Moneybox
A blog about business and economics.

June 20 2017 3:30 PM

Uber Is Adding a Tipping Function. We Have Questions.

In the wake of scandal, a corporate shake-up, and a federal investigation, is Uber’s decision to finally add a tipping function this July an olive branch to the company’s drivers?

Why else would the New York–based independent drivers guild have called it an "important win”? Doesn’t the policy come with other worker perks, like charges for wait time? Plus, couldn’t this newfound posture of corporate remorse pay off for Uber? Haven’t many customers bailed on Uber for Lyft in part because of the “friendly ride-share company” image that this type of small concession to employees, which Lyft has offered for years, helped create? And in that sense, is this a textbook case of corporate social responsibility—a policy that benefits workers, customers, and the bottom line?

Then again, will riders even feel good about their newfound ability to contribute to driver welfare? Isn’t tipping, as Michael Lewis famously wrote, a bit of an aristocratic conceit—“Get yourself a haircut, why don’t you?”—that we should have abandoned long ago? Weren’t we all trying to eliminate tipping from restaurants just a few years ago in the interest of paying workers a proper wage instead? Wasn’t it unfortunate that Uber, in so many ways so loathsome, was also the poster child for a company that eliminated this rotten system? And didn’t the lack of tipping help eliminate cab deserts by making every geographic area equally lucrative?

What is the social convention around tipping a cabbie these days? Is it like a restaurant, where you give 20 percent in all cases unless there was a bug in your food? What’s next, tipping the dentist?

Don’t we all agree that tips kind of suck as a way to make a living? Do tips forestall the arrival of substantive benefits for drivers like health insurance? Doesn’t the addition of tips to ride share introduce Uber to the effects of conscious and unconscious racial bias that have already been demonstrated in its rating system?

But also: Isn’t it better to be tipped than not to be tipped?

Why change now? Because this is the company’s first full week without founder Travis Kalanick, who is on a leave of absence, and was the subject of a viral video in which he argued with a driver about pay? Was Kalanick an obstinate opponent of a policy that was seen as a good PR move for both customers and drivers?

Could there be some internal corporate logic for installing a tipping button? Does it provide labor-conscious riders with an opportunity to express their frustration with bad drivers without bestowing a three-star review that could lose someone their job? What if this is a way of testing to see how much customers are willing to pay, and charging more to more generous tippers?

Speaking of bad tippers, why is the company putting a surcharge on teens, anyway? Did someone egg Arianna Huffington’s house last week?

And should we even be discussing this cosmetic change in the driver-customer-company relationship, when the business model is dependent on cheap labor made possible by treating the drivers as contractors? Aren’t we, as riders, complicit in this relationship? Does tipping assuage our guilt? Or merely transfer the responsibility for a living wage from the front office to the back seat?

June 20 2017 12:18 PM

UPS Will Charge More to Ship Your Holiday Packages This Year. That’s Great News for America.

The Wall Street Journal reported Tuesday morning that delivery giant UPS will add a small shipping surcharge for packages this holiday season. Between Nov. 19 and Dec. 2—the period including Black Friday and Cyber Monday—and again between Dec. 17 and Dec. 23, shippers will pay an additional 27 cents for ground shipments (and an additional 81 cents for next-day air delivery). This is, in a word, awesome.

Yes, higher prices for widely used services aren’t usually a cause for celebration. But there are several reasons why this is good news.

First, the unilateral imposition of across-the-board charges on something resembling a utility—everyone uses UPS and its competitors—is inflationary. And we badly need some inflation in this country. For nearly a decade, the Federal Reserve, which is charged with maintaining inflation at a 2 percent annual rate, has been failing to meet this goal. There are a host of immense deflationary forces afoot in the economy—the margin-killing efficiency of Amazon, cheap oil, automation, the decline of organized labor. These powerful forces can’t be overcome by the Federal Reserve’s highly permissive monetary policies. We desperately need some big players in the market to insist on higher prices and on the higher wages that should follow.

Second, these higher prices are highly likely to lead to higher wages. UPS and other logistics companies are very well-oiled machines. They handle an astonishing number of packages with comparatively little error every day. Their interconnected systems of airplanes, trucks, and distribution centers can handle an immense amount of throughput. But in America, we insist on cramming a disproportionate share of consumer spending (and hence of package delivery) into a six-week period at the end of the year.

For that reason, all the players in the holiday shopping ecosystem—retailers, department stores, e-commerce companies, and delivery services—hire hundreds of thousands of temporary employees in November and December. Last year, UPS alone hired 95,000 seasonal workers.

But hiring large numbers of seasonal workers is becoming progressively more difficult. We’ve had a record 80 straight months of payroll job growth, the unemployment rate is 4.3 percent, and there are 6 million open positions in the U.S. One of UPS’s biggest facilities is in Louisville, Kentucky, a city that already has 30,000 unfilled job openings. All of which means that if you have an urgent need to fill lots of positions this year, you’re going to have to use the blunt instrument of sharply higher wages. UPS is adding the surcharge precisely because it believes it will have to spend significantly more on labor this year. We’ve been waiting for our long recovery to meaningfully raise wages. Here is one example of how that is actually happening.

Third, the move will be a small source of succor for suffering brick-and-mortar chains. Forcing people to pay 27 cents more for a parcel for a few weeks out of the year won’t stem the e-commerce tide that is slowly swamping America’s malls. But at the margins, it may help. Some e-tailers will respond by passing through higher costs to their customers. (Others, like Amazon, may simply eat the costs for the sake of maintaining and growing market share.) And some consumers will respond to the higher shipping costs by deciding to go to the mall or store on their own.

Finally, the planned surcharges represent a small step toward making consumers burden the actual costs of the benefits the economy is delivering to them. One of the great things about the internet age is the immense consumer surplus it has created. Because our systems today enable the delivery of goods and services for much cheaper (and sometimes for nothing), and because a lot of companies are willing to run on very small or negative margins (hello, Uber), the consumer is getting an immense surplus. We have all the content and music we can consume for cheap or (thanks to advertising) free, goods are delivered to our home for very low prices, cars that appear out of nowhere to whisk us to our desired destination for a few dollars. But there is a price to be paid for all this cheapness. My surplus is often somebody else’s deficit: the companies and artists who can’t get paid (or paid decently) for the content they produce, the exploited port truck drivers who work at very low wages (go read this searing USA Today investigation), warehouse workers who labor to the point of exhaustion, and so on.

The problem is that many of the companies that possess the size and market presence to influence pricing, and hence wages, have been unwilling to pass on higher costs to their consumers. In fact, in many instances, their business models have been explicitly built around denying adequate compensation to suppliers and workers.

Eight years into the expansion, UPS’s decision may represent a small hole in the dam that has been holding the tide back from lifting all boats.

June 19 2017 4:34 PM

Amazon’s Dominance Isn’t Assured. It’s Facing a Messy e-Commerce War in India.

Thanks to Amazon’s surprise acquisition of Whole Foods, the e-commerce giant’s odds of world domination feel more inevitable than usual these days. But in India last week, the biggest rival to Amazon’s business there showed just how precarious the company’s ascendance might be.

Last Thursday, Indian antitrust regulators announced they would allow Bangalore-based Flipkart to purchase eBay’s Indian business—a move that could seriously shake up India’s online retail market, which Morgan Stanley estimates will be worth $119 billion by 2020. As part of its acquisition of eBay’s Indian arm, Flipkart will strike a deal to make more of the American auction company’s global inventory accessible to Indian consumers, while eBay’s buyers globally will have greater access to Indian inventory provided by Flipkart. (Disclosure: Slate is an Amazon affiliate; when you click on an Amazon link from Slate, the magazine gets a cut of the proceeds from whatever you buy.)

Right now, Amazon controls 44.6 percent of that market, according to data from an Indian research firm that looked at transactions in 60 Indian cities, while Flipkart controls 35.7 percent. Last year Amazon boosted its investment in India to the tune of $3 billion, bringing its overall investment in the country to $5 billion.

Amazon’s global e-commerce business has grown over the years. In 2014, 37 percent of Amazon’s sale came from international markets, and this year the Seattle-based company ranked as the world’s third largest retailer after Walmart and CVS, according to Forbes. Chinese online retailer Alibaba is also growing—the company made a huge investment in the Indian mobile wallet firm Paytm, and the Indian startup’s e-commerce business is now valued at more than $7 billion.

And then there’s another development in India, involving yet another global tech firm. Snapdeal, another Indian online retailer, could be acquired by Flipkart in a deal that could be worth $1 billion deal this year. The deal is currently being brokered by Snapdeal’s owner, Japan’s Softbank.

According to India’s Economic Times, Amazon, Flipkart and Snapdeal controlled nearly 75 percent of the market in 2016. If Flipkart keeps this up, its name won’t just represent Amazon’s biggest headache in South Asia, but the angry gesture of choice for sleepless Jeff Bezos lieutenants.

June 19 2017 12:18 PM

The Senate Has a New Idea to Cut Medicaid That’s Even Crueler Than the House Plan

Darth Sidious
Senate Majority Leader Darth McConnell.

Mark Wilson/Getty Images

With health care negotiations hitting a critical stretch this week, Senate Republicans are reportedly considering a new plan that would cut per-patient Medicaid spending even deeper than the bill passed last month by the House.

According to the Hill, lawmakers are considering a tweak to the program's funding formula that would, for all intents and purposes, put its budget in a vise. The House legislation, you may recall, caps Medicaid's per-patient spending for the first time ever and adjusts it upward each year based on the consumer price index for medical care, with an extra percentage point tacked on each year for the elderly and disabled. This would likely curtail Medicaid's spending growth over time, since the CPI-M—which only actually measures the cost of out-of-pocket medical purchases—is expected to grow more slowly than the program's expenses otherwise would. The Office of the Chief Actuary at the Centers for Medicare and Medicaid Services recently estimated that the change would shave $64 billion from its funding over a decade.

Senate Republicans reportedly want to use the same system—initially. But beginning in 2025, they would start adjusting Medicaid's per-enrollee spending using the plain old consumer price index—or CPI-U, the one that includes stuff like the price of televisions and socks—which would grow even more gradually. To give you a sense of how dramatic a change this is, just look at this chart. Since 2000, the medical cost index has grown by about 41 percentage points more than the CPI-U.

cpi_gap

The Hill reports that the “plan has been described as a ‘consensus option’” and has been sent to the Congressional Budget Office for analysis, though other ideas are still being considered. Presumably, Senate Republicans are thinking about these deeper cuts because they need to offset spending elsewhere in the bill, at least on paper. The fact that the changes aren't set to kick in until 2025 suggests that maybe, just maybe, the thinking is that future Congresses would prevent the change from ever taking effect. But if they failed to do so, the long-term result would be a large blow to Medicaid that could force states to trim the program's coverage dramatically in order to manage costs, making sure that American health insurance for the sick, poor, and disabled would become truly inadequate.

No wonder the Senate leadership doesn't want the public to see what it's working on.

June 16 2017 3:32 PM

Will Buying Brands Like Bonobos Give Walmart the Upscale Cred It Covets?

On Friday morning, news broke that Walmart had purchased the menswear retailer Bonobos for $310 million. Arriving, as it did, in tandem with the announcement that Amazon had acquired Whole Foods for a far more astonishing figure, Walmart’s purchase threatened to become a footnote. Nevertheless, the Bonobos deal suggests an important story about the ways Walmart is striving to reach out into new markets—some of Amazon’s markets, in fact—especially when seen in light of some of its other recent moves.

Bonobos is just the latest in a series of online fashion acquisitions by Walmart. TechCrunch notes that since 2016 the company has purchased ModCloth, Moosejaw, Hayneedle, and Shoebuy, allowing it to massively expand on its existing array of Fruit of the Loom–esque basics. Almost in passing, the site observes that “Bonobos and other fashion purchases that Walmart has made … are not known for cut-price goods.” Duh. But it seems less likely that the company as a whole is moving up than that it is expanding outward, striving to reach new consumers—especially those who may have been turned off by its long-standing reputation.

As Neil Irwin writes in the New York Times, “Walmart’s move might seem a strange decision,” since Bonobos’ relatively expensive garments are pitched to a more upscale clientele than those sold in the mass market retailer’s many stores. Irwin rightly suggests that the move is part of the company’s ongoing struggle with Amazon to become “the predominant seller of pretty much everything you buy.” But if Walmart has lagged behind in that struggle, its difficulties may be about more than its digital strategy: Its trouble likely begins with its proletarian aura, associations that may make it hard to reach some valuable consumers.

On this front, Walmart stands to gain a great deal from its acquisition of brands such as Bonobos and ModCloth. The digital-first Bonobos has always traded on a combination of convenience and cool. Since its debut a decade ago, the company has promised men pants that fit better than those of its competitors. It maintains that promise today, telling visitors to its site, “We’ve made adjustments to ensure all our pants will fit you no matter your body type or style.” While that’s an appealing idea, it’s also faintly absurd: “A trimmer cut through the thigh” might work for some, but it’s bound to be hell on a seasoned dead-lifter. Likewise, a “curved waistband” is a nice feature, but it won’t do much to prevent “baggy seats” if you have a flat butt.

If those dubious promises have stuck for the company, though, it’s at least partly because they appeal to those who want to look good, but don’t want to put in much effort, and who are willing to pay a steep price for the luxury. To help persuade those who weren’t quite convinced, it advertised a crack team of customer service “Ninjas,” a groan-inducing term that seemed borrowed from Silicon Valley’s attempts to linguistically elevate otherwise mundane tasks. The message was clear, though: Bonobos was a company that kicked ass and threw shurikens—and they were going to make sure that you kicked ass too, even if you were all out of shurikens.

ModCloth’s appeal was different, but it played to similar impulses. As I’ve written in the past, it sold itself in part on the premise that it refuses to digitally alter photographs of its models. That body-positive attitude helped it claim that it was selling clothes for you, no matter who you are or what you look like. That, in its own turn, helped the company develop a fanatically loyal customer base prepared to buy its affordable—but not quite cheap—pocket dresses and colorful outerwear.

These are the kind of customers that Walmart needs to cultivate as it strives to expand its already considerable customer base—and, presumably, to improve its image as a crusher of mom-and-pops and a thwarter of decent working conditions. Among other things, it may mark an attempt to overcome partisan divides: Research tends to indicate that Walmart consumers swing right politically, which may speak to the company’s difficulty reaching left-leaning consumers. To be sure, Walmart’s reputation isn’t terrible, but as Forbes argued earlier this year, stocking more expensive brands may be linked to a trend that shows more Americans “graduating up out of the ‘middle class’ in income terms.” As they do, it may help the company to have a stable of friendlier sub-brands through whom it can reach out to otherwise inaccessible demographics.

If that’s Walmart’s endgame, it’s not making a show of the strategy. Visit ModCloth’s site today, and you’ll be hard-pressed to find a single mention of its relationship to Walmart, even on its “About Us” page. Much the same is true for Amazon competitor Jet.com, another recent Walmart acquisition, which cheerily announces on its “Vision and Values” page, “We share a sense of community with our shoppers and our partners, and we’re striving to create a business model that reflects that,” without acknowledging its corporate parent. For now, at least, Walmart’s gamble is presumably that it can scale up these already web-savvy brands, even as it siphons off just a bit of their hard-won fashionable charms.

June 16 2017 3:14 PM

Suburbs Finally Figured Out a Way to Get Rid of Pesky Drivers on Waze Shortcuts

In recent years, traffic has gotten bad in the tony Silicon Valley town of Los Altos Hills, California.

The big-picture problem is that the San Francisco Peninsula has become a global business hub but hasn’t adapted its road and rail network (or its housing supply, for that matter) to accommodate that. So there’s traffic in places like Los Altos Hills, which straddles Interstate 280 west of Mountain View.

As a result, mobile navigation apps, and especially Waze, the Israeli mapping software owned by Google, have maximized the utility of the local road network by sending drivers off the highway and arterial streets and through residential areas like Los Altos Hills. (Users of the app report traffic patterns and obstructions in real time.)

First, Los Altos Hills asked Waze to remove three roads from its map. Waze does not entertain such requests. So Los Alto Hills came up with a Plan B: Close the streets to people who don’t live there. In May, the city erected “No Thru Traffic” signs on three roads where they crossed the city limit. Waze complied, according to a report from the Los Altos Hills manager, which means it will no longer direct users to drive on those streets.

This kind of fix is about to be a very popular solution to a problem that has vexed suburban homeowners across the country. A Takoma Park, Maryland, man started reporting phantom wrecks and traffic jams to keep cars off his street before Waze banned him. He was inspired by like-minded residents in Los Angeles. In the end, he put up his own “No Through Traffic” signs, and even got his councilman to reach out to Google Maps, Waze’s minder.

Cities with old-fashioned grid patterns, the transportation engineer David Levinson has observed, tend to distribute traffic more evenly. It’s in suburbs with heavily used arterials and hard-to-find back roads that the apps have made their greatest impact. Some have tried traffic-calming infrastructure, like speed humps, traffic circles, and the like, which reduce the time savings of unorthodox shortcuts. Fremont, California, across the bay from Los Altos Hills, has new rules on rush-hour turns onto heavily trafficked shortcuts. But it’s hard to beat the algorithm.

Now—at least by the letter of the law—those streets will be closed off to people who don’t have a reason to be there. According to Los Altos Town Crier, the city is in a trial period with the signs and isn’t yet pursuing violators.

This doesn’t work everywhere. In Alabama, disappointed residents trying to shut down a shortcut learned that “No through traffic” was just a recommendation and everyone had a right to travel on public roads. In Atlanta, there was a backlash to the city’s decision to put up the signs after the collapse of Interstate 85 earlier this year, with one mayoral candidate saying it was a mistake to “wall off neighborhoods.”

In Takoma Park, public works director Daryl Braithwaite told me the city doesn’t put up “No through traffic” signs because they are impossible to enforce. Unlike turn restrictions, where violators can be easily observed, seeing who has business in a neighborhood would require extraordinary scrutiny by the police. “You’d have to stop every car,” she said.

But, she added, if those signs would indeed get Takoma Park roads off of Waze routes, residents might be interested in installing them anyway.

June 16 2017 10:42 AM

Amazon’s Whole Foods Purchase Isn’t Just About Groceries. It’s About Everything.

Amazon will buy Whole Foods for more than $13 billion, Bloomberg News and others reported Friday morning.

The move should awe but not shock. Amazon was already pushing into the $800 billion grocery business via its Amazon Fresh delivery business, which competes with the likes of Instacart, FreshDirect, and Google Express. So far these services have made inroads mostly in the nation’s densest cities, including New York and San Francisco.

The Whole Foods purchase changes the landscape dramatically. Suddenly Amazon owns a nationwide network of already-popular grocery stores that have already solved the tricky logistical problems involved in sourcing and storing fresh food.

What Amazon brings is the world’s largest online sales portal and its mastery of the home-delivery business. Scale, meet scale. Logistics, meet logistics. Loyal customer base, meet loyal customer base. If you’re in the grocery business and your name is not Amazon or Whole Foods, today is not a good day for you.

Grocery stocks
Grocery companies aren't the only ones that should be trembling.

Screenshot / CNBC

But Amazon is also chasing something even larger here. Its move into groceries isn’t just about adding a new territory to its online retail empire. It’s about dominance, comprehensiveness, and the pursuit of monopoly.

Adding groceries to its repertoire gets Amazon that much closer to being a one-stop destination for everything you buy. It gets customers visiting Amazon.com not just occasionally, but several times a week, every week. It reinforces the behavior by which customers search for things to buy on Amazon.com, rather than on a search engine like Google. It builds Amazon’s two-hour delivery business, which it sees as crucial to its future.

There’s more. It encourages people to use the Amazon Echo smart speaker for shopping lists and purchases, which makes far more sense when you’re ordering groceries than it does when you’re trying to buy, say, a new lamp or a pair of shoes. Same goes for Amazon Dash, whose Wand barcode scanner the company has just resurrected. And, perhaps most importantly of all, it will force every Whole Foods customer to strongly consider signing up for Amazon Prime, which turns Amazon into their de facto source not only for online retail but for instant video and other media.

The grocery stocks are down today, but they shouldn’t be the only companies trembling: Google, Apple, and even Uber are threatened by Amazon’s growing hold over e-commerce, media, and same-day home delivery.

In short, Jeff Bezos wants to take over the world—and this is a very significant step in that direction.

June 15 2017 5:06 PM

Texas Governor Who Chopped Down Old Tree Will Chop Down Law Protecting Old Trees

The liberty-lovin’ Texas Legislature meets once every two years, which isn’t always enough time to enact a liberty-lovin’ agenda. Which is why, last week, Gov. Greg Abbott called the legislature in for a special July session covering issues like abortion, property taxes, and school financing—the statehouse equivalent of summer school.

And then, in the middle of an ambitious 19-item agenda, there was this: a bill to pre-empt local laws protecting old trees.

For Abbott, the arboreal beef is personal.

Dozens of Texas cities and towns have “tree protection” ordinances that local advocates say keep the air cooler and cleaner, and reduce flooding and energy bills. In Austin, developers need city permission to fell older trees, and must plant new trees or pay into a tree-planting fund if they do cut them down. Between 2014 and 2016, a period during which Austin was one of America’s fastest-growing cities, the city used its ordinance to preserve some 43,000 trees. Developers were allowed to remove 23,000 trees, and were required to plant 24,000 replacements. It’s not a huge impediment to the development, since Austin only worries about trees over 19 inches in diameter, which make up about 3 percent of the tree population. Still, those older trees constitute about 18 percent of the city’s leaf coverage.

 

For a certain brand of property-rights Republican, these ordinances represent the thin end of the socialist wedge. "City tree ordinances are some of the most egregious examples of property rights violations in our state,” State Sen. Donna Campbell, who sponsored a tree ordinance pre-emption bill this year, told the Austin American-Stateman in February.

“Austin, Texas owns your trees,” Abbott said on the radio last week. “That’s insanity. It’s socialistic.”

June 15 2017 4:22 PM

Iowa Wants to Rewrite Obamacare. What Happens if Trump Lets It?

Right now, the second most important health care story in the country may well be unfolding in Iowa.

The most important story, of course, is the Senate GOP’s attempt to craft an Obamacare repeal bill entirely behind closed doors. But if that effort sputters—God willing—the future of the Affordable Care Act, and the extent to which conservative-leaning states will be able to simply rewrite it on their own, could hinge on what’s currently taking place in Des Moines.

This week, Iowa submitted a plan to federal regulators meant to stave off the impending collapse of its individual insurance market. There is currently a strong possibility that, come 2018, Iowa could become the first state without any carriers offering coverage on its Obamacare exchanges. Of the four insurers currently operating there, two—Aetna and Wellmark—have said they will pull out of the state’s market entirely next year because of the losses they’ve piled up there. Another, Gundersen, only sells coverage in five counties and hasn’t committed to sticking around. The last, Medica, offers health plans across the entire state but has warned it may have to bail ”without swift action by the state or Congress to provide stability to Iowa’s individual market.” If the company does exit, Iowa’s exchanges will be more barren than a cornfield in January.

Insurers are losing money on Iowa’s Obamacare exchanges, and fleeing them, for essentially the same reason they are elsewhere: Their customers have turned out to be older and sicker than anticipated. But those problems are especially acute in lightly populated rural states like Iowa, where the government has made matters worse by letting many residents hold on to their pre-Obamacare insurance plans rather than force them onto the exchanges. That’s made the pool of customers thinner than it might otherwise have been. Much has been made of the fact that Wellmark, which lost $90 million over three years, got stuck covering a young hemophiliac whose medical bills cost the company $1 million per month. But the fact that a single teenager with a rare condition could turn into a budget line item for an insurer is really just a colorful illustration of how tiny and unbalanced Iowa’s individual market really is.

Of course, it also doesn’t help matters that Donald Trump is threatening to bring all of Obamacare crumbling down by withholding crucial subsidy payments from insurers.

With the threat of disaster looming, Iowa officials have asked the U.S. Department of Health and Human Services for permission to implement a “stop-gap” measure that would let them dramatically rewrite the rules of Obamacare within their state, at least until Congress figures out what it wants to do about health care. As Larry Levitt of the Kaiser Family Foundation put it to me, their plan is a bit like a mashup of the American Health Care Act, which House Republicans passed last month, and the Affordable Care Act—in other words, Trumpcare lite.

Under the proposal, Iowa’s individual insurers would only be allowed to sell a single, standardized health policy—the equivalent of an Obamacare silver plan—which would be offered off of the ACA’s online exchanges. Insurers would still be required to cover the essential medical services required under Obamacare, and carriers would still be banned from discriminating against customers with pre-existing conditions. But the state would replace Obamacare’s subsidies with tax credits that would be available to higher earners (they’d scale based on age and income) and would no longer require insurers to reduce out-of-pocket costs for poorer customers. Finally, it would add new enrollment restrictions aimed at keeping people from waiting until they were sick to buy coverage and—borrowing from the House bill—would create a large reinsurance pool to defray costs for insurers who get stuck covering extremely expensive patients.

It’s a fairly dramatic rewrite. Low-income Iowans could come out a bit worse in the bargain while some upper-middle-class residents would come out ahead. Meanwhile, insurers would be less likely to lose money if they have to cover a severe case of hemophilia. While those trade-offs might not be entirely ideal to some, it could keep the insurance market functioning. Wellmark has said it would keep selling coverage in Iowa if the proposal—which it reportedly helped negotiate—is implemented. And a health care landscape with one or two insurers beats a health care landscape with no insurers.

But can Iowa legally do it? That’s not exactly clear. Under current law, the federal government is allowed to let states tear up Obamacare’s rules and experiment with new insurance systems through what are known as 1332 innovation waivers. But those come with a number of strict requirements—among them, states need to show they’d provide coverage that was just as affordable and comprehensive as under Obamacare while also providing a 10-year forecast showing the changes would be budget-neutral to the federal government. It’s not clear Iowa can actually hit all three of those marks at once, or check the many procedural boxes necessary for a waiver—and so the state is asking the administration to relax the rules. “The ‘traditional’ 1332 Innovation waiver was designed to allow states to propose innovative and long-term changes to the functions of the ACA,” its proposal says. “Iowa’s proposal is a short-term solution to prevent the crisis of not having any carriers offering ACA compliant plans in 2018.”

The subtext of Iowa’s proposal seems to be that Republicans will have repealed and replaced Obamacare by 2019, at which point it won’t really matter whether their system meets the waiver program’s strict requirements. (“Iowa intends to revisit the functionality of this program in lieu of any federal guidance that may be applicable for 2019,” the proposal says.) But if Mitch McConnell & co. bungle that effort, giving Iowa a green light to revamp Obamacare, no questions asked, could create a new and potentially powerful precedent. Sure, the state is framing this as a one-time response to an emergency situation. But what counts as an emergency? If a red state found itself with just a few counties lacking insurers, would the Trump administration let it do a top-down rewrite of the law? And what if Trump did decide to eventually cut off those crucial subsidies and bring the ACA markets crashing down? In that case, many states might be able to make a case for emergency measures. Maybe activist groups would sue to stop them from rewriting the law, but if the alternative is a cratered insurance market, maybe not. Under this scenario, we could end up with a landscape of states with radically different health-care regimes—some that look like Obamacare, some that look like Trumpcare, and some, like Iowa’s, that are Frankensteins of the two.

Iowa is facing a legitimate crisis, and many of the steps it’s taking to fix it make sense. But the state is also showing how conservatives could try to kill off Obamacare by regulatory fiat if they can’t pull off the job on Capitol Hill.

June 15 2017 1:31 PM

The Biggest Threat to Uber’s Business: Who Would Want to Work There Now?

On Tuesday, Uber CEO Travis Kalanick announced he would take an indefinite leave of absence from the company. The move followed an ever-tightening spiral of scandals for the San Francisco–based ride-hailing juggernaut that boiled over this week following the resignation of the company’s senior vice president for business, Emil Michael, on Monday; the release of a report by former Attorney General Eric Holder suggesting fixes to Uber’s sexist, Hobbesian work culture; and the company board’s vote to adopt all of Holder’s recommendations.

Could Uber, which has a valuation of $70 billion and is the dominant ride-hailing service across much of the globe, be in danger of losing its perch atop the industry pecking order? Three schools of thought suggest it might be.

First, the company’s leadership has been gutted. Kalanick and Michael joins Uber’s former president, head of mapping, vice president of product, top communications executive, vice president of engineering, and head of finance, all of whom left the company in the past six months. An Uber board member resigned Tuesday after making a sexist joke at the meeting dedicated to reviewing possible solutions to the company’s long history of rampant sexism. How long can a company survive with its head cut off?

Second, as Aarian Marshall argued Tuesday in Wired, Uber is a toxic brand and an unreliable partner. “Bad news cycles are bad news for collaborations,” he wrote, and collaboration (especially with automakers) is essential to Uber’s dreams of one day dominating the self-driving car market. Wall Street backing is also the basis for any eventual IPO, which the company had been hoping to roll out as early as next year. But trust in Uber is in short supply these days.

Third, there are Uber’s customers. As Farhad Manjoo opined in the New York Times on Wednesday, a decline in app users could hose any prospects of future recovery. “To encourage a better Uber, it’s time to play the only card you’ve got” as a consumer, Manjoo exhorted. “If it backslides or otherwise fails to live up to the promises it’s making now, stop using Uber.”

But there are reasons to doubt that these particular doomsday scenarios will pan out. In both its bullish business model and pervasive workplace sexism, Uber is like a ghastly mirror image of the “nevertheless, she persisted” meme that has come to symbolize feminist perseverance in the face of misogynistic headwinds; its awful behavior never seems to dog it for too long. The company has been embroiled in controversy, flayed with unflattering headlines, and buried under court motions for years. But “instead of making any meaningful changes” to the way it operated, BuzzFeed editor-in-chief Ben Smith wrote Tuesday, “Uber simply pressed on,” continuing to win customers, score business deals, and rake in wads of cash despite a thuggish workplace culture and questionably legal behavior. Why should the temporary departure of its CEO and the rechristening of the company’s “War Room” (it's now the “Peace Room”) meaningfully change things for the embattled startup? As Manjoo himself admits, “No matter what it does, a lot of us just can’t seem to quit Uber.”

But there’s a fourth constituency that could end up sealing Uber’s fate: Its employees, both present and future. The company currently employs an estimated 12,000 people worldwide, roughly 7,000 of them in the U.S. And in an employment landscape with as much turnover as Silicon Valley, the ability to attract top talent is the lifeblood of any tech company. Fail to extract the best employees from that churn and you’re not likely to keep your head above water very long. Uber’s failure to hold onto and attract employees might deliver the killing blow long before the company’s erstwhile leaders, jittery investors, or disillusioned customers do.

Of course, we don’t yet know much about how Kalanick’s departure is affecting employee outlook. But if it’s any indication, the company’s head of human resources asked Uber workers to stand up and give their fellow employees hugs after the oft-criticized CEO’s announcement Tuesday. And morale at the company has been low for some time. In part that’s the result of Uber’s infamously hard-charging, regulation-skirting, “bad-boy” corporate culture, which Kalanick both boasted of and embodied during his tenure. But the rumblings of dissatisfaction grew louder after Susan Fowler, a former Uber employee, published a blog post laying bare the undercurrent of unpunished sexual harassment that pervaded employee interactions in the company’s engineering division, which a group of female employees later called a “systemic problem” in a February meeting with Kalanick. Subsequent accounts—including a criminal probe launched last month by the Department of Justice and recent reports that the company’s president of business in the Asia Pacific mishandled the case of an Uber driver accused of raping a passenger in India—have only made things worse. (The victim in the India case, whose medical records were inappropriately obtained and shared by Uber executives, is now suing the company.)

None of this to say that anyone should feel bad for Uber employees who’ve stuck with the company—software engineers reportedly rake in an average of $292,000 annually, after all. But under those conditions it’s not hard to imagine employees, particularly women who feel unwelcome in the industry or who suffer harassment at the hands of co-workers, quickly vacating positions at the company—or simply choosing not to apply to them in the first place.

What’s more, Uber has already demonstrated a lack of grace when it comes to assuaging nervous employees in the wake of other high-profile departures. In late April, Anthony Levandowski, the former head of San Francisco–based company’s in-house self-driving car outfit, distanced himself from the division while under legal scrutiny related to an ongoing court case with Google (he was fired outright last month). The void reportedly sparked a spate of external job-hunting by nervous Uber engineers who worried their jobs might disappear out from under them—fears the company’s management apparently did little to quell, Recode reported at the time.

The company could also end up an unwitting victim of its own outsourcing business model. As Daniel Gross noted Tuesday in Slate, much of the Uber’s workforce—from its legions of nonemployee drivers to the owners of the vehicles that comprise its nationwide fleet—is only loosely yoked to the company. Those looking to jump ship could find a soft landing with Uber’s top U.S. competitor, Lyft, where drivers enjoy higher wages and greater levels of overall employee satisfaction (and for which many Uber drivers are already switch-hitters). Uber has struggled to retain drivers for years; fully half of them quit within their first 12 months with the company, Forbes reported in 2015. And with few employee protections and just 14 percent of driver jobs held by women, Uber’s outsourcing reflects many of the same pathologies of behavioral impunity and gender inequity that plague the wider company—mistakes its plucky rivals are eager to exploit.

That last prospect—an industry competitor scooping up not just Uber’s employees but also its vision for the future of transportation—might end up being the most optimistic outcome for the besieged ride-hailing startup. As Manjoo noted in the Times, there’s no need to eschew the company concept writ large even while kicking Uber to the curb. “Ride-sharing, as an industry and a civic utility, is too big an idea to be left to a company like the one Uber is now,” he wrote. And as I suggested just three weeks (but a lifetime of Uber scandals) ago, it’s looking ever more likely that the tech giant could end up a ride-hailing Ozymandias, a byroad warning to other startups barreling down the gig economy road. Besieged by demons of its own design, ending up a cautionary tale could be the best shot at leaving a positive legacy Uber has left.

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