Affordable Care Act of March 23, 2010

Click on the above site to find some diagrams illustrating how the PPA and AHA works. See the full summary of the Act in the Posts above including some issues for group discussion. TEM

What follows is “My View” on health care reform. It is an attempt to match the data and underlying problem with health care - all of which points to excessive costs — and a relevant solution. My view is that the recently passed Patient Protection Act of 2010 is not health care reform - it is “access reform.” The fundamental problems that are causing a strain on all of our government and employer sponsored plans are not dealt with by the Act.  Our first priority is to make health care fundamentally more affordable and that will enable us to responsibly extend access. As one health care professional told me recently: “Our health care in the U.S. is like a broken bridge - it’s much too expensive. Why would we put more cars on this bridge?” My hope is that students can continue to debate an approach to health care reform and learn from examining the issues. I  welcome your comments.

Health Care Reform—Let’s Do it Right the First Time

By Thomas E. Murphy* (Cincinnati, Ohio – Originally written in October 2009 and updated August 3, 2010)

There is one instrument in the U.S. health care system that is the driving force behind our high costs - the doctor’s ordering pen! The utilization of health care resources and their respective prices escalate with every stroke of the pen. The insurance companies can wave their swords, but until the pen is controlled, our costs will not be curtailed. Costs are our real problem and we should focus on this first before we dismantle and “reform” our current system. A provider market driven by quality and value will substantially impact our costs, make health care more affordable, and significantly enhance access. Insurance companies, big business, pharmaceutical companies, and “greed” are neither the enemies nor the root causes of our health care problem. We should stop relying on false and misleading anecdotes and have an honest debate based upon information and data that can lead us to the type of reform we really need. Read more

Based in part upon our experiences in living and working in Europe and the Middle East, we have developed a new course for the Miami University MBA program that involves teaching and practicing what should be considered key management competencies for global managers. The competencies include: managing in a culturally diverse workforce and environment, negotiating and resolving conflicts within and outside the organization, using a data and metrics driven template in designing and evaluating management practices and sustaining success, assuring legal and ethical behavior in the organization, encouraging innovation in the organization, and identifying and developing talent. We use lectures, specially developed business cases, and simulations to teach and apply the principles and concepts underlying these competencies. We have taught the course at the International University of Monaco, Vienna University, and Miami. It has been very well received.  If interested, I can send you a copy of the Syllabus. See also courses taught by TEM at his website.

What is the financial return?

Benefits and the Allocation of Capital - last revised August 24, 2010

One of the unique features of Benefits and Beyond is Chapter 10 which discusses how sponsors of benefits should use data and metrics to measure the effectiveness of the various benefit plans. Should the benefit be offered? What is the optimal design? How should it be financed? Using a capital budgeting analysis, what are, for example, the financial returns of a new Wellness Program?

The analysis in Chapter 10 would apply to both discretionary and mandated benefits. How do stock options or restricted stock affect, if at all, productivity? Will the retirement plan provide adequate retirement income? Will it cause employees to stay longer? If not, what design changes might enhance these results? What impact do your benefits have on the quality of hire, retention, attendance, and productivity? How can Six Sigma be used to evaluate your benefit designs? How would you calculate the financial returns of a new company sponsored day care center?  Does your health care plan help to make employees more healthy? How would you evaluate the effectiveness of the medical providers in your networks? How could such an analysis improve the cost effectiveness of your health care plan? Using surveys, competitive data, financial measures such as Net Present Values, Return on Investment, and effectively mining your Human Resources Management Systems can provide a more objective analysis of potential benefits and their respective designs.

Using the approach and analyses in Chapter 10 puts the sponsoring department within the enterprise to capably compete for the capital needed to fund such benefits. The author has both professional and academic experience in this topic. See: Schwarz, J., & Murphy, T. (2008, April). Human capital metrics: An approach to teaching using data and metrics to design and evaluate management practices. The Journal of Management Education, 32(2), 164–182; Murphy, T., & Zandvakili, S. (2000, Spring). Data and metrics-driven approach to human resource practices: Using customers, employees, and financial metrics. Human Resource Management, 39(1), 93–105;

Note: we have identified websites where, in most cases, the referenced article originally appeared. Often, however, the URL for the article has changed. In this case, you can use the topic or the title of the piece to search the publisher’s site for the specific article. In other cases, you might be required to copy and paste the URL on your browser window to locate the referenced article.

(Last Update on this Post, August 14, 2010)

Chapter 3 (Life Events)

Capital Markets Slide and So Do Benefit Plans

As we point out in Chapters 4 and 5, capital markets play a key role in financing retirement benefits. The employer sponsoring a defined benefit plan relies on these markets to help finance retirement income for its employees. The employer-sponsor assumes the investment risk. In defined contribution plans, it is the employee who assumes this risk. In an economic recession coupled with huge losses in the capital markets, the employers’ and employees’ risks are significantly increased. Some estimate that $900 billion in pension assets were lost by employers sponsoring defined benefit plans during the recession of 2008-09. In an August 11, 2010 article in Forbes.com, Kenneth Hackle predicts that a coming shortfall in pension funding, and a legal obligation to properly replenish the plans will significantly affect corporate cash flows, earnings, and credit. See: Corporate Pension Bomb Set to Explode.  Here are some issues that will no doubt arise in the workplace as a result of the dependency on capital markets that affect the financing of pensions and other benefits.

Add as new footnote to the top of page 88, “longevity risk”: There is a new idea to deal with the plan sponsor’s assumed longevity risk. The idea is called “Longevity Bond” that would be offered by the government and hedge the covered loss of certain cohorts such as persons born in a certain year who live well beyond life expectancy. See the Article by Mercado, D., in the June 8, 2010 edition of Investment News.

Read more

On site clinic

Last Updated: August 18, 2010

There is a new “supply side” business model spreading across American. It can be found in supermarkets, drug stores, and shopping centers. It is the mini or little clinic that serves basic health care needs at very low costs. Typically staffed by Nurse Practitioners, who can make basic diagnoses, prescribe some medicines, give physicals, and provide some minor to moderate treatments, these clinics are open in the evenings and on weekends. Most services are covered by health insurance, and can provide a cost effective solution for the expected overwhelming demand on health providers that will result from the new Patient Protection and Affordable Care Act. They also provide a more convenient and rational service  than the typical emergency room where many seek costly treatment for minor ills.

Emergency Room

We have identified websites where, in most cases, the referenced article originally appeared. Often, however, the URL for the article has changed. In this case, you can use the topic or the title of the piece to search the publisher’s site for the specific article. In other cases, you might be required to copy and paste the URL on your browser window to locate the referenced article.

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Correction in Chapter 6, at page 160: change the footnote 1 in the Vignette concerning Max to read: “The assumption here is that Max would be reasonably satisfied . . .” Delete the name “Tom.”

Clarification in Chapter 6, at page 175: change the 2d last sentence of the 2d full paragraph to read, “For example, the employer may decide that employees will pay about 40% of the total health are costs.” The sentence mistakenly refers to “60%.”

Read more

U.S. District Court

Chapter 9, Benefit Legal Compliance, ERISA, IRC, and More.

This Post Last Updated: August 5, 2010

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Add at page 263: Fiduciary duty to monitor 401(k) costs.

There has been a lot of discussion about the duty of a pension plan fiduciary to monitor and control administrative costs. See, for example, Hecker v. Deere & Co., (28 DLR AA-1, 2/13/09; 45 EBC 2761 (7th Cir. 2009). The Department of Labor has proposed some detailed guidance on this issue and it appears employer sponsors or plan fiduciaries will be required to scrutinize administrative costs of its providers so as to minimize the impact of excessive costs on plan participants. See U.S. Department of Labor rules on fee disclosure, effective January 1, 2009. Read more

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