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Health care reform: A brief history of pesky little details

20 August 2009

For those of you who were convinced that the debate over health care reform reached an all-time low when Sarah Palin began discussing “death panels,” which apparently would be left to decide whether dear old Grandma might live or die under the Democrats’ plan, let me present another nominee for the (dis)honor:

Earlier this month, Investor’s Business Monthly ran an editorial (in)appropriately titled “How House Bill Runs Over Grandma” criticizing Democrats for wanting to set up a health care system similar to the United Kingdom’s National Health Service. Not satisfied with relying on dear old Grandma’s imminent demise to make its point, the editorial proceeded to turn renowned physicist Dr. Stephen Hawking, who suffers from Lou Gehrig’s disease, is paralyzed and speaks though a voice synthesizer, into its poster child for the evils inherent in the British system. According to the original editorial, which conveniently has been edited, Dr. Hawking “wouldn’t have a chance in the U.K.” because his life would be declared “essentially worthless.”

A great argument save for one pesky little detail …. Dr. Hawking is British and receives free health care through the National Health Service. What did Dr. Hawking have to say in response to the editorial? ”I wouldn’t be here today if it were not for the N.H.S. I have received a large amount of high-quality treatment without which I would not have survived.”

The porousness of twenty-first century innovation

17 August 2009

Yesterday’s New York Times contained an interesting article of relevance to efforts to reinvigorate the South Charleston Tech Center. It suggests that the internet and technology have transformed the economics of innovation.

While it was necessary for large corporations like IBM, GE, Hewlett-Packard and Union Carbide to bring together talent into mega-research parks in a bygone era, the need is less critical now as research, communication and social networks easily can be created electronically. One exception, according to experts: “[T]ight-knit teams inside corporate labs … can outshine the open model when working on multidisciplinary challenges in projects soon heading to market.”

The article suggests that it’s probably a better strategy to lure a number of MATRIC-size organizations and start-ups, rather than large national and multi-national corporation research units, to the South Charleston Tech Center.

Lessons from the i.v. league: Part ii

17 August 2009

Yesterday I addressed two lessons that West Virginia higher education institutions could learn from Harvard University’s endowment implosion. Today I will focus on two more from the Vanity Fair article.

Lesson No. 3: Operate at a level you can afford.

Former Harvard University President Larry Summers remarked: ”There is a temptation to go for what is comfortable, but this would be a mistake. The universities have matchless resources that demand that they seize the moment.” And seize the moment he did, building large buildings that would need to be maintained at greater and greater expense, increasing faculty and faculty salaries significantly, and making major new investments in the sciences, in large part from revenues generated from endowment proceeds. His goal apparently was to make 21st century Boston the equivalent of 15th century Florence (his words, not mine). Making Harvard’s financial situation more precarious, the new President Drew Gilpin announced a major new “college access” initiative to ensure that no student coming from a family with an income of less than $180,000 (poverty levels being different for Harvard families than for normal families) would be charged more than 10 percent of the family’s income for tuition.

While West Virginia has no institution that has spent as extravagantly as Harvard, it does have at least one institution that has seen operating expenses exceed operating revenues for several years – West Virginia State University. There are several explanations for the situation in which WVSU finds itself, but it’s a situation that definitely needs to be corrected.

Lesson No. 4: Make meaningful budget cuts.

The Vanity Fair article includes a humorous discussion of some of Harvard University’s cost-saving strategies. Early on, for instance, the author notes that free coffee for faculty, staff and students is no more at one Harvard facility. Much later the author notes that most operating expenses are for personnel. While it’s important to make reasonable reductions in costs from every line item in a budget, where possible, anyone who knows anything about higher education knows that far more than half and as much as 75 or 80 percent of higher education operating revenues are expended for personnel, benefits and related costs. Like many higher education institutions, Harvard is ill-equipped to make personnel-related reductions.

In overseeing West Virginia higher education finance (against my will and in spite of repeated pleas to be relieved of the responsibility) for a number of years, I quickly learned that there’s really only one way to balance a higher education budget – by reducing staff. If you’re savvy, you analyze vacancies and strategically realign staff over time rather than lay off people. You can cut office supply budgets, training budgets, turn the lights off at night, etc. and won’t save nearly as much as you would by liquidating one or more positions – and the office supply and training and electricity costs associated with those positions. Yet I repeatedly hear West Virginia higher education institutions claiming that they will be able to achieve significant cost savings in these other areas. It’s not true.

Lessons from the i.v. league: Part i

16 August 2009

The August issue of Vanity Fair contains a must-read article for all higher education trustees and institution and foundation administrators about Harvard University’s endowment implosion. Although Harvard is a a great distance both geographically and academically from most West Virginia higher education institutions, there is much to be learned from the Harvard experience.

Lesson No. 1: If investment returns sound too good to be true, they are.

Harvard University got used to double-digit endowment investment returns throughout the early part of this decade and believed they would continue forever. But at one point last year, Harvard reported an $8 billion, or 22 percent, loss in the value of its endowment over a four month period. To put that number in perspective, it’s more than 40 percent of West Virginia’s ENTIRE state budget if you include everything from federal revenue to special revenue like West Virginia higher education’s total tuition and fees. Why did Harvard go from doing so well to doing so badly so quickly? It was investing significant amounts in high-risk/high-return activities (e.g., high-tech start-ups, credit default swaps, cross-currency swaps, venture capital funds, junk bonds). What has Harvard had to do to address this crisis? Sell off parts of its investment portfolio at bargain basement prices and seek bonding at the worst possible time financially – December 2008. One commenter characterizes the situation in which Harvard finds itself now as a “death spiral.”

In Senate Bill No. 603 (2005), the West Virginia Legislature gave West Virginia University and Marshall University authority to invest a portion of their state funds through their foundations instead of through the Treasurer’s low-risk, low-return options. Both institutions were slow to take advantage of this flexibility, but ultimately did so – and, I’m pretty sure, have lost money as a result. The greater flexibility couldn’t have been given at a worse time for those two institutions.

Lesson No. 2: Build what you can afford.

Harvard University initiated an overly ambitious building program, which included construction of a $1.2 billion science complex, that had to be halted. To put this last amount in perspective, the proposed cost is about twice the ENTIRE annual state appropriation for West Virginia’s higher education system.

Have any West Virginia schools engaged in an ambitious building program that has proven difficult to pay for? Yes – Fairmont State University. The debt was undertaken assuming that more students would enroll and thus help shoulder the increased debt. Shortly after the debt was incurred, enrollment began to drop – stretching the University’s resources.

Public policy 101: Total rewards

14 August 2009

The West Virginia Legislature’s failure to approve a $500 bonus-like bonus payment for full-time state employees during the recently-completed special session raises several interesting issues not addressed by local media.

As a general rule, nothing goes on the Governor’s call unless there’s general agreement. What happened? During Governor Manchin’s first term, he wielded a lot of power. Now he can’t get a feel-good $500 bonus payment for state workers approved. Is this an example of his lame-duck status?
The annual increment law clearly covers higher education employees. Why did the Governor not include funds for those employees? Did the Governor expect students’ tuition and fees to pay for the bonuses – or that higher education employees would not receive the bonuses?
Did anyone question whether this was the best way to reward state workers? If you have a limited pool of funds, should you give it to everyone equally or try to determine who is most deserving?
Using the money for employee benefits would be tax-free, while these bonuses probably would be taxed at a heightened rate. Did anyone wonder whether it might be better to use these funds to offset health insurance premium payments or to cover retirement program debts?

Health care reform: A brief history of pesky little details

The porousness of twenty-first century innovation

Lessons from the i.v. league: Part ii

Lessons from the i.v. league: Part i

Public policy 101: Total rewards

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