Friday, August 30, 2013

A Discussion About Obamacare

During a recent bridge tournament I enjoyed dinner with several of my teammates and friends. I have no idea exactly how it happened, but the talk turned to Obamacare. The initial statement tossed out to the table was something to the effect that “Obamacare will bankrupt the country.” Since at least two of the seven sharing dinner did not agree at all with that statement (including yours truly) the result could have been (1) a heated argument between opposing sides, (2) those who did not agree chose to remain silent, or (3) an interesting discussion where both sides might learn from the other.

I stepped into the breach and asked why the person thought that was true. His answer included the current deficits and health care costs that continue to increase uncontrollably. I agreed those issues were major problems, but suggested they were attributable much more to Medicare and Medicaid than to the Affordable Care Act, aka Obamacare.
I suspect it was in part the fact that I agreed there was a problem that allowed us to explore the sources of the problem and solutions that might work. It also allowed those who were small business owners to educate the rest of us on how they will have to respond to the law.

The first charge against Obamacare was that more people would be insured and therefore the costs would increase. I used my own situation as an example to suggest why that wasn’t quite accurate. I carry a high-deductible policy, which, unless I become very ill, will never pay me a cent. The benefit I reap even if no medical catastrophe arises is that the insurance company negotiates the cost of my medical care. I am not stuck paying the full “sticker” price for the services I use.

There are three major systemic problems with the roughly 1 in 7 Americans who are uninsured. First, partly because they have no insurance, they skimp on preventative care. They roll the dice and hope they don’t come up snake-eyes. Second, if they do get a bad roll of the dice, they tend to utilize the most expensive medical care option, the emergency room, because they will not be turned away. Lastly, because they are uninsured, they are charged “full-rates.” That is, they do not have an insurance company between them and the provider to negotiate fees.

Obamacare addresses two of the three problems. People currently uninsured will be able to obtain insurance that provides preventative care, and the insurance companies will negotiate on behalf of their policyholders. These are serious problems. Over 60% of personal bankruptcies are caused by medical issues (that includes medical costs and loss of work). Unfortunately, because universal coverage is not provided under the Affordable Care Act, not all uninsured will choose coverage. However, even if only half become covered, it will make a significant improvement.

The Affordable Care Act does not solve the problem of insufficient providers. Over the short term, it probably exacerbates the situation. Newly insured, just like people who become eligible for Medicare, have accumulated health issues that they want to immediately take care of. The provider shortage, I said, was largely caused by state licensing requirements issued by boards run by doctors. They act as a semi-closed society to keep out lots of qualified foreign-trained doctors, in order to keep fees high. Doctors are not unique; every profession does this, including my own: actuaries had a series of difficult exams, and I didn’t ever use most of the information covered by the exams, but it was a barrier to entry.

Someone objected that Obamacare would ration healthcare similar to the problems in Canada that cause Canadians to come to the U.S. for treatments. I said that if we were to control healthcare costs we would need to ration it. In my opinion we spend too much on extension of life without quality and too little on preventative care. Until we as a country have a serious discussion about those issues we wouldn’t get to the root of the problem. We could argue about how to make those decisions, but no one would disagree that we need to make them IF we choose to rein in costs.

One of the small-business owners said he had to change his staffing levels because of the costs of Obamacare. To stay competitive, he eliminated several permanent part-time positions and created a small number of full-time positions.

I acknowledged any major change would cause dislocations. Large corporations had already gone through their own staffing changes to reduce costs. Regardless of whether those changes were accomplished in order to maintain competitiveness (the corporate view) or to increase profitability (labor’s perspective), for the last twenty years corporations have moved people from benefit-qualifying positions to those without benefits. The most aggressive were now making many of their workers on-call, and expected them to be available regardless of how many hours they actually got to work.

The great thing about this conversation was it was a conversation. All of us sitting around the table are affected by and concerned about healthcare, but none of us were experts. (I had the most comprehensive background in healthcare costs and financing from my years of creating and determining costs of health care plans; the small-business owners knew what they were doing to accommodate changes.) At the end of the discussion we had all learned something we didn’t know before, and we did it through civil discussion.

If seven people from various economic and cultural backgrounds can accomplish that much over dinner, why can’t Congress?

~ Jim

Wednesday, August 28, 2013

Services for Writers - Caveat Emptor

I recently came across two entities that want to sell their services to writers with payment models I found interesting.

the new online bookstore

The first is Bookstore Without Borders ( They correctly note that to make a sale one needs product, platform and exposure. An author’s e-book is the product; they propose to provide the platform (an online bookstore) and exposure.

The question I always like to address when it comes to services for writers is whether the value proposition is a good deal for the author. (I assume it’s good for the provider; otherwise, why are they doing it?)

Bookstore Without Borders (BWB from now on) offers an array of services; the only one I’ll address now is their platform for selling e-books. An author can list up to five e-books for the startup price of $395. There’s an introductory offer of $295 if you sign up before October 2013. Listing an extra book costs another $55. Annual renewals run $29.95.

BWB states that it only takes 80 books at $4.99 each to earn back your $395 cost. Their math is fine—as far as it goes, but it doesn't go far enough. The open question is how many extra sales their platform will drive. If all of the 80 sales are ones you would not have gotten except for the exposure they provide, then the math is fine—for a $4.99 book. If, for example, your book is priced at $2.99, it takes 133 new books before you’re in the plus column.

If they would guarantee brand new traffic for your book at least this large, it’s a clear winner. Of course they provide no guarantees. Even the testimonials on their website refer to the wonderful design and are silent about sales and profits.

They do have another selling point, however: they pay 100% royalties.

If you can sell someone your book through BWB instead of Amazon, B&N or wherever, you’ll make more money on that book because the royalty rate is higher. However, if you plan to pay for your start-up fee through this difference in royalties, you’ll need a lot more sales to break even. You were already going to earn something on those sales, so the net to you from joining BWB is the difference between the 100% royalty BWB pays and whatever royalty your current bookseller pays. E-book royalties keep changing, but let’s assume you can make 60% of list price on e-books you currently sell. Since 100% is better than 60%, you’d be interested in this deal if you sold enough books.

With your $4.99 e-book, you’ll need to sell 198 books before you break even. What happened to the 80-book target? That assumed joining BWB would bring new buyers who would never buy your book no matter where it was sold, because without BWB they’d never have made the purchase. We’re not talking about those people anymore. Now we’re talking about folks who would have bought your book somewhere, but because they prefer to pay money to authors rather than to Amazon and the like, these kind and generous souls now buy your book at BWB. The math works like this: For those 198 books at 60% royalty you would have earned $592.81. After paying BWB’s $395, when you sell 198 books through them, you’ll end up with $593.02, a gain of $0.21. After that, it’s all extra profit: you earn two bucks more a book.

Will your book sell 198+ books if you sign up with BWB? I have no clue. However, even if you tell people that’s the best place to buy your e-book, many potential readers will prefer to buy through Amazon or Barnes & Noble or their indie bookstore. I say this because I experienced a parallel situation. I suggested to someone who wanted to buy an e-book of Bad Policy that they could buy it through the publisher and save 35%. I figured that was a good deal for everyone except for Amazon, who would lose the sale since it was for a Kindle. That wasn’t how the reader saw it. The extra time it would take her to set up an account with the publisher, mess around with downloading the book to her computer and then transferring it to her Kindle was not worth the time and money. Despite the extra cost, she preferred to buy the book on Amazon with one-click, and have it automatically appear on her Kindle the next time she turned it on.

So, as a buyer of BWB’s services you also have to consider that even if people find your book because of BWB not all of them will actually buy the book there. If that assumption is correct, you’ll need even more sales to reach breakeven.
Of course, you may price your book at something other than $4.99. Using $2.99, the 198 threshold rises to 331. At a price of $1.99, you’ll need 497. With a more expensive book, the rewards come sooner.

If you are earning a royalty rate greater than 60%, you’ll need more books to break even; lower than 60% and you’ll need fewer books. As the saying goes, your mileage may vary.

In addition, there is an annual renewal fee – not a major cost ($29.95), but it will require another 15 books each year under the first scenario ($4.99/ book and standard 60% royalty) before you are ahead of the game.

BWB wins as soon as your payment clears. You only win if you can drive lots of sales through this particular bookstore.

Please note, I'm not saying or implying that this is a bad deal -- it's a different deal. For some authors it could be terrific; for others, it’s a waste of money. To fully understand how the proposition works for you, you’ll need to make these types of comparisons. I computed everything using a simple Excel spreadsheet. If you’d like a copy for yourself, send me an email and I’ll get it to you.


All writers need editors of one sort or another. There are many varieties and it is important to make sure you know what you are getting before making a commitment. Most publishers provide editing as part of their services; others do not. If you are self-published, you need to make sure to get competent assistance.

Some editors specialize in storyline issues, what are frequently referred to as developmental edits; others are copyeditors looking for grammar and spelling errors. Some do it all as was the case for a new provider that I recently ran across. They offered to do a complete edit (developmental, line/copy edit and proofread) for a flat fee of $200 plus $5 per page over 300.

The pricing structure struck me as very odd. The first 300 pages cost $0.67 per page and any pages over that cost $5.00? How does that make sense? For line/copy edit and proofing a page is a page is a page. Reading extra pages in a developmental edit actually is less expensive on a per page basis because that type of edit considers overall story issues, which do not increase linearly. A charge of $0.50 an extra page doesn’t seem out-of-line with the first 300-page pricing. Is this a typo or math error or what? Maybe the editor doesn’t want to work on anything but shortish books and this is a way of discouraging authors of longer works from applying.

Something else bothered me. Unless the story is close to perfect, it does not make sense to do a developmental edit at the same time one proofs. If major sections of the novel must be rewritten or even pitched and replaced, why would one carefully ensure that the deleted material met the Chicago Manual of Style?

I am using this particular Editor website as an example of why thinking carefully about the numbers is necessary before you sign on the bottom line. If this math stuff is all Greek to you, get someone who likes this kind of analysis to help you out.

With any provider, it’s also important to check references. I don’t know much Latin, but caveat emptor never goes out of style.

~ Jim