A Few Thoughts About Health Care Reform

Here are a few random thoughts about health care reform:

First, we absolutely require health care reform. This is not a nice to have, it's not about a long term wish list, we absolutely must have health care reform. It's the smart economic move. It's also a moral imperative.

Now let me tell you something about public health care. There's a lot of fear mongering going on these days about how bad public health care and "rationing" are. I would like to call bulls*** on that. The system we have in the US today can hardly be called a system. It's complex and it is unjust, but perhaps worst of all it's wasteful. Our system forces us to resort to all kinds of strategies for saving some money on medicines and treatment while ensuring that billions go to waste on needless administrative costs. Have you received a bill from a hospital recently? You are practically expected to haggle, much like you are in a rug store or a used car dealership.

I was born and raised in Israel, a state which offers a public health care system and in which each and every individual has health insurance. The health care in that country is no worse than the health care we get here. In fact, in many respects the health care system and the service to individuals is far superior to our experience in this country. I recently went back to visit my old homeland and had a first hand experience with the health care system. Comparing that experience to a previous visit to the emergency room in one of the top hospitals in the US, the service and quality of care we got abroad was superior. Hands down.

Last week I watched Nobel Prize winning economist Paul Krugman being interviewed by Charlie Rose on PBS. Here's an interesting statistic: according to Krugman about 60% of dollars spent on health care in this country are already spent by the government, between Medicare, Medicaid and the VA. Think about that the next time health care lobbyists try to sell you horror stories about how the country will go to the dogs if we adopt a public health care model.

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Starting Your Career: Big vs. Small Companies

I work in a start-up, employing about 50 people in all, and have tended to work for smaller companies throughout my career. In spite of my own entrepreneurial tendencies and inclination to work in smaller companies, I believe that most people would probably be better off starting their careers in a larger organization before taking the small company route. So before you sit down to write a resume and send it to potential employers, take quick stock of my reasons below:

Training - to be frank, in a small company people expect you to pull your own weight from day one. Small organizations have very little inclination or resources to train employees for their roles or to invest in their professional development. Hey, it's not a good thing, it's simply reality. Small organizations are too busy surviving. In every small organization I ever worked, I felt like I was riding a bullet train, with work continuing around the clock and even on weekends. Training? Forget about it.

By contrast, large organizations are more inclined to take the long view and spend more on employee training and professional growth. They hold employee orientations, send team members to professional training seminars and often appoint more experienced employees to mentor new ones. The environment of a large organization tends to be more nurturing and tolerant of newer employees and their potential early stumbles.

Experience - you have to give it large organizations, they have perfected many practices that small organizations can only dream of. In everything from quality control, to manufacturing practices to analytics and beyond, large organizations have the edge on their small brethren. For someone starting their career, a good foundation in best practices is critical. Such a foundation would serve you well if you ever decided to move to a smaller organization to which you could bring these skills. Having such a solid foundation would be equally useful if you decide to start your own business.

Depth vs. Breadth - one of the reasons I like working for a small organization is that I get a lot of variety in my work. My core job is business development, but I also do a great deal of strategy & marketing. If I want to get involved in a new area, it's very easy for me to pick a project and get started. However, I believe that for someone starting their career, building a deep foundation of functional expertise is the way to go. Working for a small organization one tends to become a jack of all trades, while in a large organization where responsibilities are more carefully defined you get to become a master of one functional area. Diversification is excellent, but in my opinion it should come a bit further down the road. Also be aware that in a small organization you may be the only person with your job description. If you are just starting out and you are the only marketing or purchasing guy on staff, who will you learn from? How will you grow your skills except for through trial and error?

Having said all this, under current economic conditions most people can't be picky about which job they take. If you get an offer, be grateful and take it. Forget about small or large. If you're unemployed, you might want to take a look at this survival guide.

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Mail Fraud - a Colleague Foils an Attempt

All those scams that you read about online apparently actually happen to some people. Yeah, we all get those Nigerian scam e-mails, but I don't often come across folks that have first hand experience of attempted mail fraud. Well, last week my office manager (let's call her Helen) told me about the following dilemma:

She has been selling some baseball cards on eBay in recent months (I don't know if this is a temporary shtick or a real side business, apparently everyone has a side business these days, except for me), and one of her buyers sent her a cashier's check as payment for his purchases. The check was for a total of $1,200 while the purchase price was under $200. The purchaser asked Helen to cash the check, keep the full purchase price, plus a fee for inconvenience and to send the rest to a person he designated. This was accompanied by an elaborate apology and by a seemingly rational explanation about why this was necessary.

Most of you probably recognize this as a well known scam. The short version of it is this: the seller cashes the check, which appears to clear, and sends the extra money to the designated party. After a few days the seller's bank discovers that the check is fraudulent and claims the money back from the seller. The seller has a crappy day and learns to be more suspicious of strangers.

Helen, being a smart individual, figured that something was wrong here, but was trying to understand what that was exactly. She was also trying to decide what to do next. Here is what Craig's List suggests you do to avoid getting scammed and to report attempted fraud. Needless to say, that the cashier's check was never cashed and a formal complaint was filed with eBay (where it was promptly sucked into a black hole, probably never to be heard from again).

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Lower Cost vs. Lower Price

Back in 2002 we bought a computer. Seven years later, that computer is approaching the end of its life - still, almost everyone will agree that 7 years for any piece of consumer electronics is pretty incredible. The longevity of the computer is a testament to the value of a simple consumer principle: don't go for the cheapest option, or for the product in the fanciest package, go for the most cost effective option. In business we call this the Lowest Total Cost of Ownership.

Here are the different components which together make up the total cost of ownership of any item:

Purchase Price - in many cases the purchase price is the highest component in the total cost of ownership equation, which is why many people are tempted to buy the item with the lowest price.

Maintenance Costs - when buying a car, many people consider the cost to maintain that car over its expected life time. How expensive is the regularly scheduled maintenance? How complicated is the car to maintain? What happens if something goes wrong? This is where issues such as reliability and serviceability come into play. The thing is, the exact same principle applies when buying a computer, a new refrigerator or pretty much any other item you can imagine.

Operating Costs - a car consumes gasoline, a computer runs on electricity, a pony consumes food and needs to be housed in a stable. The cost of operating an item frequently greatly outweighs the cost of buying it. For example, buying a hot tub may not be that expensive, but over time heating and cleaning costs can really add up. Operating costs are often a category in which smart consumers can generate the bulk of their savings.

Salvage Value - salvage value = resale value. Even when you no longer want a product, it may still retain some residual value. Used cars can be sold, but even if no one will buy your car, you may still be able to donate it for the value of a deduction, or sell it for scrap. Some items hold their value better than others. While consumer electronics are notorious for losing their value quickly, you are more likely to be able to sell a used iPod than you are to sell a used no-name MP3 player.

Replacement or Obsolescence Cost - this is where we saved big on our computer. When buying our computer we bought a near top-of-the-line machine, rather than a discount model. Yes, we could have purchased a computer for 30% less, maybe even more, but we would have needed to replace it within two or three years. By paying a bit more, we were able to get much more value out of the system.

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Insanely High Public Pensions

Last week I came across this article in the WSJ which talks about the insanely high public sector pensions that some individuals are receiving. Here is a brief excerpt from the article:

"Those named are former public employees and their dependents who receive an annual pension of more than $100,000. Atop one list is a former city administrator from the small Southern California town of Vernon, whose annual pension is $499,674.84."

How insane is that? By comparison, the President receives an annual salary of $400K. Look, I am all in favor of people saving for retirement and having a decent pension after many years of loyal service. I think this is entirely justifiable. However, How is it possible or even legal for government agencies and public sector entities to pay such ridiculously high pensions? More interestingly, how is it even fiscally possible for a tiny town like Vernon, CA to support (never mind justify) such an obscenely high pension? According to Wikipedia that town had a population of 91 in the 2000 census. What is going on here?

Leaving aside the town of Vernon for a second, I did some research online to find the database of high pensions mentioned in the WSJ article and here it is. This list contains over 5,000 names of individuals who receive public pensions of over $100K annually, but it only includes individuals from California. How widespread is this phenomenon? Can it be justified that former public "servants" receive such huge pensions, backed by tax payer dollars, while the rest of us are expected to do our best and come up with whatever retirement savings we can scrape together, with or without a company match? Incidentally, do you think that these folks' pensions were reduced when the markets tumbled and the rest of us lost much of our retirement savings?

In California, $100K may not be excessive given the very high cost of living, and especially when such pensions are paid to high ranking former public servants, but some of the examples on that website are dramatically higher. How about some oversight? How about some sanity? Next time you are worried about your retirement savings, maybe you should consider working for the government... The rest of us will pick up the tab.

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