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WHY ARE HEALTH CARE COSTS SO HIGH?

September 8, 2013
communciations, Congress, economy, finance, funding, infrastructure, innovation, Insurance, Leadership, management, politics, Revenues, Uncategorized, Water Funding, water sewer management, water supplies
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Why are health care costs increasing so fast?  Did you ever wonder about that?  We keep hearing about how health care costs, Medicare, Medicare, Obamacare are going to bankrupt us, but why is that?  Why are the cots going up so fast?  It is an important challenge for local officials and utilities who generally pay the health insurance costs for their workers.  There is more to the story that we are not being told.

One problem that get identified quickly is that only 80% of the population is included in the health care system.  Many who are not are “healthy” young people who don’t demand the services.  The concept of the health care bill was to solve this problem by spreading the costs of health care across the entire population using private and public providers.  First, I think there are way more unhealthy  people included in the 20% than we realize because the political dialogue keeps focusing on the few that want to live off the grid – I feel great so I don’t need insurance.  That guy is part of the problem.  That guy gets into a car accident, gets taken to a public hospital, gets treated, gets a bill for $26,000 to fix his broken leg, refuses to pay anything, and the taxpayers get stuck with the bill.  My solution to that guy is if you don’t want to pay for health insurance, bring cash.  Otherwise, “no soup for you!” to paraphrase a famous Seinfeld episode.  Of course my doctor, nurse and therapy friends think that’s a little cold hearted. 

The next argument is the cost of doctors, therapists and nurses.  Okay, I know a bunch of them, and that’s not where the money goes.  These people have lost money in the past 10 years.  Many are going form full-time to part-time employments as Medicare, Medicaid and health insurance bureaucrats decide services are no longer needed.  They will tell you the major change in their lives is paperwork….hold that thought for a moment.

The cost of drugs comes up.  Medicare and Medicare are the largest purchasers of pharmaceuticals in the world.  So in other works, they set the lowest price by supposedly bidding the “contracts” for services. Only there is often only one provider, so exactly how does that work?   Sounds like we don’t get a good deal there, which is why the arguments for importing Canadian drugs or drugs from Mexico keeps popping up.  They get a better deal than we do and most of these are supposedly AMERICAN companies.  No home town discount (I guess I know where free agent baseball players get the idea).   And my medical friends confirm this as an issue.  Check out the comments from Mr. Falloon at Life Extension (www.lef.org) for discussion. 

So let’s go back to the paperwork discussion.  Once upon a time doctors simply sent a little paperwork to the health insurance company or the federal government and said you needed some service.  And the insurance company processed the bill for the services.  The cost was paid by insurance premiums collected by the insurance company.  Everyone was happy.  But then someone at an insurance company said, “wait we could make more money if we asked more questions and paid less for these services.  It would help our bottom line.”  So you hear the complaint that the folks at the insurance companies are deciding whether you need that procedure or not.  And contractors decide if someone needs Medicare or Medicaid services, not the government, not your doctor, your nurse or your therapist.  Not any person that knows you, but some unseen, private sector bureaucrat who’s goal is to minimize the amount of your premium spent on services so they can enhance their bottom line.  And apparently they are very effective because the health insurance industry is very lucrative.  So maybe we have stumbled onto something here.  Maybe the cost of medical coverage is more related to drugs and bureaucracy (and it is not government bureaucracy!!) than the actual cost of services.  Maybe the old system, even if there was some fraud in it, wasn’t nearly as bad as it was made out to be.  It reminds me of one of the 4 laws of City management I developed years ago:  Never give elected officials a bad alternative – it becomes a magnet.  It always worked (hence a law).  I didn’t learn why until years later when I realized, that the worst option was the one all the lobbyists lobbied for even at the local level.  It was the option where they could make the most money “fixing

SCHOOL’S STARTED

September 3, 2013
communciations, economy, engineering, Environment, graduation, innovation, Leadership, management, sutdents, Uncategorized
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School is back in session.  It is a great opportunity to see what kind of great things we can learn this year.  We can learn from the students as much as they learn from us.  Working with college students, in bridging that connection between my real world clients and my students keeps me engaged and allows me to act as a conduit of information between the two sectors.  That conduit potentially includes jobs for students and technology for clients.  It is remarkable how much the skills sets of the students have changes and increased in certain areas in five years, let alone 10.  I remind them that 5 years after they graduate, the skill set of the next group will be far ahead of theirs. Get your license and keep learning and staying up to date with technology.  It is far too easy to get behind and it is surprising how many graduates figure they are done with learning when the graduate.  Far from it.  The advances and changes in the industry move so quickly.  All my students are doing 3 dimensional projects versus cad drawings 5 years ago.  And those cad drawings were so far above the cad drawings of ten years ago.  All three groups are ahead of a lot of engineering firms with respect to technology.  And there accompanying utilities as well.  My students make great interns for GIS – it comes naturally to them.  My older friends?  Well, let’s say there is a bit of a learning curve.  As we try to be more efficient, training and skill development become continuous exercises.  It is obvious when you compare skill sets of recent, current or older graduates.  Of course skill sets may not translate to knowledge, for there is no substitute for field experience, especially in the water and engineering fields.  The reality is often much different than you expect, for a variety of reasons.  How you adapt means experience.  It is why the older crowd and the younger crowd need each other and need those communication avenues.  I find that my teaching keeps you engaged in the changes in technology, viewpoints and the new generation while maintaining the relationships with the real world

SEQUESTRATION HITS US ALL

July 23, 2013
Congress, infrastructure, Monitoring Water, planning, Sequestration, sustainability, USEPA, USGS, Water Funding, water sewer management, water supplies
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Sequestration is the word we are all using to explain the failure of the Congress to put together a budget with appropriate revenues and expenditures.  Congress can’t figure out how to reach a budget agreement, so the federal government set itself up for mandatory cuts in services. I had a recent grant sequestered, then cancelled.  It really could have helped a local community with long-term water supply and quality problems identify adaptation and mitigation strategies fo rites future.  Minor money for Washington, but a big deal down here.  Likewise I have spent the last 6 months on a subcommittee for USGS that is focusing on what could be cut from USGS.  That means less testing water quality, water levels in groundwater, stream gauges and less evaluation of results.  Most of the water issues USGS looks at crosses local and even state lines.  Since we all rely on water, this is at national concern.  Precisely when we need the information most, we may be getting less.  Expect to start seeing more sequestration issues. 

 

 

The problem is that the biggest expenses, social security and debt, cannot be cut without major backlash in the financial and voter markets.  So the cuts come from the smaller accounts – things like the federal share of state revolving funds, water research and water/wastewater programs.  The community and tribal assistance account was slashed $210 million while the environmental program budget was cut $135 million. While some may be cheering EPA cutbacks, the reality for water and wastewater users is less federal assistance to our industry.  That means more of the onus is on us, and on our customers.  The  unintended consequences of the failure of Congress to act….

REVISING OUR VIEW OF INFILTRATION GALLERIES IS SOUTH FLORIDA

July 13, 2013
Climate, Environment, groundwater, infiltration, infiltration gallery, infrastructure, innovation, Leadership, management, sea level rise, sustainability, Tidal flooding, water sewer management, water supplies
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A recent Rolling Stone article outlines a potentially dismal future for south Florida.  I was quoted in the article and give the author a bunch of information.  It is hard to write articles that “pop” in the popular press while conveying facts and figures.  But I would suggest that the future is not quite as dismal as the article depicts.  The sea level rise has been ongoing for at least 140 years as indicated by the Key West tidal station, the longest running tidal gauge in the world, but the amount has been 9 inches since 1920.  True it appears that the sea level rise may be accelerating as a result of warming temperatures in the atmosphere that causes the oceans to expend, plus the loss of ice that runs off from glaciers, but 3 feet by 2100 seems the average or maybe the high average.  That is unlikely to inundate all of south Florida, but keeping the water table low will be a challenge.  I suggest that the challenge can be met and accomplish two goals.  In low lying areas the impact of sea level rise is really manifested as increasing groundwater tables.  An increased groundwater table means less soil storage capacity, which means smaller rainstorms will cause flooding.  The increased flooding is already creating a demand by residents for solutions from local public officials.  We have used exfiltration trenches (French drains) for many years, but increasing water tables will mean many of these systems will not function as they may be currently.  But what if we reverse the concept?  Instead of exfiltration, what if we allowed the water to infiltrate the pipe and go to a central wet well, and then pump the water out of the wet well?  I further suggest that the dumping large quantities of groundwater to the ocean or canals may not be permittable as a result of high nutrients, so what if this water is instead pumped to a water plant as a raw water supply?  Wouldn’t that solve two problems at once? Lots of excess fresh water supplies in an era where there are significant limitations in fresh water supplies?  Just thinking….. 

 

 

Sustainability and Risk Managers as Future Water Manager Obligations?

June 27, 2013
Climate, communciations, Environment, finance, funding, groundwater, Holistic Water Planning, infrastructure, innovation, Leadership, management, Marketing water, planning, Risk, Risk Management, sustainability, water sewer management
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In the past week I have had the opportunity to experience the extremes with water – heavy rains/tropical weather in SE Florida, and dry weather in Denver at America Water Works Association’s Annual Conferences and Exposition. Two months ago with was snowing in Denver and there had been limited rain in SE Florida. Six months ago we were both dry and there was significant concern about drought in both places. How quickly fortunes change and the associated attitudes as well. It is part of a perception problem – looking at the near term – instant gratification, as opposed the long-term consequences. In truth neither set of conditions is historically different or should have created major panic or much shift in attitudes, but it is the potential to predict conditions that require the water manager’s scrutiny. We have all become risk managers.

Managing risk is not in the job description of most water and sewer personnel (risk managers aside, and they are focused on liability risks from incidents caused by or incurred by the utility like accidents, not water supply risks). We spend a lot of effort on the engineering, operation and business side, but less on planning or risk/vulnerability assessments. EPA has required vulnerability assessments in the past, but having seen some of those exercises, most are fairly superficial and many put on a shelf and forgotten. I have had clients ask me if I still had copies because they did not. Clearly we need a renewed commitment to vulnerability assessment.

Vulnerability starts with water supplies. Groundwater is particularly tricky. A new USGS study reports significant decreases in water levels in many aquifers across the US, especially confined aquifers in the west. That situation is not improving, and the situation will not correct itself. Loss of your water supply is a huge vulnerability for a community. Finding a new supply is not nearly as simple as it sounds or as many are led to believe. Confined aquifers do not recharge quickly and therefore have finite amounts of water in them. Remove too much water and all too often land subsidence occurs, which means the aquifer collapses and will never hold the same amount of water. USGS has mapped this and it matches up well with the drawn down aquifers. More data needs to be collected, but Congress is looking to cut USGS funds for such purposes, just when conditions suggest the data is needed most.

Many watershed basins and many aquifers are over allocated and overdrawn, and not just in the west. New England and the Carolinas have examples. Overallocation means competition for water will increase with time and it will be utilities that everyone will look at to solve the problem. Afterall the utilities have money as opposed to agriculture and other users, right? To protect themselves, water utility managers will need to look beyond their “slice of the pie” to start discussions on the holistic benefits to water users throughout the watershed, which will extend to understanding economic and social impacts of water use decisions. It is not just about us, and paradigm shift that is coming and one that we as an industry need to be the leading edge for. Our use impacts others and vice versa. Every basin wants to grow and prosper, but decisions today may reduce our future potential. Klamath River is a great example of misallocated water priorities. The biggest potential economy in the basin is Salmon ($5B/yr), followed by tourism ($750 M and growing), which relies on fishing and hiking. But agriculture ($0.2 B/yr) get the water first. Then power, which warms the water (salmon like cold water). Then a few people (a few 100,000 at the most in the basin). The result, the salmon industry gets reduced to $50 M/yr. Now how could we create more jobs, which would result in more income and a bigger economy? The easy answer is encourage the salmon industry, but that doesn’t sit well with the other, smaller users that will become more vulnerable to losses.

I suggest that to harden our water future in any given basin, we need to start looking a little more holistically at the future. This type of analysis is clearly not in the job description of the utility or its managers, utility managers may have the best access to technical expertise and information. As a result to protect their interests and manage risk, we may need to shift that paradigm and become holistic water managers.

PAY YOUR BILL

June 24, 2013
communciations, Development loans, economy, finance, funding, Leadership, management, Marketing water, sustainability
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A recent Wall Street Journal article noted that 50 % or people have paid their utility (water, sewer, electric) bills late, but only 24.8% have paid the internet late, 39.5% the cable late and 44% the phone bill. Really? We are willing to pay water, sewer and electric late, but not the internet bill? This should be a wake-up call to water and sewer utility leaders nation-wide that we have a problem. Combined water and sewer bills across the United States average something around $50. True they are often higher in California, SE Florida, and some other areas, but they are also lower in many areas. Most of the time even in those high cost areas, the bill is under $100.

I have done a number of rate studies and I find that the cable bill, and the cell phone bills are almost always higher than the water+sewer bill locally, so why are people willing to pay our bill late, but not the others? Is it the perceived benevolence of local utilities, most of which are public entities? Is it a perception that water should be free so it is not important to pay the bill? Or is it the lack of marketing of an essential product by waterutilities? I have heard all these arguments, but I am thinking the latter may be more important. Most people know they need to pay the bill, and I don’t really know anyone who thinks water should be free in the US. People are used to cheap water, and costs are going up. Complaining to local elected officials often keeps rates artificially low, which means maintenance and replacement programs get deferred. That makes the utility more at risk to failure. EPA, GAO and others report regularly that we have been keeping rates low and deferring capital and maintenance for years to the tune of hundreds of billions of dollars. So what is wrong?

I suggest that as an industry, we have failed in marketing water. Treatment plants, piping and pump stations are out of the way, pipes are buried. No one sees them and people assume these faciliaites will work, but rarely ask how they work or how long they will work. They do not understand the complexity or the regulatory stringency of operating a utility. They do not understand that the number one priority is public health, and protecting the public health costs money. We have not made people understand this because we do not market our product. I have taught elected official classes where the elected officials tell me public dollars should not be spent on marketing, but they never say why when pressed. Rarely is marketing included in a budget. But if water and sewer is a business, isn’t marketing an important strategy to maintain that business?

Meanwhile we have a host of celebrities marketing cellphones, which are not required to survive. We have a host of glitzy cool advertisements for cable service options, but we don’t need cable to survive. The power companies send out glitzy stuffers in their bills that no one reads, but they do end up in the papers regularly. And power really helps us survive, but we could do without it (although it would be unpleasant). Our forefathers did. But no one ever survived without water. Maybe it is just too obvious. But maybe because it is so obvious, people are less conscious of it. We need to market better. As a private sector marketing manager would say – we have lost our market share!! We need to get it back.

Social Security Not Nearly So Bad…

June 11, 2013
economy, finance, funding, management
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Previously I blogged about retirement systems since they were getting a lot of negative attention in the Florida Legislature and in Congress. One of my tenets was that the economy is more of an issue in dealing with the sustainability of retirement systems than most other factors. Specifically I outlined the current Social Security issues, noting that the long-term borrowing rate and number of people paying into the system affected the apparent long-term viability at any given point in time. I also suggested that as a result, trying to opine about the viability of any retirement system at a specific point in time is a futile exercise, unless there is some underlying political agenda. The economics changes constantly, so the long-term trends are far better means to view the viability of pension programs. After the 2008 economic collapse, few retirement systems looked like they were in good shape, yet a few years earlier, they appeared much better, much like Florida’s did..

Fast forward to 2013. After all the hoopla in Congress about the fate of Social Security and scary Congressional statements that Social Security will not be remain for future retirees unless drastic changes are made, guess what? The annual trustees’s report on Social Security (and you though Congress managed it!) reported that as a result of the economic uptick in the past couple years, the outlook for Social Security in the short term is good, and the long-term is far better than it has been in years. Surprised? Only if you don’t understand how pension systems work. The economy has improved, so the investments made by Social Security likely are getting a better return. The jobless rate has dropped, and more people are paying into the system, precisely the two things that improve the long-term sustainability of any pension system. But we don’t hear Congress talking about that because that doesn’t address the political agenda.

Worse for certain Congressional leaders, the report suggests that Social Security is positioned better than many 401K programs, the type of system some in Congress suggest should be the future of Social Security, because the risk are far lower with Social Security’s investment strategy than any 401k invested in the marketplace. They noted that most 401k programs lost half their value in the 2008 financial collapse, while Social Security’s portfolio, invested in far more conservatively, did not see near the same type of drop in investment value. The report outlined that the lower and middle class retirees were hit less severely buy the 2008 downturn than upper middle class pensioners who relied more on 401K returns. That should be no surprise either.

The findings are particularly important for lower and middle class families that receive 2/3 of their retirement income from Social Security as private pension systems become a thing of the past. Those private pension programs suffered from investments in private companies that can have shifting stock values and outsourcing of jobs to other countries – more risk and fewer payees equals unsustainable pension program. No surprise the private sector has shed many of those programs, but precisely why Social Security becomes more relevant for most Americans. The private pension systems are precisely the opposite of the Social Security model.

So why the push to try to change retirement programs? Some are in difficulty, especially where there are generous benefits, and fewer people paying in due to cuts in government employees, and at risk investments strategies that have performed poorly. All three are management issues, and the second is a political issue. Bash public employee pensioners, because fewer private entities offer them, seems to be politically popular, but it is a political means to pit people with pensions against those who do not to hide the real issue which is simply money. The investment value of Social Security’s portfolio is huge. Wall Street would love to see that portfolio in the stock market. More investment dollars will drive up stock prices. That seems good, but recall that the repeal of the 1930s vintage banking rules that prohibited banks from investing YOUR savings in the stock market, drove stock prices up fast in the 1990s, but it didn’t turn out so well in 2008. Investing Social Security’s portfolio similarly can be expected to have a similar result. And then, Social Security will really be in trouble and someone in Congress will tell you – I told you so. Maybe the better argument is that all these politicians should keep their fingers out of pension plans.

Are Pensions Really Broke?

May 28, 2013
funding, Leadership, management, Uncategorized
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Are Pensions Really Broke?

Nearly 10 years ago it was predicted that the water industry would experience a large exodus of experienced workers.  It did not happen; likely it was only delayed by the 2008 financial crisis.  If that is the case, will there be an acceleration of retirements in the next few years?  If so, what are the plans the plans for knowledge capture? GIS, work orders, MMIS, and other programs will help, but capture is important as the next “generation” of employees will not have the advantage of years of experience in finding valves, and pipes, etc.  We need to plan ahead for the knowledge capture issue, develop training for newer employees and figure a means to access lost knowledge in the future.  Capture is a big issue, but what we hear more of is the potential for a drain on our resources for funding these retirements?  The news is full of stories of dire consequences of retirement defaults coming for the public sector.  Keep in mind many utilities are publically owned and these employees are part of the public retirement systems.  Is this real or a political position for another agenda?  Do we need to be worried?

Interestingly it depends on whether you were looking before 2008 or after.  This picture was very different.  Even in my state of Florida, the pension system was fully funded before 2008, dropped just after, but has returned to near full funding as a result of the improvement in investment returns.  Most of these systems rely on investment returns so changes can cause the system solvency to change rapidly over short periods of time.  Looking only at a short instant in time belies the long-term truth and  it is the longer view we need to look at.  Good thing Wall Street normally goes up, but the impact of poor investment strategies by a limited few (2008) has significant impacts across society in everyone’s pension programs.  Look at all the 401k programs – those incurred crushing blows just as pension programs did.  So yes there may be problems, but many of these pension systems are not nearly as strapped as you would be led to believe in part because they have always relied on people continuing to pay into the system.  Hence they always have cash flow, unlike personal accounts.

The long-term view or the impact on personal accounts doesn’t faze the “fixers” who have many ideas to “fix” the pension problem.  One of the concepts championed is to change enrollment to a 401k vs a fixed benefit system.  Another camp suggests privatizing.  But both radically change the long-term solvency of vested employees and here’s why.  Under the current concept for public retirement systems, your employer and often you, pay matching amounts into the system.  According to a study done some years back in Florida, over 80% of people who get public sector jobs do not stay long enough to become vested in the system.  That means that while they get their contributions back, the retirement system keeps the match, reducing long term costs to the public.  All full time employees pay into the system. Retirement systems rely on cash flow from current employees for payouts to retirees, thereby protecting the invested funds and allowing the system to “weather” periodic financial difficulties.  That’s why the system solvency will based on what is happening on the stock market.  The system is designed to grow at a given rate, so if you reduce the people paying in, you accelerate the use of invested dollars because the cash flow diminishes.  In many respects that is what happened to some of the industrial pension systems –automation and outsourcing jobs overseas cut down the payees so much that the pension system could not sustain itself.  So it’s relatively easy to demonstrate that both cutting jobs through privatizing and 401k type programs accelerate the crisis and will create future burdens on the taxpaying public.  These two solutions sound great, but are simply unsound.

There are other ways to mess up retirement systems.  The federal workforce has decreased from 6.6 million in the late 1960s to 4.5 million today.  Clearly the reduction in employees contributing will have an impact on significant federal pensions.  Florida and many other states, with the windfalls on the late 1990s, reduced vesting from 10 years to 5 or 6.  That means that a greater percent of people will become vested, which means more future obligations.  That’s not a solution for solvency.  Florida’s legislature changed the contributions from only the government entity paying (a total of 10.4%) and required employees to contribute.  The employee match is their money and they get it back with interest, meaning only 7./4% remains in the system.  If experience with social security and other states is an indication, both shares will have to increase so that their combined total will be in the 13-14% range.  How did hat save anyone money?

So what’s the solution?  Two things.  First, the initial way these pension plans were set up were actuarially sound.  They should be revisited for contribution amounts, vesting period and expected return rates on investments (one of social security’s issues is that they own so many Treasury bonds that pay under 2% that it is hard to get a valuable rate of return).  This is a project for experts, not policians to consider and evaluate.  The big issue though is age for retirement. I know this is not popular, but let’s talk social security here as an example.   The text of the 1935 Social Security Act says that benefits were to be granted at age 65 (Section 202).  However the average age that people live to was 60 for men and 64 for women, meaning the average person NEVER collected social security.  Now it is 76 and 81, which means they collect for 12 to 15 years, tremendous difference in the obligations.  We all appreciate good medicine and most look forward to retirement, but keep in mind it comes with a price.  Since 50 is the new 30, we probably will all probably can be working longer.

Water and sewer workers like police and fire, are vital to thriving communities. So, let’s act with caution when looking at fiscal impacts that may come to utilities in the future. Since many of these folks have, and have worked hard to secure a retirement package, it will need to be funded.  But we must act judiciously when making changes to the current program.  Cut off payees – and ratepayers will make up the difference.  Change the type of program, and the potential for major losses occurs.

Does Delaying Decisions on Infrastructure Help Us?

May 21, 2013
Development loans, economy, Environment, funding, infrastructure, innovation, Insurance, Leadership, management, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized
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If you live on an island, and your groundwater table is tidal, what should your datum be for storm water planning purposes?  Average tide?  High tide?  Seasonal high tide?  If you are the local official with this problem, what do you do, realizing that the difference from mean tide and seasonal high tide (when most flooding occurs) is 1.5 feet?  Realizing that property and infrastructure is at much higher risk for periodic inundation, does the failure to address the problem indicate a lack of willingness, understanding, hope or leadership?  We see all four responses among local officials, but the “head in the sand” mode is the most curious.  It’s tough challenges that often define leaders.  With sea level rise, there is time to plan, construct infrastructure in stages, arrange funding, and lengthen the life of infrastructure and property.  Meanwhile, those insurers, banks and the public we talked about in a prior blog wait and watch.