The first day of the RFK Compass Conference presented by the Robert F. Kennedy Center for Justice & Human Rights just ended. The purpose of the conference is to explore expanding and modernizing the interpretation of fiduciary duty in a way that considers the sustainable long-term success of both corporations and pension funds. This is a complex subject that spans the law and prudent financial practices.
As part of the discussion two progressive investment philosophies emerge, Sustainable Investing (SI) and Socially Responsible Investing (SRI). The website www.sustainableinvesting.net provides this definition and distinction:
“SI vs. SRI
The desire to “do well by doing good” is common to both Sustainable Investing (SI) and Socially Responsible Investing (SRI). The key difference between the two approaches is that SI investors tend to give more weight and attention to environmental issues than do their SRI brethren.”
“Doing well” – means making an investment profit.
“Doing good” – means investing in companies that: (i) have a strong track record on environmental issues; (ii) offer their employees affordable health benefits; (iii) practice humane labor policies and nondiscriminatory employment; (iv) locate some of their operations in distressed communities; (v) have an established culture of product and workplace safety; (vi) promote ethical corporate governance and transparency; and/or (vii) establish fair and measurable standards for executive compensation, among other things, investment factors often given the “softer issues” label.
SRI theorizes that companies that possess these qualities will be more sustainable in the long-run because they will, as examples: (a) be less prone to industrial accidents, fines for environmental violations, and product recalls; (b) have a stronger, healthier, more productive and loyal workforce; (c) be supported and promoted by their communities; and (d) be less likely to commit corporate malfeasance.
It is not weird to be contemporaneously supportive and suspicious of these ideas. SRI standards make sense as a model for business behavior, but as investment criteria do they require sacrificing some amount of risk-adjusted return to “do good,” i.e., social work at the financial expense of the investor?
David Blood used to run Goldman Sachs Asset Management. Today he runs Generation Investment Management, a firm dedicated to SI investment and research. Steve Strongin is the current Head of Goldman Sachs Investment Research, a group that publishes research called the GS Sustain, an analysis of 35 leading global corporations recommended for long-term investment based on an investment framework designed to evaluate sustainable competitive advantage.
Blood and Strongin argue that the principals of SI and SRI should not be used alone, but as additional criteria to investment selection. Investors should seek out corporations that first and foremost have superior risk-adjusted returns, great management and a compelling strategic direction. When these traditional metrics are contained within an enterprise that consistently acts as a solid corporate citizen, i.e., demonstrates the “doing good” characteristics of an SRI, you have the basis for earning superior returns over the long run. This makes sense – along with great returns and a great strategic position, great behavior provides a risk umbrella, a hedge to social, environmental and health issues within and around the enterprise that should brace performance over the long run.
In the meantime, the phrase “Government Innovation” reminded me of the late-great George Carlin, and so I thought you might get a laugh out of the following list of Carlin’s odd expressions and the accompanying video of GC taking our modern vocabulary to task.
I often consume music through serial obsessions which have certainly served as a filter for putting together my FAD list, a recollection of all the new records and artists I could not get enough of at some point during the last decade. I also get re-obsessed with older music, often in regular cycles. There’s a yearly all-out Beatles orgy. I remember listening to nothing but Bob Dylan for about three months after seeing Todd Haynes’ 2007 Dylan fetish film I’m Not There, a pass I repeated recently after reading Greil Marcus’ Old, Weird America: The World of Bob Dylan’s Basement Tapes.
The absence of a FAD post in previous weeks is a result of just such a re-binge. I have been Strung Out in Heaven, if you will, with the Brian Jonestown Massacre (BJM), a band I suspect many of you have not heard, but one I really want you to hear.
Indie Music – a technical definition – from Wikipedia – “a term used to describe independence from major commercial record labels and an autonomous, Do-It-Yourself approach (DIY) to recording and publishing.”
Indie Music – a working definition – music most people have never heard made by artists most people have never heard of.
Indie Music – a reality – often great music made by artists that fail to achieve mainstream notoriety during the most active portion of their careers, either because of their avant-garde nature or because of a deep flaw in their actions or temperament that leaves them incompatible with the uncompromising workings of scaled commerce, a/k/a the music business.
The Brian Jonestown Massacre is Indie Music, complies with each of these definitions, and is a complete mess, in some ways a real massacre, of itself. It’s an Indie band for life, featuring throughout its history over 40 different musicians, most leaving the band as a result of impossible differences, or a violent exchange, or both, with BJM’s founder, the sole constant over the band’s history, and apparently a complete and utter psychopath, Anton Newcombe.
There is always wonder surrounding a BJM live show. Will Anton blow-up on stage, resulting in a completely ridiculous gig, probably cut short by his and the band’s inability to resume peacefully, or will the band be tight and musical. In either case it is entertaining, but if you are lucky enough to see a show where all goes well, as I was on June 5, you’re likely to see and hear some of the best 60’s-influenced psychedelic-pop music in the world. The band is really that good, particularly its catalogue of music created from the Mid-1990’s through around 2004.
It turns out there’s a lot in a name if there is enough thought put into it, and Anton is a purposeful and revealing namer of his band, its songs and its albums. The name Brian Jonestown Massacre tells us a lot about the sound, a wacky tribute to: (i) one Brian Jones, the long-dead founder of the Rolling Stones and one of rock’s first multi-instrumentalists, (ii) cultism, (iii) violence and (iv) hypnotics. Not surprisingly, Anton, an American from California, is: (1) a devoted anglophile, (2) a lover of late-sixties-early-seventies trip music, a la Sgt. Pepper-era Beatles, Jones-era Stones, Syd Barrett-era Pink Floyd, (3) a shoegazer (think My Bloody Valentine and Jesus and Mary Chain), (4) underground, and (5) obsessed with the sound of 1960’s guitars underneath the beat of maracas and tambourines. BJM picks up these classic sounds and movements, revitalizing them in a contemporary context, combining candor, abstraction, irony, love, and, oh, some damn catchy hooks.
This band should have been ample competition for Oasis and Blur in the 1990s, but even as messed up as both those Brit-rock 90’s favorites were, BJM had them beat. BJM just could not be counted on; they were a bad investment, blowing every opportunity for mainstream exposure. Today they exist primarily as an influence on many current, highly successful revivalist bands like the White Stripes, the Black Keys and the Strokes. They still play to small clubs and ballroom audiences that learned of them primarily through indie rags and their starring role in the 2004 award-winning documentary DIG!, a terrific film that presents the absurdity, comedy, violence and occasional genius of Newcombe and his ever-changing band of followers over a seven-year period where they regress from leaders of the Indie Music scene to also-rans to their major-label-neo-psychedelic contemporaries The Dandy Warhols.
Despite all of its flaws BJM is not lazy. Anton is an obsessive worker and a super-prolific songwriter with a discography that includes at least 19 available EP/LPs made mostly by the band themselves. Most BJM’s records are of the DIY variety, made on low budgets and pretty much anywhere the band could find recording equipment. From 1993-2004 the songwriting quality is outstanding and consistent, but some of the recordings are not. The one major label record (for TVT Records in 1998) is the herein referenced Strung Out in Heaven, a higher budget affair and the perfect entry point for BJM newbies. If you like the Beatles, the Byrds, the Animals, the Velvet Underground and/or early Rolling Stones, I believe you will adore this album. If that’s not enough, and for me it wasn’t, try Their Satanic Majesties’ Second Request followed by a greatest hit compilation of sorts, Tepid Peppermint Wonderland. The good news is that if you get hooked, and you might, there is plenty more great material to explore.
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Notable(s):
Dig! is a fantastic film – check out the trailer below – see it.
Whoever this drfostersmith is, he’s got some great footage of the new BJM line up on youtube. Here’s one of my favorites, Anemone, from the BJM album Their Satanic Majesty’s Second Request, a two chord hypnotic that my wife plays along with at home on her lefty guitar. This version was performed during BJM’s recent 2010 tour, featuring Anton’s reunion with founding member Matt Hollywood. Check out all those gorgeous 60’s guitars. How many are there? Too many to count, man!
I – I think I know how I feel
cause I – I only play it for-real
you should be picking me up
instead you’re dragging me down
flying over my head
you’re landing all over town
you – you know that I try
try to tell you the truth
oh baby don’t make me lie
you should be picking me up
instead you’re dragging me down
now I’m missing you more
cause baby you’re not around
now that you’re not around
I – I want to know how it feels
cause I – I only play act for-real
you should be picking me up
instead your dragging me down
I could be giving you love
but you’re not around
now that you’re not around
now that you’re not around
glad that you’re not around
If your curious about BJM’s personality, check out this interview with “Anton the Vessel,” which speaks for itself.
In my previous post, Value-Based Healthcare Part 1, I talked about the two primary business risks faced by insurers, Moral Hazard and Adverse Selection. Recall that for health insurance markets to work effectively they must be structured to mitigate Adverse Selection (i.e., the reality that the very fact that someone is seeking insurance might make them uninsurable in the first place). This means that the healthiest people must stay in the market as part of the risk pool, otherwise the underwriting will not work at affordable premium rates. As such, employer-based Group Model health insurance has evolved as the prevalent distribution method.
So who pays for employer-based health insurance?
Today health insurance costs average about $4,800 per person per year. While this expense is paid for by employers, it is essentially part of salary costs, and so it is really money that would otherwise be paid to employees were it not for the mandatory participation required in most Group Model plans.
Employers offer to buy the coverage on behalf of employees because they believe that having their employees insured improves productivity and it is viewed by prospective employees as a competitive perk. This works out well from a risk pooling perspective, making Group Model insurance less expensive on average. But what really drives the Group Model is its income tax subsidy. The federal government does not assess income taxes on the value of Group Model health insurance (this subsidy does not exist for individual purchases of health insurance).
This tax subsidy is massive. The average employee is in the 25% federal income tax bracket, making the subsidy worth about $1,200 per year (25% of the $4,800 average annual premium). Approximately 180 million people participate in Group Model plans, meaning the total amount of this annual subsidy is about $216 billion per year.
So who pays for employer-based health insurance?
According to these calculations 180 million employees cost a total of approximately $864 billion, $648 billion is paid for by employees through payroll deductions and about $216 billion is paid for by the federal government through income tax subsidies. These amounts exclude out-of-pocket expenses, which are by enlarge paid for by employees.
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Let’s get back to Moral Hazard.
Have you ever noticed that people are very hesitant to make claims on their automobile and property insurance? Rarely do the costs of minor fender benders result in an insurance claim. Why? Because people fear that claims on their auto policies will result in either their premium increasing or their policy getting cancelled. People tend to reserve that type of insurance for major catastrophes, paying the cost of minor accidents out of their own pockets.
Most people do not behave this way when it comes to health insurance. A very high percentage of healthcare expenses become insurance claims.
Few people lose their insurance because of high insurance claims. As claims increase, the burden of the higher premium is shared among the risk pool. As a result, Moral Hazard (changing your ethics because you don’t pay for the consequences of your bad behavior) in Group Model plans is severe, and many believe it contributes significantly to the 8-12% average annual healthcare inflation rate. Despite the reality that employees pay for more than 75% of the cost of their health insurance, they are fearless when making insurance claims.
Employer-based health insurance suffers from Moral Hazard. Despite the fact that it seems obvious that employees pay the most of the tab, the cost is not individualized and the consequences of bad behavior are not perceived as even remotely severe.
Research backs the notion that when an insured party pays a higher percentage of the total cost of the service Moral Hazard reduces.
So the question becomes, if we are looking for an employer-based health insurance model that will counter increased healthcare consumption why not just increase the out-of-pocket payments and reduce Moral Hazard?
In some cases higher out-of-pocket costs can lead to Unintended Consequences, namely people forgoing necessary treatment. For example, the medicines necessary to treat Type-2 diabetes are much less expensive than the costs associated with the side-effects of untreated diabetes like heart attack, stroke, amputations, blindness, etc. A health insurer wants Type 2 diabetics to take their medications, however high out-of-pocket charges often impose barriers to compliance.
Medications like Glucophage, a treatment for Type 2 diabetes, have a high value. The treatment costs about $400 per year, real money for an individual, but a small investment for a health insurer given that compliance with the drug should mitigate a number of side effects of Type 2 diabetes, saving money on hospitalizations and other forms of expensive healthcare. Further, Type 2 diabetics should see podiatrists and ophthalmologists regularly. Again, high co-pays for these services could mitigate compliance and increase adverse events within an insured diabetic population.
Value-Based Healthcare: Definition #2:
Value-Based Healthcare involves designing insurance benefits with economics that encourage (or remove the barriers to) the utilization of high-value healthcare services.
So why is Value-Based so new? What are the barriers to implementing Value-Based?
These questions will be covered in future posts.
To leave you with something to think about, it was only until recently that the information technology necessary to begin experimenting with the implementation of Value-Based Healthcare became available.
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