business news in context, analysis with attitude

Yesterday, MNB took note of a CNBC report that CVS/Caremark has established a new rule for its employees - they have to go through an annual evaluation of their weight, blood sugar, blood pressure, cholesterol and body mass, or pay an annual $600 surcharge on their insurance premiums. And "going forward," the company policy says, "you'll be expected not just to know your numbers - but also to take action to manage them."

In addition, employees have been told that they have to stop smoking by May 1, 2014, or have enrolled in the company's smoking cessation program, or will face potential fines and penalties.

My comment:

They're right. The policy is coercive and intrusive. But also completely appropriate for a company that positions itself as being in the health management business.

I have a CVS next to MNB Global Headquarters, and there is a very nice woman in the pharmacy who has been very helpful over the years. But the other day, I saw her outside the store smoking a cigarette, and I couldn't help but think about the disconnect - how can someone who is in a position of providing health guidance to people do something that is so profoundly damaging to her own health and is, let's face it, ignorant.

Nobody is being fired. But people are being told that one of their responsibilities when they work for CVS/Caremark is to invest in their own health, since by hiring them, CVS is investing in them. And if the employees don't invest in their own health, well, they're going to have some financial skin in that game.

I'm sure this is going to raise major hackles at CVS/Caremark. But this strikes me as an easily defensible position at CVS/Caremark.

Lots of email in response....

One MNB user wrote:

CVS/Caremark's position on the issue of annual health evaluations and smoking cessation would be far more credible if it wasn't also one of the nation's leading peddlers of tobacco products. While we're talking about skin in the game, why can't CVS/Caremark put its stated principles into action by stopping selling poison to its customers (and, quite likely, the very nice woman at your local CVS?) By the weight of its sheer size, it might encourage other pharmacy chains to stop being duplicitous merchants of death.

And another:

But wait, KC - doesn't CVS sell sugary sodas, cigarettes and candy? Great health management business they have going - of course it's in their best interest to keep customers sick - they'll sell more to them!

MNB user Kevin McCaffery wrote:

Did I miss something has CVS stopped selling Cigarettes? Or will it stop selling them on May 1, 2014?

MNB user Curt Lindy wrote:

How about the disconnect of the pharmaceutical stores selling cigarettes?

I completely agree - if CVS is going to be consistent, it needs to stop selling tobacco products. Wasn't there a proposal in California some time ago that would have forced pharmacies not to sell products that are bad for your health, on the theory that it was inconsistent with their core value proposition?

I'm not in favor of legislating it. But certainly CVS ought to be consistent about tobacco if it wants to avoid this sort of criticism.

From MNB reader Lisa Malmarowski:

Sorry - the CVS policy is intrusive and based on iffy 'science'.

It's appalling to me that wellness is couched in questionable numbers (like BMI and weight and yes, even cholesterol) when these types of 'programs' by employers are just a way to cut their insurance costs and aren't really about caring for employee wellness. 

How about offering a carrot instead of stick? How about teaching employees how to eat better, exercise more and reduce stress? 

I sit on our employee wellness committee and we would never think of fining and penalizing employees. We just started a quit smoking program that offers INCENTIVES for quitting - carrots, not sticks. 

I think CVS's coercive policy is.. I don't even have the word for how misguided I think it is,  and am really glad we offer an alternative to the corporate nanny state. 

MNB user Joe Davis chimed in:

Both my current and former employers – both large companies in our industry – have incentive programs based on your weight, BMI, and blood glucose levels that allow plan participants to realize significantly lower premiums compared to someone who doesn’t hit their “healthy measures” targets.  There is also a non-smoker discount.  Whether you choose to be glass half full or half empty, the difference is in the wording and the net effect is the same – there’s monetary benefit to being healthier and I for one am very grateful this is in place.  
CVS has said that if the battle for our employees’ hearts and minds has failed in regards to getting healthy (to your point, they are in the business of health…), then we’ll move the battlefield to your wallet.  Perception, it seems though, is not on their side.  Rather than levying penalties, they can always say that premiums are going up for everyone but the new health incentive program can counteract that if you meet your target metrics.  Perhaps they need some spin doctors behind the pharmacy counter as well.

And another reader offered:

First off, I understand that health care costs are getting out of control and that we need to do something about it, but how far do we go here?  Are we going to get to the point where every detail of our personal lives will be analyzed?  

Eat > 2000 calories a day = extra $10 a week
Drink soda instead of water = extra $10 a week
Drink alcohol  = extra $15 a week
Eat Pizza = extra $5 a week
We saw you eat at McDonalds on lunch, that's a $15 surcharge
Get a speeding ticket = extra $5 per week (hey you could get into an accident and have to claim your hospital bills)

Let's go further:

Maybe you should have to bring your children in to be tested too because they are on the policy as well.  How much TV do your kids watch during the week?  extra $1 per week for each hour your kids watch TV.  I'm being sarcastic, but there's a very fine line between being cost conscious about health care costs and getting to the point where we can't enjoy a single thing in life without being "surcharged" for it.  

Finally, let's be honest with ourselves, CVS doesn't care about being health conscious, otherwise it wouldn't sell all the products that contribute to what they are trying to prevent their employees from doing.  This is all about money.

Of course it is about money. CVS is a business.

In this case, I have no problem with it. Though I would agree with the observation that CVS could have positioned it differently, giving discounts to the healthy rather than finding the unhealthy, if it wanted to avoid some of these criticisms.

And another reader wrote:

This is absolutely the right thing for CVS to do. I think any company that offers health care to their employees should take similar steps to control costs. Other steps should include charging a premium for anybody over 50, since they’re likely to have more medical needs, charging a premium to women between 16 and 35, since they’re more likely to have pregnancy related medical needs, and charging a premium to anybody with a preexisting condition, because they’re known to have greater medical needs.
I’m sure we can come up with many other alternatives to drive up costs without addressing the real issue.

I sense sarcasm here.

MNB user Bill Drew wrote:

I’m a bit surprised that CVS is taking so much heat for their new employee medical insurance initiative.  Programs such as this have been in place at many employers (including mine) for a number of years.  The company for which I work takes it a step further – if an employee (and spouse, if applicable) doesn’t earn 200 points in the year prior to the plan year, his/her premium increases.  Points are earned based on BMI, Cholesterol, Blood Pressure, Tobacco User Status (Y/N), etc.  I view it as a way to keep healthy employees’ premiums reasonable.  There are exceptions – if a Dr. signs off on a person’s condition that is medically unavoidable, points are earned, also.  Lastly, we are able to enroll in On Line courses to assist in dieting, smoking cessation, etc., or we can even enlist a real-life counselor to help us with those things.  When we enroll, we earn points, as well.

Some of the changes companies are making are in response to, and as a result of, the Affordable Care Act, but the main reason for the new program at CVS, I believe, is to help employees decide how they want to live their lives.

Responding to our story about how NYC is considering legislation that would require retailers to keep cigarettes out of view, a position that I was sympathetic to (my mom died of lung cancer) even if I wasn't sure it was workable...

I honestly don't know whether this new regulation will prevent people from smoking. Not sure if it will stop people from starting this habit, or get people to stop. And I don't know where this all stops. If potato chips or soft drinks are determined to contribute to obesity, does that mean that eventually they may be hidden from view? I do think, however, that the impulse behind this proposal is the right one. Smoking creates enormous health problems in this country, and those health problems contribute to the high costs of health care that people pay, which hurts the economy. And anything we can do to drive down the number of people who smoke is probably a net positive.

...MNB user Jim Swoboda wrote:

I agree with you on the past when people like your mom were lied to, made decisions based on that lie and the result was not good.  But today, no one can say they start smoking without an understanding of what it does to you.  I am so tired of government trying to tell individuals what is right for them.  I have never smoked, hate being around a smoker, but it is their personal choice.  

Rather than ban the activity, which by the way, does fall under the definition of the "pursuit of happiness", individual choice, why not do the only thing that does seem to work, make it an economic choice.  More taxes on cigarettes is ok with me.  And additional charges for health insurance should be born by those who smoke.  Choices do have consequences and the pocketbook seems to be the best place to demonstrate the impact of those choices.

On the subject of technology that changes the food experience at baseball games, MNB user Steven Ritchey wrote:

Since the Texas Ranger Ballpark in Arlington opened I’ve made it a point to go to at least a few games a year.  One time a group of us decided to get seats in the area that has wait staff come to take your order, scan a credit card and deliver your food to you.  Most was standard ball park fare, but there were some salads and other offerings.  Maybe there is something wrong with me, but I didn’t enjoy it.  I missed the atmosphere of vendors making their way up and down the aisles hawking their wares.  It seemed to sterile to me.  I like to see the vendors interact with the fans, some vendors are pretty entertaining.  For me it is part of the  ball park experience.

On another subject, an MNB user wrote:

I keep reading (primarily in your blog) and hearing (primarily on the BBC and NPR) that America has really lost its edge in terms of “application” of available technology.  Sure, we develop it, but we don’t always apply it in ways that will enable people to benefit from whats been done within our borders.

Example:  Our internet system is “run” in the US by for profit companies that have in essence divided up the territory and provided a less than totally robust system…all for the love of profit and to the detriment of our citizenry.

Example:  Some Asian countries and retailers are providing for consumers in terms of technology and well, frankly, its depressing.  I wish it weren’t so.  I wish that every citizen had broadband internet for a modest price and I wish I could use my smartphone to see where these cherry tomatoes are grown and how the soil was prepped.
I also wish Californians had passed the legislation of allow for notice when GMO was in play.  Dang it!  Whats wrong with the America where I grew up and trusted the government and corporations to take care of us???

But from another reader:

I agree with you that transparency is becoming ever more important.  However, I feel like your assertion that the US is far behind in this regard is somewhat unfair.

I recently returned from Thailand and having worked in the food service arena, I found that many countries have little to no regulation in their food industry—very evident in Thailand.  I was appalled at many of the displays of seafood and other proteins that we saw on the streets that clearly weren’t being handled correctly to ensure food safety.

It doesn’t surprise me that many retailers on the other side of the world highlight food origin and espouse transparency…they have to in many regards because they have a populace that doesn’t necessarily trust the local restaurant/food vendor/grocer to follow food handling and food safety protocols like we do in the US. Most Americans trust they can go to a food establishment or retailer knowing they won’t get sick because the retailer has passed some regulatory hurdles.  Not so in a lot of the rest of the world. 
So, I do believe that we can do more to be transparent; however, we operate and live in a very different food/business climate.

Another MNB user pointed to a company that he believes is ahead of the curve on traceability:

Check out a company called Harvestmark.  They have a bunch of patents on traceability.  To see a live demo, scan the QR code on the bottom of Driscolls berries to see where they were grown.

Unfortunately, the industry went towards a least common denominator approach when they created traceability standards.  Produce cases must carry a barcode that can be traced to a grower, but the visibility to the consumer is far from transparent unless the grower carries the extra expense of carrying a Harvestmark QR code.

And another reader chimed in:

Love this story.  It seems from previous responses to Whole Foods GMO labeling initiative, people are concerned this will add costs into the system that will be paid for my the consumer.  Stories like this show that it is possible to increase transparency without costs negatively affecting consumers.  It seems for a long time the food industry in this country has been able to hold the wool over our eyes about what is in the products we eat, where they were grown, etc., and I think it's time this power is shifted back to the consumer.  Props to Aeon and Carrefour!

In the original piece I pointed to smart phone technology that allows people to get more info about products via their smart phones, which led one reader to ask:

While that is great for smart phone user’s what about customers that care about their food supplier but don’t have smart phones? I think retailers should provide some type of QR in the stores.

The number of people who don't have smart phones is decreasing every day, so I suspect that will be less of an issue as time goes on.

More debate on the minimum wage...

One MNB user wrote:

A reader yesterday said in reference to my posting the day before:

"Kevin, I had to respond to the reader who believes raising the minimum wage does more harm than good.  What I would like to see is some data to back up these assertions.  Preferably data not concocted by Fox News or other idealogical data sources.  In keeping with that idea, I want to offer evidence that we are in real trouble of losing the core middle class earners in this country.  Dispute it, but only with facts not anecdotes.  Then we can debate the facts."

Here's my source: "David Neumark, U of California economist, reviewed over 100 major academic studies on the minimum wage, and concluded that nearly 85% "find a negative employment effect on low-skilled workers."  These academic studies didn't come from Fox news; the reader makes the erroneous conclusion that ideas he disagrees with must come from a biased source.

In a related note, Pew research just revealed that in their analysis, MSNBC provided much more commentary than straight news compared to other channels, with Fox news and CNN having ratios much closer to a balanced approach.  I find that Wall Street Journal has a great amount of straight news, clearly delineated from the opinion section, whereas other sources, such as the New York Times have opinion articles masquerading as straight news on page one and throughout the paper.

Whereas the reader has valid facts, his analysis is flawed and conclusions are easily debated by any number of people with a well placed understanding of the value of free market economic principles versus his preferences for an ever bigger social safety net, bigger and stronger unions, increasing government regulations and more public services versus competitive businesses. 

Finally, facts are not debatable - but commentary certainly is.

We also had an email the other day that used a company budget to explain why a minimum wage increase would have a negative impact. To which the original correspondent, Denis Zegar, responded:

I appreciate the reader's anecdotal experience in dealing with his labor budget.  However, his is a static analysis that ignores the tremendous productivity gains of the past couple of decades that has enabled us to do and produce much more with fewer man hours.  During the last presidential campaign Mitt Romney claimed “higher productivity means higher wages for the American worker.” No, it doesn’t, or at least it hasn’t for the past 40 years. During the 1973 to 2011 period, labor productivity rose 80.4 percent but real median hourly wage increased 4.0 percent, and the real median hourly compensation (including all wages and benefits) increased just 10.7 percent.  In other words, productivity gains meant the writer need fewer hours to perform the same work!

Productivity growth, which is the growth of the output of goods and services per hour worked, provides the basis for the growth of living standards. However, the experience of the vast majority of workers in recent decades has been that productivity growth actually provides only the potential for rising living standards: Recent history, especially since 2000, has shown that wages and compensation for the typical worker and income growth for the typical family have lagged tremendously behind the nation’s fast productivity growth.  Policies deregulating the economy, weakening unions, and promoting globalization have succeeded in lowering prices. But, they’ve failed in providing workers with compensation worthy of their efforts.

From another reader:

The writer yesterday who defended why the grocery business doesn’t want an increase in the minimum wage because of the 1-3% margins, should look at what the executives earn. If he wants all employees’ salaries to reflect the small margins, let’s begin at the top. I work in the grocery industry and have seen tens of millions spent on executives coming and going and those staying. Why should those at the lower end of the pay scale be required to accept low wages when those at the top are being paid ridiculous amounts of pay? Let’s even it out a little and until those at the top are willing to live on less, let’s not expect anyone else in the companies to do so. After all, living on $6 an hour doesn’t even compare to living on $6,000 an hour.

And another:

Many of the opponents of minimum wage increases who say that labor rates should be determined by the "free market" simply don't want to adapt to the market themselves.  They're in the market, too, quite literally.

Whether it be the craft and unionized worker of our Industrial Age OR Child Labor Laws & Safety Regulations of the 20th Century, as US industries have matured, they've ALWAYS had to adapt in order to be able to cut a profit.

As someone who literally grew up in the supermarket business and still sticks my toe in the waters from time to time, I've seen smart operators do everything from shut down & sell the stores, to adapt and survive - or even adapt and succeed.  Imagine that!

When fuel prices increase we don't see successful operators refuse their Grocery delivery, do we?  The knee-jerk cutting of labor hours is equally as short-sighted. The less-than-successful operators are almost always predictably distracted by their payroll before looking anywhere else or seeking solutions at the store level.

How about utilizing these employees to engage and sell to your customers? It's a self-fulfilling prophecy: Treat your front line people like they are a drain on the company and that quickly becomes the case. 

There's a reason that the names of the smart national and regional operators always arrive at the top of our minds when we speak of excellence --- it's because they somehow always adapt to the market without impacting store conditions and service levels.  Often, it's their front line staff who help them to figure it out.  Imagine that!

On the subject of JC Penney's problems, one MNB user wrote:

I have heard many testimonials from customers that have shopped at JCP for the first time in years and they have loved it stating that they would certainly be going back.  As a customer who has shopped there for many years I represent one that has given up on their new model.  They didn’t lose me because of their new EDLP concept, they lost me when they cheapened their own brands and opted to cater to specific demographics and not the entire family.

One such example would be the Arizona Jeans which I have purchased for many years and would always purchase without even thinking about it, I was loyal to the brand and felt I was getting good value and quality.  The latest Arizona Jeans have a look that I do not like (although I admit many young men may like it) and the quality doesn’t seem to be as good as before.  Needless to say I now shop elsewhere for my jeans and have found many other stores to shop instead of JCP which was often my “go to” store.

I would just like to point out that the EDLP is only one of the problems that JCP is facing and CEO Ron Johnson looked to do an entire overhaul on everything without stabilizing the ship first (I agree something needed to be done to save the company but it appears he bit off more than he could chew).  Unfortunately he is currently heading a company which appears to only be good at upsetting loyal customers.  We all know from the lessons learned on MNB that disgruntled customers are a recipe for disaster.  I, one lone customer, have given up on JCP and I sincerely hope that they find that customer to replace me and many others with a similar view.

I commented yesterday that "I've always believed that the US is made up of two kinds of people - those who believe that the sixties and seventies were the beginning of the end of western civilization, and those who believe that they were an important and ultimately positive time for the US. Count me in the latter group."

Which led one MNB reader to comment:

Who would have thought you would be a black or white kind of guy on anything?  I don’t fit into either category.  Color me in shades of gray (although not quite 50) on the 1960s and 1970s.  Freedom is a beautiful thing.  It can be used to pursue ennobling acts like those that ended racial segregation or it can be used for personal gratification in ignoble ways, from drug and sexual abuse to conspicuous consumption.  I don’t think we can simply praise or condemn the baby boomers, of which I am one.  The picture is far too mixed.

I can be black-and-white on a lot of issues. Like the designated hitter. (Bad!)

On the subject of Amazon Prime, MNB user Tom Murphy wrote:

My wife and I have been Prime members since its inception ... a couple of things to add to the story comments:

For $79 you can have multiple members of your family use it.  I have two sons and their families using it as well as my sister-in-law and her family.  The point, the true customer impact for each Prime customer is no doubt higher than 1:1.

We have so many subscriptions, that I think my wife is having an affair with the UPS driver…I mean, boxes daily.

Years ago the grocery industry worried about being “nibbled on the edges by the restaurant industry”.  Now it is Amazon nibbling on the edges and many of the products that Prime users buy are higher average margin than those in a grocery chain.  The current hope for adding sales tax to Amazon transactions will, in my opinion, have minimal sales impact because it is all about convenience!
More market disruption and disintermediation!

Finally, I got tons of email this week from folks who enjoyed both the paper commercial and the Billy Joel video that we linked to this week. I'm glad you enjoyed them ... I did, too. They were both fun pieces that had the added benefit of making us think.
KC's View: