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1:52 PM

Savvy Healthcare Consumers Wanted

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There is a new healthcare product on the market in Michigan and it could end up saving consumers thousands of dollars, according to the vendor. And it’s almost deceptively simple in its design.

The Healthcare Blue Book aims to do for healthcare what the Kelley Blue Book did for used car shopping: allow you to compare prices before you buy. The Healthcare Blue Book identifies the prices of more than 200 medical procedures—from surgeries to imaging tests. So says the product’s vendor, Priority Health.

Priority Healthis a non-profit health plan in Michigan. Their Blue Book uses Priority Health’s contracted provider fees to figure out what Priority calls a “fair price” for healthcare services. The product evaluates prices throughout Michigan based on whether they are fair, more expensive than fair, or below the fair benchmark.

Like it or not, we’re all consumers of healthcare. The older we get, the more we consume. One of the reasons we’ve let healthcare get so expensive is that we’re not savvy shoppers.  There’s no reason shopping for healthcare should be any different than shopping for a car.

Until the late 1950s buying a new car was a mystery to most people. A buyer had no clue what the car cost to make, what the manufacturer’s markup was, and how much the dealer made. A buyer was just guessing when he negotiated with the dealer, who held all the cards.

In 1958 Oklahoma Senator Mike Monroneysponsored the Automobile Information Disclosure Act of 1958.  The law required car manufacturers to post the suggested retail price of the car on the vehicle. It was a start. Consumers could at least know what the manufacturer thought the car was worth. Salesmen in bad suits and loud ties could no long lard up the price with secret dealer markups.

Eight years later a publisher named Edmund’s began publishing quarterly guides with car purchasing information: list price, markup, cost of options and other data. If you knew about Edmund’s you could negotiate a fairer price because the dealer was no longer the only one at the table who knew what things actually cost.

In the mid-1990s, Edmund’s took its information to the Internet and forever changed the way people buy and sell new cars. Now both parties—buyer and seller—had the same data. Car buying became less about pulling the wool over buyers’ eyes and more about working professionally with buyers to find the right car at the right price.

Products like the Healthcare Blue Book have the potential to shine a light in the dark recesses of healthcare—the Finance Department—much like Sen. Monroney and Edmund’s did for buying a new car.

In a technology-driven world we often want the Big Solution. The sexiest, most technical, most awe-inspiring solution to a problem. It’s that way with healthcare. I don’t think that health information exchanges, ACA, ACOs, HIEs or any other alphabet soup solutions will necessarily get us to the level of healthcare reform we need.

I think that small, incremental, common-sense steps like establishing pricing transparency with products like the Healthcare Blue Book, restoring cuts to tax-free savings for medical expenses, making insurance truly portable from job to job, medical liability reform, health savings accounts, and selling insurance across state lines to increase competition have to be part of any solution.

As I tell my kids, take care of the little things. If you do that the big things usually take care of themselves.
11:58 AM

Distorting the Market

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We’ve heard a good deal of chatter the last couple of weeks over the U.S. District Court’s decision to kill the Fed’s new rules on interchange. For the uninitiated, interchange is the fee that a bank charges merchants for authorizing transactions on cards issued by that bank.

 In return for the interchange fee, merchants get assurance that the card is OK, the funds are available and the merchant is reasonably assured of getting paid for the sale. Sounds like a good deal to me.

But merchants have always griped that the interchange fees are too high. For years they’ve heavily lobbied Congress to order banks to reduce their fees. 

Congress dutifully complied by adding §920 of the Electronic Funds Transfer Act. The Act regulates consumer rights in electronic payments. §920 authorized the Federal Reserve Board to set debit interchange rates.

Having done its work, Congress handed the pricing issue off to the Fed to figure out, and went on to less taxing things. Like recess. The Fed, stuck with the task of micromanaging a business that even some payments experts don’t understand, in effect capped the interchange rates at a price drastically lower than market value. But that wasn’t good enough for the merchants. So they sued the Fed.

On July 30 the court ruled in NACS, et al. v. Board of Governors of the Federal Reserve System that the Fed goofed when it set prices for interchange. U.S. District Court Judge Richard Leon ordered a do-over. His ruling instructed the Fed analysts to go back to the drawing board and come up with still lower rates.

Judge Leon relied in his decision on the words of no less a banking authority than Sen. Dick Durbin, who had proposed the amendment to the EFT Act, and had lobbied for it for years.

Now, I like Sen. Durbin. I admire his spunk. His candor. His Chicago-style directness. He’s Anthony Weiner with clothes on. But he’s a politician. A partisan. He’s not exactly an unimpeachable source of information.

As my good friend and payment expert Peter Quadagno says it wasn’t the Fed that erred—it was the Court. In examining the pricing the Court failed to consider the net present valueof the debit routing systems. In other words the value of the pricing should reflect not just what the last transaction cost, but cumulative costs over time that it took to develop the routing systems to their current state.

Pricing, unfortunately, was the easy part. Judge Leon also took the Fed to the woodshed for the way it implemented Congress’ instruction on making sure that merchants had alternative routing paths to get those authorization transactions back to the banks.

Now, it’s worth knowing that there are two types of debit card transactions. “PIN” debit transactions are authorized by the cardholder keying in his secret passcode when he makes a purchase with his debit card. “Signature” debit transactions are authorized when the debit cardholder signs for the transaction.

Somehow Judge Leon divined that the Fed intended that the “alternative routing” meant that for each authorization method there should actually be fouralternatives, not two: two competing methods for signature and two for PIN debit authorization.

Further, the Oracle of DC somehow figured out that what Congress really meant, as opposed to what it wrote, was that merchants should have their choice of network routing after the transaction is authorized by the bank. Huh? How do you authorize the network route after you’re already sent the message on a network? This isn’t like shopping in a catalog. You don’t thumb through the book, find the rate you want and then call a network’s 800 number.

Needless to say, the Fed is appealing Judge Leon’s Opinion.

The reason I bring all this up is that it is a textbook case of what happens when government decides to bigfoot its way into the free market. Here you have the daily double—both Congress and the courts setting prices. All you need is Pres. Obama weighing in and you’ll have the trifecta of government –created market distortion. Somehow I think the president has more important things to worry about.

My word to the plaintiffs in this case: You’re big boys. Time to grow up. If you don’t like your electronic payments deal, negotiate a better one. Or better yet, stop taking credit and debit cards. There are a lot of businesses that still refuse to honor plastic. They’ve made an intellectually honest business decision based on the market.

But big department stores and box retailers know that most of their payments are plastic. And they don’t want to risk alienating their customers. Seeking court protection on fees is intellectually dishonest. It’s dishonest because ultimately the retailers don’t pay those fees. Interchange is a selling expense that is passed on to customers in the form of higher pricing.

But following the implementation of the Fed-mandated lower interchange rates, you’d have better luck finding a light bulb in Aisle 87 at Home Depot than you would a retailer who shared the interchange savings with its customers.

So this isn’t about asking the Court to redress unfairness in the market. It’s about a nasty, cheap way to grow margin without having to do any work for it.

Government price fixing is a slippery slope. If the solons in Congress want to do something useful, they can create fiscal conditions that are conducive to creating a healthy and vibrant economy. Not one distorted by the dead hand of government. 
6:25 AM

Trust Me, I've From the Government. Now Give Me Your Private Health Information

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Last week 13 attorneys general sent a letterto Health and Human Services Secretary Kathleen Sebelius expressing privacy concerns over the Affordable Care Act. 

Their specific concern is the enrollment procedures for the health insurance exchanges (HIX) being planned under the law. The AGs told the Secretary that the people who take your personal health information when you enroll in an HIX aren’t adequately trained in how to handle it.

I should add that the 13 AGs represent states that have declined to establish their own state exchanges.

Last month DHHS released a final rule requiring so-called navigatorsto have at least 30 hours of training in handling your private information. But the problem, say the AGs, is that DHHS isn’t requiring background or criminal checks on the people who handle your most private information. 

In fact, the standards for people who sell you health insurance are tougher than the security standards for these navigators, according to the complaint. The AGs point out that on a state level these health insurance sellers and brokers, unlike the "navigators" who handle the same private information, are subject to strict exam-based licensing. 

The DHHS response? The navigators have been trained enough and that’s that.

Call me crazy, but this strikes me as a cavalier response to the AGs.  I think the screws on our personal privacy are getting a little loose. Where I live, even Little League® coaches have to undergo criminal background checks. Teachers have to undergo three security clearances—a sex offender registry check, a state police background check and an FBI fingerprint check. All to pass out the white paste and crayons.

Why shouldn’t I know that that the person who is looking at my most intimate personal information—my health—isn’t a criminal who is going to sell my information? It’s pretty simple. I know that sometimes this privacy thing gets out of hand. It’s a relative thing. I don’t really care who knows what movie I took in last Friday night at the multiplex. But I might care a lot about who knows my diagnosis following a college weekend in Tijuana 20 years ago.

I think most people would agree that we need to update how we delivery and pay for healthcare. But the polls have consistently shown consumer opposition to the Affordable Care Act. Blowing off legal concerns about security is a bad way to convince already skeptical consumers that the ACA is will be a change for the better.
6:08 AM

Welcome to My World, Junior

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Monday August 19,  2013

Welcome to My World

It’s finally here! An L.A. company has introduced PayPal for the braces set.

Virtual Piggy, Inc. has announced that it will provide what it calls a “youth-friendly” payment system to video game maker MarvelousAQL.

Piggy says it promotes financial literacy for kids by empowering them to buy, save and manage their money. It calls the Virtual Piggy a “family wallet.” Presumably this means mom or dad pays the money into the wallet and Junior spends the money out of the wallet.

Anyone who’s ever had a teenager at home knows the pleasure of opening a bill and finding unknown PayPal, iTunes, or pay-per-view charges that have mysteriously appeared—without  the under-18 set in the house having the slightest clue as to how they got there.

Call me old fashioned, but I think the way to promote financial literacyin kids is to boot their butts off the couch when they’re 16 and make them get a job if they want to buy music, video games or movies. Junior will learn a lot faster about managing money when it’s his hard-earned cash, than when it’s yours and Mr. Piggy is managing it for him.

There are any number of debit card programs that will let him learn how electronic payments work while letting you monitor what goes in and out of the account.

The next time Junior wants the hottest music or newest video game, and tries to dip into the family wallet—meaning yours—tell him to get outside and cut the grass or wash the windows and you’ll pay him. That’s how to teach real financial literacy.

Welcome to my world, Junior. 
8:14 AM

A Lobster’s Look at Small Business

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Constant Contactpioneered marketing research for Main Street with do-it-yourself services like online surveying and email marketing. In May of this year the company published “Small Businesses Then & Now,” a survey on the state of health of American small business, five years after the beginning of the so-called Great Recession.

The survey results don’t paint a pretty picture of small business over the last five years.  Nearly two-thirds of all small businesses say running a business is harder today than ever. How hard? Fifty-five percent of respondents say that the economy’s delivered a gut kick to their businesses. 

Nearly 50 percent say that the trying to keep up with technology has made business difficult. Floral wire service company Teleflora may be able to afford state-of-the-art websites, but Flowers by Florence down on the corner may have to rely on someone’s nephew to design its site.

Small business operators also say that they’re getting rocked by competition, including large companies. I think there are a few things that come into play here. 

First, recessions mean pink slips. A lot of them. Laid-off professionals, finding it hard to hook up another job, often hang out a shingle or take their 401(k) money and start that business they’ve always wanted to have. A fast-food franchise.  A consulting business. A landscaping service. Businesses that don’t require any professional certification and are relatively easy to launch.

Second, as the recession and the slow recovery have dragged on earnings, employees of large corporations got the word—if you want to keep your job, get out there and open up new lines of business.

But this blog wouldn’t be the Lobster Shift if we didn’t take a lobster’s contrarian view of an issue. Take if from the owner of one, a well-established small business has a lot of advantages over large businesses and Johnny-come-lately competitors.

According to the survey more than 50 percent of small businesses say that as a small business they benefit from the loyalty of customers who want to shop locally. Whether it’s a farmers market, hardware store, or community bank, a small business has an advantage when it comes to customer loyalty.

Small business owners also live and work in the community. The barber who cuts my hair works out at my gym, another local business. Somebody referred me to his barber shop and I referred Dave to the local gym.
Sure, local businesses may charge more. But, in my business time is money. If I can get in and out of the hardware store, the barber, the gym or the bank in a minimum amount of time and get back to work, I’m happy.

Perhaps small businesses have one advantage they don’t even know they have. It’s marketing. Large corporations have to go to New York or Chicago to hire a branch of a global advertising and PR firm to tell them how to sell to you. 

Small business operators don’t have the money to do that and probably wouldn’t know where to start if they did. But they do have the barber shop, the bank, the gym and other places where people in a community get to know each other. And that’s a huge advantage in business.

And when that fails there’s always Constant Contact.