Judge Heard What Healh Care Law Did Not Say

It’s ironic that the ultimate fate of the nearly 3,000 page Patient Protection and Affordable Act (PPACA) may hinge on what was not included in the legislation.

Today’s ruling by a federal appellate court judge in Florida that the law’s individual mandate provision is unconstitutional is certainly important, but even more significant is that the judge also ruled that entire law must be struck down on the basis on non-severability. In other words, if a single provision does not pass constitutional muster, then it all gets thrown out.

This is particularly interesting because shortly after the passage of PPACA, it came to light that the law did not include a severability provision, which is a pretty standard clause for most comprehensive legislation. To this day no one really knows for sure the reason for this important omission, although the most likely theory is that it was drafting error made in the rush to pass the legislation.

Then-Speaker Nancy Pelosi famously said that we needed to pass the bill to know what’s in it. Apparently we also needed to pass the bill to know what was not in it.

I have written and commented about this small but important legislative detail frequently over the past year. On more than one occasion someone has challenged me that it is not realistic to think that the entre law could be thrown out even if specific provision were voided by the courts. Conventional wisdom misses the mark once again.

So it’s off to the Supreme Court we go and we’ll see if at least five justices hear what the health care law did not say.

Safewindshields.com

A cracked or broken windshield is a very common driving incident. It can happen at any time and anywhere. It could be a bouncing rock that was kicked up from another vehicle or a blown truck tire that crashes into the windshield. What is even more unfortunate is that it could happen whether you are in town or out of town traveling.

Since a cracked or broken windshield is so common you would think it would be no big deal when and where you get it fixed. However, if you think about it, a windshield is the one major piece of the car that helps to keep you inside a vehicle incase of a head on collision. This could be a matter of life and death and when you put it in that light it becomes a little bit more important to make sure you have the windshield fixed and fixed by the appropriate shops. Auto Glass Replacement Safety Standards Council (AGRSS) works to certify and set stand for glass repair companies. Their website www.safewindshields.com, is a very helpful tool when it comes to getting your vehicle windshield replaced, especially if you are out of town traveling. The top right part of the screen has a “Registered Shop Locator” where you can type in a zip code and find the accredited glass repair shops near your current location. This way, even when you are out of town, you can find a qualified glass repair shop to fix your windshield and know that it will be installed correctly and securely.

So next time you get a rock in the windshield be sure to visit the AGRSS website or call your friendly Fey Insurance Services agent to make sure you get a high quality glass repair shop.

Self-Insurance Faces a Triple Regulatory Threat

SIIA has reported recently on a series of the meetings with DOL and HHS officials to discuss PPACA-mandated studies on self-insurance. Our assumption is that at a minimum there is ignorance among regulators, but more likely a negative bias pervades.

We are working to head off a DOL report that concludes smaller employers should not self-insure due to solvency concerns and a separate HHS report suggesting that self-insured health plans will negatively impact health insurance exchanges due to adverse selection concerns.

While the policy battle rages on these two fronts, self-insurance is now being targeted by a third team of regulators. The Treasury Department has recently developed a keen interest in stop-loss insurance of all things.

The hook for the IRS folks is that the new health care law limits the tax deduction companies that sell fully-insured health insurance products may take for the compensation they pay to their employees. In other words, if a company sells “health insurance,” the company is subject to this tax deduction limitation. And guess what, it looks like the IRS and Treasury officials are confusing stop-loss insurance with health insurance.

Consider the following excerpt from an IRS publication regarding this tax deduction limitation, requesting comments from the public on:

"the application of the deduction limitation for services performed for insurers who are captive or who provide reinsurance or stop loss insurance, and specifically with respect to stop loss insurance arrangements that effectively constitute a direct health insurance arrangement because the attachment point is so low." (See IRS Notice 2011-2).

So, not only are the Treasury officials asking insurance practitioners how they should treat, for example, stop-loss policies, Treasury is explicitly asking for comments on how they should treat these policies, especially policies with a low attachment point.

Interestingly, this was reported to be a hot subject of discussion at an American Bar Association meeting for tax practitioners last week in Florida. Can you picture a bunch of tax lawyers with no background in self-insurance trying to figure out stop-loss insurance? Yep, that’s a scary thought.

But back to the IRS. Should it conclude that stop-loss insurance can be defined as health insurance for even its limited tax treatment purposes, a troublesome precedent will be established. For more than two decades, SIIA has been largely successful in pushing back on state efforts to regulate stop-loss insurance like health insurance.

A contrary interpretation by the feds will likely embolden those who seek to impose new regulations on self-insured plans via their stop-loss insurers. That’s the last thing the industry needs.

So, with stop-loss insurance under a Treasury Department microscope, self-insurance now faces a true regulatory triple threat. Watch for additional updates on this important developing story.

Moral compass: no thanks

Apparently someone has been going around accusing economists of being cold-blooded amoral technocrats. Reptilian people who look at the world and see a set of equations, who throw human life into a cost-benefit analysis and crank out a dollar value. One wonders what could have given them that idea.

But...the pushback is here! Ed Glaeser, a polymathic Harvard economist of great brilliance and reknown, blogs in the New York Times to explain his discipline's moral foundations:

Today, I focus on a larger issue: the complaint that economics is a discipline without a moral core...

[There is] a deep moral tenet – a belief in the value of human freedom – at the core of our discipline.

Some economists made that belief explicit. In the 18th century, Smith wrote, “Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so.”

In the 19th century, John Stuart Mill asserted, “The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it.”

In the last century, Milton Friedman offered “freedom is a rare and delicate flower” and “a society that puts equality — in the sense of equality of outcome — ahead of freedom will end up with neither equality nor freedom.”...

But don’t think that our discipline doesn’t have a moral spine beneath all the algebra. That spine is a fundamental belief in freedom.

So economics is all about FREEEEEEEEEEEEEEEDOM!!! Well, I guess it was invented by Scotsmen!

Glaeser goes on to say that freedom, in economics, means giving people greater choice:

Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices.

When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice.

Our opponents have every right to contend that economists are unwisely idolizing liberty, but they err by saying we sail without a moral North Star.

Unfortunately, he doesn't seem to have thought this out very completely:

Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another[.]

To quote Peter Venkman of the Ghostbusters: "Excuse me, Egon! You said crossing the streams was bad." (See bolded John Stuart Mill quote above.)

Now, this is only one of many little technical quibbles I could make with Glaeser's assertion (What about the freedom to do things you'll later regret, such as addict yourself to heroin? What about happiness? What if having more choices just makes people upset?). And let's ignore for now the fact that just about 100% of real economic policy issues involve tradeoffs between one person's choice set and another's, making the criterion of "freedom" totally ambiguous. Let's instead step back and ask the question:

Why should a science have a moral core?

Does chemistry have a moral core? Does physics? We may decide that it is morally wrong to explode nitroglycerine in someone's face, but is the scientific fact that nitroglycerine explodes morally wrong in and of itself? Which is to say, should the scientist take morality into account when investigating the properties of nitroglycerine?

(Some people say: "Yes. If you find that nitroglycerine is explosive, you should hide that fact, because if you publicize it, people will probably use nitroglycerine to do bad things." Fine. I won't argue with that (now). But should the scientist refuse to believe that nitroglycerine explodes at all, because the idea of exploding nitroglycerine is contrary to some idea of morality? I am going to just go ahead and say: "No." Hiding a discovery from weapons manufacturers is different than disbelieving it.)

And yet going beyond the facts is precisely what Glaeser's "moral compass" would have us do. Suppose psychologists find that people are less happy when they have the choice to become addicted to heroin. Should economists refuse to accept this fact? If I were an economist studying heroin addiction, I'd say: "Hey, policymakers and voters, here's the deal. If you let people do heroin, their happiness will go down, but they'll have more freedom of choice. I'll let you guys decide what to do."

Glaeser disagrees. He seems to think the economist's duty is either to A) recommend the alternative that entails more freedom of choice, or B) disbelieve the finding that allowing heroin use reduces happiness. (A) is saying that economists, as a class, have a fixed and definite role in deciding society's morality, kind of like a priesthood. (B) is saying that intellectual honesty and scientific integrity must take a back seat to a faith-based belief system.

Whichever he is saying, I highly disapprove.

Morality, as David Hume (a friend of Adam Smith's) liked to point out, is fundamentally a matter of opinion. MY personal opinion is that the role of science is to increase humanity's knowledge, and therefore our power to affect our universe. In a way, this makes my values a bit similar to Glaeser's; I want people to have the option of changing their condition. Whether that option is exercised on an individual or a collective scale is a question I think science should leave to philosophy. If we limit our set of economic theories to those that seem to recommend individual freedom of choice - if we give economics a "moral compass" - we are refusing to take an honest look at the way the world really operates. That, in my moral opinion, is bad science.

And don't think that this doesn't happen in practice. Many of the same economists who espouse a belief in individual freedom of choice are biased against theories that imply a need for collective decision-making. They routinely refuse to believe in the existence of public goods, demand fluctuations, and other phenomena that imply a role for government. Behavioral economic theories, which assert that people are sometimes irrational, are routinely pooh-poohed by "conservative" economists, regardless of the mountain of laboratory evidence in those models' favor.

In short, the widespread belief that economists should act both as scientists and as priests has made them less effective as scientists.

Because when you get right down to it, demanding that economics value individual freedom of choice is denying economists themselves the most basic intellectual freedom: the freedom to doubt. This was famously expressed by the incomparable Richard Feynman:

Our freedom to doubt was born out of a struggle against authority in the early days of science. It was a very deep and strong struggle: permit us to question -- to doubt -- to not be sure. I think that it is important that we do not forget this struggle and thus perhaps lose what we have gained. Herein lies a responsibility to society...

This is not a new idea; this is the idea of the age of reason. This is the philosophy that guided the men who made the democracy that we live under. The idea that no one really knew how to run a government led to the idea that we should arrange a system by which new ideas could be developed, tried out, and tossed out if necessary, with more new ideas brought in -- a trial-and-error system...If we want to solve a problem that we have never solved before, we must leave the door to the unknown ajar...

Our responsibility is to...learn what we can, improve the solutions, and pass them on. It is our responsibility to leave the people of the future a free hand. In the impetuous youth of humanity, we can make grave errors that can stunt our growth for a long time. This we will do if we say we have the answers now, so young and ignorant as we are. If we suppress all discussion, all criticism, proclaiming "This is the answer, my friends; man is saved!" we will doom humanity for a long time to the chains of authority, confined to the limits of our present imagination. It has been done so many times before.

I look at Glaeser's "moral compass," and I hear: "This is the answer, my friends; man is saved!" And I look at my discipline and see a lot of good, honest, doubting scientists struggling uphill against an ossified and institutionalized canon of moral beliefs. And, coincidentally, I see a public that has largely scorned us, mainly because our theories of the macroeconomy have turned out to be useless.

Can we fix those theories while adhering to Glaeser's (implied) dictum that only individual decision-making should be regarded as efficient? Or to put it more crassly: Can we do good science while forcing ourselves to assume that the sun moves around the Earth?


Update: Summoning Feynman to help you is not always a good idea, as this web comic demonstrates...

A Tale of Two Domiciles

This month brought interesting news from two neighboring captive domiciles that portend two different paths in the years ahead.

In Tennessee, Governor Bill Haslam appointed Julie McPeak as the new commerce and insurance commissioner. This is big news for the self-insurance world because not only does McPeak understand alternative risk transfer, she has been an advocate for self-insureds and captives in her capacity as an attorney over the past few years.

Before that, she was the chief insurance regulator for the state of Kentucky and directly contributed to the captive insurance industry taking hold in that state.

Several months ago, then candidate Haslam approached Ms. McPeak to solicit her opinion on how the insurance industry could contribute to economic development in that state. She talked-up captives among other initiatives and apparently her input made a positive impression on the soon-to-be governor.

Tennessee can best be described today as a “dormant” captive domicile because it has a captive insurance statute, but no energy or resources have been committed by either the private or public sector to encourage captive formations in that state.

Ms. McPeak’s appointment has the real potential to change this. Work is already underway to update the state’s captive law to make it one of the most progressive and competitive in the country,

With a favorable law (assuming it can be passed through the Legislature) combined with a regulator who is willing to champion alternative risk transfer solutions, the key ingredients are in place to transform this domicile from dormancy to vibrancy.

Now let’s compare and contrast Tennessee with the nearby domicile South Carolina.

As most industry observers know, South Carolina has seen a reversal of fortune over the last several years as a captive insurance domicile. Its rapid growth and success in the early years has been stalled for some time, largely due to the state’s insurance department, which has increasingly been at odds with the captive insurance industry.

Industry leaders pleaded with newly-elected Governor Nikki Haley to appoint a new insurance commissioner who could restore the state’s status as one of the world’s premiere captive domiciles.

Interestingly, Ms. McPeak’s name had been floated last year as a possible candidate who could rescue captives in South Carolina, but it was obviously not to be.

Instead, Government Haley last week named David Black, CEO of Liberty Life Insurance Company to the post.

Now, Mr. Black does have solid business credentials but he is clearly not an altenative market guy, which means there will be a learning curve about captives at a minimum and no guarantee that he will be an advocate.

This latter point is important because it’s not good enough to be just luke warm about captives. The reason for this is that in order for any captive insurance domicile to grow the bureaucracy must be constantly tamed and that takes top-down leadership imposing a vision of true public-private partnership and demanding results.

The bureaucracy inside the South Carolina Department of Insurance is particularly challenging with regard to the captive application and review process, so the leadership demands are particularly acute.

We will soon see if Mr. Black is up to his challenge. Ms. McPeak is certainly up to hers.

This tale of these two domiciles will continue.

Globalization, unemployment, and inequality

Nancy Folbre makes the claim that globalization has worsened unemployment and inequality:

Why has the economic recovery left workers behind?...

Many journalists argue that globalization is partly to blame for historically low rates of job creation over the last year. Companies in the United States are simply less reliant on American workers – and American consumers – than they once were. Maybe they just don’t need us any more...

Few economists like this argument...

If few economists like this argument, it's not clear why. The opening of the Chinese and Indian markets meant that a huge mass of labor was dumped on the world market, without much capital to go along with it. Scarcity creates value; a relative abundance of labor and a relative scarcity of capital means that wages should fall while profits rise. This is exactly what has happened, so I'm not sure why people are surprised.

This creates inequality, since rich people own more capital than poor people. If there are frictions in the labor market ("sticky nominal wages," for example, which means that it's hard to cut headline wages), this translates to unemployment. The "new global elite" that Chrystia Freeland and others write about are just people who are benefiting from the increased return to capital caused by globalization.

Of course, eventually the capital-labor imbalance should right itself, as China and India build up enough capital per worker that our workers become valuable again. This is, in fact, happening; Chinese and Indian wages are rising rapidly. Of course, China is slowing this process by pumping capital back into the U.S. by buying our Treasury bonds (which they do because that keeps their currency cheap and allows them to maintain steady export growth). But eventually, globalization will run its course and we'll see a resurgence in wages and a fall in profit margins.

Unfortunately, in the meantime, our nation's economy as a whole suffers, because it becomes harder to pay for public services like infrastructure and education. In an age when only a few citizens (capital owners) have money to spare, it's hard to get them to pay for stuff that benefits everyone, as Nancy Folbre points out:

During the 25 years after World War II, the interests of American investors and workers were closely, though not perfectly, aligned. Productivity increases were passed on in the form of higher wages that, in turn, fueled increasing demand for domestically produced goods and services.

Businesses willingly paid taxes to support public programs designed to improve the education, health and security of the labor force on which they relied.

The price of the disruption caused by globalization, she argues, is "increased social conflict, intensified economic inequality and weakened democracy." I find it hard to disagree. And unfortunately, I see little we can do about it, other than to try to rebalance global capital flows by pressuring China to revalue their currency. Even if we succeed at that, though, the basic dynamic will remain the same. Inequality is here to stay for quite some time.

Legal Limits vs. Adequate Limits

Several auto insurance companies are doing a great deal of advertising about keeping you legal for less premium. What does that mean? All states including the District of Columbia, Puerto Rico and the Canadian provinces require you to carry Automobile Liability Insurance with certain minimum limits of coverage. In Ohio those limits are $12,500/person/$25,000/accident for Bodily Injury and $7,500 for Property Damage Liability. In Indiana and Kentucky the minimum limits are $25,000/50,000/10,000. In Wisconsin, for example, the minimum limits are $50,000/100,000/15,000. In some of the Canadian provinces the limit is $200,000. In short, if you carry the minimum required limits in a particular state or Canadian province, you are legally in compliance with that state or province's Financial Responsibility Laws.

But if you are legally in compliance, is that the same as adequate limits of liability protection? In our opinion, higher limits of protection are highly recommended to protect your assets, future earnings and driving privileges. For example, if you rear-end another party and cause serious bodily injury and/or property damage, your minimum limits Auto Policy might initially take care of the other person's medical bills, loss of income and pain and suffering and/or repair their car, but if it is not enough, the injured party could come after you for more. They could tie up your assets, you future earnings, your driver's license and car registration, etc. for long time. Even if you file bankruptcy they could still make it difficult for you to function while you are going through the process.

So what are adequate limits? Unfortunately there is no formula for determining this. With your home you can insure it for the replacement cost of the house using various estimation tools plus discussions with architects and contractors can help you determine the proper amount. There is no such simple formula to determine how much liability insurance to carry, but it is safe to say that Ohio's limits of $12,500/25,000/7,500 are not adequate even if they are legal in the event of a serious automobile accident. We would suggest limits of no less than $100,000/300,000/100,000 or $250,000/500,000/100,000 for your consideration. In addition, if you desire and need higher limits, buying a Personal Umbrella Liability Policy with limits of at least $1,000,000 or higher is highly recommended.

In Fey Insurance’s opinion, the minimum limits of protection imposed by states and the Canadian provinces are a start vs. no insurance at all, but they are not adequate to protect you in the event of a serious automobile accident.