College leaders newest pay superstars

THIS STATE certainly has its share of Marie Antoinettes, and not all of them are female.

The latest collection includes the senior management of the University of California system whose annual salaries plus retirement benefits, under careful analysis, appear to run into the millions. Pausing to reflect for a moment, I’m reminded of a comment made by Steve Hebert, a friend from childhood who spent a career that included negotiations regarding pay for senior university officials. He pointed out that finding a college president is one of the hardest recruiting jobs.

In a single person, we have to find someone who has four basic attributes. First is a doctorate — any Ph.D. will do — so as to command the respect of professors. Second is an ability to raise money — essentially some sales ability. Third is the ability to manage a large organization. And fourth is the ability to understand and relate to the constituencies of students, parents and neighbors in the university community.

It’s relatively easy to find a person with two or three of these abilities, but rare to find anyone who is strong in all of them. Yet, running a university is a high-profile job conducted under a microscope. Any weakness becomes apparent pretty quickly.

I have less of a problem with the actual salary levels of $400,000 to $600,000 for top management running a $19 billion organization. What bothers me are compensation features like the reported $230,000 lifetime annuity or retirement benefit promised to UC President Mark Yudof if he stays for at least five years. That’s the equivalent of handing him a check for almost $4 million (the upfront cost of that lifetime annuity) as he walks out the door. It’s almost an extra million per year over and above the $600,000. As Ronald Reagan used to say, “Here you go again “…” We’re making a promise that we don’t have to pay for today. It’s become an epidemic in state government.

Meanwhile, there are extremely talented people running huge organizations in the federal government for comparatively small amounts of money. Top military commanders come to mind first, but then there are all those civil servants with the G-series pay rankings who seem content to take on major challenges for $100,000 to $200,000. Time and time again, anyone managing a company is told by compensation consultants that pay is not the most important motivating factor for employees.

To take it to the extreme, during World War II there were the “dollar-a-year” men who came from executive ranks to work in Washington for nothing.

So, why can’t we seem to find university managers who would gravitate to the lifestyle, challenges and status for less money? To me, it would seem of utmost importance for one fundamental reason and that has to do with the contentious negotiations that determine the entire university pay scale. How can someone negotiate, with a straight face, a union contract that controls costs when the world knows that managers make (in this case) almost $1.6 million per year. Exorbitant pay at the top sets up a sense of entitlement that flows down through the ranks. That’s why we have pension promises to today’s state employees that are totally unsustainable at any future tax rate.

I would tell the regents to offer $350,000 the next time out and be pleasantly surprised at how many talented people, with all four of those key attributes, show up for the interview. Someone taking the job for something other than the money might, for that reason alone, be a far better candidate.

Cash-laden retirees need to put funds to work

The law of unintended consequences has dealt another blow to conservative retirees who have been investing in bank certificates of deposit and short-term debt like money market funds.

Effectively, these investors have saved the banks at a huge personal cost. The Federal Reserve, which controls the money supply, has lowered the rate to almost zero that it charges banks that come to the Fed “window” to borrow. This is an effort to create as much liquidity as possible in a banking world where credit has effectively dried up and is otherwise unavailable as banks struggle to get back on their feet.

Unfortunately, those banks eligible to borrow from the Fed have taken the money, but they aren’t loaning it out to people or businesses. Instead, they are loaning it to the federal government, (not to be confused with the Federal Reserve) and earning maybe 2 percent while taking that spread as profit. You can’t fault them for that. After all, as one banker was quoted in a January New York Times article, “a lot of our folks have second and third homes and alimony payments and other obligations that require substantial cash.” As Bill Gross, the bond-trading genius said, “It’s capitalism I guess, but it’s not to be applauded.”

Meanwhile, there is an unprecedented $3 trillion in cash sitting on the sidelines waiting to do something —- almost anything — to try to make some money. What’s a retiree to do?

A couple of ideas come to mind: One is to consider investing in blue-chip, dividend-paying stocks on a dollar-cost averaging basis. In other words, don’t write one big check today to a combination of value-oriented and dividend-paying mutual funds. Instead, feed money into the market over a year’s period of time to benefit from any downdrafts during that period. Think of this money as funds designed to generate income and try to ignore fluctuations in the capital value. Set up the funds to deposit any dividend income into a checking account automatically. Plan to own these investments indefinitely as a source of income and ignore the changes in capital value.

The wind behind the sustained rise in market values, after the predictable “snap-back” from the crash, is the amount of unemployed cash looking for better rates of return. Sure, there’s risk in the market, but compared with no return for the foreseeable future, a little risk doesn’t look so bad. When the Fed eventually raises its interest rate even slightly, the market will swoon temporarily, but that hiccup will offer an opportunity to methodically buy into a falling market which will reduce the average cost of all the shares purchased.

The next option, for someone in their 70s who started taking Social Security earlier, is to consider buying back into Social Security to generate the higher-age rate. This could increase Social Security payments by 32 percent and guarantee a larger cost of living increase in dollars. A 70-year-old male has a better than 50 percent chance of living until age 87. At least one member of a couple has a 50 percent chance of reaching age 90. The net cost, after tax refunds, of paying back four years of Social Security might be something in the order of $60,000 for most people.

To then receive an extra $7,000 per year, which can increase at normal annual inflation rates of 3 percent, looks good compared to today’s $60,000 in a CD earning nothing. However, to find someone at Social Security who understands it can be a challenge. Out of 32 million recipients, only 90 people elected this option a few years ago. Trust me. It’s there.

Meanwhile, let the banks bail themselves out. We’ll take our money someplace else.

Investing returns depend on timetable

While basking in the afterglow of a 50 percent rise in the stock market, the financial press reminded me that we are closing in on the worst decade ever for the S&P 500 going back to 1927.

After a 17 percent rise year-to-date, the results are basically flat for the 10-year period. Adjusting for 10 years of inflation, we have actually lost 33 percent.

We don’t need to mope around over this state of affairs, because there’s a solution. If a zero gain for the past 10 years is bothering us, we can just go back fourteen years. Thanks to a 347 percent compound gain from ‘95 to ‘99, our average annual rate of return suddenly becomes a compounded 7.5 percent over this longer period, so we can feel great with respect to whatever money we had invested as of 1995.

The balance of what we have contributed since that time has been dollar-cost averaged, which means that we were reducing the average cost of all our shares when the market was down in the early 2000’s and also in the most recent few years. The math on these regular deposits since 1995 indicates that their rate of return averages 4.6 percent.

Most of us investing in mutual funds have taken to heart the concept of reducing risk by putting together a mix of fund types. The positive results of so-called diversification have never been more compelling than they are right now.

The S&P 500 index is, indeed, flat for the past 11 years, but an equal mix of an S&P 500 index fund, a small company index fund, and an international index fund would have generated a combined rate of return equal to about 6 percent. To put this in dollar terms, 11 years of $1,000 annual contributions into just the S&P 500 Index would total $11,200 today — a $200 profit. The same $1,000 in the above-suggested diversified mix would be worth $15,800 — a $4,500 profit. When the world is otherwise flat, a 6 percent return is a nice reward for taking the time to diversify.

We can just forget about that giddy feeling we experienced in September of 2007, the stock market’s high water mark. Our account statements from then had us all calculating that we could retire five years earlier than whatever the original plan might have allowed. After swallowing some disappointment, however, we can see that results are not so bad. For those of us taking the long view, the stock market has been doing its job.

What we can look forward to is the extent to which the market has demonstrated higher than normal returns for the years following any of the past flat decades. While expected returns average 10 percent, the 10-year average after a flat 10-year period has trended toward 13 percent. Warren Buffett predicted back in 2005 that the market would earn an average annual return of 7 percent for the following 10 years. As far in the hole as we are today, an average of 7 percent for the entire period between 2005 and 2015 would require a major bump going forward over the next five years.

We can’t lose sight of the broader picture. The financial press can prompt us to view the world with blinders. We don’t like 10-year results? Try fourteen. We don’t like the S&P 500? Try some diversification to create the path of minimum regret. Adjusting our perspective can do wonders for our dispositions and fortitude at times like these.

TIP bonds could trap investors in bad bet

Don’t look now, but Treasury Inflation-Protected bonds (TIP’s) may be a trap for the unwary. They’re certainly good for the government, because the interest cost on TIP’s is half of what it takes to sell a regular fixed-rate, 10-year government bond.

Money has been flooding into this 10-year-old financial invention on the premise that future inflation will trigger a dollar amount increase in the bond’s principal. The increase will be a direct reflection of the cost-of-living increase.

For example, if you buy a $1,000 TIP and inflation turns out to be 10 percent in a year (remember the 1980’s?) then your bond’s capital value would be adjusted to $1,100. In the meantime, you would be receiving an interest payment equal to about 2% currently of the original $1,000 — about $20.

Right now, the interest rate on 10-year TIP’s is 1.8 percent and the interest rate on regular 10-year bonds is 3.6 percent. The “invisible hand” of economic forces is trying to show us something here. Collectively, everyone buying a 10-year, fixed-interest bond is assuming that today’s fixed interest rate of 3.6% is a fair deal. If 10-year bonds typically pay a rate that is 2 percent above the expected inflation rate, then inflation is expected, by today’s bond buyers, to average about 1.6% per year for the next 10 years.

Since TIP’s right now pay an interest rate of only 1.8 percent, this says that the inflation-rate assumption for TIPS is the difference between 1.8 percent and the 3.6 percent which the world of bond buyers considers a good value.

Confused? In other words, TIP’s investors will accept an interest rate of only 1.8 percent today because they know the government will increase the capital value of their bond by as much as the rate of inflation. This is where the other 1.8 percent comes from to bring the total to the 3.6 percent market rate for 10-year, fixed rate bonds. If the public thought that inflation was going to be a lot more, it would be quick to buy TIP’s that paid even less interest today. If today’s bond buyers are wrong, and inflation soars, the TIP’s buyers will make a lot of money. If we have deflation, they could actually lose money.

For us amateur, self-styled economists convinced that inflation will run rampant because of huge government debt, there is an alternative to TIP’s that will protect us if we’re wrong.

It would be short-term corporate bond funds with average bond maturities of about 2 years. Vanguard’s short-term corporate bond fund is now paying a yield of 2.8 percent. Short maturity means that if inflation comes on strong, new bonds rapidly added to replace those that reach maturity will be paying the higher inflation-driven interest rate. With a spike in interest rates, it would take about a year for the fund’s turnover to bring on enough bonds at the new higher rate to raise the average coupon to an acceptable level, but a year goes by pretty quickly. In the meantime, until that event does happen, we have an investment that can make better sense than a money market fund paying negative rates or TIP’s that currently amount to a gift to the government.

In my mind, TIP’s fall into the same category as Roth IRA’s and 401(k)’s. Both are tools invented by our government to improve immediate cash flow by saving money on today’s interest costs (TIP’s) or by generating tax revenue sooner (Roth.) The government, like the casino industry, has the odds stacked in its favor. There’s always the chance that we might win when using one of these new incentives, but the fates statistically rule against us. Government statisticians have figured this out.

Regulations help keep bankers honest

“Death panels” for institutions “too big to fail” sounds like a good idea to me.  The concept was voiced by Barney Frank in describing what Congress has in store for the financial services industry.   We should have remembered the last experiment with unfettered free markets when we deregulated the Savings and Loan industry.  Over 3,500 executives went to prison.  Fortune magazine ran a hilarious two-page spread with hundreds of tiny mug shots.

This time out, the problem is not so much criminal as just plain stupid.  When leverage limits were lifted in 2004, most financial institutions went right to the thirty to one limit of borrowed money for each dollar of cash.  Just a 3 percent gain (net over the cost of borrowed money) created a 100 percent profit.  Any executive not following that herd at the time would have lost his or her job.  While leverage works both ways, Wall Street’s “IBG” factor was at work.  “IBG” stands for, “I’ll be gone.” 

Fifty-year- old banking regulations spawned during the great depression helped to keep greed and stupidity at bay.  A ban against interstate banking and a prohibition against banks selling securities were both done for a reason.  Regional banks with limited footprints were largely kept in line by threat of embarrassment.  Community leaders running banks were more concerned with their long-term reputation than with the size of their annual bonus.  Allowing companies to combine several financial functions into a single organization, like AIG, meant that they could use the insurance arm’s credit rating to design hopelessly short-sighted investment products that pretended the 20% housing downturn of 1992 had never happened.

Moreover, the entire conglomerate was regulated by the government’s thrift industry regulators because tucked somewhere in the bowels of AIG was a thrift institution handling Christmas club savings accounts. 

An interview of former Treasury Secretary Henry Paulson by Todd Purdum in Vanity Fair sheds some light on where we will go from here and offers some reasons for optimism.   Our situation today would be much worse if it hadn’t been for the actions of a bird-watching, non-drinking, non-smoking, devout Christian Scientist and former Goldman Sachs Chairman who is still worth over $500 million after having given over $100 million to environmental causes.  By letting four major “too big to fail” institutions walk the plank, he managed to stabilize what was left of the world’s financial underpinnings.

 I still have an issue with companies that benefited from our AIG bailout, such as Goldman who received $12.5 billion, but solving that problem can be step two of the process.  We still have the power to sanction and tax.

What give me feelings of eternal hope are the comments Mr. Paulson made regarding Barney Frank with whom he worked closely during the crisis.  “This is the guy that’s got the intellect, he’s got the energy, he cares, he wants to legislate, knows how to legislate.  I wish he were a Republican and we all shared the same policy principles and you’d cut a wide swath.”

 I know that about Mr. Frank.  Forty-three years ago I used to be part of a standing-room-only crowd that would listen to his lectures on political science at Harvard for their sheer brilliance and entertainment value.  I wasn’t even taking his class. 

But if that wasn’t enough, Hank Paulson then goes on to sing the praises of Nancy Pelosi and her command performance during the meltdown.  “She was engaged, she was decisive, and she was really willing to just get involved with all her people on a hands-on basis.”  Bottom line: we have some competent people in Washington who are capable of engineering a “Back to the Future” chapter of our financial services sector.

Health care solution by one reader

Last week’s health care column triggered a flood of e-mail from readers. Most agreed that something needed to change, and they cited their specific frustrating examples in dealing with the prevailing system.

Those few happy with the status quo don’t have much sympathy for the 45 million uninsured, but they are forgetting one thing: It’s not the same 45 million from year to year.

If you asked the question, “How many Americans went without insurance for at least six months over the past 10 years?” I think that the answer would be closer to 100 million thanks to the revolving door of job tenure. The average American changes jobs every seven years.

Common sense would indicate that there’s more heartache to that 45-million statistic than just the raw number. Of this group, a higher percentage than the national average must have pre-existing conditions that make them uninsurable. After all, someone with a health problem is probably having a harder time getting a job — a condition exacerbated by the fact that insurance plans for small businesses (where a majority of Americans work) often require that new employees prove insurability to get coverage.

For a final insult to our intelligence, imagine what an employer thinks about hiring an older employee when the annual insurance cost for that 50-plus age applicant could easily be $5,000 more than that of a younger person. We can safely bet that a lot of those 45 million are older former employees.

One of the most comprehensive e-mails came from a friend and former senior vice president of a major insurance company who also serves in a key leadership role today for a hospital chain. He confirms the fact that only 75 percent of a premium dollar goes to fund medical costs. The missing 25 percent is for overhead and profit.

Between 25 and 40 percent of health care dollars are spent in the last year of a person’s life. There is duplication and over capacity of facilities because communities all believe that they need everything. What allows all of these inefficiencies to persist is the fundamental disconnect between the patient receiving the benefit and the source of revenue for paying the bill. Despite the public’s dismay at a 131 percent increase in costs over five years, nobody anywhere in the transaction has any incentive to control costs.

The answer, according to this experienced and “connected” executive is as follows: First, he recommends a single-payer system with premiums paid at varying rates depending on an insured’s gross taxable income. Next, there should be large deductibles and co-insurance which would, again, be variable and tied to taxable income. Preventive care would be paid on a first-dollar (no-deductible) basis.

A key ingredient of this proposal would be an independent agency, similar to the one in Maryland, that would determine prices to be paid to providers. The amount paid would reflect what it cost to attract people to the roles of primary-care physicians, to meet the capital needs of hospitals, and to cover quantifiable research and development costs of drug companies.

Insurance companies would be confined to administering claims. A parallel, presumably higher-cost, option would be available for anyone not satisfied with the services provided by the model outlined above. And finally, illegal aliens presenting themselves to emergency rooms for care would be stabilized and returned to their country of origin — something that should be happening now anyway.

How can anyone argue with this well-constructed approach?

Health care costs fuel reform call

I was stunned last week to learn that the health insurance premium my company pays for my wife and me (we’re in our 60s) is $1,827 per month. What am I getting for $22,000 per year? Not even a death panel. It’s a $2,200 deductible plan with a stop-loss of $4,400 for the two of us combined. This is through Blue Shield, which is still operated as a nonprofit.

Like most of the 85 percent of the population who are supposedly “happy with their insurance,” I was blissfully ignorant of what it was actually costing. They paid the bill for me over in accounting, but the current focus on health insurance prompted me to ask what my own portion was costing. I’m the owner of a company with about 30 employees, so I bear the entire burden for my own coverage.

If I were to lose my job, my COBRA cost to continue the coverage would be 35 percent of the $1,827 until November, and then the end of the temporary government subsidy would raise my cost to the full annualized rate of $22,000 — a laughable amount for someone unemployed.

Then, there are those huge deductibles if I actually got sick — plus the cost of drugs not covered and disputes over bills that may be more than “usual and customary.”

Moreover, some treatments I thought I needed would have to be pre-approved by someone in a cubicle while I struggle with their voice mail.

Looking at my bill, I notice that I’m paying less for younger employees.

However, it would be about $1,000 for a couple in their 50’s and $600 for a couple in their 40’s, so it’s never cheap by any stretch. The only good news is that it is all tax-deductible, as long as I’m employed, but COBRA premiums, if I ever had to pay while between jobs, would not be tax-deductible. How twisted is that?

All of us who are “happy with our current coverage” have probably not stopped to think about the fact that we change jobs on average about once every seven years — which means that we’re probably candidates for COBRA coverage or we go uninsured for significant portions of a career.

Even those steadily employed are paying indirectly, because companies like mine that have to pay these premiums have less money available for spendable employee compensation.

Because an employer is paying the bill doesn’t mean it costs employees nothing. We’re paying every dime with hidden compensation we never see.

Meanwhile, of the $22,000 a year I currently pay, about $7,000 or 35 percent goes to cover the cost of administration, marketing, profits and costs not directly related to health care itself.

Of the amount that actually gets to doctors and hospitals, about a third represents a mark-up to cover the costs of those who can’t pay.

Doing simple math, it appears that only $10,000 of my $22,000 is devoted to actually paying for my potential health problems.

It will get worse. The Center for Disease Control estimates that one out of three children born since 2000 will have type-2 diabetes — basically from a diet of government-subsidized junk food.

Ninety-two gallons of soft drink per year on average now exceeds the amount of milk that kids drink.

In most industrialized countries, I’d be paying just $11,000 a year for comparable coverage. Let’s give change a chance.

Bonds could be a better bet

“Wall of Worry” is said to be the old bugaboo upon which the market rises. In a nation of too much communication, there’s no end to a worry wart’s source of supply.

If the stock market has exhausted what has been a spectacular climb from the depths of despair, then I’m inclined to pay more attention to the case that bonds, over many periods, have actually performed better than stocks. Of course, we can expect this Internet chatter after a rare 10-year period whereby the market has made essentially no progress.

What this theory ignores, of course, are compounding dividends paid by public companies and little or no inflation during the period. Almost all other 10-year periods with rising markets had the rising tide of inflation raising all the ships. I’m always stunned at how much obvious information is left out of these comparisons by responsible academics or money managers.

Recovery

Over the long term, with the challenges ahead of us, it may be safest to make decisions based on the prediction that markets won’t recover to 2007 highs until as late as 2020. If this is the case, then bonds could, in fact, be a better bet than stocks. Inflation takes a toll on longer term bonds, but people betting real money right now are buying 10-year bonds that fluctuate between 3- and 4-percent interest. These are people betting trillions of dollars who believe that inflation is not going to happen.

If bonds do make sense, my favorite categories today continue to be funds of high-yield bonds, GNMA’s, short-term corporate, and lately, emerging market bond funds like that offered by T. Rowe Price.

High-yield bond funds were pummeled over the past year, but as a percentage of total assets, the defaults on bond investments were minimal and most continued to pay out at their stated coupon rate. For anyone willing to stomach the decline in capital value that occurred during the panic, the rewards since have been reassuring. For the year, junk bond funds have risen a total of about 40 percent and the current average yield is about 12 percent. A “toe in the water” is one way to consider Vanguard’s High Yield corporate bond fund which invests in bonds that are just barely considered junk. Its yield is about 8 percent currently, but this fund represents the oxymoron of “safe” junk bonds.

Inflation

International bond funds like T. Rowe Price Emerging Markets Bond fund offer some of the same higher returns as domestic high yield, but there is the additional advantage of debt in foreign denominations. If we do, in fact, have high inflation in the United States relative to other countries, then sinking dollar values will not impact these foreign bond assets. They will become worth more in dollars. At the moment, the annualized yield on the above-mentioned fund is 8 percent.

So much for bonds. There are still plenty of money managers out there who think the market has room for further advancement. Norman Fosback applies his own “Stock Market Logic” to more than just the title of his book, and he recently declared that the market had room to rise 21 percent over the coming year and a total of 79 percent over the next five years. Floyd Norris, in The New York Times, points out that the seemingly huge deficit into the future makes no assumption for course-correcting. For example, it assumes that we will be spending $100 billion per year fighting wars indefinitely. It ignores the fact that taxes, especially the estate tax, will “snap back” to their 2000 levels which was the deal we cut with our self-indulgent selves when we temporarily suspended them In the first place.

What too much information and the wall of worry should mean to us as individuals is that we are like snowflakes — no two of us are in the same situation when it comes to meeting financial obligations. None of us can predict what will happen in financial markets, but we can decide what is important and make decisions that relate. Older investors should understand how bond funds can improve results regardless of what the market does. Younger investors should never freak out and retreat into money market funds (as many have.) Forget about predicting what the future holds. Assume that it will fluctuate and invest accordingly.

Investing during stagflation

Anyone lining up historical facts and then peering into the future can reasonably guess that inflation will define the economy for the coming generation. Under these circumstances, some investment shifts can make some sense, but first a look at the fundamentals.

Congress has three choices. They can raise taxes. They can cut programs and spending. Or, they can allow inflation to effectively reduce the value of the dollars that we owe to our own citizens and foreign governments that have bought U.S. Treasury bonds. The inconvenient truth about taking the inflation route is that no politician needs to take responsibility for a specific tax increase or spending cut. Inflation just creeps like fog onto the economic scene, allowing a “my hands are clean” approach to dealing with the problem. Meanwhile, just as the fog slows down sea traffic here at my Maine coast vacation site, inflation caused by rising interest rates slows down the economy like throwing out an anchor.

We’re talking “stagflation” which is inflation coupled with a struggling economy.

It doesn’t take much cynicism to conclude that inflation will be the path of minimum regret for Congress in the years ahead. The economic prognosticators at the highly-respected Institute of Trend Research have predicted inflation ramping up to 8 percent within three years.

When it comes to investing in an inflationary environment, housing comes immediately to mind.  This was confirmed in a personal discussion with a Bay Area homebuilder hit especially hard by the housing implosion.

He said, “Inflation has always been great for the housing industry.”

With the housing market having hit bottom, coupled with the fact that we have historically low, fixed-mortgage rates, an investment in housing can make great sense today. Vacation homes with views or on the water, and residences in urban areas, tend to benefit the most from long-term inflationary conditions.

With respect to fixed-income investments, bond mutual funds with longer average maturities will always be trying to catch up with inflation. Capital values of existing bonds in the fund will drop until they begin to approach maturity. If the majority of the bonds in the fund are several years away from maturity, the entire mutual fund’s value will be depressed for awhile.

A short-term bond fund, by comparison, has bonds that mature in two or three years on average, and this is too short a time period for much drop in value. Another approach is to invest in individual bonds themselves instead of investing through a mutual fund. This enables you to control the maturity of each bond and hold them to maturity if they drop in value in the interim.

The stock market, during an inflationary period, tends to “whipsaw” investors. On the one hand, rising interest rates are bad for corporations that are paying for borrowed money. Interest rates, in general, are the single most important determinant of corporate profits. Meanwhile, companies typically own assets that can increase in dollar value and they can raise prices during an inflationary period. Buy-and-hold investors who are dollar-cost averaging, investing steadily, are served well in a whipsawing market. Those trying to time the market, without exception, will miss opportunity as the market climbs on its “wall of worry.”

We went through this in the ’70s, of course, but back then we didn’t have any money. This time it’s different, and we have to think about what inflation might mean to us.

Good, bad and the ugly of Kaiser

My new Aussie puppy reminds me of the dog-training book, “Good Dog, Bad Dog.” Meanwhile, the flood of e-mail after my column on Kaiser Health suggests that it’s time for a book “Good Kaiser, Bad Kaiser.”

If you want to see the fur fly, say something good about Kaiser.

Plenty of people were quick to disabuse me of the thought that Kaiser was vastly improved as a result of all that money they have been making. Several pointed out instances of sloppy, inattentive care and misdiagnosed illnesses. A few of these stories sounded horrendous and inexcusable.

In the same vein, others pointed out that Kaiser has several different benefit levels which can leave people in some situations with an unlimited amount that they might have to pay. Prescription drugs, in one example, were covered up to a limit which meant that the patient had to pay for everything over that limit. In the individual insurance market, Kaiser, of course, requires that applicants prove their insurability by having no pre-existing conditions.

One especially important arrow in Kaiser’s quiver, in theory at least, is the practice of preventive care. Unlike most other insurance programs, an HMO like Kaiser has an economic interest in early detection and prevention of illnesses. HMO, after all, stands for Health Maintenance Organization.

A few people wrote to tell me that those physical exams were woefully inadequate — the worse they had ever received by one account.

Examples? No coughing check for hernia or PSA test for starters. In one case, a new Kaiser enlistee, disgusted with what experience told him was a second-rate physical, asked for another Kaiser doctor at another location. He came away extremely pleased and said, “You just have to do your homework.”

Kaiser is having no trouble filling doctors’ jobs. One e-mail noted that doctors coming out of the nation’s medical schools have selected Kaiser as one of the most popular possible job options. A recent top job had two finalists — one from the Stanford Medical School’s faculty and another from Harvard’s. They picked the Harvard guy.

One wonders why we haven’t heard more about the Kaiser model as part of the debate on national health care. After all, their patient record-keeping is 100 percent computerized while the rest of the industry is at less than 10 percent. Computerization is supposed to be the key to holding down costs. The answer was supplied by yet another e-mail as follows: A portion of Kaiser is an insurance company like everyone else. They belong to an association of similar insurance companies that they don’t want to antagonize. Throughout this national debate on improving a dysfunctional system, the HMO has remained largely below the radar.

I would offer a more cynical reason. The longer the rest of an inefficient industry continues to raise prices in their regional oligopolies, the greater the advantage for Kaiser. The status-quo is serving them well, so why would they step up to the plate and offer to solve problems on any kind of national scale? Why step right into a buzz saw?

What I would like to see is a collaborate effort on the part of private industry to offer health care to everyone with no proof of insurability. This would solve the major problem for early retirees and the unemployed who find themselves without coverage and at risk of losing everything in the event of even a minor illness.