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Should we tighten H1-B rules?

January 04, 2018 – Comments (1)
Any person who relies on the US job market, whether he is a natural born American citizen or a naturalized citizen, would at some point selfishly want what Trump is trying to do for us. He would like him to tighten the rules, so our jobs are not threatened by someone who migrates into the US on an H1-B visa.

What is wrong with that?

First of all, all of us and our politicians have to understand, that we can make H1-B harder, or even impossible, but we cannot stop globalization, not unless we kill the internet. I know a staffing agency, and there are many such agencies, which have 20-30 people right here in the USA and 110 people in Bangalore. More than 50% of their revenue earned from companies in the USA is spent on the 110 people office in Bangalore. That's just wrong, but there is nothing the US govt can do about it, unless we change our stripes, and become a closed economy. 

When these 110 people suck out 2-3 million dollars a year out of USA, what are the effects of that?

1) American economy loses the $3 million.
2) Indian govt gets the share of income tax from the workers on that $3 million, which they can spend on their infrastructure projects, government employees, imports, etc.
3) American social security system doesn't receive the payroll taxes.
4) All the money is now in the Indian economy, and they spend it to buy houses, clothes, cars, vacations, etc. Some of it makes it back into the US when they buy a Ford or an iPhone. But most of it is spent on goods and services peddled by China, Bangladesh, Malaysia, Europe, Korea etc

What would happen if it was super easy for that staffing agency to hire in the US on H1B visa with least amount of restrictions?

First of all, never assume that they would replace every overseas worker with a US worker. That ship has sailed long ago. But even if they hired an extra 10 people at 60K, you now would have 600K out of the $3 million in the USA

And what are the consequences?

1) American govt gets a decent chunk of that 600K in taxes (Income taxes, sales taxes, property taxes, payroll taxes)
2) That Indian or Russian or Chinese or Mexican on H1-B would spend the remaining dollars to rent or buy a house, buy a car, commute, food, clothes etc.
3) The spending would generate additional jobs like jobs in a grocery store, restaurant, home depot, home builder, etc
4) Some of it would be saved and invested. That would create a job on wall street.
5) Some of it would be spent on travel and leisure, creating jobs in that industry.
6) Some of it would be spent on healthcare, creating jobs there.

You get the idea. Each time, a worker is hired overseas, that instead could have been hired here, sure, that particular job is taken away from an American citizen, but by keeping the dollars here, and making sure the recipient is here, we get the benefit of growing our own economy, rather than helping some other countries grow theirs.

India was all the rage in the early 2000s and is still today. India got a solid reboot after software exports started to pick up in India. Today, India benefits a great deal thanks to their low-cost offerings in the fields of call-center, customer service, software development etc that Americans can never offer. But by making it harder for H1-B to live here or come here, we are shooting ourselves in our own feet. 

What about the technology job that we steal from the American worker. What about that worker? First of all, this is a highly qualified worker, and the government should be least concerned about his job. The government should be more concerned about the potential loss and its effects that I talked about earlier. Having said that, honestly, the American citizen you try to protect by restricting H1Bs benefits with the H1B migrants' arrival (Remember the alternative is, the same worker will live in his/her own country and do the job. We don't have the option of keeping all the work here, post-globalization). Since the H1B worker arrivs here and spends his money here, some of it benefits the industry in which that H1B works. Meaning more jobs in that industry. For e.g. if I work in Wells Fargo technology division, and the H1-B workers arrive here and competes with me in that division, don't forget that the H1-B worker also buys a house or a car, and guess who finances the car or the house? Guess who manages the 401K of that H1B worker? It's Wells Fargo. Hence, Wells Fargo grows its revenues and has more money to hire more technology worker.

If the above doesn't convince you, take one anecdote.

I met a friend recently who was visiting the USA from Canada. He is from India. He told me, he worked for Morgan Stanley in India. He also met his wife in MS. His wife is a Chartered Accountant. My friend is a software developer. He told me, he visited Chicago and Florida in the past few years for work, but never really liked the US. Hence, he never pursued an H1B. As a result, all the dollars MS spent on him and his wife (probably $120K per year total) were benefitting the Indian economy. Later he decided to migrate to Canada. Both of them now benefit and contribute to the Canadian economy. We missed out! These two were very talented. He works for Open Text now. And his wife will finish Canadian CPA and then join some company (and probably will become a Controller in the future). Their presence there will develop the Canadian economy. We could have had that couple here!!!

Why did we miss out? We probably missed out because the Indian migrant is on the edge for 10+ years these days before he can get a Green Card. Why should a qualified Indian spend 10+ years in stress? There is Australia, Canada, UK, Dubai? The whole world is his Oyster. Also, we make it harder for the wife or spouse of the H1B worker to work. We should make it much easier for a qualified foreign worker to settle in the USA. This way, it would be a lot harder for MS or JPM or Citi to find highly qualified workers in India, as most of them would be in the USA busy contributing to the American Economy!

Protectionist thinking is short term thinking. Let's expand, embrace and grow in turn!  [more]



We don't need PBMs

May 20, 2014 – Comments (0) | RELATED TICKERS: CTRX.DL , ESRX , MCK

"The main purchasers of drugs are distributors such as McKesson and Cardinal Health. They buy the drugs from the manufacturers in large quantities, letting them get a discounted price, and supply them to retail pharmacies like Walgreen and CVS Caremark, so that they can fill the prescriptions of their customers at the other end of the chain.

The PBMs' role is to handle the payment side of filling prescriptions. They contract with the pharmacies and insurance companies to negotiate what drugs will be covered by a plan (called the formulary) at what cost. When you give your insurance card to the pharmacist, the pharmacist contacts the PBM to determine the cost of that prescription to you and to your insurance company. If the drug your doctor has prescribed is on the formulary, then it's covered and you pay a certain, lower price. The PBM also handles the payment transfer between the insurance company and the pharmacy. It is paid a fee for all this and oftentimes earns a spread from the negotiated prices between payors and pharmacies."

I believe the above is an excellent explanation of what PBMs do by Jim Mueller in the premium report on ESRX.

Catamaran had done an investor presentation recently where they stated that their primary job is to drive cost savings in healthcare.

We know, that means, providing the prescription to the patients at the lowest possible cost. I would think, eliminating the PBM itself would be the most efficient way to drive this saving. Yes, some PBMs also function as mail order pharmacies. I am not proposing that this function should be eliminated.

I never understood or accepted the notion that we really need a PBM to drive down costs of prescriptions.

Generally in the supply chain, you have manufacturers, wholesalers and retailers. In some instances, we have manufacturers that directly sell to consumers. In other instances, we have retailers that directly source the merchandise from manufacturers eliminating the wholesaler completely. But we usually don’t have a middleman between a retailer and wholesaler responsible for “driving cost savings in healthcare”.
CTRX’s last quarterly revenue was approximately 5B. 6.4% was the gross profit or approximately 314 MM. Similarly, ESRX sold around 23.6B worth of prescriptions, and pocketed a gross profit of 1750MM i.e 7.4% of sales. Just these two companies cost us Americans an additional 2 billion dollars in one quarter. We paid 28B for prescriptiosn that really cost them 26B. I wonder if PBMs didn’t exist, would we really be charged more than 28B for these prescriptions by Walgreens, CVS and Walmart pharmacy, and other small and large pharmacy’s in the country?

Now, I am not proposing that we should have a markup free world. A supply chain will have essential participants, and all of them will charge a markup. That's why we need to have fewest possible middleman.

My guess is, just like consumers seek out lowest price for various consumer items, they would seek out a pharmacy selling these prescriptions for the lowest price. (The trick would be for insurers to put some kind of incentive, or implement a fixed reimbursement rate. For e.g. 20% above the wholesale price or whatever the PBMs currently pay to the McKessons and Carinal Health’s or AmerisourceBergen’s of the world)

I am just of the opinion, that regardless of how insurers figure out a trick to keep the cost of prescriptions low, there has got to be a way that does not involve the PBM. Otherwise, no matter how much saving they drive in, there is always going to be that 6-8% markup.


Discl Long CTRX because I don’t think the world is perfect, and the PBMs are not going anywhere in the near future. However, I do believe the system will become more streamlined during my lifetime. That's why CTRX is not a buy and hold forever stock for me.   [more]



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December 07, 2009 – Comments (18) | RELATED TICKERS: GLD

I thought this was interesting, so just wanted to share it here, and also, so I can refer to this for myself in the future.   [more]



Credit card and FICO

December 01, 2009 – Comments (4)

Now the latest news is that some Credit Card issuers will charge you a "inactivity charge" . This means, if you have a credit card that you havent used in years, but still decided to keep it to keep your FICO score high, could cost you.  [more]



Why I think AMZN is very expensive

October 31, 2009 – Comments (10) | RELATED TICKERS: WMT , AMZN

Responding to very interesting comparison between WMT and AMZN in an attempt to justify why Market is paying 70 times earnings for AMZN   [more]

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