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There's a business opportunity behind open enrollment

Thu, 2014-11-13 11:47

Everybody knows shopping for insurance stinks. Not only do we not like it, but we’re not very good at it.

Minnesota state exchange CEO Scott Leitz says he saw consumers struggle last year.

“In many, many cases, it was hours of time that were spent kind of walking a person through what their choices were, answering their questions and helping them make a final decision,” he says.

With millions flocking to public exchanges under Obamacare, this shopping problem – which researchers have known about for years – is coming into focus.

Consumers must sort out co-insurance, deductibles, in-network, out-of-network and medications, then compare it all to screen after screen of health insurance plans. Wharton economist Jonathan Kolstad says don’t forget people also must guess what problems they’ll have over the next 12 months.

“Ultimately insurance is not just about the world as we know it today, it’s about knowing where we are going down the road,” he says.

Kolstad says there are more than 900,000 variables to consider when shopping for health insurance, and so it's no wonder that we tend to make such poor choices. Here’s the thing: Those choices have real world costs.

Kolstad’s research shows when employees don’t know what they’re doing, they leave $1,800 on the table. There’s certainly an opportunity here to both help people and to cash in. Several University of Pennsylvania professors – along with Kolstad – have launched software called Picwell in response.

Company CEO Jay Silverstein says their software is designed to “make the process easier, simpler, faster, better.”

Here’s how it works, according to Silverstein: Consumers first answer the four simple questions, "What is your age?" "Where do you live by zip code?" "What is your gender?" and "What medications are you on?"

Then Picwell’s algorithms cut, slice and dice the responses with a big data buffet that includes medical claims and credit scores. The result is Google-like. Almost instantaneously, the software spits out a list of the plans and ranks them by best fit. It also offers a total monthly cost estimate, which includes all out-of-pocket costs.

Industry consultant Ted von Glahn – who has no ties to the company - says Picwell is taking a lot of the mystery out of shopping. 

“The golden rule is 'do the math.' Don’t make me go find that neurologist procedure and 'is it covered or not?' Bring it right to me,” he says.

Compare Picwell to healthcare.gov. The federal exchange, says von Glahn, only offers the most basic tools forcing consumers to still do the math. Picwell is one of a dozen companies including GetInsured and Consumers’ CHECKBOOK in this small consumer choice space.

As these products mature, von Glahn believes, it will force the entire industry – insurers, hospitals and doctors – to become more efficient. 

“They can’t compete on the mistakes that consumers make, the dazzle and confusion of choice,” he says.

Change may well be here sooner than it seems. PricewaterhouseCoopers says a third of private companies are considering moving their active employees onto private exchanges within the next three years.

“My gut on this is private exchanges are in the early stages,” says PWC’s Michael Thompson. “The value proposition isn’t as strong as it ultimately will be. As that proposition grows, you’ll see more companies adopt it. I think the uptick rates will be significant.”

Not only do employers need to be convinced they can save money - so do employees. To that extent, whether exchanges take off or disintegrate could turn on the success of outfits like Picwell. CEO Silverstein says business is good: They’ve already lined up private and public exchanges, including Minnesota’s. He says there’s a good chance their clients will grow from 750,000 this year to 40 million in 2015.

Picwell executives believe their tiny industry is moving towards a time when consumers can actually find value - quite a transformation for a product that today many don’t understand or trust at all.

Diplo: DJ, producer and entrepreneur

Thu, 2014-11-13 11:17

Pop music is increasingly dominated by producers – the people who shape the sound of a recording. A lot of that sound is coming from the world of electronic dance music, or "EDM."

Their working hours aren't conventional – often midnight to 5 a.m. The work has an unconventional range, too, from DJing large Las Vegas nightclubs or festivals, to time in the studio with pop superstars like Beyoncé and Justin Bieber.

Grammy-nominated producer Wesley Pentz wears these hats and more. He also runs a record label.

"It's really hard to stay alive. We almost folded a year ago," Pentz said. 

But Pentz's career is very much alive. His fans know him better as Diplo. As a teen, a friend named him after his favorite dinosaur, "Diplodocus." Back then, he says, he sold mixtapes door-to-door in Florida. He loved music but wasn't really cut out for a band.

Wikimedia Commons

"I was never good at playing horns or guitar. But I thought,' why would I want to play guitar when I could play guitar forwards and backwards, mix it up and sample it?'" Pentz said, adding, "I also thought being a DJ was the future of music."

Maybe that's hindsight talking. Selling albums was once the music industry's lifeblood, but EDM with its high-production-value live shows, dense sound and up-to-the-minute remixes fits the current model, where live tours prop up the rest of the industry, and buzz builds through free tracks shared online.

Pentz also runs Mad Decent records, where he distributes his music and a wide array of up-and-coming artists. His label shared a sampling of music on themes of business and the economy. Check out the playlist below.

Listen to the full interview in the player above.

 

 

 

 

US deals make it a big week in global trade

Thu, 2014-11-13 11:00

It’s been a big week for global trade after the U.S. cleared hurdles to push two big deals forward.

First up was the Information Technology Agreement, in which the U.S. and China agreed to cut tariffs on technology products like semiconductors and other high tech goods. The second cleared an impasse with India over food stockpiling that will, in turn, rejuvenate the Trade Facilitation Agreement, a trillion-dollar accord on international customs procedures.

“Ten years ago, this would have been business as usual,” says Derek Scissors, a resident scholar at the American Enterprise Institute. “Now, these are breakthroughs.”

That’s because there’s been a drought of new trade deals in recent years, so these agreements have given the World Trade Organization fresh momentum.

Scissors says they also restore American leadership in trade.

“We’re the ones breaking through the barriers,” he says. “We’re the ones making the deals and with other important countries like China and India, but nonetheless we’re the common thread. That’s important.”

U.S. companies stand to benefit when the Information Technology Agreement is finalized.

“You go through the companies that are big in this space and a lot of them, say two-thirds, have U.S. names,” says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “Apple, Cisco and you can go down the list.”

Hufbauer says the key here isn’t the number of jobs this agreement might create, but the type – steady, high skilled, with good pay.

To a lesser extent, American companies that do a large volume of global shipping like FedEx and UPS also benefit from the Trade Facilitation Agreement, which will ease the process of moving goods across borders and seek to decrease corruption at ports.

Zooming out, these deals speak to how globally integrated our businesses have become, says Emily Blanchard, a professor at Dartmouth’s Tuck School of Business.

“In this world with global supply chains, little pieces of product are being added all across borders to create a final product,” she says. “If you have even small transaction costs at every border, those really add up.”

Warren Buffett finds tax advantage in Duracell deal

Thu, 2014-11-13 11:00

When Warren Buffett's company Berkshire Hathaway buys the battery brand Duracell from Procter & Gamble, Berkshire will pay the $4.7 billion price tag in stock. Not Berkshire Hathaway stock, but Procter & Gamble stock, which Berkshire just happens to have.

Berkshire Hathaway did a very similar swap earlier this year, when it bought a TV station from Graham Holdings — formerly and better known as the Washington Post Co. Same thing when it bought a subsidiary of Phillips 66 last December. Why not just pay cash?

First, these trades line up with something Berkshire Hathaway has come to favor over time: Owning and managing whole companies. According to Larry Cunningham, a George Washington University law professor and the editor of “The Essays of Warren Buffett,” Berkshire was once happy to either own stock or a small stake in a business. He says as Berkshire grew, that outlook changed.

"Now, it prefers to own entire businesses rather than small positions," he says. "So, this is a neat way to achieve that objective."

Also, these swaps allow Berkshire Hathaway to save a boatload on taxes. Procter and Gamble’s stock is worth much more than when Berkshire bought it, so selling that stock would mean paying taxes on the profit — probably more than 33 percent.

Thomas Lys, a finance professor at Northwestern University’s Kellogg School of Management, has done the math. Berkshire originally bought its shares for $336 million, and the stock is now worth $4.7 billion.  

"So that's a profit of $4.4 billion," Lys says. "So a third of that is — hefty tax." 

But in this deal, Berkshire isn’t selling the stock. It’s trading one piece of Procter and Gamble — the stock — for another piece, Duracell. Going for big tax savings seems like it would sit uncomfortably with Buffett’s role as the rich guy who’s always calling on the government to change the tax code and raise his taxes. But Lys says there is an important distinction to be made because Buffett is the CEO of Berkshire.

"Warren Buffett has an obligation to his shareholder," Lys says. "And that obligation is to pay as little as the code allows."

Hollywood's next 'it' celebs – toys

Thu, 2014-11-13 11:00

The latest buzz on Wall Street is that toy maker Hasbro might acquire Dreamworks Animation, the company behind Shrek and Kung Fu Panda.

Neither company has commented on the rumor and, according to reports, talks could still fall apart. 

The possible acquisition reflects the modern big business of selling toys. Once upon a time, toys were, well, just toys. You built stuff with Legos and played make-believe with Transformers.

But that's changed, says Chris Byrne, a toy analyst at TTPM. Popular toys are now considered entertainment “properties.” For example, Hasbro's Transformers and even its Ouija board are now the stars of movies

Bryne says the question is now, "'How do we think about this property in all the ways in which kids encounter that entertainment?' So that could be toys, that could be TV, that could be movies, that could be video games." 

The shift reflects the way kids are buying toys, says  Sean McGowan, analyst at Needham and Co. Children's entertainment used to focus on toys and cartoons, but today, McGowan says, "the claims on kids' time and attention and money are growing. So you see them using their smart devices."

Featuring toys as movie stars has helped, but overall, toy sales have remained flat for more than a decade, McGowan says.

Paul Sweeney, an analyst at Bloomberg Intelligence, says the fact that movie studios have also grown bullish on featuring toys also drives the trend.

"What’s happening in Hollywood, [is] the studios are really looking for tried-and-true already proven franchises, if you will, either stories or characters," Sweeney says. 

Sweeney says this deal would make sense on some levels – but the list of companies that have lost fortunes trying to make it in Hollywood is a long one.

Hollywood's next it celebs: Toys

Thu, 2014-11-13 11:00

The latest buzz on Wall Street is that toy maker Hasbro might acquire Dreamworks Animation, the company behind Shrek and Kung Fu Panda.

Neither company has commented on the rumor, and according to reports, talks could still fall apart. 

The possible acquisition reflects the modern big business of selling toys. Once upon a time, toys, were, well, just toys. You built stuff with Legos and played make-believe with Transformers.

But that's changed, says Chris Byrne, a toy analyst at TTPM. Popular toys are now considered entertainment “properties.” For example, Hasbro's Transformers and even its Ouija board are now the stars of movies

Bryne says the question is now, 'How do we think about this property in all the ways in which kids encounter that entertainment? So, that could be toys, that could be TV, that could be movies, that could be video games." 

The shift reflects the way kids are buying toys, says  Sean McGowan, analyst at Needham and Co. Children's entertainment used to focus on toys and cartoons, but today, McGowan says, "the claims on kids time and attention and money are growing. So, you see them using their smart devices."

McGowan says featuring toys as movie stars has helped, but overall, toy sales have remained flat for more than a decade. 

Paul Sweeney, an analyst at Bloomberg Intelligence, says the fact that movie studios have also grown bullish on featuring toys also drives the trend. "What’s happening in Hollywood, [is] the studios are really looking for tried-and-true already proven franchises, if you will, either stories or characters," Sweeney says. 

Sweeney says this deal would make sense on some levels, but he says the list of companies that have lost fortunes trying to make it in Hollywood is a long one.

Why the Reddit CEO stepped down

Thu, 2014-11-13 11:00

Reddit CEO Yishan Wong stepped down Thursday. In a blog post, investor Sam Altman said the departure was over a fight with the board about a new office.

That's right: Wong didn't get the office he wanted so he quit.

"To be clear, though, we didn't ask or suggest that he resign — he decided to when we didn't approve the new office plan," Altman explained.

Whether this is actually what happened or just corporate nonsense is up for the debate.

 

Why toymaker Hasbro could buy DreamWorks Animation

Thu, 2014-11-13 08:27

Deadline Hollywood reported this week that Hasbro—the second-largest toy maker in the United States—is in talks to acquire DreamWorks Animation. 

DreamWorks Animation has been looking to get acquired—a deal with Japanese SoftBank fell apart just last month. And Hasbro has been looking to get more involved in the movie business. 

But why? 

For DreamWorks Animation, part of it is a need to diversify beyond a marketplace for movie ticket sales that is increasingly challenging, especially for computer animated films.

"Like any technology, it's become easier, cheaper and faster," says Phil Contrino, chief analyst at BoxOffice.com. "So what that means is there's more competitors than in 1995, when Toy Story came out."

Now, DreamWorks Animation competes not only with Toy Story's Pixar, but with Sony and Universal, with its "Despicable Me" franchise. 

As DreamWorks Animation has sought more revenue elsewhere, it has, in part, turned to merchandise. This is a business where Hasbro has excelled, with profits bouyed by toys based on the Star Wars movies and those of Marvel comic books, like Spiderman and Iron Man. 

But it also works the other way around. Hasbro has profited off games and toys that have turned into movies: GI Joe, Ouija and—most of all—Transformers. 

"The Transformer movies have been very lucrative not just because of the toy side but also because the toy side provided the [intellectual property] to make movies which did very well at the box office," says Martin Brochstein, senior vice president of industry relations and information at the International Licensing Industry Merchandisers' Association.

This trend can be seen throughout the toy industry. "Mattel, Hasbro, Lego have kind of turned on to the fact that they have this asset that can be mined," says Brochstein. 

In other words: Toys are the new comic books.

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