April 1, 2023

Economic View: For Obamacare to Work, Everyone Must Be In

These may seem to be reasonable positions. But they are incompatible. That’s been shown by historical events, and it’s now being strikingly confirmed by recent experience in the emerging Obamacare insurance exchanges.

The crux of the matter is what economists call the adverse-selection problem. Uninsured people with pre-existing conditions often face tens or even hundreds of thousands of dollars in out-of-pocket medical costs annually. If insurers charged everyone the same rate, buying coverage would be far more attractive financially for people with chronic illnesses than for healthy people. And as healthy policyholders began dropping out of the insured pool, it would become increasingly composed of sick people, forcing insurers to raise their rates.

But higher rates make insurance even less attractive for healthy people, causing even more of them to drop out. Before long, coverage would become too expensive for almost everyone.

The adverse-selection problem explains why almost no countries leave health care provision to unregulated private insurance markets. It also predicts that requiring private insurance companies to charge the same rates to everyone will make it prohibitively expensive for most people to buy individual health insurance.

In the 1990s, lawmakers in New York State enacted just such a requirement, and the result was exactly as predicted. Rates for individual policies soared, making New Yorkers’ insurance among the most expensive in the nation. Now, rates quoted under the Obamacare exchanges place individual policies within reach for millions of New Yorkers. New York City residents who had been paying $1,000 a month for individual policies in the earlier environment, for example, will now be able to purchase similar coverage on the Obamacare exchanges for slightly more than $300 a month.

What’s changed? Insurers are able to offer more reasonable rates because the individual mandate — the requirement in Obamacare that everyone buy insurance or face financial penalties — is ensuring a high proportion of healthy people in the insured pool.

Early quotes for individual policies on the exchanges in several other states have exhibited a similar pattern. That’s true in California, for example, and in Maryland, the latest state to report, rates now compare favorably with those in employer group plans.

Despite this experience, many in Congress want to repeal the individual mandate. Some, such as Senator Marco Rubio of Florida, have even threatened to shut down the government unless Obamacare is repealed entirely.

What alternatives are there? One way of avoiding the adverse-selection problem would be to re-emphasize traditional employer-provided health plans. Adverse selection is less serious under such plans, because the favorable tax treatment they receive requires insurers to cover all employees irrespective of pre-existing conditions. (Insurers can meet the requirement because most people employed in any company are reasonably healthy.)

But Obamacare was enacted precisely because employer plans fell short in many other ways. Millions of people, for example, are ineligible for such plans because they don’t have jobs. And millions of others with chronic health problems are trapped in their current jobs, because leaving them would mean losing coverage.

Employer plans arose in the first place only because of a loophole created by wage controls during World War II. In an effort to curb the costs of the war effort, the government prohibited wage increases but, perhaps by oversight, did not prevent employers from offering additional fringe benefits as a way to combat labor shortages. Employer health plans proved an especially effective recruiting tool and had the additional advantage of not being taxed as implicit income.

BUT if universal access to health care is the goal, employer plans are not the solution. Because global competition has increased pressure to cut costs, the number of workers with such plans has been steadily declining for more than 40 years.

The challenge was to design a new system that could cover the more than 50 million Americans without health insurance. The Medicare-for-all proposal favored by many health economists was one approach that the administration considered.

But that approach would have required Americans to abandon their existing employer plans for something new and unfamiliar. In the light of survey evidence that most Americans were reasonably satisfied with their existing plans, it’s hard to second-guess President Obama’s conclusion that this step would have been politically infeasible.

The only remaining option was to supplement existing employer plans with regulated private insurance markets. This approach had been carried out successfully in Switzerland, and in Massachusetts under Mitt Romney when he was governor. Individual mandates were an essential ingredient of that strategy. And given that many people could not afford to purchase insurance, it was also necessary to include subsidies for low-income buyers.

Obamacare, in any event, is now the law of the land. Even its most ardent supporters concede that the program will need to be amended as experience accumulates. But evidence from the emerging insurance exchanges vindicates the basic policy choices underlying the legislation.

We must ask those who would repeal Obamacare how they propose to solve the adverse-selection problem. That problem is not an abstraction invented by economists to justify trampling individual liberties. As experience in most countries around the world has confirmed, it is a profound source of market failure that renders unregulated insurance markets a catastrophically ineffective way of providing access to health care.

Robert H. Frank is an economics professor at the Samuel Curtis Johnson Graduate School of Management at Cornell University.

Article source: http://www.nytimes.com/2013/08/04/business/for-obamacare-to-work-everyone-must-be-in.html?partner=rss&emc=rss

You’re the Boss Blog: A Start-Up Finds Traction Through E-Mail Marketing

Carol O'Leary said her business used to be an Courtesy of Broadway With Carol. Carol O’Leary said her business used to be an “expensive hobby.”

On Social Media

Generating revenue along with the buzz.

When the last of Carol O’Leary’s six children graduated from high school, she was eager to start a new career. “I was 55,” she said. “I needed to do something to fill my time and maybe make a few bucks.”

But what would she do? As it happened, she had developed some skills over the previous decades while raising her children. In particular, she had organized fashion shows, Christmas bazaars, dinner dances, cheerleading competitions and Girl Scout troops. And she had also led frequent bus tours from the Philadelphia suburbs to New York to see Broadway shows. She had done this for many schools and organizations, and she had raised thousands of dollars for every one.

“I loved going to New York and seeing shows,” she said, “and I had been running bus trips for my children’s high school for years. Then someone said, ‘You’re not going to stop running your trips now that Peggy graduated?’” That was the inspiration that led to the founding of her business: Broadway With Carol. But could she make it a real business?

“I must admit, it’s been an uphill climb,” she said. “I made so many mistakes along the way, bought and had to eat so many tickets and had a few trips that I had so few people that I just drove them up myself — but I never canceled a trip as long as someone paid me for tickets.”

Most weekends, Ms. O’Leary charters a bus and leads groups of theater lovers to New York. On the bus, she gives out maps, directions and the scoop on how to get through the line at Rockefeller Center to ice skate. Often her customers bring their children or grandchildren, and depending on the show, she will arrange for her group to meet the cast or get a backstage tour. She charges $30 each way per person.

And yet, there have been several points where she was tempted to give up. Then a friend suggested that she do more to cultivate relationships with her customers by using an e-mail marketing service, Constant Contact. The service, which charges a monthly fee, allows you to send e-mails and newsletters to prospects and clients if you have their e-mail addresses. Ms. O’Leary’s list is roughly 1,200 names, but even if you have 10,000 e-mail addresses, the monthly fee is only $75.

Then Ms. O’Leary started sending out newsletters. “My newsletters are generally about upcoming trips,” she said. “I might give a review of a show, or sometimes I’ll do a feature on a trip.” She also does a special e-mail blast when there are last-minute seats available — “I reduce the price and send out a newsflash,” she said.  And she uses Stubhub if she still can’t sell the tickets. But that has been less of a problem since Ms. O’Leary started the newsletters, which she sends out twice a month.  Since then, she said, her business has gone from being “an expensive hobby” to turning a modest profit.

On every trip, Ms. O’Leary sends around a clipboard with a request for cellphone numbers in case her customers get lost in New York and e-mail addresses if they want to receive her newsletters. She how has 1,200 active contacts who receive the newsletters. Each copy is opened, on average, by more than 350 people.  And she has hired a social media assistant, Nancy Caramanico, who helps her manage her Web site and her weekly e-mail blasts.

If you are ready to get started with e-mail marketing, here are a few tips.

o Always use a sign-up list. When you meet people in person, especially in your place of business, grab their business cards or invite them to sign up for your mailing list.

o Develop at least three ways to capture addresses. Your Web site is your most valuable tool for this. When prospects visit your site, offer them something — a free quote, a book chapter, a white paper — in exchange for their e-mail addresses.

o Invest in an e-mail service like Constant Contact or MailChimp, which is free up to 2,000 e-mail addresses. The services have templates and offer customer support to get you started.

o To avoid your mailings being labeled spam, send information that is useful to your target audience. You can always add coupons at the bottom of the e-mail blast.

Melinda Emerson is founder and chief executive of Quintessence Multimedia, a social media strategy and content development firm. You can follow her on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/12/14/a-start-up-finds-traction-through-e-mail-marketing/?partner=rss&emc=rss

On Social Media: When Social Media Marketing Doesn’t Work for You

On Social Media

Generating revenue along with the buzz.

John Edgar Lacher owns the J.Edgar Investigation Agency and is an avid reader of this blog. Recently, he left the following comment on one of my posts,  “Using Social Media to Test Your Idea Before You Try to Sell It.”

The social media thing such as Twitter, Facebook, Google, and others have done nothing for me. Personally, I think it is all just another money trap. I have spent thousands of dollars on marketing such as SEO, adwords, etc with little or no results. Everyone has got their hand out but no one has the ability or the experience much less the interest to help someone. Everyone is wrapped up in their own little world tweeting and facebooking. I have better luck with face-to-face meetings and referrals from people that know me. I would much rather spend the time and money with a face-to-face meeting than anything else.

In part because I think there are a lot of people who feel the same way Mr. Lacher does, I decided to contact him to discuss his experiences.

It turns out he is a licensed private investigator with an office in San Diego. In business since 2008, Mr. Lacher, 64, started the agency after being laid off by American International Group at the start of the Great Recession. He specializes in insurance claims investigations, but he also investigates fraud, theft, property damage, or elder abuse. And if you think your spouse has been cheating, he can look into that, too.

Private clients have been his biggest source of revenue, but things are rough right now (he has been supporting himself with his Social Security checks). He knows he started his business at a difficult time, and he says the competition in California for P.I. work is intense. “There’s a lot of retired law enforcement, ex-military and former F.B.I. agents who have come to this area,” he said, “and it’s hard to compete with their credentials.”

So far, he hasn’t found social media to be of much help. He canceled his Facebook page, because he felt it was more personal than business, and he didn’t think he needed to be there. “I had a lot of people who would ask questions about how I do private investigations, but I never got a single client from it,” Mr. Lacher said. “I got a bunch of stupid comments from people, which was really annoying.”

He is on Twitter but has only tweeted a few times. He has had the most success with LinkedIn, where he has a premium account that costs $24.95 a month. He says he invested in it because business has become global. “I started using LinkedIn a year or so ago, I am a premium member so I can see the profile of people that I would not have access to. I have 650 connections to date. It’s a great asset for me to be able to do business intelligence. I have not been getting any business from LinkedIn yet, but I am hopeful.”

A year ago, he invested $94 a month in a Web site he got through Web.com. Disappointed, he pulled it down after six months. Then he decided to build his own site, which is still up. Six weeks ago, he gave a webinar on GotoMeeting.com, offering a session on Investigation 101. He was thrilled with the attendance but didn’t win any business from that, either.

He has thought about trying Google AdWords, but some of his colleagues in the business cooled him on the idea. “I was concerned about doing Google AdWords because people were commenting on an industry listserv that competitors were clicking on the ads from other private investigators to drive up the budget.” So he hasn’t tried that yet.

After discussing his frustrations, he asked me. “Where do you start first? Where do I put the money at?”

There are five steps that I think everyone should take if they are serious about using social media as a marketing strategy, but there are always a few things to consider. Social media marketing is a long tail strategy for a small business — it can take a lot longer than six months to see results. And it starts with a strong Web site.

Even once you have connected with someone, social-media-networking takes considerably more time than face-to-face networking. I believe it takes seven quality contacts before you can start talking commerce, but I’ve read industry estimates as high as 21 meaningful contacts before you can close business. Here are the five steps I suggested for Mr. Lacher.

Invest in a real Web site: Mr. Lacher’s site is not helping his brand. Just as you would never call a plumber to do a carpenter’s job, you have no business developing your own Web site (unless that is your business). Hire a professional. For $500 to $1,500, you can get a basic WordPress Web site or blog site that will represent your business well. Your site should have helpful content and at least three to five ways to engage potential customers, including offering an e-book download, newsletter sign-ups and free webinar sign-ups.

Know your keywords: No search-engine optimization campaign will work if you don’t have the right keywords. You need to know how your target customers search for services online. Free tools like Wordtrakker and Google Keyword Tool can help.

Use a listening strategy: As a small-business owner, you can’t be everywhere in social media, but where you should be is where your target customers are hanging out. LinkedIn is the right place for Mr. Lacher. Keep spending time there, start using the Answers area to demonstrate expertise. Join groups where target customers belong, and share helpful information. Post your webinar materials through SlideShare to amplify your content.

Start blogging: Once you get your site fixed, start blogging. The best way to demonstrate your expertise is to share techniques and success stories. Be sure to use your keywords in your blog posts.

Share helpful content: One of the best ways to attract clients with social media is to position yourself as a resource. And don’t just share your own content — be generous and share the information of others in your industry. It’s a great way to build strategic alliances and make friends.

Mr. Lacher wants to grow his agency to the point where he could hire two people full-time who would be licensed under him. Right now, he is looking for a bilingual woman to help him with marketing.

What have you found difficult to do in getting started in social media? Have you been able to figure it out?

Melinda Emerson is founder and chief executive of Quintessence Multimedia, a social media strategy and content development firm. You can follow her on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/08/17/when-social-media-doesnt-work-for-you/?partner=rss&emc=rss

Deal Professor: In Picking Facebook Shares, Repeating the Mistakes of the Past

Deal ProfessorHarry Campbell

Since the implosion of the dot-com bubble in 2000, retail investors have been rightfully wary of the stock market. Facebook was going to change it all, bringing the ordinary investor back.

Instead, Facebook was a massacre for retail investors, highlighting yet again why stock picking is a loser’s game. The hype around Facebook was enormous as retail investors salivated at the chance to buy what they hoped would be the next Apple. Yet, after initially trading above $40 a share, the stock is now down nearly 43 percent from the initial offering price.

The Facebook example is one more confirmation of studies that have shown that, on average, individual investors lose out consistently when they buy and trade individual stocks. They’re better off investing in passive index funds.

Professors Brad M. Barber and Terrance Odean recently released a paper surveying the evidence. Studies of individual investor trading found that “many investors earn poor returns even before costs.” These investors trade badly and tend to lose more money than they would using a simple buy-and-hold strategy in passive funds that match indexes like the Standard Poor’s 500-stock index.

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How big is the loss? The same authors in another study of 65,000 investors found that the 20 percent who traded most actively earned 7 percentage points a year less than the buy-and-hold investors, the 20 percent who traded least actively. For the individual investor, that can add up to hundreds of thousands of dollars over a lifetime.

This is not surprising. Even mutual fund managers have trouble beating the market. Last year, according to S. P. Indices, 84 percent of actively managed funds did not beat the Standard Poor’s index representing that fund’s sector. Going back over five years, 61 percent of funds underperformed. Even so, most mutual funds beat individual investors who try to do it themselves.

If the professionals have such problems, individual investors don’t have a chance. They are not as knowledgeable and not as disciplined. Study after study has found that individual investors have a disposition effect — that is, they tend to sell winners too soon and hold on to the losers by refusing to recognize their failure.

Individual investors are also heavily influenced by their mind-set and their environment.

For one, they are strongly influenced by media reports and buy stocks that are promoted. And, yes, there are studies of Jim Cramer’s show, “Mad Money,” and this effect. One recent study found that the higher the viewership of the show, the bigger the market reaction to stock recommendations. The authors also found that Mr. Cramer’s buy recommendations had more influence than sell recommendations, reflecting people’s desire to bet on winners. But didn’t we know that already from the tech bubble? More than a decade ago, stocks of companies with little or no profits were wildly hyped. It all ended badly, with retail investors losing the most.

In full disclosure, I’m still a little bitter about that. In 1999, I bought Ask Jeeves stock at about $120 a share, eventually selling at below a dollar before shares went up 28-fold and the company was sold to IAC/InterActiveCorp. I’m unfortunately a great example of how retail investors can time things perfectly wrong as they become part of the herd. The Facebook affair was but a sad repeat.

These inherent flaws put us off on the wrong foot when we pick and trade stocks. We don’t diversify enough, don’t do enough research and tend to sell on emotion rather than logic.

If this weren’t hindrance enough for even the most educated individual investor, the Facebook debacle shows that the market is rapidly changing in ways to make it even harder for individual investors to profit.

In the case of Facebook, the profits from investing were largely taken from individual investors before the I.P.O., by trades in the private market where most individual investors could not trade. Goldman Sachs, for example, led a private investment round at a $50 billion valuation only a year ago, selling a third of the stock in the offering at about double the price. By the time Facebook came to market, there was little left for average investors.

The losses in Facebook show that Wall Street doesn’t seem to care much about the individual investor. Companies are increasingly going public with structures that disenfranchise stockholders, or they are looking to cash out and go private just before things get good. Investment banks furiously peddled Chinese issuers to a public that didn’t seem to care much about the companies’ problems.

Instead, the markets have become the domain of hedge funds, where high-frequency trading peels off short-term profits. In the longer term, the severe underperformance of mutual fund managers last year was attributed by Horizon Advisors to the volatility in the markets and the increasing correlation of stocks. As stocks move together, or become correlated, picking winners that offer returns higher than the market average becomes more difficult.

Beyond all of these barriers, individual investors are also faced with a stock market that has remained stagnant for the last decade.

So what can be done?

One thing to consider is whether to further educate individual investors on the problems of investing on their own. The studies show that in general, investors are better off in passively managed index funds. But even here, investors tend to defeat themselves. At least one study has found that investors who engage in passive exchange-traded funds eat away the gains in performance by using this as an excuse to trade more. The problem again occurs when investors try to trade on their own.

In light of this, more disclosure and education would be nice. Perhaps Mr. Cramer’s show could begin each segment with a note spelling out how much investors lose when they trade on their own. The warning could be given to all investors when they sign up for brokerage accounts. And because not everyone will heed this disclosure, the government might take steps to limit the ability of people to trade in their retirement accounts, where the bulk of Americans hold their invested wealth.

But the bottom line is that more needs to be done to educate and help individual investors. It should become common knowledge that investing in an individual stock and trading may be fun, but it may also be dangerous to their wealth. Perhaps the warnings could start with a confessed Facebook I.P.O. investor.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://dealbook.nytimes.com/2012/07/31/in-picking-facebook-shares-repeating-the-mistakes-of-the-past/?partner=rss&emc=rss

2011: The Year of the Turndown

Real estate brokers, lawyers and property managers all said boards had significantly stepped up their financial scrutiny of prospective buyers in the last year. Condo boards technically cannot reject prospective buyers, but brokers say some condo and co-op boards now use delaying tactics and requests for further documentation as a strategy to drive away certain buyers.

It was a year in which many real estate rules seemed to have been turned on their heads. Condos behaved like co-ops. Buyers with mortgages were looked at more favorably than all-cash buyers. Why? The reasoning goes that since mortgages are so hard to come by, anyone who gets one has been thoroughly vetted by the bank.

It also became much more common for buildings — co-ops and condos alike — to ask buyers to put large sums of money in escrow as a way of guaranteeing that they would not default on their monthly carrying charges.

Many buildings asked buyers to put six months’ to two years’ worth of maintenance into escrow. But brokers also said that in these uncertain financial times, some buildings had asked for escrow of as much as 10 years’ worth of maintenance. “That sounds to me like a nice way of saying goodbye,” said Paul Gottsegen, the director of Halstead Management, which manages more than 200 buildings.

One such case was handled by Warburg Realty. Frederick Peters, Warburg’s president, said the amount requested for escrow, which was in the hundreds of thousands of dollars, “seemed crazy to me,” but the buyers agreed and the deal went through.

Mr. Peters said he did not know why the board had been so concerned about the buyers. “We don’t get to ask those questions,” he said, adding that the buyers were a young married couple with parental guarantors who were “very financially solid.”

Mr. Peters said Warburg used to see only a few such deals in a given year, but handled more than 20 in 2011. “That’s a lot of deals,” he said. “But if escrow is a way for a board to get comfortable with a buyer, I’d much rather have that than a board turndown.”

Steven D. Sladkus, a Manhattan co-op and condo lawyer, says most buyers who have the wherewithal will agree to escrow accounts, “because it’s still their money and in most cases, they’ll get it all back if they pay faithfully for a year or two years.” In some cases, though, buildings ask to maintain the escrow indefinitely.

But Jessica Cohen, an executive vice president of Prudential Douglas Elliman, says some buyers take offense when they get an escrow request. “They see it as the board considering them unfit to buy without an insurance policy,” she said.

Ms. Cohen estimated that about a third of her deals last year involved an escrow request, so she now routinely mentions the possibility to all her buyers. “It’s better to let them know it’s a possibility rather than have it come up as a surprise at the point of a board approval and risk having the deal fall apart,” she said.

Brokers and property managers said that these days, deals that used to take a month can take two to three months, as boards request a second or third year’s worth of tax returns and other financial documents or an escrow account. Boards have also become much more selective in other ways.

“People that would have passed boards two years ago, offering to pay all cash, aren’t passing now,” said Leslie Modell Rosenthal, a managing director at Warburg. Some condos now frown on investors, she said, even though that category of buyer has helped sustain condos for years. Other buildings that routinely approved purchases involving parental guarantors are no longer doing so.

“Even if there isn’t an outright rejection,” Ms. Modell Rosenthal said, “some boards will drag their feet to the point where the buyer gives up and goes away.” Boards are not required to give their reasons for turning down an applicant, but brokers say it is often because they feel he or she has too much debt, not enough liquidity or not enough of a job history.

Although some high-priced exclusive buildings have sought buyers with liquid assets of two to three times the purchase price of an apartment, buildings have typically expected them to have about two years’ worth of mortgage and maintenance in liquid assets, or $50,000 to $100,000, depending on the size of the apartment. But today, brokers say, many more buildings want buyers to have several hundred thousand dollars in liquid assets.

Article source: http://feeds.nytimes.com/click.phdo?i=f9cae65f7559dfb716ab82e7f5a9ae59

Amgen’s New Enbrel Patent May Undercut Health Care Plan

Enbrel, which is used to treat rheumatoid arthritis and psoriasis, was one of several biotechnology drugs that were expected to face competition in the next few years from copycat versions, eventually saving the health care system billions of dollars a year.

The 2010 health care law established a way for such biologic drugs, which can cost tens of thousands of dollars a year, to face competition from near generic versions, which are often called biosimilars. A new law was needed because biologic drugs, which are made in living cells, were not covered by the 1984 law governing most pharmaceutical competition.

The main patent on Enbrel was to expire in October of next year. But the new patent could stave off such biosimilar competition until Nov. 22, 2028. By that time, Enbrel will have been on the market 30 years, far longer than the 20 years of protection expected in patent law.

Enbrel had sales of $3.5 billion in the United States and Canada in 2010, accounting for nearly one-quarter of Amgen’s revenue. The drug costs more than $20,000 a year. Pfizer sells Enbrel abroad.

Merck announced in June that it planned to develop a biosimilar version of Enbrel, in a partnership with Hanwha Chemical of South Korea.

“Enbrel is widely considered to be one of the most important biosimilar molecules,” a Merck executive said in a statement at that time. Merck had no comment Tuesday on Amgen’s patent.

The application for the new patent was filed in 1995. But it took until Tuesday to get through the Patent Office because it was reworked and at one point rejected, forcing Amgen to appeal.

Patents now run 20 years from the date of application, to avoid situations like this where an invention gets extended protection because of delays or maneuvers at the patent office. But since this patent was filed before the law changed, it is governed by the old rules and lasts for 17 years from the date of issuance.

Amgen benefited from a similar situation with its anemia drug Epogen, which is still protected by patents even though it has been on the market since 1989.

The new patent on Enbrel, No. 8,063,182, is owned by Roche but was licensed to Amgen, which took it through the Patent Office.

Amgen executives said earlier this year that they did not anticipate biosimilar competition to Enbrel in the next five years anyway, in part because of other patents covering the use or formulations of Enbrel. But such patents tend to be weaker than one that covers the basic composition of the drug, as Amgen says the new patent does.

Still, it is possible that some biosimilar manufacturers will try to challenge the patent or work around it. And Enbrel might face competition from generic versions of other arthritis drugs, including Abbott Laboratories’ Humira, and from new oral drugs that might reach the market in the next few years.

Article source: http://feeds.nytimes.com/click.phdo?i=b6a706e5ca50205b387e0c11af4fe9c9