Featuring Lutts’ Logic:
Health Care, Politics and Education
The College Swimming Requirement
Better than Insurance?
Today’s Cabot Wealth Advisory contains a lot of little ideas that I assembled last week; in fact, I nearly titled it potpourri, but I was put off by the association with aromatic plant material, not to mention the fact that in French, the term means “rotten pot.”
Upon further reflection, I realized the common theme uniting these elements is the theme of personal responsibility. So here we go.
Last week, I received a notice informing me that Cabot’s medical insurance premiums would go up next year. No surprise there. It happens every year. What shocked me, however, was the amount of the increase … 26%!
Unless my doctors are being paid in gold, there’s no good reason for this.
The reason, such as it is, is that someone has to pay for the universal medical coverage we now have in Massachusetts, and the insurance companies have decided it will be me, and the thousands of other small businesses who lack the clout to cut a deal with their insurers.
So I’m going to look around, try to find a better deal, but I’m not very optimistic about it. In the end, this is going to hurt my employees, who will find themselves with less insurance coverage or smaller paychecks or both.
If you’re living outside Massachusetts, watching our politicians debate healthcare on the national stage, don’t say I didn’t warn you.
As for that national health care bill (which should really be called the national medical money bill), it looks like we’ll end up with a system that benefits everyone who’s already part of the establishment. The insurance companies will keep on skimming their piece, keeping for themselves between 13% and 34% of every dollar they collect. The doctors will keep on trying to maximize their income by seeing more patients and billing for treatments that are well reimbursed. And the hospitals will keep on doing whatever the insurance companies will pay for.
The main difference, as I see it … and I’ll admit I’m a little steamed about this now … is that I’ll have to pay more for it. I may have more red tape to deal with. I may have even less choice, and less opportunity to take personal responsibility. But I don’t see a single thing Washington is doing that’s going to make the medical experience better for my employees or me.
What we really need, as I’ve said before, is a focus on health … on staying healthy through diet, exercise and education. And quite possibly a big tax on junk food. But no one with big money is lobbying for those changes.
Here in Massachusetts, in fact (switching gears slightly), big money is being spent to capture Ted Kennedy’s Senate seat. Leading the pack is the sole woman in the race, Martha Coakley, the current Attorney General. Coakley is a lawyer, she’s been working for the state in the Attorney General’s office for 23 years, and if elected, there’s no doubt she would honor Ted’s legacy by continuing to grow government in the name of protecting the little people, all while taxing the working people and small businesses who actually provide the majority of jobs in the state.
I think there’s a better way, and it was well articulated in last week’s Boston Globe by the newspaper’s token conservative columnist, Jeff Jacoby, who wrote the following.
“Congress is filled with permanent members of the political class, government lifers addicted to the influence and prestige that come with high office. In a setting that glorifies politics and fawns on public “servants,” the air is thick with the arrogance of power, a narcotic that deludes politicians into thinking not only that they are capable of exercising authority over others, but also that they are uniquely qualified to do so.
“Two of the four Democrats in the Massachusetts Senate race, Coakley and Capuano, are career politicians. For all I know, either might turn out to be a splendid senator. But surely the last thing this state needs is to elevate yet another government lifer, yet another professional officeholder, steeped in the culture of politics.
“Whatever else might be said about the other two Democrats–Khazei and Pagliuca–they have spent their lives in the real world. They know what it means to build something from the ground up, to risk their own assets on a goal they believe in, to bring a dream to reality without being able to pass a law ordering others to do it.
“As a conservative, I don’t share Khazei or Pagliuca’s politics. But I would much rather vote for either of them than for yet another lifelong member of the political class.”
Then on Sunday, the Boston Globe surprised me by endorsing Alan Khazei (co-founder of the City Year service program), primarily on the grounds that Coakley is an uncreative drone while Khazei is a visionary leader.
Nevertheless, unless Coakley murders someone between now and election day, I think she’s a shoo-in (partly because of the female vote) and that you can count on Massachusetts’ senators to vote the classic liberal ticket for years to come: tax, spend and control.
But (switching gears again) there is a bright spot … with an ironic twist. Over in the education sector, which has long been controlled by Democrats, there’s a growing realization that merit pay for the best teachers can result in improved performance. The NEA (the largest union in the U.S.) is against it, of course; they want to keep all their teachers employed. But the evidence is growing that the best teachers produce better-educated children, and that compensating teachers on the basis of seniority alone helps no one but the teachers themselves. In fact, President Barack Obama recently launched “Race to the Top,” a competition that will parcel out $4.5 billion to states that commit to true education reform that respects the power of academic standards and competition.
So I find it ironic (humor is good medicine) that just as Democrats are recognizing the shortcomings of an education system that serves the need of the teachers more than the students (the customers), they’re working to take power from the individual American health care consumer (the customer) and vest the establishment (in this case Washington) with even more authority.
The trouble with that, should it come to pass, is that Washington is absolutely terrible at discriminating. The more central control there is, the more we’ll all be treated the same, and the more you and I will continue to pay for the health care of people who don’t take care of themselves.
Consider this: According to Ralph Keeney, a decision analyst at Duke University’s Fuqua School of Business, a remarkable 55% of deaths for people aged 15 to 64 can be attributed to making bad choices. Chief among those are smoking, overeating and unsafe sex. Back in 1900, he estimates, the number of deaths attributable to bad behavior was just 5%.
The problem, of course, is that people value the present more highly than the future, and thus make bad calculations about the real cost of their actions. Some of these people are both poor and poorly educated and thus have a decent excuse. But some people, who are otherwise well educated, have no excuse at all. They smoke, they don’t buckle their seat belts, and they overeat to the point of obesity.
One institution of higher education has actually tried to address this problem. Four years ago, Lincoln University, an historically black school in Pennsylvania, mandated that obese students (those with a body mass index of 30 or more at matriculation) take a class called Fitness for Life (which teaches them about nutrition, exercise and healthy life habits) sometime before graduating. There was no requirement to lose weight, only to take the class, something Lincoln, a private school, has a right to do. But now, four years later, some two dozen students who have ignored that requirement may see their diplomas withheld.
The school hasn’t revealed how successful the program has been. We don’t know how many students have completed the course and how many have adopted healthier habits. But we do know that at least two dozen students in that first class have refused to take their responsibility seriously.
Many years ago (switching gears again), it was common for colleges in the U.S. to have a swimming requirement; you couldn’t graduate until you’d proved you could prevent yourself from drowning, typically by swimming a few laps of a pool.
The movement started after World War I, when the national Red Cross was working to reduce the number of accidental drownings in the country, but since the 1970, increasing numbers of colleges have dropped the requirement. Today, the following schools still have a swimming requirement: Bryn Mawr College, Columbia University, Cornell College, Dartmouth University, Hamilton College, Massachusetts Institute of Technology, the University of Notre Dame, Swarthmore College, Washington and Lee University, the U.S. Air Force Academy, the U.S. Military Academy and U.S. Naval Academy.
Yet there are still roughly 4,000 accidental drownings in the United States every year. Children under one year of age tend to drown in bathtubs, buckets and toilets; children one to four tend to die in residential swimming pools, and most drownings over age 15 occur in natural water settings, often as a result of boating accidents.
Males are four times as likely to die from drowning as females. Black children are more than three times as likely to die from drowning as white children, while American Indian and Alaskan Native children are more then two times as likely.
Swimming is not difficult, particularly if you learn when young. Ideally, your parents ensure that you learn when you’re a child, but if they don’t, it’s smart to take responsibility for that learning yourself.
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OK, now that I’ve got those thoughts off my chest, I have an investment idea that’s relevant.
It’s Medifast (MED), the purveyor of pre-packaged portion-controlled meals. The primary market for its products is people who want to lose weight; a secondary and overlapping market is people who want to control Type 2 diabetes.
Back on August 17, when the stock was selling at 15, it earned a spot in Cabot Top Ten Report, and here’s some of what editor Mike Cintolo wrote:
“In recent weeks, we’ve twice seen nutrition supplements juggernaut NBTY in Cabot Top Ten Report so it’s no surprise that we now see Medifast, a company that sells “meal replacements” designed to help customers lose weight. The foods–including shakes, stews, soups, oatmeal, chili, eggs, bars and puddings–enable the customer to eat six times a day, but the food is low-fat, low-carbohydrate and low-calorie, so a person who sticks to the plan succeeds. The company has grown revenue every year of the past decade, and the stock is strong now because Medifast’s recent efforts have resulted in an acceleration of growth of both revenues and earnings. The company has four main sales channels–direct marketing, direct sales, bricks-and-mortar clinics and doctors–and the recent boom has come from hiring new “health coaches” (there are 4,650 of these salespeople in the direct sales channel) and from better managing spending in the direct marketing channel. Impressively, after-tax profit margins in the past two quarters have been 7.4%, the highest since the third quarter of 2006. A wild card here that could help is the current national focus on healthcare reform, which is increasing awareness that our national obesity is unhealthy and costly. Properly managed, Medifast could go far.”
Since then, the stock is up 79% … and today it appeared in Cabot Top Ten Report again!
Part of the reason for the stock’s strength is the superb third quarter earnings report, which saw revenues up 65%, continuing their trend of acceleration. Earnings grew 109% and profit margins, at 7.6%, were higher than they’ve been in more than three years.
I like the stock because the company is still fairly small, with annual revenues of $145 million. I like it because it serves a true mass market. And I like it because America needs it. In fact, (cycling back to my original thought about my medical insurance) I’m thinking that the $75 a week that Medifast costs might be a better “investment” than insurance premiums that buy access to our health care system!
But if you do invest in the stock, beware of volatility. This stock is a mover.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory
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