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Risk Insider: Jack Hampton

Will 600 Colleges Disappear in the Next 10 Years?

By: | August 8, 2018 • 3 min read
John (Jack) Hampton is a Professor of Business at St. Peter’s University and a former Executive Director of the Risk and Insurance Management Society (RIMS). His recent book deals with risk management in higher education: "Culture, Intricacies, and Obsessions in Higher Education — Why Colleges and Universities are Struggling to Deliver the Goods." His website is www.jackhampton.com.

In 1980, the satirical priest Father Guido Sarducci, played by comedian Don Novello, took the stage on Saturday Night Live and proposed a model for college education. He wanted to start The Five Minute University (FMU).

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At FMU,  he would teach — in five minutes — everything the average college graduate remembers five years after graduation.

He pointed out that $20 may seem like a lot of money for just five minutes. It’s not so expensive when you realize the fee covers “tuition, cap and gown rental, a graduation picture and a snack.”

Students would take a foreign language, economics and — as is appropriate for a Catholic school — theology. The courses would require an oral exam in the final minute.

If Spanish, he would ask them:

Father Guido: ¿Como esta usted? (How are you?)

Student: Muy bien. (Very well)

In economics, students have to understand supply and demand:

Father Guido: How can you be successful in business?

Student: Buy something for one price and sell it for more.

Two questions would be asked in theology:

Father Guido: Where is God?

Student: God is everywhere.

Father Guido: Why?

Student: Because he likes me.

Father Guido pointed out the theology course was a combination of the Roman Catholic Church and Disney philosophies.

His school would offer a spring break. “No time to go to Fort Lauderdale.” He simply would turn on a sun lamp and serve students orange juice as his previously mentioned snack.

If students are successful with the oral exam, they would put on a cap and gown. He would take a Polaroid picture and give them a diploma.

Father Guido’s presentation is alive and well all across YouTube and other Internet platforms. But, as we might ask in a philosophy course, “Is it a comedy or a tragedy?”

In 2018, 70 percent of the 3.1 million graduating high school seniors will enroll in degree-granting colleges and universities. According to the College Board, the average annual tuition will be $35,000 at private colleges or $10,000 for in-state and $25,620 for out-of-state students at public colleges. Add another $12,000 to $15,000 for room and board, fees, books and miscellaneous expenses.

These numbers, when totaled over four years, range from $100,000 to $200,000. Parents can plan on spending another $100,000 or so if their progeny choose an elite or prestigious private university.

The dichotomy between Father Guido’s model and traditional colleges should be giving university risk managers nightmares. What do students remember from college five years after graduation?

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It is decidedly a risk management issue if we put two 27-year-old “graduates” side by side. The one from the Five Minute University has been working for nine years, has a savings account and no college debt. The one from a traditional college has been paying off student loans for five years and still owes $30,000.

The United States has 2,600 accredited four-year colleges on a trajectory that might produce 2,000 survivors in 10 years. Can college professors and administrators do anything to manage this risk?

Maybe they need to enroll in the Five Minute University.

Is “muy bien” representative of what students remember from most of their college courses five years after graduation? Can college graduates sell their skills for more than they paid for their degrees? Should graduates have to depend upon God being everywhere and liking them as they try to pay off student loans and get on with the rest of their lives?

If college administrators and professors correctly answer these questions, they deserve a reward. How about a cap and gown, snack and graduation picture?

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

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Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]