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Willful Ignorance & Gaming the System: The Decline of Trust in Our Society

by on September 14, 2014 7:00 AM

In my daily practice of reading various newspapers, I have recently noticed a number of pieces related to two demons I'd call gaming the system and willful ignorance, committed by both individuals and organizations.

Gaming the system is searching out and using the most advantageous application of the rules to your benefit (yours or your organization) consistent with the letter of the law, but perhaps not consistent with the intent of the law.

The more complex and opaque the rules and regulations, the more possibilities exist to game the system.

Likewise, willful ignorance is another result when policies are convoluted and complex. Of particular concern are the Obama Health Care Law (nearly 19% of the economy), the rules and regulations of the Internal Revenue Service, and welfare & unemployment benefits, including disability.

While these pitfalls are not new, the level of artful dodging and ignorance seems to be at a new high as our government implements vast sets of ever more complex rules and regulations and the executives, employees and lawyers of the affected entities strategize on how to minimize the impact of the rules and then bend them to benefit themselves and/or their organizations.

In one example of gaming the system, 26 of 288 profitable Fortune 500 companies paid no federal income tax for the period 2008-2012 by working the tax code to their own advantage.

The Wall Street Journal recently published a story on its editorial page about an executive who took his son to the hospital to check on a head injury. Thankfully, the injury wasn't serious, yet the family (and the insurance company) was billed $10,000 for a trauma team activation which never occurred.

The billing person added the charge because it was hospital policy. The charge was only overturned when the executive read the hospital's billing policies and determined the billing person was willfully ignorant. The insurance company did not challenge the charge and the hospital did not review their charges to see if the billing was correct after being repeatedly asked to do so.

The bill was finally refunded with no explanation or apology. This patient and his family will never again trust that hospital's billing; nor will they trust the insurance company to do its job for a customer. While the medical side provided great care, the business side of the system proved untrustworthy.

I have been told that such overcharges are common occurrences. Such willful ignorance costs insurance companies, the government and patients tons of money. If medical providers would provide the customer with the cost of each procedure before the money is spent, trust might be built back into the system.

In the system we have now, the customer must rely on the honesty and ethics of each person in the system, often to their own detriment. Where else do we buy a product wherein the provider hides behind billing codes and faceless folks who never deal with the customer face to face?

In a different realm, the Bureau of Labor and Statistics reports to us the monthly unemployment percentages and the media latches onto every number like it is gospel. Nothing could be further from the truth.

In both 1985 and 1993, there were major adjustments made to the unemployment computation so that the numbers appeared better than actual unemployment conditions.

We no longer count the chronically unemployed as we used to, so we arrive at the 6.1% unemployment number. The real number, the true unemployment number, is north of 12%.

Other measures of the employed have been deteriorating for years, as more and more people live on disability and extended unemployment benefits and other assistance, such as food stamps. Politicians want to get reelected and stay in power so they game the unemployment numbers to make their policies look like they are benefiting the citizens, even when they are causing further damage to the economy.

Bottom line: fewer people are working and paying taxes to support a larger and growing nonworking population. Working and contributing to the country is fast becoming a Sisyphean task. People are gaming the system at both ends: the politicians to get reelected, the bureaucrats to protect their jobs and the non-workers to get others to pay their bills.

The approval ratings of our government and politicians are at all-time lows. Government has taken on jobs for which it has no competence and wants to take on even more of the private economy. Clearly government (legislative, judiciary, executive and bureaucratic) does not recognize its limitations.

Perhaps it feels it has no limitations. Renowned management consultant Peter Drucker felt that every organization is good at some things and bad at others due to the form of the organization. Governments are reactive organizations and are only good at reactive activities.

Corporations are proactive organizations and are good at creating their world as they move into the future. Governments should not try to do proactive jobs because ultimately they fail and then game the system to avoid the consequences.

We are currently experiencing that type of failure. The damage, aside from wasting resources, is a reduction of trust in our society. Such mistrust is reflected in the approval ratings of our elected officials and their bureaucrats.

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Dan Nestlerode was previously the Director of Research and Portfolio Management at Nestlerode & Loy Investment Advisors in State College. He retired in 2015 after 50 years in the investment business. A graduate of Penn State University, Nestlerode became an investment advisor in 1965. He can be reached at [email protected]
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