Tomorrow night is Halloween and that can mean only one thing: Christmas. This over-hyped annual ritual really comes down to inexperienced reporters cribbing the guesstimates of NY-based analysts about the prospects for Southern California merchants. Good luck sorting that out. Holiday sales are, of course, a big deal for retailers because they represent such a large portion of annual profits and because they can provide some measure of consumer confidence. But the complete picture won't become available until fourth-quarter financial results are released early next year, and for reasonably healthy chains, the numbers won't be jaw-dropping, one way or another. Holiday sales, in fact, are usually only significant in times of major growth or contraction - neither of which is at play in 2013. As for consumers, there's probably a timidness about spending this year because of the decent-but-not-great economy, but so much depends on individual situations (job, investments, debt, etc.). Here in L.A., sales are likely to be fine (helped along by international visitors). From this week's Business Update on KPCC:
Steve Julian: Business analyst Mark Lacter, whatever happened to "better late than never?"
Mark Lacter: Well, Steve, retailers never want to sell late because it often means having to reduce the price. They're looking to start out as soon as possible - and we're reminded every season that these last three months represent their biggest payday. And here in California people do seem to be buying stuff - consumer spending has been up for 14 consecutive quarters, going back to the spring of 2009. Also, consumer sentiment is at its highest level since the beginning of the recession in late 2007, though that's probably been brought down because of the government shutdown. But California is generally outpacing the rest of the nation.
Julian: There has to be a "but" in here someplace...
Lacter: The "but" is that only 60 percent of the jobs lost during the downturn have been recovered, and the unemployment rate in many parts of the state, including L.A. County, is still at or above 10 percent, which isn't what you'd call a healthy economy. And that's why holiday shopping this year could end up being sort of hit and miss. Folks who have well-paying jobs and a bunch of their money in the stock market - and Southern California has its share of both - those folks will probably be spending good amounts.
Julian: Are there geographic tell-tale signs?
Lacter: The closer to the coast you go, the more spending there's likely to be. But it's a different story if you're feeling vulnerable about your job or in the amount of savings you have in the bank. So you have retailers once again coming up with ways of reaching as many budget-conscious folks as possible, as early as possible. The most obvious move is opening their stores on Thanksgiving night - Macy's is the latest of the chains to get a head start on Black Friday. Another strategy is matching your prices with the prices on Amazon and other online retailers. All told, expect holiday sales to run 3 percent ahead of last year, with the L.A. area likely to be a bit higher. Decent, but not great.
Julian: What's the message to consumers now: buy or not buy?
Lacter: Well, we'll start with the good news - gasoline prices are at their lowest level since the beginning of the year, with an average gallon of regular in the L.A. area running $3.75. If those numbers keep falling into November and December, consumers might feel comfortable enough to buy more at the malls. Here's some more good news - the L.A. area has seen a huge drop in the number of homeowners who are underwater, which happens when the value of a property is less than the amount that's owed on the property. This of course was a big problem during the recession, but over the last year the median home values have gone up between 20 and 30 percent.
Once again the Obama administration has managed to trip over its own message - badly. The president's "promise" that policyholders would be able to keep their present heath care coverage doesn't mesh with the millions of people (hundreds of thousands in California) who have received cancellation notices - and who, in many cases, are being asked to pay significantly higher premiums. Forget the website, this is the story that's getting everyone's attention - and indeed Obama's misleading comments show either an appalling ignorance of his own plan or a willful distortion of the law's confusing facets. Either way, it's not great. However, it's not the whole story, as I posted on Tuesday. Policies are being cancelled because, for various reasons, they don't adhere to the minimal standards that were established under the Affordable Care Act. Comparing those old plans to the ones now being sold is like comparing an orange with a grape. But it's far more involved than that - the Washington Post's Ezra Klein says that determining price has always come down to three things: comprehensiveness, accessibility, and affordability.
The Affordable Care Act makes individual market insurance both more accessible and more comprehensive. The accessibility comes from barring discrimination based on health status and limiting discrimination based on age. The comprehensiveness comes from setting minimum standards about what insurance needs to cover and what kind of limits it can set for out-of-pocket expenses, etc. What's important to understand about this trilemma is that it means, roughly, that every change has winners and losers. Put bluntly, the Affordable Care Act's changes are raising insurance premiums for some people who did well under the old system and lowering them for many of the people who were locked out or discriminated against. A good example of the tradeoffs is the case of Dianne Barrette, a 56-year-old Florida woman who's been featured in the media because her current plan will cost 10 times more under Obamacare. As Erik Wemple discovered, her old plan was health insurance in name only. It didn't cover inpatient hospital care, it didn't cover ambulance services, and so forth. Under Obamacare, all plans have to cover those benefits. So Barrette's old plan was extremely affordable -- $56 a month -- because it covered basically nothing. Her new plan is much more expensive but also much more generous.
As you might gather, this is enormously convoluted and none of it has been explained very well by the White House. Why? Because, as Klein points out, every change has winners and losers and no elected official wants to admit that as part of the greater good some people will wind up on the short end (even though many of those people are entitled to subsidies and they're all probably better off in the long run with a plan that offers more coverage).
One thing to note about the media coverage around this is that some of the old plans in the individual market are being canceled or moved onto the exchanges at a time when the exchanges aren't really working. So we're hearing from people losing something but we're not hearing much yet from the people who're gaining insurance, or lower-priced insurance, through the law. That's another consequence of the web site's failures, but it's a temporary one. There will be some losers under Obamacare, but because of the subsidies, many more winners.
Preparations for catastrophe have never been so entertaining. Virgin America's five-minute safety video (think of a Busby Berkeley routine for millennials) is another way for the Bay Area-based airline to stand out from its larger and more profitable competitors. What Virgin needs, however, is more than a floor show; it's a bigger network, and that costs money. The video was directed by Jon Chu and features music and lyrics by former "American Idol" contestant Todrick Hall (note all the room between seats - just like real life).
No one questions how scary it must be to be told that your health care plan is being cancelled - and that the replacement policy could be two or three times more expensive. But there's more to the story, according to the Washington Post's Sarah Kliff. First off, the cancellations only affect the people who buy individual policies - maybe 5 percent of the insurance market, and not even all of them. (This includes between 200,000 and 300,000 Californians.) Most of these people hold policies a short time as a kind of placeholder; one study found that only 17 percent purchased the same plan for two straight years or longer. More importantly, some of these plans offer extremely limited coverage - no maternity care, mental health benefits or even prescription drugs, for example. This, of course, was the whole idea behind the Affordable Care Act: Establishing minimal standards. Opponents would argue that the government should not be in the business of determining what coverage needs to be included - that policyholders must be empowered to make those decisions. That's a reasonable point - except that when one of these bare-bones plans doesn't cover a procedure or prescription or whatever, someone must still pay the bill - and it's doubtful the check will be coming from the policyholders. Why do you think they're taking these policies in the first place? And let's also not forget that paying higher premiums at the front end usually results in lower out-of-pocket expenses when something does go wrong. Point is, these calculations are nebulous, and we tend not to do nebulous very well. From Kliff:
How did nobody see this coming?
President Obama has repeatedly said, since the health law passed, that if people like their insurance they could keep it. Which is a weird promise to make when one of the key goals of the health-care law is to change individual market insurance coverage.
Who thought that was a good idea?
The drafters of the Affordable Care Act! The whole idea of the insurance expansion isn't to get Americans to purchase anything called "insurance." It's to get them to purchase a specific kind of insurance, a plan that is relatively comprehensive and helps protect against financial ruin. If Americans were going to be required to buy a product, the reasoning goes, it should be one that can actually do some good. Of course, not everyone agrees with this; some contend that shoppers should be able to continue buying less robust insurance policies and have the option of taking on more financial risk.
Will insurance cost more?
This will vary a lot from person to person. Some people who are buying a bare-bones plan right now will likely see higher premiums under Obamacare. They'd be getting more benefits -- but paying more in premiums. Some people will get financial help buying that more robust insurance; people who earn less than 400 percent of the federal poverty line (about $45,000 for an individual) can use a tax subsidy to purchase their plan.
By the way, if you're looking for a good chuckle (or maybe a good cry), check out a WSJ oped by that world-renowned health care expert Suzanne Somers on the Affordable Care Act. At last check, the Journal has posted three corrections. Here's the best graf:
And then there is another consideration: It's the dark underbelly of the Affordable Care Act reminiscent of what Lenin and Churchill both said. Lenin: "Socialized medicine is the keystone to the arch of the socialist state." Churchill: "Control your citizens' health care and you control your citizens."
From the Atlantic Wire's Philip Bump:
Neither of those people said those things. Churchill wasn't a huge fan of Britain's health system in his later years, but he helped set it up. There's no record that he said anything about its being a tool for control. And that Lenin quote? Made up. Don't let any of this cast a pall over Somers' other fine health-related work; to wit, her endorsement of various thigh-enhancing products. On her website, her "ThighMaster Gold & ButtMaster" gets a robust five stars, so it sounds like something in which you can put your faith. Except that on Amazon, it averages two stars.
Good to hear that Mayor Garcetti is keeping Miguel Santana as the city's top budget officer - as well as Gina Marie Lindsey as head of Los Angeles World Airports. Santana has been able to work around massive deficits - largely the result of the recession and the ongoing pension shortfall - while Lindsey has re-energized the airport with a $4.1-billion modernization plan, led by the makeover of the Tom Bradley terminal. Not all of L.A.'s administrators are staying on - ports head Geraldine Knatz is leaving at the end of the year and Fire Chief Brian Cummings is also out. New bosses, in politics or business, are often conflicted about who to keep. The obvious reflex is to select your own people, but many of these jobs require an institutional knowledge that can take months or even years to pick up. Lindsey, who had been managing director for the Seattle-Tacoma International Airport, lacked any experience in L.A. city politics, and it took a while for her to deal with an often-intrusive City Council. Now she and the mayor must figure out whether to relinquish Ontario International Airport - and if so at what price. Santana has had to straddle the interests of business and labor in handling changes to the city's health and retirement packages. A rebounding economy is easing some of the pressure, though the city continues to face chronic deficits. From the Daily News:
Santana, who has wide support among the City Council, was pleased Garcetti asked him to stay on, as he sent a memo to his staff outlining the work ahead of them. Chief among these is labor negotiations, in which there has been growing pressure from the unions to seek more money and benefits after years of givebacks to the city. However, the talks will be complicated by the recent agreement with Department of Water and Power workers, who agreed to no raises for the next three years. Other issues that lie ahead include the 2014-15 budget, the current year's budget, reviews on consolidating Building and Safety with Planning, deployment of the fire department and the formation of a New Economic Development Model for the city.
A management consultant brought on by the White House to rescue the federal health insurance program says that the site should be running smoothly for most users by the end of November. Also, there's now a lead contractor in charge of the relief effort - one that has constructed part of the site that's actually working. All of which has NY Magazine writer Jonathan Chait offering three possibilities:
1) They know what they're doing.
2) They have fooled themselves into thinking they know what they're doing, but don't.
The Washington Post's Ezra Klein offers one more possibility: The White House is buying time. Rather than deal with the incessant day-today noise over the site's many problems, the fix-it group is asking to be left more or less alone for a month. In today's media whirl, that's several lifetimes, which means that barring further calamities, the health care story could get stale. Rewriting code, after all, doesn't make for great visuals. From Chait:
The administration is obviously putting its neck on the line here. If it fails to hit the deadline, all political hell will break loose. (There is a little wiggle room, as the promise applies to "the vast majority of users.") Therefore, presumably, the administration is extremely confident it can hit this deadline. On the other hand, it was also extremely confident it could have the site working reasonably well by October 1. So Obama apparently believes not only that his administration can fix the technical problem, but also that it has already fixed the managerial problem that caused it to underestimate its technical problem.
Meanwhile, numbers for Covered California, the state-run health care site, continue to be sparse. Nearly 95,000 applications were initiated in the first two weeks of enrollment, but officials are not disclosing how many actual policies have been completed. There also have been a few glitches, though nothing like the federal site HealthCare.gov. From MarketWatch:
We tried creating an account, using real names and social security numbers and got all the way to the stage of picking out a plan within about 45 minutes or so. The web site says it should take 30 minutes, but we ran into a few hangups along the way, one of which required assistance from the site hotline. The first came when we tried to enter a birthdate for the insured parties using the dropdowns provided by the site. But it doesn't engage when you use the dropdowns, you have to manually enter the date according to the format they show. It took several tries to figure that out. Then we hit a real snag when we tried to move on after entering the names and personal data for those to be insured. When we tried to move on after entering the last name, the site wouldn't let us and insisted that we enter more names. This took a call to the Covered California hotline, where a very pleasant operator was there to assist.
So now we know that on Dec. 21, 2012 the city cut a check to AT&T for $1,387.83 to cover something. The day before Verizon was receiving $909.10, also for something. Oh, and the Planning Department's payroll is $22.3 million and a bunch of city employees makes more than $300,000. All this and more - so much more - is found on Control Panel L.A., the latest effort at transparent city government. "This data is not our data. It is the public's data," said Mayor Eric Garcetti in rolling out the website, which is being overseen by L.A.'s new controller, Ron Galperin. "The more tools we give to people to look at data, to track important measures, the more power that they will have to control the direction of their city government." Well, maybe. There's certainly nothing wrong with information - the more of it that's easy to access, the better. And to be fair, I've only done a brief scan on what's available. But the truth is much of the information on Control Panel L.A. can be found by prowling through the city's budget documents. That includes granular data on revenues and expenditures. I know that Garcetti and Galperin mean well and really want to open up the process, but transparency is not so much the issue; it's context. Knowing that L.A. gets 28 percent of its revenue through property taxes is a useless data point unless we can find out why it's higher than previous years and what it means for public policy. After property taxes, the next highest revenue percentage comes from a category called "inter-fund operating transfer," which is one of those public sector accounting terms that basically involves moving money around. That sure tells you a lot. As L.A. Observed columnist Bill Boyarsky noted in assessing the mayor's own data-crammed website, "The departmental reports so far are not informative. They contain data - plenty of numbers but no way of judging whether money is spent well." (Which raises another question: Why are these sites operating separately?) And not to quibble, but I found the Control Panel L.A. to be confusing and incomplete. In other words, not quite useless ... but almost.
If the salmonella contamination at Foster Farms tells consumers anything, it's that we're all pretty much on our own when it comes to food safety. California's largest chicken producer, still in crisis mode after more than 300 people got sick from eating its product, has refused to recall anything because as the company sees it, there's no real safety issue. That is, assuming raw chicken is handled properly, on a separate cutting board and away from other food, and it's cooked to at least 165 degrees. That might not seem like a big deal for careful home cooks, but what if I'm eating chicken that was prepared by someone else who might not be so careful? As mentioned in this week's Business Update on KPCC, Foster Farms is taking the same position as a Texas meat processor that successfully sued the government for trying to shut down its operation in the 1990s. The company argued that salmonella is naturally occurring, and therefore, not an adulterant subject to government regulation. And the courts agreed.
Mark Lacter: You know, Steve, we often have an out of sight, out of mind attitude when it comes to food safety, and - as we're seeing with this episode - the government has a way of enabling that attitude. What stands out, first of all, is that people started getting sick from salmonella-contaminated chicken back in March, and yet, it wasn't until the past few weeks that news stories began appearing about the seriousness of the problems.
Steve Julian: At last check, more than 300 people have been infected, with most of them in California...
Lacter: Right, and Foster Farms, which is based in Merced County, controls two-thirds of the poultry market along the West Coast. No fatalities so far, but many of the people who became sick had to be hospitalized - and that leads to still more concerns that the salmonella strains were resistant to antibiotics. Now, why it took this long for consumers to be made aware that there was a problem tells you something about the way the federal government regulates poultry plants. It was only last Friday, after the company had seen a 25 percent drop in sales, when the president of Foster Farms decided to go public. He said he was embarrassed by the outbreak, and promised to change the company's processing facilities so that salmonella can be better identified.
Julian: Where was the US government in this?
Lacter: Apparently, the Department of Agriculture only requires testing for levels of salmonella at the time of slaughter - not later on, after the poultry is cut into parts. Foster Farms now says it will do retesting at that later stage. What's also interesting is that Foster Farms was not asked to recall any of its products because the chicken is considered safe as long as it's handled properly and then cooked to the right temperature, which is at least 165 degrees. That's why some supermarkets have kept carrying the brand.
Wait, it gets better. The poultry industry, along with officials from the Agriculture Department, have been pushing a pilot program that would allow plants to speed up processing lines by as much as 25 percent and replace government inspectors with employees from the poultry companies themselves. The idea is to establish safeguards that can better identify safety problems before they get out of hand. But this is pretty controversial stuff, especially after the release of a government report that questions the program's effectiveness. And, not surprisingly, advocacy groups representing poultry workers say that processing lines need to be slowed down, not speeded up. So you have this ongoing back and forth involving industry, government, consumer groups, and labor organizations on what's the safest, most cost-effective way of running these plants, and the truth is there are many opinions. From NYT food columnist Mark Bittman:
For decades, we've been told how to handle chicken. But I can tell you that despite my best efforts to keep raw chicken and its drippings quarantined, I'm not confident that these efforts suffice. What if chicken blood gets on my lettuce in a shopping bag? What if someone else's chicken contaminates my apples on a supermarket conveyor belt? What if my wife or a guest grabs a cutting board or a knife before it's been washed? These are not paranoid questions. What if -- as happened to a Florida client of Bill Marler's, the Seattle-based food safety attorney -- I go to a barbecue, and I eat a piece of chicken, and I get sick? And I don't respond to antibiotics? And I wind up in the hospital with sepsis (blood poisoning) and stop breathing, and maybe have a long-term brain injury because of lack of oxygen? "All for going to a neighbor's barbecue," says Marler. Who's at fault here? The victim, for eating chicken cooked by a neighbor? The neighbor, for not being trained in public safety? Or the producer, who won't slow down processing to guarantee safety? Or the regulator, who is "responsible for ensuring" safety?
Actually, I think those are paranoid questions. But that doesn't mean government and industry get a free pass. Clearly, the system is not running as well as it could.