Opinionated @ CFE

Mike Lee, Please Read Sun Tzu


Sun Tzu probably had no idea that his treatise “The Art of War” would still be often cited and respected over 2500 years after his death. It’s a masterpiece of strategic thinking that applies to any conflict be it military, political, or even athletic. The United States armed forces have even gone so far as to require that the book be in each unit’s library. One of the most prescient quotes from the works is “victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” Mike Lee seems to have completely skipped this part when agitating for a government shutdown.

I get why he’s doing it. Federal programs, once enacted, are very difficult to undo no matter how unpopular they get. If you don’t believe it, remember that a “temporary” phone tax enacted for the Spanish-American War was repealed sometime during the Bush Administration. For them, this is the last stand before a program they legitimately believe to be horrible rolls forward. The House is following because elections matter. It’s no coincidence that in the two federal elections after the ACA passed, the opposition party took control of the House. They rode in on a promise to undo the ACA, and they’re determined to fulfill it. If they don’t fight hard enough for the base, they’ll get replaced.

The problem is that while a shutdown could have potentially been a Battle of Rorke’s Drift, it’s starting to look a lot more like The Alamo. Lee has to be smart enough to know that a shutdown was coming and when it would happen. Given those circumstances, you’d think he would have laid the groundwork for explaining the issues with the federal budgeting process, the unworkability of creating new entitlements beyond the reach of Congress (which now comprises a full 2/3 of federal spending), and why playing a game of chicken to see who blinks first would be the best way to force the hand of a dug-in Senate and President. Instead, absolutely no narrative or purpose to the shutdown was created and the first to market ideas are now the defining narrative. Lee can’t even properly capitalize on the ham-fisted way in which national parks are being closed down, a prime piece of low-hanging fruit.

The failure to figure out how to win before picking the fight never ends well. It has already distracted media attention away from the train wreck that is the ACA launch and numerous stories about huge premium increases, both things that would build popular support for 2014 and beyond to eliminate the ACA. About the only silver lining is that the two parties have pretty clearly defined who owns the ACA and its attendant problems. I wonder if Mike Lee will find a way to screw that up too.

What do Comcast and Blue Cross have in common?


We love to hate cable companies. Thanks to little competition for their products, prices rise at least once a year and often twice. The customer service is maddening, we often end up having to buy products we don’t want to get the products we do, and there really aren’t a whole lot of alternatives to it without some serious market disruption. Come to think of it, those descriptions could very well describe your average insurance company. In most states, they have a commanding share of the market (60%+). They raise prices whenever they want. We hate the customer service, we’re covered for things we don’t want, and trying to find an alternative often results in frustration. It’s not hard to see how they’re in similar situations.

Cable companies act as distributors for video programming. They are middleman between us and the content we want. The content owners often want cable companies to agree to various terms to carry their content. This could be an agreement to carry less popular channels in exchange for the must-haves, specific channel assignments, or, as is usually the case, more money than last year. While we’re the consumers of the content, we have very little say in the purchasing decision. Almost annually, one or more cable providers will get into a fight to put on a good face as a customer advocate, lose the programming for a few days or weeks, and we get stuck with the higher bill.

In the same way, insurers act as a distributor for access to healthcare. They’re also middlemen, but between us and medical providers. The medical providers spend a lot of time and energy trying to maximize payments from insurance companies. The actual consumers of the service, you and me, have very little leverage or control over the process. In fact, we usually aren’t even able to find out what a given procedure costs, instead hoping that our insurance will, on our behalf, negotiate better pricing.

Just like TV viewers who traded their cable package for Netflix, doctors are already wising up to the insurance scam. With the cost of managing insurance claims and constantly cut payments, some practices spend more than half their income managing the mess. Some even go so far as to offer a sort of insurance of their own that, when combined with a high-deductible catastrophic plan, is much cheaper than carrying insurance. How do they do it? It’s not just the overhead. They’re also able to do tests either in-house or with negotiated rates of their own, sometimes for pennies on the dollar what it would otherwise cost.

So why hasn’t this model been broken to pieces? As John McClane says, it’s always been about the money. Just as with cable, there’s a lot of it on the table. Content providers like forcing every single cable subscriber to pay a small fee for their stations whether they want/watch them or not. It’s a model that puts a lot of money in a lot of pockets by socializing the costs. Medical coverage is largely the same way. In fact, well-managed quality care would likely shutter half the hospitals in the country. The Comcasts and the Blue Shields of the world are making a sizeable fortune on inefficiencies.

As with most enterprises facing their own extinction, the knee-jerk reaction is to try and insulate themselves against the changing winds, at least until they can figure out how to keep their bottom lines. Cable reacts by scaring programmers away from selling directly to consumers, degrading competitors that use their hugely profitable Internet connections to bypass traditional distribution channels, and blocking competition in their local markets with predatory pricing. Insurance is taking more-or-less the same road. They got a law passed to require everyone to buy their product, secured huge subsidies for those who can’t afford to buy it, and don’t have to answer at all for costs. Both have found ways to coerce others into supporting a model that they hate and want to replace.

What this highlights is the danger of strong market dominance by a single player. That dominance inevitably leads to higher prices for a lower-quality service. Solving those problems requires disruption from new players, not doubling down.

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