October 2023 Archives

Whose Advantage?

Progressive Democrats such as Bernie Sanders have long promoted Medicare for All as the solution to the country’s health insurance problems. Given the popularity of Medicare among the seniors it serves, extending the program to other age groups has a great deal of appeal.

The problem, though, is that Medicare is not a single program. It is an assortment of coverage options that can be bewildering to those turning 65 and to participants during the open enrollment period each year when they must decide whether to stick with their current plan or jump to another. The 2024 open enrollment period began on October 15th and ends December 7th.

Seniors are currently being bombarded with coverage offers, not from the federal government, which oversees Medicare, but from the private insurance companies which have gained a significant foothold in a nominally public program.

That involvement may take the form of supplemental coverage for the 20 percent of medical costs Medicare does not cover. Prescription drugs coverage, which was not part of traditional Medicare, was added in 2006 through a system that requires most participants to purchase plans from private insurers.

Most problematic is the coverage designated as Medicare Part C, which is more commonly known as Medicare Advantage (MA). Whereas traditional Medicare operates much like the fee-for-service health insurance many Americans receive through their employer, MA is more akin to a health maintenance organization or HMO. Instead of paying doctors and others for providing service, MA gives plan providers, which are usually commercial insurers, a lump sum for each beneficiary. They are then responsible for managing patient care. Around half of Medicare participants are in MA plans.

MA providers claim that they can offer improved care, including services such as dental and vision which are not included in traditional Medicare. They also depict themselves as the solution to runaway medical costs. To the extent this is true, the MA providers achieve these results through many of the same ruthless practices that gave HMOs and managed care a bad name starting in the 1990s.

That means erecting roadblocks to care by limiting beneficiaries’ choice of providers, requiring prior authorization for many procedures and refusing authorization at a high rate.

It turns out that MA also fails to deliver on the promise of reducing healthcare costs for the Medicare program. A recent report from Physicians for a National Health Program estimates that the way MA’s capitated system is structured causes taxpayers to overpay the plans at least $88 billion per year and perhaps as much as $140 billion.

Along with these technical reasons is old-fashioned fraud. The Justice Department recently announced that Cigna would be paying $172 million to settle allegations that it submitted “inaccurate and untruthful” diagnosis codes to the federal government to inflate risk adjustments and thus boost the MA payments it received.

Cigna is not alone. As shown in Violation Tracker, Sutter Health paid $90 million to resolve allegations of submitting inaccurate information about the health status of its MA beneficiaries in order to get its payments increased. It had previously paid $30 million for similar misconduct.

An analysis last year by the New York Times found that all but one of the top ten MA providers had been accused by the federal government of fraud or overbilling.

When we talk of Medicare for All, we need to be clear that means an extension and ideally an enhancement of traditional Medicare–not the false promise of Medicare Advantage.

The Corn Dust Conspiracy

About 5,000 workers are killed on the job in the United States each year. Some of these are pure accidents, while others may result from a lapse in safety procedures. Most disturbing are those caused by a failure on the part of management to rectify known hazards.

Solidly in the latter category is the wrongdoing attributed to Didion Milling. In 2017 a dust explosion at a corn mill operated by the company in Cambria, Wisconsin killed five workers and seriously injured others. Six years later, corporate officials whose actions contributed to the disaster and then concealed its causes are finally being held to account.

A federal jury recently convicted Didion’s Vice President of Operations, Derrick Clark, of conspiring to falsify documents, making false environmental compliance certifications and obstructing the Occupational Safety and Health investigation of the explosion. Shawn Mesner, former food safety superintendent at the plant, was convicted of conspiring to obstruct and mislead OSHA by falsifying sanitation records concerning the accumulation of corn dust at the mill.

In other words, Clark and Mesner were found to have covered up dangerous conditions before the explosion and then engaged in a cover-up after the fact. They did not act alone. Three other company officials previously pleaded guilty to related charges. A sixth official was acquitted.

The company was also prosecuted. Last month it pleaded guilty to falsifying records related to its Occupational Safety and Health Act and Clean Air Act obligations. Although Didion has not yet been formally sentenced, it has agreed to pay $1 million in criminal fines and $10.25 million in restitution to the victims of the accident and their families.

The Didion case exemplifies some harsh realities about U.S. workplace practices.

First, it demonstrates the willingness of some employers to put the lives of their workers at risk to boost their bottom line. It is no secret that corn dust is highly combustible and needs to be reduced through careful sanitary practices. Didion and its managers decided to sidestep these practices and instead falsify records to conceal their reckless behavior.

Second, it illustrates the myth of over-regulation. The Didion facility had been cited by OSHA for dust explosion hazards six years prior to the explosion. In 2011 it was fined all of $6,300—which it negotiated down to $3,465. It appears that Didion then began keeping false records while OSHA was kept in the dark about the increasingly dangerous conditions at the mill.

Third, it shows how the country has become blasé about both workplace hazards and the difficulties faced by an over-extended OSHA to do anything about them. I find it remarkable that the Didion accident and the subsequent revelations and legal proceedings have received so little coverage outside Wisconsin.

It is true that Didion is not a well-known company, but the story of its egregious behavior needs to be more widely told. This case also deserves more attention in that it is a rare instance in which managers were held personally liable for their efforts to subvert the regulatory system. The sentences they end up receiving will be an indicator of how serious a crime such behavior is considered to be—and how much we value the lives of workers.

The Junk Food Industry’s Drug Problem

There’s a crisis related to junk food in America, but unlike in the past, the problem is not that people are eating too much of it and harming their health. Instead, consumption levels are declining, darkening the prospects for companies that depend on selling products filled with saturated fat and sugar.

The reason for this is the arrival of Ozempic and other weight-control medications that are highly effective in controlling the urge to overeat. From a public health perspective, this is great news. These drugs have the potential to substantially reduce obesity and related medical problems such as diabetes. Use of the drugs is soaring, and analysts expect millions more to follow suit.

While pharmaceutical companies are making a killing from these high-priced drugs, the food industry is faced with reduced demand. Most vulnerable are those companies that profit from binge eating, especially the snack food sector. According to the Wall Street Journal, executives at these firms are being barraged with questions from investors about the impact on profitability and stock prices. Wall Street analysts are pointing to vulnerability for manufacturers such as Hershey, Mondelez International (which makes Oreos, among other things) and Hostess Brands (Twinkies, etc.).

Not long ago, companies such as these were riding high as Americans boosted their junk food consumption during the pandemic. Kellogg was pressed by Wall Street to split into two so that its faster growing snack business (Pringles, Cheez-It, etc.) would not be held back by the less dynamic breakfast cereal operation. The separation was recently completed, but now the new Kellanova snack company may be less appetizing for investors.

A recent report by Barclays also sees negative consequences for fast food chains, soft drink producers and even cigarette companies, given anecdotal evidence that the drugs may also suppress the urge to consume other addictive substances.

These financial warnings serve as a stark reminder of how much American packaged food producers and fast-food chains have profited from unhealthy consumption patterns that they themselves helped to bring about.

It is unclear how these industries will respond to the Ozempic revolution. In the short term, they may root for the health insurance companies currently doing whatever they can do to avoid coverage for drugs that have a list price of up to $16,000 a year. Those refusals are already being met with legal challenges.

If they continue to cater to those who cannot gain access to the drugs or choose not to use them, the snack food makers will in effect follow the lead of the tobacco industry, which continued to profit from the addicted while overall smoking levels declined.

It is also possible they will choose the higher-road approach of modifying their product lines to include more nutritious offerings. Many food companies have already taken this approach. The problem is that these foods are often not significantly healthier. For example, Kellogg’s (and now Kellanova’s) Nutri-Grain bars are widely criticized for being high in sugar and low in fiber. Packaged food companies have paid out millions of dollars in class action lawsuits accusing them of making unsubstantiated health claims for their products.

The best outcome would be if large numbers of people freed of their addictions by the new drugs choose to focus their diet on fresh foods, and the worst packaged brands wither away from lack of demand.

Watching the ESG Watchmen

Investment advisors that adopt the label ESG present themselves as arbiters of corporate behavior. They claim to identify which companies are serious about environmental, social and governance goals and thus deserve to be included in high-minded portfolios.

But who watches the watchmen? Who determines when the ESG gatekeepers have gone astray? The answer turns out not to be Ron DeSantis and Republican Attorneys General who have been attacking what they see as wokeness in the business world. Instead, it is the traditional cop on the financial beat—the Securities and Exchange Commission.

The SEC recently brought charges against a subsidiary of Deutsche Bank for misleading investors by exaggerating the extent to which it actually applied ESG principles in its stock recommendations. DWS Investment Management Americas Inc. (DWS), according to the SEC, “failed to adequately implement certain provisions of its global ESG integration policy” and “failed to adopt and implement policies and procedures reasonably designed to ensure that its public statements about the ESG integrated products were accurate.”

DWS, which agreed to settle the charges by paying $25 million in penalties, was also accused of failing to develop an adequate program to make sure its mutual funds were not being used for money laundering. The accusations against DWS essentially came down to deception and negligence.

It is, of course, ironic that a firm whose mission is to monitor the behavior of other companies was found to have serious deficiencies in its own conduct. Yet the real lesson of the DWS case is that the E in ESG does not stand for “ethical.”

This becomes abundantly clear when we look at the track record of many ESG investment advisors as well as the companies that score well in ESG ratings. DWS stands out in this regard. Its parent Deutsche Bank is the ninth most heavily penalized parent company in Violation Tracker with nearly $20 billion in fines and settlements in the United States since 2000.

The bank has, for example, paid out enormous sums in multiple cases involving offenses such as manipulation of interest rate benchmarks, facilitation of fraudulent tax shelters, deception of investors in the sale of what turned out to be toxic securities, and violation of anti-money-laundering laws. The latter included a $425 million settlement with the New York Department of Financial Services of allegations its Moscow, London and New York offices participated in a mirror trading scheme that laundered $10 billion out of Russia.

Despite this record, Deutsche Bank scores pretty high in some ESG rankings. The same combination of heavy regulatory penalties and high ratings can be seen with other investment firms such as Goldman Sachs and Morgan Stanley as well as companies in many other industries. Even fossil fuel culprits such as Chevron and Occidental Petroleum get relatively high ESG scores.

All this is further evidence that the real problem with much of the ESG movement is not that it goes too far, but rather that it is often used as a smokescreen to hide all manner of corporate misconduct by those claiming to promote virtue.