Category: Finance

Hidden From View: The Astonishingly High Administrative Costs of U.S. Health Care

It takes only a glance at a hospital bill or at the myriad choices you may have for health care coverage to get a sense of the bewildering complexity of health care financing in the United States. That complexity doesn’t just exact a cognitive cost. It also comes with administrative costs that are largely hidden from view but that we all pay.

Because they’re not directly related to patient care, we rarely think about administrative costs. They’re high.

A widely cited study published in The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of American health care expenditures were the result of administration, about twice what it is in Canada. If the figures hold today, they mean that out of the average of about $19,000 that U.S. workers and their employers pay for family coverage each year, $5,700 goes toward administrative costs.

Such costs aren’t all bad. Some are tied up in things we may want, such as creating a quality improvement program. Others are for things we may dislike — for example, figuring out which of our claims to accept or reject or sending us bills. Others are just necessary, like processing payments; hiring and managing doctors and other employees; or maintaining information systems.

That New England Journal of Medicine study is still the only one on administrative costs that encompasses the entire health system. Many other more recent studies examine important portions of it, however. The story remains the same: Like the overall cost of the U.S. health system, its administrative cost alone is No. 1 in the world.

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Using data from 2010 and 2011, one study, published in Health Affairs, compared hospital administrative costs in the United States with those in seven other places: Canada, England, Scotland, Wales, France, Germany and the Netherlands.

At just over 25 percent of total spending on hospital care (or 1.4 percent of total United States economic output), American hospital administrative costs exceed those of all the other places. The Netherlands was second in hospital administrative costs: almost 20 percent of hospital spending and 0.8 percent of that country’s G.D.P.

At the low end were Canada and Scotland, which both spend about 12 percent of hospital expenditures on administration, or about half a percent of G.D.P.

Hospitals are not the only source of high administrative spending in the United States. Physician practices also devote a large proportion of revenue to administration. By one estimate, for every 10 physicians providing care, almost seven additional people are engaged in billing-related activities.

It is no surprise then that a majority of American doctors say that generating bills and collecting payments is a major problem. Canadian practices spend only 27 percent of what U.S. ones do on dealing with payers like Medicare or private insurers.

Another study in Health Affairs surveyed physicians and physician practice administrators about billing tasks. It found that doctors spend about three hours per week dealing with billing-related matters. For each doctor, a further 19 hours per week are spent by medical support workers. And 36 hours per week of administrators’ time is consumed in this way. Added together, this time costs an additional $68,000 per year per physician (in 2006). Because these are administrative costs, that’s above and beyond the cost associated with direct provision of medical care.

In JAMA, scholars from Harvard and Duke examined the billing-related costs in an academic medical center. Their study essentially followed bills through the system to see how much time different types of medical workers spent in generating and processing them.

At the low end, such activities accounted for only 3 percent of revenue for surgical procedures, perhaps because surgery is itself so expensive. At the high end, 25 percent of emergency department visit revenue went toward billing costs. Primary care visits were in the middle, with billing functions accounting for 15 percent of revenue, or about $100,000 per year per primary care provider.

“The extraordinary costs we see are not because of administrative slack or because health care leaders don’t try to economize,” said Kevin Schulman, a co-author of the study and a professor of medicine at Duke. “The high administrative costs are functions of the system’s complexity.”

Costs related to billing appear to be growing. A literature review by Elsa Pearson, a policy analyst with the Boston University School of Public Health, found that in 2009 they accounted for about 14 percent of total health expenditures. By 2012, the figure was closer to 17 percent.

One obvious source of complexity of the American health system is its multiplicity of payers. A typical hospital has to contend not just with several public health programs, like Medicare and Medicaid, but also with many private insurers, each with its own set of procedures and forms (whether electronic or paper) for billing and collecting payment. By one estimate, 80 percent of the billing-related costs in the United States are because of contending with this added complexity.

Read More:https://www.nytimes.com/2018/07/16/upshot/costs-health-care-us.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

Down and Out in San Francisco, on $117,000 a Year

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The threshold for classifying a family as “low-income” in the Bay Area is the highest in the nation — and no surprise…..

It’s beyond laughable that a one-bedroom apartment can sell for $1.5 million in San Francisco — and get multiple offers within a day. Or that dumpsters sport satirical “for rent” signs. Or that the asking price for a side order of brussels sprouts at many restaurants is $16.

Beyond laughable because such stories pass like a Bay Area breeze in the city named for a pauper from medieval Assisi. But the latest assessment of the out-of-reach quality of one of the world’s great places to live came as a real jolt:

A family of four earning $117,000 a year is now classified as low income in the San Francisco area. This threshold, used to determine eligibility for federal housing assistance, is the highest in the nation — and no surprise.

Once upon a time in the American West, the most exclusive places — Sun Valley, Aspen, Lake Tahoe, the San Juan Islands in Washington State — were known as “golden ghettos,” an imperfect term used by trendy demographers.

But now the entire West Coast, from San Diego to Vancouver, British Columbia, is a string of gilded megalopolises. These are the tomorrow cities, the tech cities, the cities of the young and educated. And each of them is struggling with a prosperity crisis that threatens the very nature of living there.

A New Yorker would say, “So what, get used to paying through the nose to live in a tiny space on limited land.” Manhattan, Brooklyn and now Queens have seen it all. But people on the West Coast, perhaps naïvely, are not ready to say, “Fuhgeddaboudit.” Not yet. With varying degrees of success, they are fighting for the soul of their cities.

Residents of San Francisco are troubled by the same things that we are in my hometown, Seattle — the homeless and the high cost of living. The issues are linked, but not entirely.

“Walking the streets of San Francisco can be a frightening, demoralizing, even unhealthy experience for residents and tourists alike.” This commentcame not from the medical association that just pulled its convention because its members no longer feel safe in a city of 7,500 homeless people. It came from the woman just elected mayor of San Francisco, London Breed.

Raised in poverty, and the first African-American woman chosen to lead the city, Breed has vowed to remove homeless encampments within a year. There is nothing compassionate or financially sound in spending $250 million a year on homeless services that still leave thousands sleeping on the street.

In order to do the other thing that Breed wants to do, build more housing of all kinds, she has to secure the social contract. That is: Can people accept more crowded neighborhoods, in a city that is already the second most densely populated among big cities in the nation, if they feel that elected leaders do not have a decent plan — or a clue?

As Breed notes, San Francisco has created only one home for every eight new jobs between 2010 and 2015. She may not be ready to utter a hard truth that some residents already have: that not everyone who wants to live there can.

In Seattle, the nation’s fastest-growing city for this decade, the social contract is nearly broken. The city used to be run by creative problem solvers. Now, an ideologically driven City Council dreams up new things to anger residents while seeming to let the homeless have the run of the place.

The latest backward move was a tax on jobs — quickly repealed after a citizens’ revolt. While the council was trying to target Amazon, the city’s biggest private employer, the tax would have also hurt grocery stores and family-run businesses, as if they had caused the homeless crisis and spike in real estate.

An unholy alliance of socialists and developers threatens to destroy the city’s single-family neighborhoods with a major upzoning — further disrupting trust between residents and politicians. If the intent is to make Seattle more affordable, this approach has failed. The city has built more new units of housing over the last five years than in the prior half-century. And yet Seattle continues to lead the nation in home price increases.

Vancouver has taxed speculation, hitting foreign buyers and those who own homes that sit empty. Prices have stabilized somewhat. But the globalization of the housing market is a problem more particular to British Columbia.

No matter what you hear anecdotally, people will continue to move to the West Coast. The City of St. Francis has seen far worse than the present crisis. More than half the population was homeless after the 1906 earthquake. But by midcentury, it was the American city, birthplace of the United Nations.

We need a new urbanism. For all the grumping about how great the cities facing the Pacific used to be, they can be greater still if the bright minds now trying to “disrupt” a grilled cheese sandwich can focus on the biggest challenge of this generation. We know what doesn’t work. The task is to find a creative mix of solutions that do.

A PR firestorm around Quicken Loans founder Dan Gilbert’s $5.5 billion Detroit project shows that money isn’t the biggest challenge he faces in revitalizing the city

Dan Gilbert, the billionaire owner of the Cleveland Cavaliers, has been transforming downtown Detroit for almost a decade. Since moving his mortgage company Quicken Loans to the neighborhood in 2010, he’s invested $3.5 billion (with $2.1 billion in development) through his real estate firm Bedrock.

With a roster of around 100 properties in or around the downtown area, it’s the most ambitious private project in Detroit, a city that recently survived bankruptcy and had developed a reputation around the world as a ghost town, a post-apocalyptic shell of a once great American city.

But even though Detroit’s downtown is now filled with bright new storefronts, renovated office buildings, and fast-moving construction sites, it’s still a city of around 670,000 people who have dealt with years of strife, corruption, neglect, and poverty. Many Detroiters are rightfully skeptical of change. And that came to a head last year, when a Bedrock ad sparked a major controversy in July.

If you don’t live in Detroit or aren’t aware of its history, the ad, which primarily features a crowd of young adults with the words, “See Detroit Like We Do,” may seem benign. But the lack of context that went into it is exactly why it became such a problem, and why it shows that community relations, not access to capital, is the biggest challenge in Gilbert’s massive undertaking.

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In a city that is 80% black and largely working class, the poster seemed to communicate that Bedrock stood for a new Detroit for and by white people working for their companies, where a white downtown could thrive while minority neighborhoods would continue to languish. Local Detroit media ran with the story and it blew up on social media in the worst way possible.

Business Insider spoke with Gilbert in May, for an episode of our podcast “Success! How I Did It,” and he explained why he publicly apologized for and denounced the poster.

As he wrote in a Facebook post last year, “Although not intended to create the kind of feelings it did, the slogan/statement we used on these graphics was tone deaf, in poor taste and does not reflect a single value or philosophy that we stand for at Bedrock Development or in our entire Family of companies.”

Gilbert told us that Bedrock had developed a variety of ads featuring a diverse group of people around the city (he posted the full ad series on Facebook). A contractor they hired put up the first ad downtown and planned on finishing the rest on Monday. But Gilbert acknowledged that regardless of the images used, he found the slogan itself condescending and had not personally approved  it.

“Who cares how ‘we see Detroit’?!” he wrote on Facebook. “What is important is that Detroit comes together as a city that is open, diverse, inclusive and is being redeveloped in a way that offers opportunities for all of its people and the expected numerous new residents that will flock to our energized, growing, job-producing town where grit, hard-work and brains meld together to raise the standard of living of all of its people.”

But even after the poster was taken down and the slogan abandoned, Gilbert needs to convince remaining skeptics in the city that Bedrock and the rest of the Rock Ventures companies. He told us his companies employ 4,000 people in Detroit, and that they have been instrumental in blight removal (destroying abandoned or ruined properties) and the rejuvenation of homes outside of downtown. He also acknowledged that Rock Ventures could have a better line of communication with the neighborhoods outside of the downtown area, and that his Detroit project is indeed holistic.

“There’s no way businesses can be successful by having really bad neighborhoods and a successful downtown,” he told us. “It just doesn’t work that way.”

The Trump Administration to Restaurants: Take the Tips!

Most Americans assume that when they leave a tip for waiters and bcapital-one-credit-cardartenders, those workers pocket the money. That could become wishful thinking under a Trump administration proposal that would give restaurants and other businesses complete control over the tips earned by their employees.

The Department of Labor recently proposed allowing employers to pool tips and use them as they see fit as long as all of their workers are paid at least the minimum wage, which is $7.25 an hour nationally and higher in some states and cities. Officials argue that this will free restaurants to use some of the tip money to reward lowly dishwashers, line cooks and other workers who toil in the less glamorous quarters and presumably make less than servers who get tips. Using tips to compensate all employees sounds like a worthy cause, but a simple reading of the government’s proposal makes clear that business owners would have no obligation to use the money in this way. They would be free to pocket some or all of that cash, spend it to spiff up the dining room or use it to underwrite $2 margaritas at happy hour. And that’s what makes this proposal so disturbing.

The 3.2 million Americans who work as waiters, waitresses and bartenders include some of the lowest-compensated working people in the country. The median hourly wage for waiters and waitresses was $9.61 an hour last year, according to the Bureau of Labor Statistics. Further, there is a sordid history of restaurant owners who steal tips, and of settlements in which they have agreed to repay workers millions of dollars.

6 Ways to Be Better at Money in 2018

capital-one-credit-cardWelcome to the Smarter Living newsletter. Editor Tim Herrera emails readers once a week with tips and advice for living a better, more fulfilling life. Sign up here to get it in your inbox every Monday morning. Though there’s never a wrong time to get your finances in order, a new year is the perfect excuse to take a deep look at your relationship with money. Whether you’re just starting out in your career or you’re nearing retirement, below is The Times best financial advice from this year on earning and saving more money and, more important, deciding what to do with all of it.

Save a little extra money every week

No, cutting out that indulgent, extra-fancy coffee once a week won’t make you a millionaire, but those small savings truly do add up over time. Find where you’re nickel-and-diming yourself, then see what you can stand to eliminate. Read more »

‘Dear Equifax: You’re Fired.’ If Only It Were That Easy.

The emails have landed in my inbox, one every other day or so since Equifax revealed that cyberthieves had helped themselves to the Social Security numbers and dates of birth of more than 140 million Americans in the company’s files. And though the words differ (and some are unprintable in this space), the messages all end with the same demand: I want out. I want out of Equifax’s system. That company no longer has permission to make money off my personal data. I want them to delete my file and never start a new one.

It’s hard to blame people for wanting to quit in a fit of pique. This is an industry that uses our personal and financial data as its product, and the real customers are the banks and others who want to check up on us. And this breach isn’t like those at other companies that have let their data loose, like Yahoo or Target, where you can simply find another company to patronize. So, can you dump Equifax? And if not, shouldn’t you be able to?

First, some practicalities. When you sign up for a credit card or a mobile phone or any number of other loans or services, you agree — whether you know it or not — for the provider to send a report card on you to credit reporting agencies like Equifax, Experian and TransUnion. So let’s say you no longer trust Equifax to store your data in the wake of its breach. Sure, you could approach all of those providers and try to persuade them not to send data about you to Equifax each month. But it would be far easier to simply ask Equifax to erase your file and not make a new one.

But what happens if you need to borrow money in the future and you have credit files only at Experian and TransUnion? This poses an enormous problem when it comes time to make the biggest of all purchases — a home. Fannie Mae, whose rules govern the standards for many mortgages, wants information from all three credit “repositories,” as the company puts it.

There is already a potential out in the rules that allows for data from just two agencies if that is “the extent of the data available.” While this rule may exist to help people with a limited credit history, there’s no reason Fannie couldn’t also apply it to people with an extensive history that happens to reside only at Experian and TransUnion, and not at Equifax.

This wouldn’t be ideal for the mortgage industry, though. Credit reports tend to be riddled with errors, so lenders prefer a wider range of data to survey. “Lenders will compare the three and make their best guess,” said Pam Dixon, the executive director of the World Privacy Forum, a research group. “They kind of triangulate the errors.”

While it’s a nifty trick when an industry’s rank incompetence seems to necessitate a permanent triumvirate, a better solution might be a duopoly that actually cares about getting the data right.

Lenders who deal in smaller amounts seem flexible enough, and would have to become more so if more people had only two major credit files. American Express already is. It simply looks to the other two big credit bureaus for underwriting guidance if an applicant does not have a file at the third, said Ashley Tufts, a company spokeswoman. (She declined to comment on why American Express planned to continue to send data to Equifax, given the bureau’s now proven inability to protect it.)

Some readers, many of whom will have no need for mortgages or much new credit in the future, have tried to delete their Equifax files since the breach. One person sent letters making his demand to Equifax’s former chief executive, Richard F. Smith, before he retired last week. (The request received no reply.) Others have called the company’s various call centers. Often, they couldn’t get through or waited for more than hour and then spoke to someone who insisted that it was not possible to have a file deleted.

But what happens if you need to borrow money in the future and you have credit files only at Experian and TransUnion? This poses an enormous problem when it comes time to make the biggest of all purchases — a home. Fannie Mae, whose rules govern the standards for many mortgages, wants information from all three credit “repositories,” as the company puts it.

There is already a potential out in the rules that allows for data from just two agencies if that is “the extent of the data available.” While this rule may exist to help people with a limited credit history, there’s no reason Fannie couldn’t also apply it to people with an extensive history that happens to reside only at Experian and TransUnion, and not at Equifax. This wouldn’t be ideal for the mortgage industry, though. Credit reports tend to be riddled with errors, so lenders prefer a wider range of data to survey. “Lenders will compare the three and make their best guess,” said Pam Dixon, the executive director of the World Privacy Forum, a research group. “They kind of triangulate the errors.”

While it’s a nifty trick when an industry’s rank incompetence seems to necessitate a permanent triumvirate, a better solution might be a duopoly that actually cares about getting the data right. 07MONEY-1-master768Lenders who deal in smaller amounts seem flexible enough, and would have to become more so if more people had only two major credit files. American Express already is. It simply looks to the other two big credit bureaus for underwriting guidance if an applicant does not have a file at the third, said Ashley Tufts, a company spokeswoman. (She declined to comment on why American Express planned to continue to send data to Equifax, given the bureau’s now proven inability to protect it.)

Some readers, many of whom will have no need for mortgages or much new credit in the future, have tried to delete their Equifax files since the breach. One person sent letters making his demand to Equifax’s former chief executive, Richard F. Smith, before he retired last week. (The request received no reply.) Others have called the company’s various call centers. Often, they couldn’t get through or waited for more than hour and then spoke to someone who insisted that it was not possible to have a file deleted.

How Microsoft Has Become the Surprise Innovator in PCs

27STATE1-superJumboWhen Microsoft unveiled the first Surface tablet five years ago, it was a spectacular failure. At the time, the Apple iPhone was well on its way to conquering the technology industry, and the iPad appeared set to lead an even more devastating invasion of Microsoft’s office-worker kingdom. Microsoft conceived of Surface, an innovative laptop-tablet hybrid, as a way to show off the versatility of its software. Windows machines, it argued, could work as phones, personal computers and tablets. And didn’t everyone love Windows?

Nope. Microsoft soon took a $900 million write-off for unsold Surfaces. Another effort to break into the hardware business, its acquisition of the limping phone-maker Nokia, dug a deeper river of red ink — a $7.6 billion write-off. By the summer of 2015, Microsoft’s hardware dreams looked crushed. Even today, the Xbox One, Microsoft’s latest gaming console, is losing to the Sony PlayStation 4.

Still, Microsoft persisted — and today, the company is making the most visionary computers in the industry, if not the best machines, period. In the last two years, while Apple has focused mainly on mobile devices, Microsoft has put out a series of computers that reimagine the future of PCs in thrilling ways.

Yes, Apple loyalists, that’s just my subjective view. And yes, Microsoft’s latest financial results aren’t exactly on my side here — the company announced last week that though its cloud software business is growing rapidly, revenue for its Surface division declined by 2 percent over the last year (because of changes it made in its launch schedule).

Microsoft, of course, makes most of its money from the PC business by licensing Windows to other computer makers, and it says that part of its goal in building hardware is to inspire and guide those companies’ designs. But it also wants the Surface line to sell — and although the division has grown enormously in the last few years, becoming a critical part of Microsoft’s overall business, Surface is still far smaller than Apple’s Mac or iPad line.