Insurance

Insurance Lessons from Alabama

by Michelle Minton on October 25, 2010

in Insurance, Precaution & Risk, Regulation

While Alabama certainly has some ambiguous laws and archaic regulations, the federal government ought to take a lesson from Alabama when it comes to property insurance.

In an effort to keep the state’s insurer of last resort solvent (meaning it will have enough money to pay the claims people are likely to file), Bob Groves, manager of the state-run insurer, announced that they will no longer issue policies for homes built over or standing in water.

People who currently hold policies on a building in or over water can keep the insurance as long as they own the building and pay the premiums. But the association will not cover the new owners, and it will drop coverage when water encroaches on a building that is now on land.

While this will only affect 400 out of the 18,000+ policies held by the Alabama Insurance Underwriting Association, over time this policy will make the state-run insurer more stable and could potentially shrink the facility a little.

This is policy the federal flood insurance facility should emulate. As I wrote back in August, when it comes to the National Flood Insurance Program, a division of FEMA, some in Congress have been doing just the opposite. They are attempting to expand coverage so not only are homes that repeatedly flood covered, but also homes that are likely to suffer wind damage.

One of the results of NFIP’s covering high-risk properties and undercharging premiums is that its debt has ballooned and it requested a bailout to the tune of about $20 billion.

The problem occurs when the government, either state or federal, starts underwriting property insurance at reduced rates. This encourages people to continue risky behavior, to forgo mitigation efforts (like cutting down trees, raising property, hardening roof structures), to continue building in risky areas, and it pushes out private insurers who can not compete with taxpayer-funded insurance facilities.

While the best case scenario is that the Alabama state-run insurer gets completely out of the market, this is one small step toward solvency. At least they are less likely now to need a bailout from the federal government (the American taxpayers). Hopefully those in Congress will learn a little something from the Yellowhammer State.

Obamacare Results in 47 Percent Premium Hike

by Hans Bader on October 17, 2010

in Healthcare, Insurance, Politics as Usual, Regulation

Obamacare has just led to a 47 percent increase in some health insurance premium rates in Connecticut:

The state’s largest insurer has been approved to raise health premium rates by 41 percent to 47 percent for some of its policies sold to individual buyers, in the largest price hikes yet seen in Connecticut since the adoption of national health care reform… The reason for the increases is the new federal health reform mandates, according to Anthem and the state Department of Insurance.

This is the exact opposite of what Americans were promised by the sponsors of Obamacare, which was deceptively billed as the Affordable Care Act.

Earlier, a judge in Florida refused to dismiss a constitutional challenge to Obamacare.

Obamacare includes major tax increases such as new taxes on investors and a $60 billion excise tax on health insurers that will be passed on to consumers.  It has already resulted in higher costs for major employers, and the elimination of high-quality health care plans. Insurance regulators in Connecticut had previously approved other premium increases.

The higher costs of Obamacare are one factor in why employers are reluctant to hire. Last month, 95,000 jobs disappeared as more jobs were eliminated than created in the American economy.

Judge Rejects Obama Administration’s Motion to Dismiss Challenge to Obamacare

by Hans Bader on October 15, 2010 · 1 comment

in Healthcare, Insurance, Legal, Regulation

A judge in Florida has rejected the Obama administration’s motion to dismiss challenges to Obamacare brought by 20 state attorneys general and the National Federation of Independent Business. U.S. District Judge Roger Vinson found that the attorneys general had made a plausible argument that Obamacare is in excess of Congress’s power under the Commerce Clause and in violation of the Tenth Amendment — indeed, he said it wasn’t even “a close call.”

The judge gave a green light to a challenge to Obamacare’s requirement that all citizens buy federally-regulated health insurance — the so-called “individual mandate.”  “While the novel and unprecedented nature of the individual mandate does not automatically render it unconstitutional,” Judge Vinson observed, “there is perhaps a presumption that it is.”  This means at the very least that “the plaintiffs have most definitely stated a plausible claim with respect to this cause of action.”

The judge also allowed the state attorney generals to challenge Obamacare’s Medicaid expansion provisions under the Tenth Amendment.

We earlier explained why the individual mandate contained in Obamacare is unconstitutional because it exceeds Congress’s power under the Commerce Clause. We joined an amicus brief filed by the Cato Institute supporting Virginia’s challenge in a case pending in Richmond, which you can find here. The judge in the Virginia case also rejected the federal government’s motion to dismiss the lawsuit.  Three former U.S. attorneys general, William Barr, Ed Meese, and Dick Thornburgh, also filed a brief challenging Obamacare in that case.

Briefs in many constitutional challenges to Obamacare can be found at this website.

At the ACA Litigation Blog, Brad Joondeph summarizes the Florida judge’s ruling, noting:

After laying out the competing arguments as to whether [the individual mandate, contained in Section 1501(b) of Obamacare,] is within Congress’s commerce power, he states as follows: ‘At this stage in the litigation, this is not even a close call.’ Judge Vinson goes on to explain that the individual mandate is ‘simply without prior precedent’ (p.61), and that, unlike statutes upheld by the Supreme Court in prior Commerce Clause decisions cited by the federal government (such as Heart of Atlanta Motel and Wickard), this regulation ‘is not based on an activity that [people] make the choice to undertake’ (p.63). In other words, Judge Vinson sees this as a regulation of inactivity, and thus one that is qualitatively different from prior uses of the commerce power (as augmented by the Necessary and Proper Clause). Moreover, he finds it highly salient that those regulated by 1501 (that is, all legal residents) have not taken some sort of voluntary action (such as entering the motel business, or growing wheat, for example) before being subjected to the provision’s requirement. Seeing the minimum coverage requirement in these terms, I think, is probably going about 75 percent of the way towards finding it unconstitutional. Mind you, Judge Vinson concludes by stating that he is holding only that the states have ‘stated a plausible claim.’ (p. 64). But the reasoning behind his conclusion–not to mention the modifier ‘most definitely’ that precedes it–gives one the sense that, following the coming motions for summary judgment, the odds are in favor of the court declaring the minimum coverage provision unconstitutional.

If You Like Your Health Plan, You May Lose It Anyway

by Hans Bader on October 5, 2010

in Economy, Health and Illness, Healthcare, Insurance, Politics as Usual, Regulation, Zeitgeist

Another major employer, 3M, has decided to “eventually stop offering its health insurance plan to retirees, citing the federal health overhaul as a factor.”

As Reason‘s Peter Suderman notes, “despite the Obama administration’s repeated promises to the contrary, many people and employers will not, in fact, be able to stick with their current health care plans and arrangements. The White House had to sell the public — a large majority of whom were actually pretty happy with their existing health insurance — on the virtues of their plan while promising that it wouldn’t upset existing arrangements that people liked. That was obvious nonsense before the law passed.”

Principal Financial, “which provides coverage to about 840,000 people who receive their insurance through an employer,” announced on September 30 that it planned to stop selling health insurance.

Earlier, Harvard Pilgrim Healthcare terminated the Medicare Advantage healthcare plan of 22,000 people as a result of Obamacare. Insurers stopped writing child-only health insurance policies.  McDonald’s disclosed that it may dump employee health coverage for many employees thanks to the new healthcare law. Even if you keep your plan, your employer may end up paying a lot more for it (perhaps resulting in you getting pay cut so that your employer can pay for the increased costs of your health care plan).  As noted earlier, regulators in some states have approved increases in premiums because of how Obamacare increases costs.  Major employers like AT&T and Caterpillar have reported cost increases due to Obamacare.

Obamacare May Force McDonald’s to Drop Health Coverage for Employees

by Hans Bader on October 1, 2010

in Economy, Health and Illness, Healthcare, Insurance, Nanny State, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Michelle Malkin points out that “McDonald’s has notified the feds that it may be forced to drop health insurance for some 30,000 workers due to the Obamacare mandate.”

A large number of employers may eventually eliminate health coverage due to Obamacare. As The Wall Street Journal notes:

Trade groups representing restaurants and retailers say low-wage employers might halt their coverage if the government doesn’t loosen a requirement for ‘mini-med’ plans, which offer limited benefits to some 1.4 million Americans. The requirement concerns the percentage of premiums that must be spent on benefits. . .McDonald’s and trade groups say the percentage, called a medical loss ratio, is unrealistic for mini-med plans because of high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims.

It’s not just limited-benefit plans that are disappearing. Excellent health plans that patients prize most are disappearing too.  Earlier, 22,000 seniors lost their health care plan due to Obamacare. Meanwhile, state regulators are approving premium increases due to the increased costs resulting from Obamacare.

By the way, I’m tired of mindless McDonald’s bashing. The food at McDonald’s is no more fattening than at many restaurants which charge much higher prices.  (A Big Mac is healthier than quiche lorraine.)  I lost 10 pounds while working at McDonald’s and eating mostly McDonald’s food (a man in Richmond lost 86 pounds). Yet left-wing busybodies are now using discriminatory zoning rules to block the opening of new McDonald’s franchises in places like Los Angeles, and are calling for taxes on fast food to control what people eat, as part of “healthcare reform.”

22,000 Lose Their Health Insurance Due to Obamacare

by Hans Bader on September 29, 2010

in Economy, Health and Illness, Healthcare, Insurance, Politics as Usual, Regulation, Zeitgeist

Approximately 22,000 senior citizens just lost their health plan with Harvard Pilgrim Health Care, which dropped its Medicare Advantage Program due to “cuts in Medicare” that “are being used to fund national health care reform.”  As the Washington Examiner notes, “President Obama’s most frequently repeated health care reform claim — ‘If you like your present health insurance, you can keep it’ — sounds about as credible these days as the finger-wagging Bill Clinton did when he said, ‘I did not have sexual relations with that woman.’”

While Obamacare cuts Medicare for the elderly, it does nothing to slow the growth of health-care spending, since it adds costly new Medicaid mandates for people on welfare, as former New York Lieutenant Governor Betsy McCaughey, a healthcare expert, notes in the New York Post.  She calls it “Obamacare’s redistribution of health.”  Obamacare will also cause Medicaid lawsuits to proliferate at taxpayer expense.

President Obama falsely claimed that the health care law would cut health care costs, but regulators in some states are now approving increases in premiums precisely because Obamacare increases costs.

As columnist David Freddoso notes, the Obama administration has been a windfall for wealthy trial lawyers.  As I noted in the Examiner‘s print edition, “Obamacare will also result in an explosion of lawsuits against employers’ health plans by stripping them of protection against unnecessary lawsuits based on paperwork technicalities, and by displacing settled exhaustion principles in employee benefits litigation.”

Insurers Drop Children’s Health Insurance Due to Obamacare

by Hans Bader on September 21, 2010

in Economy, Health and Illness, Healthcare, Insurance, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Insurers have stopped writing children-only health insurance policies due to mandates in Obamacare that ignored basic principles of economics.  So if you’ve got coverage only for you, but not for your kid, your kid may be out of luck.  Suffer the little children!

Earlier, insurers sought and obtained rate increases of up to 20 percent in Connecticut based on mandates in Obamacare that increased their costs.

Major employers like AT&T, Caterpillar, John Deere, and Verizon have already reported massive cost increases due to the new health care law.

These cost increases contradict the president’s claims that Obamacare would cut healthcare costs and are just a few of his many broken promises.

Insurance Regulators Approve Increases Based on Obamacare

by Hans Bader on September 19, 2010 · 4 comments

in Health and Illness, Healthcare, Insurance, Politics as Usual, Regulation, Sanctimony, Zeitgeist

In Connecticut, insurance rate regulators have approved hikes in insurance premiums of up to 20 percent, agreeing with insurers that Obamacare increased their costs. Some people will now pay thousands of dollars a year more as a result.

This contradicts claims made by President Obama and his aides that the new health care law would cut health care costs and bend the cost curve down.

Employers like AT&T, Caterpillar, John Deere, and Verizon have already reported major cost increases due to the new health care law.

As noted earlier, the health care law raises taxes on the middle-class and investors in future years. Obamacare will cause many harms, such as reducing life-saving medical innovation and increasing state budget deficits. It is based on accounting gimmicks that will increase the federal deficit, as even some Obama supporters have admitted — like David Brooks, who in a moment of candor called arguments for the bill ““unbelievable” and “insane.””

Obama to Insurers: Stop Telling the Truth

by Michelle Minton on September 13, 2010 · 4 comments

in Insurance, Odds & Ends

During the fight for health insurance reform earlier this year, opponents of the bill (aka Obamacare) claimed that the proposal would increase the cost of insurance in the U.S. The bill passed and low and behold premiums are on the rise. Rather than own up to the fact that their policies are going to cost Americans more money, the Obama administration is threatening insurers who raise premiums and blame Obamacare.

Late last week the The Wall Street Journal reported that Health and Human Services Secretary Kathleen Sebelius sent a letter warning  insurers that the federal government wouldn’t sit “idly by”  while insurance companies raised premiums and blamed the hikes on new regulations:

She warned that bad actors may be excluded from new health insurance markets that will open in 2014 under the law. They’d lose out on a big pool of customers, as many as 30 million people nationwide.

Though some insurers are raising rates by as much as 9 percent in a year, the insurance lobby claims the hikes are justified by the new costs associated with the requirements of Obamacare, as well as increasing costs due to other factors such as a poor economy and increasing medical care costs.

Although the law’s big expansion of coverage under the law won’t take place until 2014, several new benefits go into effect starting later this month. Lifetime dollar caps on coverage are abolished, and plans must allow parents to keep their children on the policy up to age 26. Many plans will also have to guarantee coverage for children regardless of a medical condition, and provide preventive care with no cost-sharing for the patient.

Really, the Obama administration doesn’t seem to take offense at the increasing costs, but they are angry that insurance companies are blaming the increasing premiums on, among other things, Obamacare — what Sebelius calls “misinformation.” This opinion piece in The Wall Street Journal hit the nail on the head calling the Obama administration’s admonition of the insurance industry an attempt to distance their policies from the real-world results.

This method of reality denial has been employed in several other scenarios around the country with almost exclusively disastrous results. In Florida, politicians prevented insurance companies from charging adequate rates as well as creating a government property insurer to compete. The result was a mass exodus of private insurance companies from the Florida property insurance market (which put more pressure on the state insurer). In Michigan auto insurance companies are required to sell unlimited personal insurance protection with each policy; the result is Michigan having the second highest premium rates in the nation.

The Obama administration can deny it and even force insurance companies to cover it up, but the reality is that increasing services will necessarily increase costs. It could also result in increased premiums unless the government prevents companies from charging the rates they need to in order to provide the services they are contracted for… but that will simply result in fewer insurance companies. Eventually, we could be left with only one insurance company; the government-run health insurance company, which will not be cost effective.

If we want more services at a lower cost we need to get government out of the way and let insurance companies operate at their highest efficiency level while customers can choose the options that fit their lives and budgets.

Government Insurance: Guaranteed to Fail

by Michelle Minton on August 27, 2010 · 2 comments

in Insurance, Odds & Ends

Few observers were shocked when the Federal Emergency Management Association (FEMA) asked for a nearly $20 billion bailout of its National Flood Insurance Program (NFIP). For years groups and individuals have warned that NFIP was underfunded and increasing its liability each year by not encouraging consumers to move or alter their homes in a way that would limit future losses. The availability of government provided insurance allowed people to continue building in at-risk areas like Florida’s coastline. The big problem? Government run insurance providers are not motivated to charge adequate rates, keep costs down, or encourage consumers to alter their homes to prevent further damage. As this USA Today article cites a notable anecdote that, unfortunately, isn’t all that uncommon:

In Wilkinson County, Miss., a home has been flooded 34 times since 1978.

Extraordinary as the damage may be, even more extraordinary is that an insurer has paid claims every time, required no flood proofing, never raised premiums after a claim and vowed to continue insuring the house. Forever.

The home’s value is $69,900. Yet the total insurance payments are nearly 10 times that: $663,000.

It’s no surprise that the insurer faces huge financial problems.

The insurer? The federal government.

Government run programs fail to send the appropriate “safety” signals about consumer behavior, but their presence in the market also makes it more difficult for private insurance companies to compete. In Florida, for example, the state-run wind insurer (Citizens Insurance Corp.) was meant as a “last resort” for consumers who could not find coverage anywhere in the market. Eventually, the company charged rates that were so low that private insurance companies could not compete and chose to leave the state, resulting in more people becoming reliant on the government-backed programs.

For these reasons, CEI along with a diverse coalition of consumer, taxpayer, and environmental groups vehemently opposed proposals to expand the National Flood Insurance Program to include other perils, like wind.

Back in 2008, former CEI Senior Fellow Eli Lehrer had this to say about plans to expand the National Flood Insurance Program:

“…America’s most important flood control program-the none-too-creatively named National Flood Insurance Program (NFIP)- faces serious troubles. In its current state, it drains the Treasury, damages the environment, and encourages unwise development. At minimum, it needs a restructuring that puts environmental and fiscal responsibility ahead of the questionable short-term desire of some for lower insurance rates in flood-prone areas.

Given that it sells insurance for less than any private company would, the program is a fiscal disaster. Although it theoretically, “borrows” money from the Treasury rather than actually raiding it, its fiscal state doesnt really make it possible for NFIP to pay back its debts. Right now, it owes the Treasury almost $18 billion and has no practical way to pay it back.”

Not only was this fiscal head-on-collision ignored by many in congress, some wanted to increase the liability it owed by adding wind coverage-that is, allowing the federal government to cover hurricane damage. With states like Florida getting hit hard nearly every season the potential liability would be enormous.

“Findings by research firm Towers Perrin predicted losses up to $200 billion if a federal program replaces private sector catastrophic wind insurance.”

If Americans want to avoid these fiscal catastrophes in the future, we must get the government out of the business of private enterprise and allow profit-motivated companies offer rates that actually reflect the risk of certain behavior. If consumers don’t like the cost of insurance for a potential home on the beach then they might consider buying a home far away from the dangers of hurricane winds, rather than relying on US taxpayers to bail them out after their home is damaged year after year.

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