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Friday, January 29, 2010
Monday, January 25, 2010
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.
- 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.
Thursday, January 21, 2010
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."
Tuesday, January 19, 2010
Digressions about momma jokes and chief of staffs going medieval on me aside, Medicare Advantage enrollment in the Pacific Northwest grew 2% since last January despite average premium increases of 25% and benefit reductions. A PPO plan in Oregon increased its price from $121 to $176, reduced benefits, and gained market share. Another Oregon PPO plan tripled its price to $230 and only lost 50 members. Most HMO plans only had slight price increases and gained the most market share.
With a 25% increase in price, reduction in benefits, and examples that I described above, most did not initially expect the Medicare Advantage market to grow. I even changed my forecasting models to predict a 10% decrease in enrollment. As a result, my best job forecasting to date is still last year's NCAA college basketball tournament bracket where I predicted a North Carolina-Michigan State final. However, I predicted that Michigan State would win and lost the pool to someone's second grader.
This indicates that 1) Medicare beneficiaries still see the value in Medicare Advantage and consider it one of the better options and 2) Medicare Advantage plans were underpriced. With the second point, a 65 year old pays $110 Part B premium + $176 PPO plan above for a total of $286 per month. However, their plan has no deductible, the 65 year old pays $50 to go to the Emergency Room, nothing for an outpatient surgery or CAT scan, $10 to go to the doctor. A similar plan on the open market would probably cost $500 for a 30 year old.
It still remains to be seen if the Medicare Advantage market will survive planned 2011 reductions as well as future cuts. The growth in the market despite the 2010 reductions shows how the public values the program and it probably did not need all of the money from the federal government to remain attractive. These reductions will continue to be the seniors contribution towards health care reform. Given my forecasting skills, I am going to continue to predict doom and gloom for the Medicare Advantage in hopes that I am completely wrong again. I will also share my future NCAA college basketball brackets.
Friday, January 15, 2010
The mission statement of this Commission look promising:
The Financial Crisis Inquiry Commission is a bipartisan commission that has been given a critical non-partisan mission — to examine the causes of the financial crisis that has gripped the country and to report our findings to the Congress, the President, and the American people.
Hopefully, the Commission's work can help rebuild the American people's belief in a financial system that puts Americans to work, fulfills their goals and provides the foundation for a new era of broadly shared prosperity.
However, based on their line of questioning that I heard about on NPR, their performance is not promising.
The Financial Crisis Commission does not apparently know what hedges are. I'm not talking about gardening but rather "hedging your bets." In financial terms, this often entails buying a financial asset with the expectation that the price will increase while purchasing a short position or some kind of insurance in case it loses money. Or taking a long and a short position. It's about managing risk.
One of the Grand Inquisitors sputtered how a bank was selling securities and also taking short positions against that same securities was the equivalent of "selling a car with faulty breaks and then buying insurance."
I call that as fine an example of hedging that I have ever seen. If the securities do not sell well then the bank has protected itself from those losses. That's contrasted with an absolutely terrible analogy about the car with faulty breaks. What does he even mean by buying insurance? How about comparing it to placing a bet with 3:1 odds that the Yankees will win and a bet with 4:1 odds that the Red Sox will win? One could argue that only a soulless banker would not pick either the Red Sox or Yankees but bet on both just to make some money. Others would point out, it's a systematic way to gamble.
They don't understand hiring or compensation either: Another Grand Inquisitor suggestion was that banks pay risk management staff more in order to attract more talented individuals. Or in other words, they were asking if the banks ever studied compensation for this position and their own cost structure. Given that banks generally study the cost structure of every asset from Danish wind mills to Russian sky scrapers, they've probably figured out how much they need to pay their supporting staff. Given the support staff is a form of overhead, it's probably less than they pay revenue generators like traders.
With that question, the Grand Inquisitors ideas are right on par with what Human Resources was probably thinking in 1985.
They don't really understand bonuses: Lately, bonus has become a dirtier word than boner. Okay, I was going to call it a 4 letter word but bonus has 5 letters but it's kind of close to boner. Plus I want to see what kind of Google searches that I draw by saying boner.
Digressions aside, at least 50% of a bankers compensation comes from their bonus. Their base salaries are on par with industry positions. It's the compensation model that banks have chosen since they study this stuff (like how much they need to pay a competent risk manager) and have concluded that it results in behavior that they want to reward. The fact that bonuses are dramatically increased by financial engineering or providing services that don't really improve the value or efficiency of a company is not good. The fact that they reward creating asset bubbles that will later pop isn't good either.
However, nothing is inherently wrong with a compensation structure that is heavily weighted towards the bonus. Sales compensation is either heavily driven by commission or salaried depending on the results that the company wants to achieve. Focusing on the bonus is looking at the cart and ignoring the horse.
Personally, I think it would be kind of interesting if politician's salary and campaign contributions were tied to a bonus type level of performance. Suppose Congress had to reduce the unemployment rate by 1% in order to get half their salary or campaign contributions? Or pass 10 major pieces of legislation? That might result in a more bipartisan approach especially among Congressman who only own 1 house.
Summary: The 9/11 commission was probably viewed as successful since the members really understood the topic. The Pecora commission to the financial crash in the 1930's was very successful since it was both entertaining and produced lasting results. From what I have heard so far, I'm not impressed with the competency of the Financial Crisis Inquiry Commission nor their sense of humor (I still don't understand the car with the faulty brakes analogy). I don't think that Wall Street is so different from the rest of the economy to result in this level of misunderstanding. Wall Street bankers are not irrational and there is a logic behind their actions. The commission needs to understand that logic.
Wednesday, January 13, 2010
From talking with insurance agents, I've learned that you can buy insurance for anything. For example, you can buy a policy for cancer only that would provide payments for medical bills or give you a lump sum of money to either spend on medicine or the most debacherous acts that you ever fantasized about.
In the individual insurance market, there's also some options that look like insurance but are not technically health insurance. Kind of like the Aflac duck that looks like a duck, walks like a duck, but quacks like your angry paranoid uncle during the State of the Union address. I learned about these through the unctuous solicitations through my blog, unsolicited phone calls from private numbers, or just keeping my eyes and ears open. However, right now, readers are probably checking out my use of a word "unctuous" that I still remember from SAT preparation! Before I digress anymore, here are the 4 individual insurance options that aren't technically insurance but might work or in most cases won't work:
1. No Insurance Club or All the primary care doctor visits you want for an annual fee: No Insurance Club found my blog and sent me some information about their services. From reading that information, I realized that the No Insurance Club marketing team doesn't know the difference between Medicaid or Medicare. I don't suppose that they should have to know the difference since their focus is on the absence of insurance (but hopefully not the absence of fact checking).
No Insurance Club offers 12 primary care visits/year with a doctor that is a participant in their plan and some lab testing for an annual fee. No hospital, no Emergency Room, no drugs, and nothing if your doctor doesn't want to participate with the No Insurance Club. Some large primary care practices offer similar arrangements as this is becoming more common. It's not a bad value since a doctor visit generally costs $100-$150. A $300 annual fee would pay for itself with 2-3 visits and will ensure that the doctor will see you even if you don't have insurance.
My biggest concern with No Insurance Club and other non-insurance options, is that their name is misleading. It should be called Unlimited Doctor or Annual Physician Membership since it has nothing to do with insurance. It's like me selling membership in the No Calories Cake Club. However, it does provide great access to primary care for those who just want to be able to see a doctor whenever they need one and don't need or can't afford health insurance.
2. Mini, Limited, or Defined Medical Benefit Plans: These are the plans whose representatives cold call me at work. While most insurance plans define their benefits by what you will have to pay for services (like you pay a $100 for a colonoscopy and the health insurance plan pays the rest), these plans define their benefits by what they will pay (they will pay the doctors $100 for the colonoscopy and you pay the rest). They often have limits to how much they'll ever pay out in services.
Purchasing these plans should be a calculated decision. Since they will very clearly describe what they'll pay, you should take out a calculator, add up what services you will use, subtract the cost of the plan, and see if it's worth it. Their benefit should be fairly clear as they generally cover the more common services. I could see this being valuable for young children who typically go to the doctor every few months, get immunizations, will likely get a few colds or the flu, probably fall down and cut something open, or eat something they shouldn't. For someone who gets it just in case something happens, these won't be helpful since they don't cover extensive hospitalizations or surgeries.
These plans also tend to look like health insurance so they are also fairly misleading. From my cake example above, I would call these the Chocolate Cake Plan with a footer that the cake contains no chocolate, sugar, or butter.
3. Discount Medical Plans or the Costco Plan: Getting an insurance plan at Costco should either really appeal or really frighten (especially for those who saw the movie Idiocracy) someone. However, discount medical plans are basically like Costco plans where you get discounted services at participating doctors and facilities. The discounts are the same as what insurance companies typically negotiate with providers. Just like Costco can get you a pound of cheese for under $10, a discount plan might get you 15 minutes with your doctor for less than $100.
This is another calculated benefit as you should be able to think about often you're going to need to go to the doctor for this plan to be worth it. The more you use it, the more you save, but that is not a good thing with health care and can get very expensive. I also don't know if doctors who typically don't see patients without insurance or require deposits would waive those requirements for a discount program. I suspect not but anyone interested in a discount plan should ask.
Discount medical plans have become heavily regulated and have the most straight forward and clear explanations of what they are and what they are not. You're getting some real cake but it's only a sliver.
4. Short-term Medical Plans: This is truly the "What if you get hit by a bus" insurance plan. It is actually a type of insurance plan so it almost doesn't belong in this category but it's a fairly good option. For about $1/day, you will get covered for a major hospitalization or surgery. It won't cover routine care and there is a clause for pre-existing conditions that vary by state. In Oregon, the pre-existing clause goes back 5 years but in Idaho it's only 6 months.
Given they're called short-term medical, it's fairly straight forward that it's a temporary plan. I have read about some people getting confused by the description but I think that it's more straight forward than Mini or Limited Medical plans. For my cake analogy, with short-term medical, you either get nothing or you get to eat the entire cake. Burp!
Saturday, January 9, 2010
The next series of developments has the potential to make the Town Halls look peaceful.
Hospitals and insurance companies have had a truce for about a decade. Hospitals consolidated and gained enough market power to get paid what they wanted from insurance companies. Insurance companies had no more leverage and for the most part paid hospitals what they wanted with modest discounts. Ugly battles like the 2001-2003 struggle between Sutter Health System and Blue Cross of California where both took to the air waves to denounce the other as greedy were rare.
In the Pacific Northwest, the health care wars are starting again. Health Net, a large west coast carrier with about a 10% market share in the region, struck first in Central Oregon. Central Oregon health services are controlled by the Cascade Healthcare Community (CHC) hospital system. Most of all health care services in that part of the state from surgeries to bed pans flow through CHC's hospitals. Central Oregon also has some of the highest health care costs in the state and CHC spends more time worrying about flossing than their reimbursement negotiations with insurance companies.
Health Net added an additional 10% to the price of their health insurance plans in Central Oregon and attributed the increase directly to CHC. Just like Sutter and Blue Cross, they took their negotiations public and accused the CHC hospital system of making their health insurance plans 10% more expensive than the rest of the state.
The second blow was struck this week by Lifewise, a smaller health insurance plan with 75,000 members and a relationship with Premera, a Washington Blue Cross plan. Lifewise accused the Portland-based 5 hospital Legacy Health System of making just too much money. Specifically, they issued a press release that the hospital system was making a 30% profit margin on services provided to patients with Lifewise health insurance. In this era of bonus and greed scrutiny, the publication of a 30% margin is not accompanied with a Company of the Year article but speculation of a Congressional investigation.
To be fair, hospitals generally make these types of margins on services provided to patients with private insurance since they lose more than 30% on patients with Medicaid and get paid little for services provided to uninsured patients. Hospitals probably break even at best with Medicare patients. Therefore, hospitals need a healthy margin on patients with private insurance to make up for losses on patients with government insurance or no insurance.
Hospital margin by line of insurance will likely become public knowledge because this is probably only the beginning of some renewed very public battles between hospitals and insurance plans. This can also be called the first unintended consequence of health care reform. There will be less money flowing into the health care system in the future so stakeholders are already positioning themselves to lose as little as possible.
The previously opaque negotiations between health care intermediaries will become increasing acrimonious and public. Which is unfortunate since a more systematic approach with closer cooperation between health care stakeholders is what is really needed.
Friday, January 8, 2010
Gettingdrunkinfirstclass.com or GDIFC carried the torch for consulting and portrayed its consultants as lords of the airways whose magic tongues enabled them to convince clients that their advice was worth its weight in 2010 priced gold. According to GDIFC, consultants were so glib, sophisticated and compelling while they whispered into CEO's ears that they could spend most of their time in debaucherous celebration that would be expensed back to the spellbound client. Like the website, this image of consulting has been defunct for some time. In reality, consultants only rule the airports WiFi systems in Cedar Rapids, Iowa. At the client site, the days is spent with reams of data and dinners are inhaled at restaurants that are still open at 10:00. While presenting, consultants struggle not to use the word "value add" to describe their power pointed recommendations in order to justify their carefully scrutinized billed expenses.
On the other hand, the Leveraged Sell-Out or LSO describes the actual work of investment bankers with a frightening level of accuracy from the pitch books to the Excel models. The genius comes from the parodies of the banker culture, prestige and rankings of everything from colleges to credit cards, and most poetic dialogue this side of Quentin Tarantino. The comments section on the site which was mothballed in November 2008 (but still preserved in time) reinforce the parody and accuracy. LSO also won the ultimate blog prize by spawning a book, called Damn it Feels Good to be a Banker.
I had avoided ordering the book due to fear that it would be a recycling of the website or the best material had already been written. However, after finishing my Economist on Monday and faced with nothing left to read for a week, I made the plunge and bought it. Since it arrived, I've read it twice due to the sheer poetry of the writing. Excel spreadsheet terminology is used to explain the planning of a night out. Clothing is described with such detail that I can visualize the triple pleats of consultant's khakis that were purchased at a Piscataway New Jersey Mall Banana Republic with a gift card. I also learned more about banking and how to measure firms by prestige than I could ever possibly want to know. I almost started using the term so Piper Jaffray-ish to describe the Chicago Bears defense this year.
While I both learned and laughed a lot about banking from the book and website, I would only cautiously recommend it to non-traditional MBA students. If a reader doesn't realize that the most elitist statements are intended to be a complete parody, the humor will make someone really angry. The humor is also from the bygone bubble era of 2004-2007 and may not travel well in this day and age. For those who are ready to keep an open mind and want a good laugh, I highly recommend the book.
Full disclosure: I've read that Damn it Feels Good to be a Banker is actually written by a strategy consultant.