to the uninsured is a reclassification of the definition of uninsured. The one bill that they offered was a torte reform bill that just happened to cover 7-8% of the uninsured. They blew off the health care reform debates. Iowa Senator Chuck Grassley used that time to learn how to use the Twitter. He even taught John McCain how to use the Google. Kentucky Senator Mitch McConnell used that time to discover what feelings were. I'm not saying that he has any feelings yet but now he knows what they are.

As I grow moderate with my years, I start to understand the appeal of conservatism, some of its merits, and thus the Republican party. However, I cannot forgive the GOP for its dismissal of health care reform as a relevant issue and their sheer laziness and unwillingness to understand it or put together a bill.

Health Reform has been declared dead before so I'll remind myself of Bruce Springsteen's Reason to Believe with the lyrics: "Struck me kinda funny/ seem kinda funny sir to me/How
at the end of every hard earned day people find some reason to believe."