Category Archives: Insurance

Needs of the many?

Shortly after the Supreme Court’s ruling on the PPACA (Obamacare) case came down last Thursday the world of Facebook exploded in a firestorm of cross fired epithets both praising and decrying the ruling. Frankly I’m just a bit burnt out on it all, as it would seem everything that could be said has been said ad nauseam (and yet I’m writing this article!) I think both sides believe or hope their words can persuade those on the other side, but for the most part it is a futile exercise. The Facebook community and its ilk are no different than Congress or the President; everyone is just talking past each other and no one is listening. In order to persuade you must listen and understand why they hold their beliefs or ideology, otherwise for the most part they will just hear your words but not understand the meaning. My goal in writing these articles has always been to inform and thus persuade. I’d like to think I’ve done a good job at this however I recognize the reality that I’m likely preaching to the choir while being ignored by the congregation.

If you have read this far and you are a pro-Obamacare person then congratulations for being willing to have an open mind. In order for me to have a ghost of a chance of possibly having you consider that socialized healthcare is perhaps not the best route to help people in need, I need your help. I need to understand why you support Obamacare. Please consider the following questions and feel free to respond at the contact info below.

1. Is healthcare a right? If so, why?

2. If healthcare is a right then is there any moral distinction between securing a negative right (i.e. a right secured only through the inaction of others) vs. securing a positive right, such as healthcare (i.e. a right secured only through the action of others)? Stated differently, is it moral to compel other individuals to act on one’s behalf under threat of state sanctions because one’s needs are deemed greater than those from whom the compulsion is placed upon? I believe all major world religions teach to receive help one must ask, not demand?

3. If you believe the needs of some outweigh the rights of others, then do the ends justify the means? If you agree that normally positive rights are by definition amoral, then are violations of morality justified if it might save a human life? (i.e. progressive taxation is theft but is it justified because it might be used for some useful purpose)?

4. If the ends should not justify the means (as this premise can justify any action), then do you believe that with healthcare we can make an exception because people’s lives are on the line? If yes, then why is it ok to violate some rights (property, contract, liberty) but it is not ok to violate other rights (life, privacy) in pursuit of possibly saving a life? Or is it? Would it be ok to euthanize a healthy person if their organs could save the lives of 10 people? Clearly the greater good is served by this action, so why is this wrong yet theft to possibly save a life is perfectly fine? Both involve a “taking” of property.

I understand the desire to help others; all of us on both sides of the debate want to help those in need, we merely disagree on the best course toward achieving that end. If you’re willing to look at the history (see  these articles) you will see that it is government, through regulation and subsidization (Medicare) that has caused prices to spiral out of control. Prior to 1965 (Medicare established) healthcare prices were stable and low and those in need were never turned away owing to the charitable nature of the American citizenry and her doctors. To suggest those in need were not helped is to slander the American people as implicit in the charge is that we are an uncharitable bunch that can only do “good” when forced to do so by our government.

RIP United States of America 7/4/1776 – 6/28/2012 – Obamacare upheld

Below is the body of a letter I sent to my employees today informing them of what they can expect now that Obamacare has been upheld as “constitutional”


Today June 28, 2012 the United States of America ceased to be a constitutional republic and is now a fully democratic fascist* oligarchy in which a tyrannical majority elect conceited tyrants that impose their will on all.

What does this mean for you as an employee? It means quite simply that health insurance rates will continue to skyrocket year over year at a 25% clip and that our only recourse is to continue raising deductible’s on the few policies we are even allowed to offer in order to keep premiums anywhere near close to affordable. To prepare for this you will be well advised to begin setting aside 10% of your gross income each paycheck into a separate account to build up a fund to cover the very high deductibles you will need to maintain in order to have some semblance of being able to afford coverage.

This is not a requirement – I am merely offering you my suggestion as to the most logical course of action to protect your own self interest given that government mandates and subsidies do nothing but drive cost of out of control (housing, healthcare, tuition – oddly all 3 have out of control costs and oddly government meddles in all 3, a coincidence? I think not). This is not opinion, this is simple economic fact that those in power simply refuse to believe, preferring to close their eyes, stamp their feet and repeat the mantra “yes we can, yes we can, yes we can” –

it is no different than jumping out of an airplane sans parachute and willing yourself not to crash into the earth… until you actually hit the earth you might believe it is working… but then reality hits you all at once.

Long term (I’m thinking 2020-2030), the government will take over healthcare and we will move to a single payer system after the “private” market becomes entirely too expensive, so naturally the government must step in to save us all.

“Gee thanks for those crutches there, oh right, you’re the one that broke my legs”.

But at least by then you will have saved up enough for medical coverage so you might still be able to afford “private” health coverage on a for cash basis so as to avoid the several month waiting list to actually even see a doctor.

Unfortunately when government steps in to take over it will likely put us and other small employers out of business as I foresee the government simply mandating that employers contribute $40-$50k/year per employee for health insurance that would go to the government – that’s in ADDITION to pay, therefore in order to recoup the cost we would have to double or triple prices and those high prices will severely if not all but eliminate the market for us… whose going to buy a $75 bottle of Marine Buffer?

So start sharpening those resumes for the eventual government job we’re all going to have, because there won’t be any others around. Think I’m overstating the case here – just look at Greece… we’re getting a preview of what is to come to us in 10-15 years… that’s how all socialist/communist/fascist countries end up. We are well on the way on the road to serfdom ( )


* please look up “fascist” for yourself… it does not mean “nazi” as so many seem to believe these days – it is a form of socialism in which there is putative private ownership of business however government directs most aspects of how business is permitted to operate, thus government truly controls the business infrastructure while maintaining the illusion it is otherwise

Carrots are good for your health (insurance)

The Supreme Court is expected to deliver its decision this week on the PPACA (“Obamacare”) so while we wait with baited breath I thought I might offer an alternate approach to achieving the goals of the “Shared Responsibility Payment” (“the mandate”), which is the core issue of the court’s upcoming decision. The mandate is structured as a disincentive (“stick”) against not buying health insurance. Constitutional issues notwithstanding, the mandate is just about the worst method to achieve that goal. The penalty by 2016 would be a mere $695/year or 2.5% of household income (whichever is greater). Considering that an individual policy costs anywhere from $3-$6k/year it is more costly to pay the fine than to buy insurance only for those who earn more than $180k/year (3.7% of taxpayers ). In other words, the mandate incentivizes 96% of taxpayers to drop their insurance in order to realize a financial gain. If the Supreme Court does not overturn the PPACA on constitutional grounds then, they should overturn it on sheer stupidity grounds.

Although libertarians are opposed to any government intervention in any market, IF it seems a foregone conclusion that our overlords will simply not stop until they’ve “done” something about healthcare then I suppose it is my duty to point out how to properly incentivize behavior. Incentives (“carrots”) work much better than disincentives (“sticks”). My solution uses our existing legal framework: contracts and government enforcement thereof.

Referees don’t make the rules, they just enforce them.

Health insurance should operate like life insurance. With life insurance you purchase a policy for X number of years. In so doing you enter into a contractual relationship with the insurer whereby you promise to pay them $X dollars per year for Y years and they promise to not cancel the policy regardless of changes to your health. If they break that contractual promise, then the government steps in and forces them to live up to their end of the bargain (lawsuit).

So in the case of health insurance there should be a “term-health policy” whereby you contract with the insurer for X number of years (typically one’s expected lifetime) and the insurer provides you a price structure that is guaranteed for the life of the policy. The “carrot” here is that the longer the term, the better the rate, so rates would be much lower than they are today. Pretty simple: you promise to pay for a long time, they give you a low rate and promise to not cancel. If either party breaks their promise then the government steps in and enforces the terms of the contract.

So, how would this work in practice? Consider the following: If you cancel a policy there would be penalties, however (and here is the key) if you later want to reinstate coverage you would be required to bring your premium payments current by paying all the premiums you would have otherwise paid during the lapse in coverage OR you could obtain a brand new policy with premiums that reflect your current health status and shorter term period, so they would be exponentially higher.* This “discount-incentive/payback-disincentive” system eliminates the free rider problem because (a) in general people prefer to pay less now rather than more later and (b) you gain nothing by not carrying insurance and only trying to get it when sick. By removing government regulation we would see market driven solutions like this one, where the only limit is human imagination rather than bureaucratic fiat. Insurers should be permitted to figure out the best way to incentivize people to maintain their polices IF they must be straddled with the legal requirement that they may not deny coverage.** Those insurers that figure out the best methods will be copied thus improving compliance over time. However insurance companies often seem as inept as the government (bureaucracy is the same everywhere!) so I thought they could use a nudge in the right direction.

We, free individuals in a free market, should make the rules amongst ourselves (contracts) – it is government’s job only to enforce, not make, those rules. Referees don’t make the rules, they just enforce them.

* If an insurer went out of business the law could specify that as long as you had a policy in place it could be transferred to a new insurer irrespective of your current health condition. A more free market approach however would be to take out insurance against the insolvency of your own health insurer, so if they do go out of business your policy would provide you a lump sum payment to establish a new policy elsewhere. In such a system the insolvency premium would reflect the relative risk of your health insurer, i.e. a new upstart carrier might offer really low rates but carry a high risk premium and thus the cost of the health premium + insolvency premium might be the same as a more established carrier. Because those insurers insuring against insolvency have a vested interest in not paying claims they will be the ones to “regulate” the solvency of the health insurers through auditing and such. The insurers would permit this regulation because they will know that few people would buy their health policies if no other carriers will issue insolvency policies that cover them.

**In order to transition to this new system, we should dismantle Medicare (which currently covers wealthy old people) and Medicaid and use those funds to establish a new temporary program that would subsidize the premiums of the unhealthy AND destitute, i.e. those that truly need help as opposed to those whom the premium might merely be inconvenient or difficult. In the long run the “pre-existing condition” issue would go away as the market would incentivize parents to purchase life-term health insurance for their children at birth (these policies would be so inexpensive even the “poor” could afford them). The parents would pay the premiums until age 18 at which point the child would “inherit” the policy with an excellent rate. They would have a huge incentive to never cancel as “lifer” policies would be the ones with the lowest overall cost since they have the longest guaranteed term. 

To regulate Commerce…

To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes. US Constitution, Article 1, Section 8

This simple phrase (aka “the commerce clause”) has been a bone of contention almost since the day it was penned. Judicial interpretation was necessary as early as 1824. The conflict surrounding this clause speaks more to the general disagreement over the proper role of government rather than to an inability to properly interpret it. That is to say, no matter how one might restate this clause, each side would forever strain to interpret it to mean that which they wish it to mean. The key to understanding it is to not even try to interpret it, but rather to take the plain language at face value within the context of the document in which it is found. The US Constitution is a simple document with simple rules. To understand it, it is necessary to recall that the states were originally separate sovereign entities (that happened to owe allegiance to the British crown). Today we tend to think of states as nothing more than large postal codes, but that was not their original character, nor was that character changed by the Constitution (why join a union that requires you give up all your authority to the new central authority?) The citizens of those states believed they would be more secure by joining together (“the United STATES”) while still remaining sovereign within their respective borders. Whenever humans come together they need rules to define the relationship so everyone knows where they stand. That is all the Constitution does. It simply says: (Articles 1-3) there are three branches of government and here is what each can do (enumerated powers) and cannot do, (Article 4) here are the responsibilities of the states to each other and the responsibility of the government to the states, (Article 5-7) general housekeeping with respect to modifying and ratifying the document itself and matters relating to clarifying jurisdictional supremacy.

So, the commerce clause, taken in the context of being part of the rules that govern the relationships among the states, is simply saying that the federal government can do what is necessary (regulate) to prevent the states from interfering in commerce (trade). It simply supplants their prior authority with a single authority so that they would not be fighting amongst themselves in endless pissing matches over who has ultimate authority in relation to trade. To be clear, it is only the states and the federal government, not the citizens, which are governed by the Constitution. This makes sense if you think about it. The Constitution was written by the citizens (“We the People…”) in order to define the role and limits of the government they desired. Yes, the government may make laws that govern the citizens but only via the authority granted in the Constitution to make such laws. If there is no authority for a law in the Constitution then it is de facto “unConstitutional” no matter how “good” we might think it is. The problem occurs when the proponents of a law want to make it “Constitutional” by redefining and broadening terms used in the Constitution so as to facilitate an interpretation conducive to their desired goal.

One of the more egregious cases of twisted logic and Constitutional redefining came into play in the seminal case of Wickard v Filburn 317 U.S. 111 (1942). The Supreme Court found that Roscoe Filburn was engaged in interstate commerce and therefore fell under the jurisdiction of the Agricultural Adjustment Act of 1938, which granted the government authority to regulate agricultural output in order to maintain price “stability”. They found that he was growing “too much” wheat on his farm – even though the wheat was entirely consumed on his farm and was never sold – and thus he had no need to purchase additional wheat. The logic being that had he not grown “too much” he would have had to buy what he needed and such purchasing would have tended to increase the interstate demand and hence price for wheat. So, not buying something is, by government logic, equivalent to engaging in interstate commerce.

Based on this precedent one might conclude the current court has no choice but to rule in favor of the individual mandate of the PPACA as its supporters justify it upon putative commerce clause grounds, i.e. not buying insurance affects the price of insurance for everyone else. However, there is a subtle wrinkle here. Mr. Filburn was engaging in activity (growing wheat), which resulted in inactivity in another arena (buying wheat). In that case the government exerted its right to regulate his ACTIVITY of growing wheat, not his INACTIVITY of not buying wheat. The AAA said he could not grow more than such and such amount. It did not say he MUST buy wheat if he needs it or face a penalty. In the current case the government is asking the court to assert that the commerce clause goes even further than in Wickard v. Filburn and can grant the government authority to compel an individual to act (buy insurance). In other words, it now wants the authority to regulate inaction by redefining inaction as a type of action.

But whether the PPACA is overturned or not is not the important issue. The critical issue is the very nature of the Constitution. Article 1, Section 8 of the Constitution lists these things called “enumerated powers.” That means, it is a list of those actions, and only those actions, that Congress may undertake. If it is NOT on the list, they may not do it. It is improper to interpret the Constitution with a mindset of “Well if they didn’t want us to do that they would have specifically said so.” They did say so, if it is not enumerated it may not be done. But even disagreement over what the enumerated powers authorize is not so important. Reasonable people can disagree about the extent to which they think government should have certain authority. The important issue is that (hopefully) there will always be agreement that there must be some limits on government. The disagreements we have today are simply about where that point is, not whether or not it should exist.

If the Supreme Court finds that the commerce clause can be used to compel citizens to do or not do something because it might tangentially affect commerce, then there is in practice no limit whatsoever on the powers of Congress and it simply makes a mockery of the enumerated powers. It would make no sense for the framers of the Constitution to say “you can only do a, b, and c, and oh by the way you can also do anything else you can possibly think of.” Why would this remove all restraint from government powers? Think about it – whenever we are doing something we are also not doing a million other things. Government would now have the authority to identify the things we are not doing but that it thinks we should be doing and codify laws that compel us to do those things. How hard is it to imagine that in the midst of a new economic downturn Congress passes a Minimum Economic Activity Act which would require all citizens to spend a certain percentage of their income on goods and services in order to keep the economy going? Or how about a law requiring a minimum level of exercise, since not exercising makes us less healthy and that means rising health care costs. Congress would now have unlimited power to order us to do any number of things we aren’t doing. What’s to stop them? Inactivity is regulated by the commerce clause.

It is naïve to comfort oneself with the thought that just because today no one is abusing that power we have nothing to worry about.


Freedom from hard choices is no right

The testimony by Sandra Fluke before a House Democratic Steering and Policy Committee on February 23 sparked a firestorm from the right which precipitated an avalanche of rhetoric from the left. As with most “controversies” both sides miss the point entirely as they would rather try to denigrate their opponent by casting them as being in opposition to the simplistic two word slogan each chose to rally behind (“women’s health”, “religious freedom”).

To the Right: This is not about religious freedom or any kind of “attack” on religion. The issue is one of freedom period. Freedom means not having the government force choices on people.

To the Left: This is not about women’s health or reproductive rights. Lack of insurance coverage does not proscribe someone from obtaining those services particularly in this case where the cost is nominal relative to other monthly consumer expenses. If government wanted to actually help women they could do so by rolling back regulations and allow contraceptive pills to be sold over the counter – this would dramatically drive costs down by removing an unnecessary barrier to a safe and common drug.

The case Ms. Fluke makes is not novel. Her argument is the one used by all those who perceive the world to be misbehaving. The thought flow is this: 1) Some aspect of the world is not behaving as I want therefore (2) I will co-opt the power of the state to force my worldview on those that are not currently conforming to it. Both sides do it: minimum wage laws, blue laws, drug laws, vice laws, business regulation, etc. They are all the same: force Party A to behave as Party B desires. The Orwellian justification for such interference? Freedom. But in this government double-speak world, freedom doesn’t mean being free from forceful influence, rather it means exerting forceful influence on some in order that others may have the freedom from making hard choices. The justification of force rests on the false proposition that individuals are trapped (lacking in freedom) by their circumstances and thus are not free. The irony is that the entity which claims to guard our freedom (government) is the only entity that truly has the power to restrict freedom. Ironically, government restricts the freedom of some and justifies its actions by falsely claiming the party against which it aggresses is guilty of the very thing it itself is doing. The truth is that (within the limits of government restrictions) we do still have choice. Exercising that choice is not always easy, but it can be done. To suggest one has no choice because some choices are difficult is to suggest we have no free will and thus no accountability i.e. “I’m not responsible for my actions because I simply followed the choice-path of least resistance – I had no choice.”

To suggest one has no choice because some choices are difficult is to suggest we have no free will and thus no accountability i.e. “I’m not responsible for my actions because I simply followed the choice-path of least resistance – I had no choice.”

Absent outside interference our collective choices would transparently reshape the world to be the one we collectively desire rather than the one that a minority who has co-opted government is able to impose on us. If employees don’t like working conditions they can all quit and thus that company will change or go out of business. If we don’t like ABC Co we can all stop buying their products and they will either change or go out of business.  Think this can’t work? Witness Apple, routinely criticized by Greenpeace for years, they have now made changes to their products that earn them kudos by that same group. Additionally they have responded to criticism of working conditions in their Chinese manufacturing partners by joining the Fair Labor Association.

Her testimony only serves to highlight that not choosing is a choice. Her first argument centered on cost in an attempt to elicit feelings of sympathy for the plight of these women and married couples who cannot afford contraception. “Women … have no choice but to go without contraception,” she says. Wrong. They have a choice and they made their choice. Their choice was that they value other goods and services (e.g. cell phone, internet, dining out, cosmetics, latest fashions, subscriptions, etc.) more highly than contraception or paying for an individual policy that does offer contraceptive coverage. And that’s ok. We all have our own value scale of prioritizing how we spend our money. The problem is expecting someone else to foot the bill for the thing you want but put at the bottom of your value list. You’d look pretty stupid if you decided to forego your cell phone plan in order to pay for contraception but then insisted your auto insurance provide free cell service. But somehow if the reverse is done it is ok? Requiring insurance coverage for voluntary routine expenses is simply government-mandated subsidization (those not engaging in an activity paying for those that do). Claiming it is “free” is disingenuous. Nothing is free, those costs are simply passed onto all policyholders.

In a further attempt to elicit sympathy for the “high cost” of contraceptives she then overstates the cost burden with a little slight of hand. She claims $3,000 is the total 3-year cost (3 years is standard for law school and is what we must assume since she does not specify the time frame) and that cost is “practically an entire summer’s salary” IF one is on a “public interest scholarship”. Setting aside for a second the irony of complaining that the free money one is being paid to go to school is in insufficient to pay for this other thing you think should also be free, we see that what she is saying is that the TOTAL cost of $3,000 over 3 YEARS is a disproportionately large percentage of 1 YEAR of stipend salary. That’s like saying the $30,000 I spend in electricity over 10 years is 100% of my 1 year salary and thus that undue burden is justification for me to expect someone else to pay for it.

Her next appeal is to evoke outrage in the listener by citing extreme examples as though they are the norm. But again the example backfires if one actually considers what she is saying. The examples include multiple stories wherein women who had a true medical need for contraceptive pills were denied coverage and thus negative consequences ensued because they weren’t willing to buy the pills on their own. If it was medically necessary, then yes, of course it should have been (and in most cases is) covered. But tales of insurers trying to avoid paying claims is nothing new. What is new is her revelation about the complete lack of priority these women gave to this supposedly essential medication. As mentioned previously, if it was really that important they could have reorganized their priority scale so that they did not go without the medication they needed. The figures cited ($83-$100/month) are quite inflated over actual contraception costs ($20-$50) but even these inflated figures are “doable” by even someone making minimum wage. It’s not like the pills are $10,000/month.

Lastly she then paints a false dichotomy of it being wrong that a woman would have to choose between a “quality education and our health” in response to the question of “You knew what Georgetown’s policy was when you came there – if you don’t like it, go somewhere else.” So, apparently there are no other non-Catholic laws schools in the entire country that are on parity with Georgetown in terms of quality? I guess she’s never heard of Yale, Stanford or Duke. But to answer the question she did not answer: Yes, she was aware of Georgetown’s policy prior to coming there, but rather than accept the consequences of that choice she’d rather the government step in and force her will upon those running the school.

Insurers should be free to offer plans that have contraceptive coverage and plans that don’t. Consumers should be free to choose whichever plan they want. And employers should be free to offer or not offer whatever insurance they want. That’s what freedom is, the freedom to make your own decisions, even if it is a hard one.

Now, enjoy this little video done by 😉

Playing the odds…

Is insurance gambling? It feels like we have “won” if we suffer a loss and it is covered. In point of fact, insurance is not gambling. In gambling you start in a position of low probability of a loss (money safe and secure in your wallet) but move to a high probability of loss (once you lay your money down the odds are very good you will lose it). You move from a “more-sure” to a “less-sure” state. With insurance, however, you move from a “less-sure” to a “more-sure” state. Without insurance you have a non-zero chance of a bad event occurring (less-sure state) that will result in a loss, but with insurance you have reduced that non-zero chance of a loss to zero – so you have moved from a less-sure position to a more-sure position.

Health insurance in its current form (laden down by numerous government mandates) is not insurance anymore but rather is simply prepaid consumption.

Likewise the insurance carrier is not gambling because they actuarially know for a given number of insured that they will experience losses of $x/year, so they simply set rates high enough to ensure all claims can be paid and they can still make money and thus build up a reserve for those years where the predictions are off. Insurance costs scale directly with the likelihood and magnitude of a covered loss. That’s why a several million dollar liability policy can be had for only a few hundred dollars per year but a health insurance policy costs several hundred dollars per month and pays only a fraction of what the liability policy would pay. Health insurance in its current form (laden down by numerous government mandates) is not insurance anymore but rather is simply prepaid consumption.

For an event to be insurable it must be statistically unlikely (e.g. theft, fire, being sued, etc). Health insurance covers events that are statistically guaranteed (routine exams, drugs, contraception, pregnancy, etc). Why are routine events 100% covered? Government mandates. For example, as we have all learned recently, Obamacare requires 100% contraception coverage. <sarcasm> Apparently women who desire contraception are unreasonably barred from obtaining this essential human right due to a burdensome $30/month cost barrier </sarcasm> and so it is mandated that all of society must subsidize this cost. This and many other mandates drive up cost. A catastrophic health policy would be relatively inexpensive. For example last year I investigated the cost of a non-group health plan for my family and discovered that simply removing pregnancy coverage cut the cost of the policy in half! But a group plan cannot remove this coverage and thus most pay for a coverage they can never use. As an employer I’m not even allowed to offer more than three health plans. Why? Government mandates.

Individualized prepaid consumption (saving) is an effective method to address intermittent but regular events. However aggregated and shared prepaid consumption is a terrible method. It has the effect of actually raising costs. In order to understand this, just imagine that we had “food insurance”. The premium would be equal to the total of all money spent on food in a given time frame divided by the population. For some the premium would be more than they would have spent on their own. In those cases there would be an increase in consumption (so as not to get short changed). That increase in consumption increases demand, and hence prices. Additionally, the “food insured” won’t be directly paying for any of their food thus they’ll have no inclination to restrict their intake (why buy ground beef when you can get grade A sirloin). This overall increase in demand will drive up prices. Insurable events can’t be “over consumed” because they rarely occur. Prepaid events can be over consumed because they occur regularly and thus there is ample opportunity. Just imagine what would happen to auto insurance costs if the government mandated that it had to cover the cost of oil changes, brake pads, and other routine maintenance.