In the recording industry, the intermediary is the record label.  In movies, screenwriters have to approach producers through agents, and film producers have to reach the marketplace through sales agents or distributors.  TV producers have to go through agents to reach TV networks and other content buyers.  This is similar to what I experienced and saw in the broader business world: there are always gatekeepers between product and service producers and the end customer.

What is great about the Internet is how it has the potential to give those who want to reach a customer the ability to bypass intermediaries and create a better balance of power with those intermediaries.  I love the fact that Paranormal Activity, a movie produced for $15,000, which used predominantly low-cost direct marketing channels, including social media, has grossed over $100 million since its release. Too many intermediaries would be threatened if that became the norm on how to get a movie to the public.

Related to this, I was so happy when my younger son became a very capable online seller during his senior year of high school, and my daughter learned about to get harp performing engagements directly without needing a booking agent.

I believe strongly that we will see far more prosperity and a more equal distribution of income and wealth if individuals have the skills to sell their products, services, and labor directly to those who need them.  Intermediaries can serve a very valuable role, and many are essential to the people they serve.  However, just like any monopoly situation, when they have sole or primary access to the end customer, they can get complacent and not do the best possible for the seller.  That’s why I like the potential direct marketing opportunities the Internet provides.  It gives any seller, including me, the ability to say to an intermediary: “Either be as passionate and single-minded about what I am selling as I am, or get out of the way.”

If this sounds like the concern expressed about the “public option” U.S. health insurance reform proposal, there is a good reason: the issues are remarkably similar.  In the U.S., the U.S. Postal Service has largely avoided competition with the private sector, except in the area of package delivery, in which it competes with UPS and FedEx, express mail, in which it also competes with these same companies, and international mail, in which it competes with DHL, and, more recently, Pitney Bowes.

However, outside the United States, postal services actively compete in retailing banking with private companies.  In fact, in some countries, particularly in Europe, postal services also providing printing, mailroom management, and copying services in competition with companies like Xerox, Pitney Bowes, RR Donnelley, and Oce.

What has been the experience of the “public option” in postal service competition?  First, in the U.S., despite repeated efforts since 1970 to have elected officials let the U.S. Postal Service operate independently of political interference, the temptation has been too great for politicians to intervene politically quite often.  Elected officials have consistently stopped the U.S. Postal Service from closing facilities, even when they have gotten management and union buy-in for operational reasons to close a facility or relocate work.  This has been the case all over the world, not just in the United States.  Therefore, my first observation is that any “public option” health plan would not be able to operate as an independent insurance program; it would be subject to significant political interference.

Second, although postal services, including the U.S. Postal Service, are actually supposed to operate outside the federal budgets of the countries in which they are incorporated, and are supposed to have transparent financial reporting, politicians regularly help postal services when they are in trouble, and raid them like a cookie jar when the federal government is in trouble.  There is no financial transparency of the kind private companies must observe.  The best example of this is what happened with the 2006 U.S. postal reform legislation.  The U.S. Postal Service was forced to prefund its entire retiree medical program over 10 years, not because it is a good accounting or business practice, but because a front-loaded retiree medical pre-funding helped the Congressional Budget Office determine that the postal reform legislation was “cost-neutral.”  Many people believe that the U.S. Postal Service financial deficits indicate that it is being badly run; that is not the case.  It is simply being saddled with artificially front-loaded expenses to reduce the federal government deficit, since the Postal Service operates outside the federal government budget.

Third, despite repeated claims by elected officials that postal services would not necessarily compete unfairly against private sector companies, they have repeatedly violated competition laws, especially in Europe, where the national governments have permitted postal services to expand their businesses most liberally.  In fact, not only have postal services been given freedom to engage in largely unpunished predatory behavior, but they have used their political clout to get laws passed to make it extremely difficult for new competition to emerge.  In Germany, at the end of 2007, Deutsche Post lobbied successfully for a minimum wage law that only applied to postal employees, and that was set artificially high to correspond with Deutsche Post’s average wage.  One of Deutsche Post’s leading competitors went out of business almost immediately.

Fourth, the most expansive postal services with the broadest charters to expand into new businesses generally did not operate cost-effectively or deliver high-quality service.  The U.S. Postal Service runs a better operation than any other major postal service, in all likelihood, because it has the most focused charter and the least ability to expand.  There are good reasons to allow some degree of additional operating freedom for the U.S. Postal Service, but even a modest expansion would not make it anywhere near a Deutsche Post or a Japan Post in the scope of its businesses.

In Germany, a first-class letter costs .50 Euros, which is over $.70, even though the country is smaller and the service obligations for the same geographic footprint are no greater than they are in the United States.  What has happened in every country in which postal services have competed with more aggressively with the private sector is that their service levels have not been very good, they have not innovated in their core businesses as much, and they have become captive to other stakeholders, like unions, special interests in the legislative districts represented by powerful politicians, and non-governmental organizations.  Their customers have tended to suffer most.

I am very concerned that a broad-based public option for health insurance will have all of these pathologies.  It is too tempting for elected officials to twist and bend a public agency to their special needs in order to have a pot of money for their re-election campaigns.  The Japanese started down the privatization road because the Japan Post bank, like its counterpart in China Post, started making bad loans to fund infrastructure projects in the districts represented by powerful elected officials.  It is bad enough that banks and other financial services institutions were motivated by greed to make a number of bad lending decisions all over the world.  It was worse when postal services made bad lending decisions out of fear of offending those who regulate them.

It would be even worse if we changed our health care system to make capital investment and operating decisions subject to the whims of whatever elected officials had the most oversight responsibility or power over a yet-to-be-created public health insurance plan.

Two organizations, the Pine Street Foundation in California and the Sensory Research Institute at Florida State University, have each done reported studies which have concluded that dogs can reliably detect various kinds of cancers, such as prostate, breast and skin cancers, because tumor cells give off different odors from regular cells.  It will be quite interesting to determine whether their reliable detection is such that they can detect the presence of these diseases even earlier than more high-tech alternatives like 64-slice CT scans or MRI’s or nuclear magnetic resonance systems.  Dogs apparently have demonstrated as well that they can detect the imminence of an epileptic seizure minutes before the individual subject to the seizure has any symptoms.

If this research is supported and built upon, this could revolutionize medicine by providing much lower cost alternative ways of detecting diseases than the technologically-based solutions commonly used today.  At this stage, the medical establishment still treats these breakthroughs as experimental, and, while interesting, not ready for mainstream use.  However, this is an area that probably deserves more funding and a more serious investigative effort.

My understanding is these dogs, which are Labrador retrievers and Portuguese water dogs were not specially bred, but were trained at a relatively low cost and for a relatively limited period of time to achieve detection rates above 85%, with detection errors in the form of false positives occurring only 2% of the time. One interesting question is whether the dogs, with more training, could increase their detection rate and reduce false alarms to near zero.

When we think about dogs this way, we also start to open our minds to the potential of other animals to help us with tasks which have challenged us previously.  One social entrepreneur found a way to use rats’ sensory capability to detect land mines. Of course, we all remember the metaphor of the “canary in the coal mine.”  But dogs clearly have more potential to be our best friends than any of us had previously imagined.

I believe that the only way we will change societal behaviors and get people to do things which make them healthier is to make healthy activity unconscious and fun.  For example, on the web site Thefuntheory.com, there is a video which shows the building, installation, and use of a stairway adjacent to an escalator in what appears to be a Swedish train station.  Because each step in the stairway looks like a big piano key and each one sounds a note as someone steps on it, the result is that stairway usage increases by 66%.

My wife and I used to live in New York City.  Because it was such an interesting city in which to walk around, we walked more and had much less need to work out to keep our weight down, even though we also joined a fitness club.  We had many enjoyable days walking through the park, shopping, watching the diverse people who walked and ran on New York streets, and going to and from cultural events on foot or by subway or bus.  We probably walked several miles a day without realizing it, although I noticed that I needed to replace the heels and soles on my shoes far more frequently than when I moved up to Connecticut.

Too much of our exercise and fitness activity is supervised, structured and compartmentalized.  This is certainly appropriate for people who are getting rehabilitated from an injury, or who are engaged in potentially dangerous high-intensity exercise.  However, there needs to be a supplementary focus on getting people to engage in exercise in the ordinary course of their daily lives, and to make that exercise a fun experience.

One could question why the insurance industry waited until the eve of the vote to release these findings.  Their motivation appears to be solely that of defeating health reform legislation.  However, I have gone beyond the politics of their position, and have concluded that, based on what they said, their argument is a legitimate one, and elected officials will have to confront the problem they are presenting if the legislation gets enacted in its current form.

How could coverage expansion partially financed by an individual mandate result in higher costs?  If I were an elected official, I would find it hard to understand how it is possible that adding many policyholders into the system could increase costs, especially since the Joint Committee on Taxation has found otherwise.

The answer is actually relatively simple.  Imagine two populations that are currently uninsured, one of which is young and healthy and spends almost nothing each year on health-related costs, and  the other of which is older and less healthy and, with proper health care, would spend $5,000 per year per person.  If the insurance coverage specified in the proposed legislation costs $2,500 per year per person, the older person will want it, and the younger person will not.

If the legislation proposes an individual mandate, which is a requirement that the individual buy the $2,500 per year insurance or pay a penalty, the level of the penalty has to be very close to, or preferably, the same as the cost of the insurance policy, which would make it economically advantageous for a healthy young person to buy the insurance.  Under most calculations, adding most of the healthy young population, along with other taxes and fees, achieves the President’s stated goal of making health care reform cost-neutral for the federal budget.  I understand that the insurance industry did not look at all elements of the Senate Finance Committee proposal, and that the Committee attempted to address the problem in other ways, but I do believe that there is a significant risk of having more sick people enter the insurance system, and fewer young, healthy people.

The problem with the individual mandate is the penalty has been reduced from being very close in dollars to the cost of the insurance policy to a much lower number.  The Committee leaders reduced the mandate because of objections from Republicans, who criticized it as a disguised tax on the middle class, and from Democrats, who felt that it created real economic hardship for the middle class.  By reducing the penalty to a much lower number, the Committee almost guaranteed that most healthy and currently uninsured young people will opt for the penalty rather than the insurance.

On the contrary, the less healthy older uninsured people will always opt for the insurance, but they will cost the insurance plan far more than the premiums they pay.  Unfortunately, because of the low penalty, their incremental costs to the insurance plan will not be offset by premiums paid by healthy young people, because the young people will pay the penalty, which will be inadequate to offset the cost of the older people.

So what does the insurance company do?  Very simply, it has two options: first, raise the cost of the insurance plan for everyone currently participating in it; and second, try to reduce what it pays to health care providers.  The cost of insurance is likely to rise for everyone.  The burden of lower provider payments is most likely to fall unevenly on the provider universe.  Major academic medical centers, like Yale-New Haven in Southern Connecticut, have sufficient bargaining power, so insurance payments to them will not decline.  Specialists who have unique skills and market power will not see declines.

On the other hand, primary care providers and financially fragile community hospitals and outpatient centers will get squeezed, because insurance companies will have the power to do that.  By the way, the situation does not improve because government is the payer, because governments have annual budget challenges that have caused them to reduce Medicaid payments whenever they get into a financial crunch.

This legislation is a deeply flawed product, but I can empathize with elected officials who feel a need to expand coverage to people who do not have it today.  I can debate whether the uninsured are driving up health care costs, but elected officials hear a lot of horror stories from voters who are either uninsured or underinsured, and feel like they have to do something.

Why do I make these points when the Committee is very likely to pass the bill, and some form of legislation is increasingly likely to be enacted into law?  Very simply, I do so because, once the legislation passes, we will need to figure out how to contain the damage it has the potential of doing.  This legislation is the beginning of a long process of transforming our health care system, not the end of it.  Although President Obama would like to be the last President to have to address health care, I do not believe his goal will be achieved.  This is too complex a set of problems to be addressed with a single piece of legislation.

Every leader does some things very well, and other things less well.  Whether he or she succeeds depends on two factors:

• How well do the capabilities required for a leadership position match the leader’s capabilities?
• How well did the leader either adapt or complement his or her capabilities in areas in which he or she was deficient?

The answers to these questions change over time.  A leader can be a great match when hired or promoted into a job, but the job requirements can change radically over time. There can also be a situation in which the leader can be well matched to the bulk of the job’s requirements, but poorly matched to a particular kind of crisis or challenge.

Lewis was well qualified to be the Bank of America’s Chairman and CEO when he assumed his role in 2001. Nocera acknowledged that he was a very capable commercial bank leader, even as the bank grew, became more global, and had more complex strategic and operational challenges.  Lewis’ challenge was to grow outside the banking market, because the Bank of America had hit a legally-mandated ceiling on the Bank’s ability to grow its market share in bank deposits (federal law limits any single commercial bank to no more than 10% of the total bank deposits in America.)  Lewis was attempting to acquire an investment banking firm because it appeared to be an adjacent market space through which the Bank could grow by acquisition.

Beyond the question of whether he could lead a combined bank and investment banking operation, Lewis simultaneously confronted two crises with the Merrill Lynch acquisition: he was urged by the federal government financial regulators to do the acquisition quickly to stabilize the financial system, and he was directed to be careful with what he disclosed publicly about the company he acquired.  During 2008 and 2009, he also became a regular participant in Congressional hearings relative to home mortgage loan write-offs, a daunting task and one for which business leadership does not prepare an executive. Everything he did was in a highly charged 24/x7 media environment in which there was massive public panic and anxiety, and in which the actions of the financial services industry became central issues in a hotly contested Presidential election campaign. Whatever he did well and was capable of doing before that time did not prepare him to deal with any of these crises, all of which had virtually no margin for error in the decision processes.

Had Lewis spent a lot more time in Washington over many years, he might have found a better way to deal with these crises, but, had he done so, he would have been less able to run the businesses reporting to him.  Even without that Washington experience, he might still have made some wrong decisions, but might have been better prepared for them.

We now know that his decisions did not turn out the way he, the Bank’s shareholders, or the government would have wanted.  I have no special insight as to who was at fault, other than to say that the very considerable capabilities Lewis brought to his job in 2001 did not prepare him to deal with the very different challenges he faced in 2008.  In fact, although we will never know this, it is unclear that the great Hugh McColl could have addressed these challenges either.

As I think back on my tenure as Chairman and CEO, some challenges were foreseeable and constant, but others were beyond the board’s or the management’s ability to foresee.  Google and other search engines radically altered the balance of power in favor of customers.  9/11, anthrax, and the financial weakening of the U.S. Postal Service were unforeseeable.  I felt able to handle all these unanticipated challenges as they arose.

What challenged me was the post-Enron environment in which leadership demands shifted radically from growth, operational excellence, strategic thinking, and corporate social responsibility to a heavy focus on mind-numbing, compliance-driven, externally imposed mandates. While I could meet the job’s changing requirements intellectually, it stopped being rewarding and became very stressful.

I actually would have been far more comfortable dealing with the federal government, the media, the political environment, the economic crisis and the panicked public environment from 2007-2009 than most of my peers as CEO.  At the same time, I would have a very hard time dealing with the irrational and highly destructive hostility directed today mindlessly and indiscriminately at public company CEOs from the media, public officials, and governance advocacy groups.

It does not surprise me that the average tenure of CEOs has declined drastically in the last decade, because job requirements change more rapidly, and boards of directors have to assess CEOs more frequently against those changed requirements.  It also does not surprise me that some CEOs choose to leave their jobs early. At this time, I am not tempted to subject myself to the wildly inconsistent and, sometimes, unreasonable demands public company CEOs currently face.

We need to have realistic expectations of what CEOs can and cannot do, and stop looking for the mythical “born leader.”  I would make the same comment about lawmakers as well; our expectations for them are far out of whack with human limitations and frailties.

CEOs who resign or are fired are far better off than many Americans who are suffering deeply today, so I do not ask that we give them sympathy for leaving their jobs.  However, everyone is better off if public companies attract and retain highly talented people as CEOs.  Today’s crazy environment significantly reduces the pool of great people that would want to be CEOs, and tens of millions of Americans are the worse off as a result.

One particularly insightful article appeared in the September 14, 2009, issue of  The New Yorker, entitled “Eight Days” by James Stewart. It highlighted three root causes that ended up building destructively on one another:

• Excessively high debt leverage among many players in the financial services system;
• Rapid asset sales driven either by panic or sophisticated profit-driven short selling; and
• Provisions in credit agreements that triggered defaults based on accounting-driven asset valuations.

The high debt leverage (ratio of debt to equity), which ranged from 30/1 to 60/1 among major investment banks, created the first dangerous condition because it meant that investment banks had no flexibility to address significant downturns.  Lehman Brothers filed for bankruptcy, but others were almost as vulnerable.  Stewart referred to Merrill Lynch as the “firewall” because it was sufficiently stronger than Lehman that the Bank of America could be persuaded to acquire it, and give it some financial flexibility in the event of a severe downturn.  However, with even 30/1 leverage, a need to compensate for the loss of as little as 4% of the total asset base of a firm would exhaust its equity capital.

Stewart’s article pointed out that all those who built up, managed, and regulated the financial system badly underestimated how quickly panic-driven behavior could spread and how big an effect it could have.  The Lehman Brothers bankruptcy, which itself was triggered to some degree by asset value declines caused by panic selling, triggered demands the next morning from those with money markets assets to convert those assets into cash.  Firms that have customers with significant money market assets generally cash out a very small portion of their money market assets at any given time, just like a bank expects withdrawals of only a small part of its checking and savings account demand deposits.  When a significant percentage of account holders want cash all at once, whether from a bank or a money market account manager, the firms that hold those assets cannot deliver cash to everyone requesting it.  The failure to meet cash demands destroys confidence in the system and causes even more panic. One firm alone had over $24 billion in cash demands made the day after the Lehman bankruptcy filing. That’s what was beginning to happen a year ago.  Panic bred more panic, and threatened to destroy the fundamentals of our banking and brokerage systems.

Stewart also explained the problem with AIG, which resulted from credit guarantee agreements that required a minimum level of collateral to support them.  The collateral values were determined by accounting-driven valuations.  Accounting rules on “fair value” financial reporting are imperfect even as financial reporting tools.  They make a series of artificial assumptions, one of which is that a firm will put up its entire asset base for sale at the end of every quarter, whether it needs the cash or not, and whether or not it is a good time to sell the assets.  No firm would behave that way, and, therefore, the asset valuation is clearly imperfect.

However, when asset-value accounting rules are applied in a context in which collateral has to be maintained, the artificially low valuation becomes a much bigger problem.  It operates as if the assets were being sold all at once.  Given the panic selling that was going on for other reasons, asset values were unrealistically valued, but the unrealistic values mattered.

Something similar to this actually happened during the Great Depression in the residential housing market.  In the 1930’s home mortgages were only five years in duration, so the average homeowner had to refinance his or her mortgage every five years, and homes were reappraised every time a refinancing was needed.  As the residential housing market dropped in value, more and more homeowners found that they were getting smaller refinancings, and had to find higher amounts of cash to pay off the expiring mortgage.  When they could not do so, their homes were repossessed and the mortgagees resold them at distress prices, which hurt every every other neighboring homeowner trying to refinance a mortgage.  Think of AIG as the homeowner having to come up with collateral, and think of the accounting rules as triggering this requirement, even in the absence of a need for a sale.  The federal government had to bail out AIG because other firms involved as direct participants would no longer have been able to secure credit, since the AIG guarantee would disappear.  The whole credit marketplace would have cratered even worse than it did.

There are several lessons, other than the obvious ones of not rewarding high-risk behavior:

• Leverage has to be managed downward to increase the flexibility with which firms can respond to crisis.  A rapid downward movement in debt is not easy to manage, especially when we are trying to stimulate economic growth, but, over time, we cannot let firms assemble this much debt capital without a clear understanding of how high risk that capital is.
• Panic selling will always be with us, but we need systems that create mechanisms to restore confidence quickly.  The federal government has far more power today in the money market fund arena, and it has more ability to inject capital into the financial markets, but the issue with Lehman Brothers probably would not be solvable today, because the total financial risk of stepping in and guaranteeing the Lehman obligations was neither calculable nor limited at a level that permitted a comfortable taxpayer guarantee.
• Imperfect accounting-driven valuations are a lousy way to measure the quality of a guarantee, and to trigger the requirement for more collateral.  What made the AIG situation so bizarre was that it probably had enough cash to respond to the guarantees it would need to honor, when the underlying debt holders defaulted.  What required AIG’s rescue was a rigid, formulaic collateral valuation change that was so rapid and large that it needed federal government help.

Clearly, we all continue to be humbled by the unintended consequences of what we created.

Unemployment is psychologically devastating.  I know: I was unemployed for several months in early 1979, when I left my law firm and was trying to secure another legal position.  I was asked to look for another job because I was told I would not be made a partner.  My stay on the unemployment rolls was brief, but terrifying.  As a result, I empathize with anyone who has lost his or her job.

However, the news media do a disservice to those who are unemployed by giving the impression that their future is totally out of their control, and that giving up is a reasonable response to the situation. I have watched many people lose their jobs.  In fact, my first law client was an African-American with a sixth grade education, whose employer had wrongfully terminated him.  He was 43 years old, married with 11 children, and lived in a desperately poor part of Chicago.  Four years elapsed between his termination and his court-ordered reinstatement, but he found ways to cope with his situation and earn a living to support his family.

Those who transcend despair do so because they find small ways of taking control of their destiny. In his best seller The Seven Habits of Highly Effective People , Steven Covey tells the story of Victor Frankl, a concentration camp victim, who found ways to assert control in an environment in which he appeared to be absolutely powerless.  Covey’s conclusion is that “it’s not what happens to you; it’s what you do with what happens to you.”

How do people who successfully cope with unemployment? First, they find or create income-earning opportunities, even if they are small or part-time.  I have watched people become dog walkers, funeral home greeters, taxicab drivers, tutors, market research survey takers (a job I did when unemployed after college), personal trainers, traffic crossing guards, temporary construction workers, house sitters, baby-sitters, and musical performers, in addition to those who secure minimum wage work as waiters or retail clerks.

Second, they learn new skills.  Many people have learned from friends how to sell on eBay and Amazon.com.  Many people will teach others how to sell items online, and those who learn can earn income and new and marketable skills.

Third, by working in temporary assignments, they audition for potential new employers.  Our long-term part-time baby sitter, who got a little incremental income from us every year, started with a temporary baby-sitting service and worked twice for us in 1993.  After that, we hired her directly, and she secured a small, but steady, income stream.

What many stories about unemployment miss is that people have the ability to get employers to create jobs for them. Those who do temporary work for an employer and develop and demonstrate skills the employer desperately needs are much more likely to get jobs created that match their skills than if they sit back and wait for a job to be created.

Fourth, they are reliable, courteous, and disciplined in managing their lives when unemployed. Someone I know worked recently as a recruiter for a temporary staffing firm.  He was astounded by the unreliability of many people for whom he was trying to find temporary work.  They would get an assignment, and then fail to show up for work.

Fifth, they volunteer in the not-for-profit sector to serve others less fortunate than themselves. Although the purpose of their volunteerism was to help others, they often secured full-time positions.

Sixth, they use or build support systems. In the 1930’s, African Americans in Harlem devastated by the Depression banded together to prevent any of them from being evicted.  They would hold rent parties to help the friend closest to eviction get current on their rent. Those who cope best with unemployment are more focused on building or drawing on support resources in times of economic disaster.

There is even a barter system that has been created in economically-depressed communities called TimeBanks.org, which helps match people with different skills with people that need those skills.  For work an individual does for others, he or she secures “dollars” that can be used to “purchase” services such as child care, transportation, home repair, and even companionship. This kind of exchange helps people connect socially with one another, learn new skills, and reduce their cost of living.  It keeps them active, and gives them a sense of control over their future, but creating a new support system for them.

Finally, they treat unemployment as a gift as well as a setback.  At Pitney Bowes, during my tenure as CEO, we went through a transition in which we wound down and ended our manufacturing operations in Stamford.  Many good manufacturing people had to leave the company.

I recall two encounters: one in Greenwich and one at a gardening store in Stamford.  In Greenwich, an angry custodian at a school at which my son was playing chess told me that I had ruined his life by the company’s decision to wind down Stamford manufacturing.

In Stamford, a different gentleman approached me and thanked me for making the manufacturing transition decision, which forced him to realize that he was much happier doing outdoor gardening work.  He discovered that many people needed more affordable landscaping services.  He had started a landscaping and yard maintenance business with another laid-off Pitney Bowes employee, and was happier than he had ever been in his life.

The news media does a very poor job telling a balanced story on the issue of unemployment.  They foster the myth that when unemployment occurs, the only way out is for someone else to create jobs for people.  As a result, an unemployed person comes to believe that the future is out of his or her control.  That’s devastating and morally indefensible.  We owe those displaced by unemployment  guidance on how to increase their likelihood of securing reemployment, and how to restore their sense of  and self-worth and self-control.

While I believe that we should attack the health crisis first, then the health care delivery crisis, and then attack health insurance, rather than his obvious prioritization of health insurance, his decisiveness and strong leadership has value independent of how he prioritized the issues.

There are two fundamental problems with his plan:

• The proposed public option is a flawed solution to the problems he outlines; and
• The proposed methods for paying for expanding care to tens of millions of additional Americans are highly unlikely to yield the revenues he has projected for them.

The Public Option

The public option has been justified on three bases: its ability to expand coverage to people who do not have it, its ability to provide affordable coverage, and its ability to creative a competitive offering to “keep insurance companies honest.”  Every one of these goals can be met without a public option and at far less cost and risk.

The President proposed a combination of guaranteed coverage for everyone, with a prohibition on insurance companies denying or dropping coverage based on medical conditions, and logically proposed that everyone purchase coverage.  Those proposals, combined with subsidies for low-income Americans will solve both the coverage and affordability issues, although the prohibitions on coverage denial and termination will make insurance more expensive for everyone, because they will increase the risk in the participant pool.

While the President is correct that there are pockets in this country where there is insufficient competition among health insurers, the biggest barrier to insurance competition is the combination of state-by-state insurance licensing laws that create barriers to insurance companies entering the market and over-reaching state regulation that causes insurers to exit markets.  If health reform legislation allowed Americans to purchase insurance from carriers licensed anywhere in the country, there would be ample competition.  We would not need to create a public insurance entity.

The President strongly believes that Americans should be able to retain the employer-based coverage they already have, but the only way a public option can work is to have a risk pool that includes healthy Americans currently covered under employer-sponsored plans.  Any public option that just targets the currently uninsured or underinsured is highly likely to be a more expensive risk pool which will require more taxpayer subsidies.  Therefore, one of the risks of a public option is that it will weaken those health insurance programs that work well and in which participants are highly satisfied.

Financing of Health Care Reform

The President identified several additional sources of funds for financing of this additional coverage:

• Taxes on insurance companies
• Premiums from individuals mandated to buy coverage
• Taxes on employers mandated to buy coverage
• Elimination of waste, fraud, and abuse in Medicare, Medcaid and SCHIP programs

The idea that taxes on insurance companies will be offset by the profits obtained from covering tens of millions of additional Americans is flawed.  Those Americans not covered today, except for the healthy young part of the uninsured population, could drain profits from the insurers, rather than adding profits that could be taxed to pay for health insurance coverage expansion. If insurance companies could have profited from covering these additional Americans, they would have already done so.

Individual mandates will add funds from the healthy uninsured, but it will also trigger subsidies to the poorer uninsured, so it is not clear that this will be a net source of funds.

The employer mandate is far riskier as a source of funds.  If the mandate is set too low, many large employers will drop coverage and pay the tax, which will increase the financial burden on the public plan. If the mandate is set too high, the cost will be a job killer and will drive us back into a more severe economic downturn.  An employer mandate can work, but it has to be designed with great care and precision.

The savings from reducing waste, fraud, or abuse the President indicates we need are highly unlikely to materialize in a government-run system like Medicare, Medicaid, or SCHIP.  These systems regulate the price paid on individual encounters between doctors and patients.  I have seen two bad ways to save money: cutting payments to doctors, which then causes them to stop taking public plan patients or to game the system by increasing the number of transactions; or setting out detailed rules on authorized treatments, which reduces care quality.

My family experienced the horrible impact of detailed and misguided treatment rules.  I remember when my dad was getting rehabilitation on a broken hip the year before he died.  The nurses at the rehab center unanimously agreed that he needed two 50-minute sessions per day, but Medicare would only pay for and allow one session.  It shocked me that I was not permitted to pay for the additional rehab, even if I wanted to, because Medicare prohibited the Center from billing me for the difference between what it covered, and what he needed. He never recovered from his broken hip (in fact, he fell and broke the other hip during his prolonged stay in the rehab center) and died a year later, still wheelchair-bound. When I hear that elderly adults love Medicare, I can only surmise that they have not experienced its inflexibility, but only its generosity.

There is a saying I have quoted in this blog: “One person’s waste is another person’s income.” I do not remember who said it, but it makes the point simply and eloquently.  When government sets out to reduce waste, someone in the healthcare system loses either a job or a source of income.  That person or population will not accept a reduction without a major fight. There needs to be a transition plan to make sure that the individuals and groups adversely affected have some other way to win or, at least, minimize their losses.  This is neither simple, nor fast, so I am skeptical that, even with the best program for ferreting out waste, we can save much money.

Increasing our deficit to reduce health care costs just means that we pay higher taxes or carry a higher national debt that eventually results in higher borrowing costs that ripple throughout the economy.

I wish the President all the best in driving for comprehensive reform, which we need, and believe he gave a well-crafted, well-designed speech, with eloquence and moral clarity that I deeply respect and admire, but the difficult work is just beginning, and the risks of poor execution are high.

Every so often, I go back and reread a book I liked a lot.  Recently, I re-read a book by Bill Russell, my favorite all-time athlete, entitled Russell Rules.  To me, Bill Russell is the greatest team sport athlete of all time, simply because his teams won the most championships. As a college player at the University of San Francisco, he was the star of two successive NCAA championship teams.  He was a star on the 1956 Gold Medal Olympic team.  As a Boston Celtic, he played for 13 seasons, and the Celtics were champions 11 of those years, including 8 in a row between 1959 and 1966.  In the two years the Celtics did not win, he was injured in the championship series against the St. Louis Hawks in 1958, and lost to one of the great teams of all time, the 1966-1967 Philadelphia 76ers led by Wilt Chamberlain.  Michael Jordan may or may not have had better talent as a basketball player, but even his record was not as exceptional in terms of helping his team win championships.

The reason I think Bill Russell is sometimes not rated as highly as Michael Jordan, Wilt Chamberlain, Kareem Abdul-Jabbar, Magic Johnson, or  even Shaquille O’Neill by many experts is the way he went about winning.  In chapter 5 of Russell Rules, he refers to the value of “invisibility.”  The way he characterizes it,

“Invisibility opens doors, creates opportunity, where none seemed to exist before.  When we are unseen, we have an enormous advantage in moving in, doing things we wish or need to do, and in the process, to change the very dynamic of existing, seemingly closed, patterns.”

What is “invisibility?”  Although Russell does not specifically define it, I would characterize it as the ability to have a profound impact without appearing to do so.  In describing myself, I always aspired to be a “stealth change agent.”  Russell used many examples, but the best one was his description of how he mastered the challenge of competing against Wilt Chamberlain, possibly the most talented and physically intimidating basketball player of all time.

Russell said that, while he knew he could block Chamberlain’s shots or score directly against him, he also knew that if he visibly succeeded, he would get Chamberlain aroused and angry, and Chamberlain would become very dominant.  Instead, he did subtle things, like defending Chamberlain in such a way that he altered the angle of Chamberlain’s shots by a few inches, which significantly reduced the percentage of his shots that were successful.  Russell did not call attention to himself, but Chamberlain was less effective attacking Russell than he was against anyone else.  Russell’s success was precisely because he operated in a stealthy, “invisible” fashion.  The commentary done on any of these games never singled out Russell’s accomplishments, and he wanted it that way.

It is counterintuitive that invisibility and stealth can increase impact in an organization, but it has always made sense to me.  If a leader is trying to effect fundamental change, there will always be deep resistance to any change initiative in which everything that needs to be done is highly visible.  On the other hand, if the levers used to effect change are not understood as being as profound as they really are, they will not draw as much resistance.

For example, control of a leader’s calendar is a critical lever of change, because the organization implicitly understands that how a leader spends discretionary time indicates what the leader considers to be important.  How facilities are laid out (for example, open office versus closed office) will determine traffic and conversation flow.  How informal recognition is given and for what is a key determiner of what people will do.

Invisibility can also undermine change initiatives if it is not understood and used properly.  In other words, an organization can receive unintended, low-visibility signals that undermine what a leadership team is attempting to do.  Recently, I have seen a number of companies simultaneously say that they want everyone in the organization to be more entrepreneurial and find ways to reduce costs and grow revenues.  At the same time, they implement hiring and travel freezes, and tighten spending controls, which send a strong message that they do not trust anyone in the organization to behave consistently with organizational goals. Actions trump words, and the stealth change that occurs results in individuals not looking for ways to improve the organizations, but falling back on waiting to be told what to do. It can drive positive change or can create insidious processes that diminish the energy and enthusiasm within an organization.

As great a basketball player and coach as Bill Russell was, I believe he is an even better thinker about what works in life to make individuals and organizations more effective and fulfilled.  Thank you, Bill Russell!