Tag Archives: costs

How small business are dealing with Obamacare

One of the biggest detractors opponents of Obamacare would bring up when arguing against it was how small businesses would react to the mandate.  The argument that was brought up more often than not was that it would cause small businesses more costs which would hurt employment.  To give small businesses time to figure out their best policy, Obama gave them a break from the mandate until 2015 and for some 2016.  While over 8 million people have registered for Obamacare, small businesses are still trying to figure out the most cost efficient way for them to abide by the new health care law.  Business have two options when it comes to Obamacare.  They can either provide health insurance for all of their workers, or face a penalty of $2,000 per worker.  These added costs have them trying to figure out how to accept these costs without it effecting their bottom line.

Even though many of these businesses have until 2015 to figure it out, many don’t want to wait until then.  Business owners don’t want their customers see a drastic raise in prices to cover these costs which is what would happen if they waited until 2015. Unfortunately, this has had an effect on small business hiring practices.  45% of small businesses polled have said that they have reduced their hiring practices while 23% have said they have had to let workers go to account for these added costs.  The coverage isn’t the only cost that these business have to account for.  Many also face increased taxes and having to pay higher premiums.  The Wall Street Journal released a case study of two different small business and how it would effect their employees.  One of the most interesting interviews that they did of an employee is how he reacts to the new individual mandate.  He says that he is generally a healthy person and doesn’t visit the doctor because he never needed to.  A federal report released said that 65% companies with 50 employees or fewer, who are exempt from the mandatory health care law but offer health care anyway, will see their premiums increase.

While on an individual level, forcing everyone to have health care, even the healthy employees, makes sense because it keeps the premium down because insurance companies can distribute costs among more people.  Due to the 8 million people subscribed to the new health care, it seems almost impossible that the health care law will be repealed.  Unfortunately, the goal of federal health care was to reduce costs for the average American.  While it has reduced premiums in general, insurance companies are still predicted to raise premiums next year across the board due to the higher consumer spending on Health Care.  Instead of lessening the cost of health care, as Obama was hoping, there is now higher demand which will allow doctors to charge higher prices since the majority of these costs will be faced by the insurers.  This will lead to the higher premiums that analysts expect to see from insurers over the next few years.  I for one do believe that access to health care for everyone should be a definition for a developed country, but the US has some of the highest consumer spending on cost of health care and costs of practice.  The costs of providing health care should have been the focus of Obamacare instead of the cost of insurance and premiums.  The costs have just been shifted to insurers and dispersed among more people.  Obamacare feels like a band-aid instead of a systematic change in how health care is practiced.  One of the main reasons that health care costs are so high is due to the insurance that doctors have in case of malpractice suits.  The US has some of the highest malpractice suits in the world and the high costs of these suits are why many specialized visits are so expensive.  It seems that this may be an option that the federal government can look into instead of trying to reduce costs by dispersing them among more people.

Future for Food Industry

The annual conference for the consumer industry is coming up this week in Florida. Heading into this year’s meeting, there is certainly a lot that needs to be discussed and improved especially within the packaged-food industry. While some areas of the economy seem to be doing okay and even getting better, many parts of the food industry are not doing so well and do not seem to be trending in the right direction. However, as I will discuss in this post, there is hope for these companies after all.

At this conference in Boca Raton, FL, top executives will get together to discuss their plans for the coming year and how they think they will be able to improve upon recent financial results, which have not been looking very good.

“It’s a critical enabler of our ability to continue to invest in the business,” said Mondelez Chief Executive Irene Rosenfeld. “Without a doubt, we are all looking at a very challenging macroeconomic environment around the world.”

Clearly, these executives including Irene Rosenfeld, CEO of Mondelez, which owns brands such as Oreo, Ritz, and Nabisco, understand how difficult it is to succeed right now in this economy. They know that it is going to take a lot to get back to where they once were.

It certainly does not look promising for them, especially when you consider the possibility of the industry being dragged into a giant lawsuit similar to that of Big Tobacco during the 1990s. Big Food, as it is being appropriately named, would try to sue the food industry and attempt to make them pay for rising health care costs related to obesity. Sixteen states have already become engaged in this idea, which seems like it would be good for them since “…suing “big food” could help their states close budget gaps as billions in Medicaid expenditures eat a growing share of tax revenues.” If this lawsuit actually occurs and results in something similar to that of Big Tobacco, there could be even bigger trouble looming for the food industry.

However, like I said, there is still hope. To begin, the industry has been working on what is most important in this situation, which is cutting costs. While many companies need to work on this in order to make some changes and improvements, one company set the tone for what is possible beginning at last year’s conference. H.J. Heinz Co. was acquired by Berkshire Hathaway and 3G Capital for $28 billion. Even before this, Heinz was seen as a well-run organization, thus people have been extremely surprised by the amount of savings that has come out of the company since this acquisition a year ago. Other companies know that they need to follow suit, or they will end up in a similar situation. If Heinz was priorly seen as well-run and this happened to them, everyone else obviously needs to ramp up their efforts to cut costs and increase sales volumes. The bright spot is that even if Heinz was acquired prior to all of these savings, the savings are there and they are feasible to achieve.

Further, companies such as Kraft Foods Group Inc. had increases up to 4% in sales volume compared to flat volumes for most of their competitors. So, while it will certainly not be easy for these companies, it will definitely be possible to get back to success by way of cutting their costs and increasing efficiency in their supply chains.

College Education: Worth more now than ever before

The debate over whether a college education is worth the cost has been going on forever. We’ve already had several posts about this topic on the class blog earlier this semester. However, there is new research from the Pew Research Center that suggests paying for a college education has become increasingly worth it over recent years, even with the increasing costs all around the country.

To me, the most striking piece of the research is not just that it has become increasingly worth going to college, but that it has become increasingly worse to not go to college. This is not only in terms of income, but also when you consider other factors such as unemployment, percent living in poverty, percent married, and percent living in their parents’ home. I suppose if you never want to get married or move out of your parents’ home you can ignore those statistics. The following data are among full-time workers ages 25-32. The gap in median income between those with a bachelor’s degree or more and those with at most a high school diploma has increased to $17,500 ($45,500 for college grads versus $28,000 for high school grads) compared to a difference of $14,245 in 1986 and only $7,449 in 1965 (all of these figures are in 2012 dollars). In percentage terms, college grads now earn 62.5% more on average than high school grads compared to 46.7% more in 1986 and only 23.7% more in 1965. Clearly there is an increasing trend in the income gap. Moreover, even though I do not love the unemployment rate in general, it can be okay when directed at a certain group of people (as I discussed in my previous blog post), only 3.8% of those with a bachelor’s degree or more are unemployed versus 12.2% of high school grads. This is a very significant difference.

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What’s more, college grads (again ages 25-32) are more satisfied with their jobs and consider their job a career or at least that they are on track to a career by a clip of 86% compared to 57% of high school grads.

Only yesterday, Dr. Richard Vedder, director of the non-profit Center for College Affordability and Productivity at Ohio University, spoke about how he believes a college education may not be worth the investment. He said that he views college as a diminishing return on investment. I really wonder if he has seen this report from Pew today and changed his opinion at all because after viewing this I don’t know how he could have that view. If the gap between college grads and high school grads is widening in terms of median income (and this research shows that it is), as well as so many other important factors in life, how can you possibly believe that a college education is not worth it? He also discusses his view that a higher education “bubble” exists, and that it has already begun to pop. However, this really can’t be the case because the prices of attending colleges around the United States would have started to fall if there really was a bubble that had begun to burst, as is the case with financial bubbles. The cost of a college education has only risen in recent years as college becomes more and more expensive.

All in all, doling out somewhere in the vicinity of $200,000 for a bachelor’s degree seems (and is) extremely expensive, but what you get in return is becoming obviously better over time. While I do think that it is crazy for the costs of college to continue to rise, given this new research from Pew, my opinion is clear. Going to college is absolutely worth it. Just think about the fact that even if a salary difference of 62.5% or $17,500 doesn’t matter to you at age 25 (though I can’t imagine that is the case), the fact that your job is way more likely to already be a career or at least on track to be a career will be huge later on in life. All of us made the right choice coming here to Michigan.

Heroin – Bigger Problem Than We Think

With the recent news about actor Philip Seymour Hoffman’s death (due to a suspected overdose), comes a very startling reality about this country and the world. The extent of drug abuse worldwide is staggering. The United Nations Office on Drugs and Crime published a World Drugs Report which revealed that in 2012, 230 million people took illicit drugs in the past year. Of course, not all of these are problem-users (addicts) – only 27 million are considered problem users (mainly with cocaine and heroin). But this figure suggests that 1 in every 200 adults is a drug addict. That’s quite significant, if you ask me. And way more than we should ever accept. The effect of drugs goes well beyond the obvious physical, psychological, and interpersonal effects they have on users. Most people don’t consider their economic impact – which, as you can imagine, is pretty significant.

For the sake of this post, I will narrow down the argument to heroin in the United States – which is what Philip Seymour Hoffman overdosed on. Heroin use in the US has increased 79% from 2007 to 2012 – with 669,000 people reporting they used the drug. And those are only the ones that reported their use. Clearly, we can suspect this number to be much larger in reality.

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In 2011, a study by the Department of Justice’s National Drug Intelligence Center estimated that illicit drug use cost the US economy more than $193 billion in 2007. Considering the significant increase in drug use from 2007 to 2012, we can estimate that the cost today is much larger.And with the rising proportion of heroin use, its impact on the economy is growing.

This negative impact on the economy is seen through three distinct factors: health, crime, and productivity. Being one of the most addictive and dangerous drugs, heroin is easy to overdose on. Emergency room doctors at the Allegheny Health Network in Pennsylvania report that heroin-related visits have more than doubled in the past month. And this goes for hospitals across the country. With increased visits, come increased number of patients who default on medical bills, or claim Medicare/Medicaid. These are clear costs to the economy.

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The next impact is through crime. More heroin use results in more efforts to stop it – this requires policemen and government resources. Not to mention the heavy costs of incarcerating those who are found guilty. This kind of cost on government spending is holding the economy back. Of course this cost is small compared to the whole of government spending, but nobody can argue that this money isn’t better-spent on productive things (such as education).

Lastly, the impact heroin use has on the economy is seen through decreased productivity. Heroin users have altered states-of-mind, emotional imbalances, and inability to focus as well as non-users. For this reason, they are not as productive. In fact, it is common to see addicts that are not capable of keeping a job. There is no doubt that productivity in the US would be better-off if those 700,000 users were to seek treatment and change their lives for the better (while maintaining a job).

One of the productive things the government could better-spend this money on, is rehab programs. Healthy people are better in every way, especially for the economy. I personally think this issue is understated in the US – as well as the world. If people are not inclined to do something because of the negative impact on individuals’ lives, then the economic incentive should be sufficient to persuade everyone.