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The recent publication of the Medicare survey of hospital prices shows that there really is no semblance of a fair market for medical services. The existence of insurance companies as go-betweens makes it impossible for the consumer to make any provider decision with respect to price. There is no consistency, no fairness, no rationale and no transparency with respect to hospital charges...even within the same market. Medicare and insurance companies only pay a small portion of the prices charged, because they negotiate prices. They have the clout to negotiate because of their size...the bigger the insurer, the more power they have in negotiations. That is one reason that individual consumers are at such a disadvantage. Here is also a place that individuals--even with insurance--can get surprised by costs, or even cheated. Let's say the insurance plan pays 80% of costs negotiated, and the consumer pays 20%. The insurer may have made an overall deal with a hospital, based on surgeries that are very popular. But a surgery that is unusual may have a very high price relative to other hospitals. The patient needing the unusual surgery might end up paying 20% of a $200,000 bill--or $40,000 out-of-pocket. But, the way things are now--another hospital outside of the plan might only be charging $50,000 for the surgery. Even at out-of-plan reimbursement rates of 40% co-payment, the patient would end up with "only" $20,000 in out-of-pocket costs--half of what they are stuck with by going with the hospital their insurance provider recommends. There is no way for the customer/patient to "shop around" because he has been led to believe that the co-payment amount of 20% will produce the lower price for him. When the insurance company is selling the policies, there is no disclosure about individual surgeries, and no disclosure about the real out-of-pocket costs to the patient. This violates the basic integrity of the marketplace. Let's apply the situation to a different arena: shopping for an apartment. Let's say that a person could shop for an apartment on her own (= uninsured), or could hire a broker to find an apartment for her (= insured). Various brokers would have relationships with different real estate management companies or consortiums. This reality exists in the rental real estate marketplace now. But let's say that rental prices were not regulated (as it is,the same rate is quoted to all potential apartment renters; price discrimination is illegal). Let's change the reality for the sake of making an analogy with the health insurance industry: once the renter signs up with at broker, the renter is stuck with that broker in the search to get an apartment. One broker might be quoted a $1200/month rate; another broker might be quoted a $3500 per month rate for the same apartment. When the wanna-be renter signed up with the broker, the potential price differences would not have been disclosed. Would this be fair? There would be no relationship between price and value, and the renter would be powerless to make a choice at the decision point where the real costs would be revealed. ...just like the patient dealing with hospital costs. Since medical costs are the a leading factor in over 60% of personal bankruptcies in the U.S., the real costs of medical care are a life-changing issue for consumers. Some observers think that this publication of the wide discrepancies in price is the first step to fixing the problems...but maybe the system is too broken to be fixed. A " zero-based thinking " approach might be needed. Sources: " U.S. releases data showing striking differences in hospital prices " by Dan Gorenstein, Marketplace, American Public Media , May 8, 2013. " Hospital prices diverge wildly, U.S. data show ," by Chad Terhune and Ben Poston, Los Angeles Times , May 8, 2013. Follow up: What is "zero based thinking"? Can you think of--or research--three possible solutions to this pricing dilemma? Who would benefit and who would be hurt in each situation? How would you remedy the downsides of each of your scenarios? What is your personal experience with hospital costs and insurance coverage?

image from www.staffinglink.com Recent research has produced two opposite outcomes regarding entrepreneurs' attitudes toward raising the minimum wage: Result #1: two-thirds of entrepreneurs support raising the minimum wage ( Small Business Majority -SBM) Result #2: 93% of entrepreneur oppose raising the minimum wage ( National Federation of Independent Businesses -NFIB) One might conclude that there is a lot of variation in entrepreneurial ranks (they are a diverse lot), but as it turns out, the language used in the questions may have skewed the outcomes of each of the surveys. " When the Small Business Majority asked its minimum-wage question, it stated the amount of the current minimum wage -- $7.25 an hour -- but did not mention how much the minimum might rise. You can understand how a business owner would listen to this question and think, 'Well, $7.25 sounds awfully low. My people get more than $7.25 anyways, and keeping up with inflation sounds fair. Sure, let’s raise the minimum.' " On the other hand: The NFIB survey " asked if respondents were in favor of amending the state constitution to include a 14% increase in the minimum wage. It didn’t state the current minimum. This sounds like a bigger deal...Most entrepreneurs didn’t get 14% raises last year, and they don’t want their payroll costs to go up by that much, either ." Plus, mentioning that the state constitution would have to be amended made it sound serious. So--which survey was more fair? Or, were both flawed? Source: " Who Speaks for Entrepreneurs? ," by Kimberly Weisul, Inc.com , April 25, 2013. Follow up: What do you think is the "real" result? Which question was phrased in the more objective and fair way? How would you word a survey on this topic to produce the most objective results? How do you feel about the minimum wage, for yourself and for others?

" Sequestration ." The dictionary definition looks pretty grim. Here's the Merriam-Webster version: Noun The action of taking legal possession of assets until a debt has been paid or other claims have been met. The action of taking forcible possession of something; confiscation. Synonym seizure John Schwartz takes a satiric attempt (I think) in this article, to illuminate the reality of Federal sequestration by making analogies to what it would mean in a personal budget to apply parallel techniques. One of the underlying premises is parallel to the "no new taxes" position of some in Congress, as well as standard financial-advisor wisdom: It is easier to cut spending than it is to increase income. Therefore, the spending cuts that Schwartz suggested implementing included: cancelling all house tours and golf outings (this was to parallel the White House edict, though no real cost savings could be expected, since there were no tours or golf outings before) informing Bank of America unilaterally that the family would be paying less on their mortgage (the B of A executive he talked to said that the unilateral action could lead to foreclosure, but there was a proper process that would preserve the family credit rating) telling his son to "get shorter" (these are "across-the-board" cuts) cutting down on cat food and kitty litter (hmm) making dishwasher repairs himself Schwartz didn't get much co-operation from his family members, and concluded that the lack of co-operation might be country-wide. Sources: " The Kitchen Table Sequester ," by John Schwartz, NYT Business Day , April 6, 2013. Follow up: What is a "satire"? Does this article fit that definition? Get a copy of The Onion for other examples of this writing style. How effective is it at communicating the message? What are the major pitfalls of this technique? What are the possible benefits of this communication technique? What other tools of persuasion are used in this article? What do you think about sequestration? Has this article changed your view of it, or made it more clear? Discuss your reaction. How could the article have been improved?

Original of graphic above, from National Low Income Housing Coalition Note : link is a .pdf and does not open well using Firefox on a Mac] The National Low Income Housing Coalition has some bad news: in order to afford a modest two-bedroom apartment in California, it is necessary to work 129 hours per week, 52 weeks per year, if you are making minimum wage. And the minimum wage is higher in California than it is in the rest of the country: $8.00 per hour instead of $7.25. The worse news is that the situation is not much better in the rest of the country. The map above (the text is much more clear on the linked page) indicates how many hours of work per week, 52 weeks per year, it takes in each state to afford a two-bedroom apartment. The legend reads: 80 hours per week or less 81-97 hours per week 98 hours per week or more When someone working full time cannot afford modest housing, there are implications for small and large businesses, and for public policy. Source: " The 129-hour Workweek: How to Afford a Two-Bedroom Apartment in California " , by Lisa Brenner, KPCC, Southern California Public Radio, March 13, 2013. Follow up: How much do you make per hour? What does a two-bedroom apartment cost where you live? Does your personal experience mesh with the statistics? What percentage of your income goes to pay for housing costs? How much money do you have to make (on an hourly basis) to afford everything you need for a modest existence? Prepare a budget to figure this out. What does the lack of housing affordability mean for small businesses? For government and public policy? Research the effects of increases in the minimum wage on hiring by small businesses and large corporations. What conclusions can you draw?

As you watch this video, pause it and make your own estimations about how the US population ranks, divided into fifths (the bottom 20%, the next 20%, the middle 20%, the second to the top 20%, and the top 20%). Do this before you see what the survey respondents said. [View:http://community.cengage.com/GECResource/themes/gew/utility/ :550:0] video from YouTube The animated graphic in the video illustrates that there is a perception gap among the following: how people surveyed think wealth is distributed in the U.S. ; how people surveyed think wealth should be distributed in the U.S.; the reality of the wealth distribution. Draw your own conclusions about what this might mean in terms of how the perceptions may have been formed, and what it means for business. Source: " Wealth Inequality in America " by politizane, from sources http://www.motherjones.com, http://danariety.com, http://thinkprogress.org, http://money.cnn.com, published on YouTube, 2012. Follow up: Comment on how your estimations (if you made them as you listened to the video) compared to those in the survey. Using what you know about marketing principles, how do people's perceptions influence their actions and attitudes ? Be specific about this particular situation. Check out the original sources and form your own opinion about the material presented.

During the debt crisis, one "solution" surfaced that was out-of-the-box and surprisingly comprehensive. It was a legal work-around that would theoretically make the fiscal debt-ceiling crisis go away. According to Paul Krugman , here is how it would work: "The Treasury would mint a platinum coin with a face value of $1 trillion (or many coins with smaller values; it doesn’t really matter). This coin would immediately be deposited at the Federal Reserve, which would credit the sum to the government’s account. And the government could then write checks against that account, continuing normal operations without issuing new debt." [from the article linked below] Here is a quick explanation of the debt ceiling problem , and how the coin would solve it: The US government is currently not bringing in enough revenue to cover all of its expenses. A Congressional law limits the amount of debt (overspending) that the government can assume. If the Trillion Dollar Coin was minted, it could be deposited into the government's account, and "Voila!" the US government would no longer be in debt. Weird as this may seem, minting the coin is legal. By the way, the debt ceiling crisis was resolved temporarily by another piecemeal compromise. The threshold for violation will probably arise again in a few months. Perhaps the trillion dollar coin "solution" will be considered once again. Source: " Coins Against Crazies ," by Paul Krugman, New York Times, January 10, 2013. Follow up: What was the law allowing a trillion dollar coin to be minted probably intended for, according to the article? Even though the minting of the coin seems to have no underlying substance, why might it make sense, considering the current structure of monetary policy, both domestically and globally? What are the global economic risks of minting a trillion dollar coin, if any?

In a recent post about the Fiscal Cliff, I made note of the fact that the actions taken by Congress in resolving the "Fiscal Cliff" were piecemeal. The disjointed solutions did nothing to provide long term security for businesses or individuals trying to manage their financial lives with all the necessary information. Looking at the big picture, however, requires political courage and a willingness to make values-based decisions: "interest-based" bargaining rather than "positional" bargaining. In order to bargain in an "interest-based" way, it is necessary to have all of the facts and a good overall understanding of what can be changed and what can't be changed. The overview of spending provided by the pie chart above puts all costs into perspective. But not all of these expenditures are "on the table." Some represent commitments that cannot be changed in the short run. To clarify the discussion, expenditures in budget discussions are separated into "discretionary" and "mandatory" portions of the Federal budget: The above chart breaks out the sections of the budget that are "discretionary," and therefore part of the political discussion and negotiation. The majority of the federal budget, however--62%--is composed of items that represent contractual, legal and/or practical obligations that cannot be changed in the near term. This is similar to the items, in one's personal budget, that have to be paid "no matter what": rent, monthly car and insurance payments and minimal food and utility allowances. Here are the Federal mandatory items broken out: Can you see, by looking at the three charts above, that the way information is presented can be a major factor in what the reader perceives is important? Charts--particularly pie charts--can be a powerful communication tool. Not using pie charts also communicates a lack of interest in conveying the "big picture." Sources: [Note--each pie chart is originally from the Office of Management and Budget] " Budget Overview ", Office of Management and Budget, whitehouse.gov , 2012. " San Diego Veterans For Peace ", with charts provided by OMB, via www.nationalpriorities.org. Follow up: Let's take a manageable budget: yours . Make a pie chart of expenditures for a typical month. If you have annual expenditures that you pay once or twice a year, split them up and include them as part of your monthly budget. Hint: if you can use Excel , you can write out your budget in a column and use a tool to automatically create a pie chart. Does your current budget reflect your personal values? Analyze your own budget, and create a "fantasy" budget for yourself for 5 or 10 years from now. Write down the assumptions about your life circumstances that you use to make the budget Make a pie chart of the results, and compare it to your current situation. What conclusions can you draw? What are the most important things, to you, that can be provided by the Federal government? How would a pie chart of Federal spending look if it reflected YOUR values?