Military Contractor Insurance: Great business, if you can get it. AIG gets 85% of it.
January 12, 2010 11:21 AM Subscribe
"Early in the Iraq War, it cost taxpayers $100,000 per year to insure a civilian contractor who was paid $100,000 per year. So the insurance was the same amount as the salary."
"Another very peculiar part of this particular story is that because of another law, the U.S. actually reimburses the insurance companies for any civilians who are injured in a combat situation. So at the very end, the insurance company will ultimately submit the bill to the U.S. government, and they will get paid back for any injury involving a combat wound."
"Let me ask a stupid question: What is the point of the insurance company if taxpayers are paying for the premium and then also paying for the medical bill?"
AIG figures out yet another way to stick it to the American taxpayer - by issuing insurance policies under the Defense Base Act of 1941 to American civilian military contractors in Iraq and Afghanistan. Essentially workers' compensation insurance for civilian contractors of the U.S. military, Congress established the DBA at the outset of World War II for the purpose of providing a compensation system for defense contractor employees. When the families of construction workers killed in a Japanese attack on Wake Island were left without any compensation because of gaps in the original law, it was amended to fill that gap. As has been widely reported, the use of civilian contractors in war zones, and the scope of their work, grew far beyond that ever envisioned.
The usual insurance company tactics of denying claims, stalling, and making it making it difficult to obtain benefits have resulted in corporate profits of 35% on average, according to the Pengaton study on the issue. One of only 4 carriers, AIG has 85% of the "market." "So far, AIG and three other carriers have earned more than $1.5 billion in premiums while paying out only about $900 million in benefits, according to a congressional report last year -- a far higher profit margin than workers' compensation programs in the United States." Of the total premiums paid by taxpayers, AIG was by fair the largest recipient, collecting more than $1.3 Billion, paying out $800 million - leaving a tidy profit rate of $600 million, according to Congressional reports. 18 months of investigative reporting by ProPublica and T. Christian Miller.
AIG figures out yet another way to stick it to the American taxpayer - by issuing insurance policies under the Defense Base Act of 1941 to American civilian military contractors in Iraq and Afghanistan. Essentially workers' compensation insurance for civilian contractors of the U.S. military, Congress established the DBA at the outset of World War II for the purpose of providing a compensation system for defense contractor employees. When the families of construction workers killed in a Japanese attack on Wake Island were left without any compensation because of gaps in the original law, it was amended to fill that gap. As has been widely reported, the use of civilian contractors in war zones, and the scope of their work, grew far beyond that ever envisioned.
The usual insurance company tactics of denying claims, stalling, and making it making it difficult to obtain benefits have resulted in corporate profits of 35% on average, according to the Pengaton study on the issue. One of only 4 carriers, AIG has 85% of the "market." "So far, AIG and three other carriers have earned more than $1.5 billion in premiums while paying out only about $900 million in benefits, according to a congressional report last year -- a far higher profit margin than workers' compensation programs in the United States." Of the total premiums paid by taxpayers, AIG was by fair the largest recipient, collecting more than $1.3 Billion, paying out $800 million - leaving a tidy profit rate of $600 million, according to Congressional reports. 18 months of investigative reporting by ProPublica and T. Christian Miller.
To inspire the American people to take Socialism seriously.
posted by clarknova at 11:26 AM on January 12, 2010 [8 favorites]
posted by clarknova at 11:26 AM on January 12, 2010 [8 favorites]
OFF WITH THEIR HEADS. (and the heads of anyone involved in this brain fart of an idea)
posted by HyperBlue at 11:27 AM on January 12, 2010
posted by HyperBlue at 11:27 AM on January 12, 2010
It could take until November 2018 to get the full story behind the U.S. bailout of insurance giant American International Group because of an action taken last year by the Securities and Exchange Commission.
posted by Joe Beese at 11:28 AM on January 12, 2010
posted by Joe Beese at 11:28 AM on January 12, 2010
OFF WITH THEIR HEADS
There'll be a slight 100% surcharge for that, sir.
posted by Blazecock Pileon at 11:28 AM on January 12, 2010 [3 favorites]
There'll be a slight 100% surcharge for that, sir.
posted by Blazecock Pileon at 11:28 AM on January 12, 2010 [3 favorites]
The insurance company took care of all the paperwork and administration. And would have been reimbursed for that.
posted by Chocolate Pickle at 11:32 AM on January 12, 2010
posted by Chocolate Pickle at 11:32 AM on January 12, 2010
[insert outrage here]
posted by Drasher at 11:38 AM on January 12, 2010 [3 favorites]
posted by Drasher at 11:38 AM on January 12, 2010 [3 favorites]
This just in: I paid my health insurance company vastly far more last year in premiums than they paid out. Wait, what?!? You mean that's sort of the way insurance is supposed to work? That if the insurance companies paid out more in indemnity than they received in premiums that they would go bankrupt?!?!? Nonsense!
Not intended to imply there are no unethical/inappropriate arrangements, accounting, etc. going on here - not suggesting that at all. But I always sort of roll my eyes when I see people point out, as if it is a smoking gun, that an insurance company earned more than it paid last year. Of course it did. It has to. That's called being solvent.
It sounds to me more like the American taxpayer is being screwed over by the representatives who enacted the laws that permit and encourage this, than by the third party company who acts within the bounds of those laws.
(Yes, I do anticipate I am going to get piled on because this will be misunderstood. Please remember the part where I said I obviously am not defending the arrangements.)
posted by bunnycup at 11:40 AM on January 12, 2010 [1 favorite]
Not intended to imply there are no unethical/inappropriate arrangements, accounting, etc. going on here - not suggesting that at all. But I always sort of roll my eyes when I see people point out, as if it is a smoking gun, that an insurance company earned more than it paid last year. Of course it did. It has to. That's called being solvent.
It sounds to me more like the American taxpayer is being screwed over by the representatives who enacted the laws that permit and encourage this, than by the third party company who acts within the bounds of those laws.
(Yes, I do anticipate I am going to get piled on because this will be misunderstood. Please remember the part where I said I obviously am not defending the arrangements.)
posted by bunnycup at 11:40 AM on January 12, 2010 [1 favorite]
I think the argument there is not that the sum of the premiums is larger than the sum of the payouts, but that it is too much larger. Yes, the insurance company needs to collect more in premiums to handle overhead and make a profit, but in this case only 60% of the premiums is going towards paying out benefits and apparently 35% is going to profits. The argument is that this 35% is much more than other worker's comp profit margins, and is excessive.
posted by JiBB at 11:50 AM on January 12, 2010
posted by JiBB at 11:50 AM on January 12, 2010
Okay, not to defend AIG too much here, as it does look like they're making out like bandits, but this may not be an entirely unreasonable arrangement. What it is is an insurance product which is reinsured 100%, i.e. the actual loss is paid 100% by the reinsurer.
This is not that uncommon. My company writes several lines of insurance which are reinsured 100%. This generally happens when an insurer, i.e. a company with retail insurance presence, wants to write a line of business not because it actually wants the exposure, but because its customers want the coverage, and it would rather them not go elsewhere. So it finds a reinsurer who is willing to accept 100% of the risk.
What's the point, you ask? Well, two things. First, it enables the insurer to offer a full line of insurance. The insured never knows that a given product is reinsured--or not--because their interaction is usually only with the primary carrier. Second, it enables the reinsurer to take on more risk, a service for which it receives premium from the primary insurer, without actually having to incur the expense of servicing policies, adjusting claims, etc. These expenses are far from insignificant, as customer service expenses and LAE (loss adjustment expenses) are a major part of any insurer's budget. As such, this can be a win for both parties.
This wouldn't even be the first situation where a government entity has agreed to reinsure a particular exposure. Some states have set up similar arrangements for workers' compensation and hurricane exposures. In most cases, this is done when states recognize that the private market isn't going to pick up a given exposure on its own--getting insurers to write homeowners policies in Southern coastal states post-Andrew is really, really tough outside state intervention of some sort. Here, we've got a situation which the insurer knows for a fact is insanely dangerous and will thus necessarily result in massive loss payments, so the feds are stepping in to make sure that someone is providing coverage.
It seems to me that the problem with this arrangement is that it's both outside the jurisdiction of any state Department of Insurance and not really a competitive market. As such, the insurers are almost entirely unregulated, can charge whatever premium they like, and have no supervision of their claims practices. State DOIs monitor claims practices in every market they regulate, and there being no federal counterpart, that's going to be a problem however you slice it. As to the other problems, there are numerous non-competitive insurance markets in the US, but they're usually watched pretty closely by state DOIs to ensure that excessive rates are not charged. There are also markets which are almost completely unregulated, but regulators keep tabs on competition to ensure that rates and claims practices are reasonable. Take away both of those things, and you get a situation like this one, where there isn't really a viable alternative, no one is putting the brakes on excessive pricing, and no one keeps tabs on claims practices.
For all of that, I'm not so sure the self-insurance route is really the best way for the Pentagon to go here. The federal government doesn't have the same profit motive that AIG or another insurer would, and state-run insurance plans are almost universally money-losers. It's quite likely that any money saved in profits to the insurance industry would be more than eaten up by bureaucratic overhead and inefficiency. But regulating this line of business is going to be pretty tough, because the feds have no experience regulating insurance, and there isn't enough data to get a good loss history going.
Is AIG engaging in some despicable claims practices? Almost certainly. Does the market need regulation? Absolutely. But given the situation, I'm not sure there's an easy solution here.
posted by valkyryn at 11:50 AM on January 12, 2010 [7 favorites]
This is not that uncommon. My company writes several lines of insurance which are reinsured 100%. This generally happens when an insurer, i.e. a company with retail insurance presence, wants to write a line of business not because it actually wants the exposure, but because its customers want the coverage, and it would rather them not go elsewhere. So it finds a reinsurer who is willing to accept 100% of the risk.
What's the point, you ask? Well, two things. First, it enables the insurer to offer a full line of insurance. The insured never knows that a given product is reinsured--or not--because their interaction is usually only with the primary carrier. Second, it enables the reinsurer to take on more risk, a service for which it receives premium from the primary insurer, without actually having to incur the expense of servicing policies, adjusting claims, etc. These expenses are far from insignificant, as customer service expenses and LAE (loss adjustment expenses) are a major part of any insurer's budget. As such, this can be a win for both parties.
This wouldn't even be the first situation where a government entity has agreed to reinsure a particular exposure. Some states have set up similar arrangements for workers' compensation and hurricane exposures. In most cases, this is done when states recognize that the private market isn't going to pick up a given exposure on its own--getting insurers to write homeowners policies in Southern coastal states post-Andrew is really, really tough outside state intervention of some sort. Here, we've got a situation which the insurer knows for a fact is insanely dangerous and will thus necessarily result in massive loss payments, so the feds are stepping in to make sure that someone is providing coverage.
It seems to me that the problem with this arrangement is that it's both outside the jurisdiction of any state Department of Insurance and not really a competitive market. As such, the insurers are almost entirely unregulated, can charge whatever premium they like, and have no supervision of their claims practices. State DOIs monitor claims practices in every market they regulate, and there being no federal counterpart, that's going to be a problem however you slice it. As to the other problems, there are numerous non-competitive insurance markets in the US, but they're usually watched pretty closely by state DOIs to ensure that excessive rates are not charged. There are also markets which are almost completely unregulated, but regulators keep tabs on competition to ensure that rates and claims practices are reasonable. Take away both of those things, and you get a situation like this one, where there isn't really a viable alternative, no one is putting the brakes on excessive pricing, and no one keeps tabs on claims practices.
For all of that, I'm not so sure the self-insurance route is really the best way for the Pentagon to go here. The federal government doesn't have the same profit motive that AIG or another insurer would, and state-run insurance plans are almost universally money-losers. It's quite likely that any money saved in profits to the insurance industry would be more than eaten up by bureaucratic overhead and inefficiency. But regulating this line of business is going to be pretty tough, because the feds have no experience regulating insurance, and there isn't enough data to get a good loss history going.
Is AIG engaging in some despicable claims practices? Almost certainly. Does the market need regulation? Absolutely. But given the situation, I'm not sure there's an easy solution here.
posted by valkyryn at 11:50 AM on January 12, 2010 [7 favorites]
It's almost like war is a racket. Someone should write a book about this.
posted by mullingitover at 11:51 AM on January 12, 2010 [4 favorites]
posted by mullingitover at 11:51 AM on January 12, 2010 [4 favorites]
"My company writes several lines of insurance which are reinsured 100%."
Is your reinsurer also the covered entity? Because, yeah, that's where this gets shady. Not the mere concept of complete reinsurance.
posted by majick at 11:54 AM on January 12, 2010
Is your reinsurer also the covered entity? Because, yeah, that's where this gets shady. Not the mere concept of complete reinsurance.
posted by majick at 11:54 AM on January 12, 2010
majick, the government isn't the covered entity, the contractor is. Yes, the government is effectively paying the premium through both requiring the insurance and paying the contract, but it's not exactly the same thing.
posted by valkyryn at 11:56 AM on January 12, 2010
posted by valkyryn at 11:56 AM on January 12, 2010
The point, of course, is for the insurance companies to take a middle-man's cut without actually bringing any value to the table.
I have no idea if this is the case, but just as an example, maybe the government is not set up to do the actuarial work here. That's not to say they couldn't be, but doing so may be more difficult than the status quo, at least in getting it established. Certainly the government knows how to do this and does it all the time with Medicare and the VA, but this isn't legally under the same umbrella. Not to say it should stay this way at all. The one-one system they have going with the government and the insurer is not really insurance, so, yeah, cut out the middle man.
posted by krinklyfig at 11:58 AM on January 12, 2010
I have no idea if this is the case, but just as an example, maybe the government is not set up to do the actuarial work here. That's not to say they couldn't be, but doing so may be more difficult than the status quo, at least in getting it established. Certainly the government knows how to do this and does it all the time with Medicare and the VA, but this isn't legally under the same umbrella. Not to say it should stay this way at all. The one-one system they have going with the government and the insurer is not really insurance, so, yeah, cut out the middle man.
posted by krinklyfig at 11:58 AM on January 12, 2010
Sweet! Insurance companies have discovered that socialized medicine is more efficient! ;)
posted by jeffburdges at 12:01 PM on January 12, 2010 [2 favorites]
posted by jeffburdges at 12:01 PM on January 12, 2010 [2 favorites]
It's quite likely that any money saved in profits to the insurance industry would be more than eaten up by bureaucratic overhead and inefficiency.
In most cases I've seen, government-run insurance has far less overhead and inefficiency. Medicare is the most efficient medical insurance system in the US, with overhead significantly lower than any private insurer.
posted by krinklyfig at 12:03 PM on January 12, 2010 [1 favorite]
In most cases I've seen, government-run insurance has far less overhead and inefficiency. Medicare is the most efficient medical insurance system in the US, with overhead significantly lower than any private insurer.
posted by krinklyfig at 12:03 PM on January 12, 2010 [1 favorite]
The argument is that this 35% is much more than other worker's comp profit margins, and is excessive.
Off the cuff, just thinking about it, it seems to me entirely conceivable that there is a much higher risk of loss in insuring contractors in an active war zone. More risk, requires a more favorable (to the insurer) premium-to-loss ratio, don't you think?
posted by bunnycup at 12:04 PM on January 12, 2010
Off the cuff, just thinking about it, it seems to me entirely conceivable that there is a much higher risk of loss in insuring contractors in an active war zone. More risk, requires a more favorable (to the insurer) premium-to-loss ratio, don't you think?
posted by bunnycup at 12:04 PM on January 12, 2010
This just in: I paid my health insurance company vastly far more last year in premiums than they paid out. Wait, what?!? You mean that's sort of the way insurance is supposed to work? That if the insurance companies paid out more in indemnity than they received in premiums that they would go bankrupt?!?!? Nonsense!
ARGH. To look at it your way it would never make sense to get insurance because you could just keep that money and pay it yourself! The thing that makes it okay is that they receive extra on all the healthy patrons, and use that money to pay for the sick people.
Insurance companies are expected to return a profit, yes. This is far more than just a profit. This is essentially larceny.
It sounds to me more like the American taxpayer is being screwed over by the representatives who enacted the laws that permit and encourage this, than by the third party company who acts within the bounds of those laws.
There will always be areas of corporate wrongdoing that are not explicitly legislated against, even in a healthy legislative environment. In any society in which freedom of action is the default state, the people rely on each other to try not be assholes, because there is always innovative work to be done in the field of asshology, and the laws can only react.
posted by JHarris at 12:08 PM on January 12, 2010 [3 favorites]
ARGH. To look at it your way it would never make sense to get insurance because you could just keep that money and pay it yourself! The thing that makes it okay is that they receive extra on all the healthy patrons, and use that money to pay for the sick people.
Insurance companies are expected to return a profit, yes. This is far more than just a profit. This is essentially larceny.
It sounds to me more like the American taxpayer is being screwed over by the representatives who enacted the laws that permit and encourage this, than by the third party company who acts within the bounds of those laws.
There will always be areas of corporate wrongdoing that are not explicitly legislated against, even in a healthy legislative environment. In any society in which freedom of action is the default state, the people rely on each other to try not be assholes, because there is always innovative work to be done in the field of asshology, and the laws can only react.
posted by JHarris at 12:08 PM on January 12, 2010 [3 favorites]
JHarris, it looks to me like this situation was not simply "not legislated against" but instead it was "deliberately legislated for". We are very specifically not a country whose laws encourage or permit the capping of allowable profits - as much as I do agree that oil companies, some insurance companies, etc. might make just so much money and I do want some for myself and it seems unfair, I think here, and this is just my opinion, we are looking at something that is far more both deliberate and run-of-the-mill than it seems.
(I don't know what you are saying in your first bit about "the thing that makes it okay". I don't buy insurance to get $1 for $1 value, I pay for it because of the risk of catastrophic loss. Here, I believe WC insurers in active war zones have a risk of catastrophic loss well in excess of what domestic standard risk comp insurers see, and therefore must reap a higher profit margin. But, if you have evidence/documentation to the contrary, I truly would be interested to read it. I'm not dogmatic, just very fascinated by insurance, and frustrated and the sort of naive "everything should be fair" approach people take to companies' profits.)
posted by bunnycup at 12:16 PM on January 12, 2010
(I don't know what you are saying in your first bit about "the thing that makes it okay". I don't buy insurance to get $1 for $1 value, I pay for it because of the risk of catastrophic loss. Here, I believe WC insurers in active war zones have a risk of catastrophic loss well in excess of what domestic standard risk comp insurers see, and therefore must reap a higher profit margin. But, if you have evidence/documentation to the contrary, I truly would be interested to read it. I'm not dogmatic, just very fascinated by insurance, and frustrated and the sort of naive "everything should be fair" approach people take to companies' profits.)
posted by bunnycup at 12:16 PM on January 12, 2010
Is AIG engaging in some despicable claims practices? Almost certainly. Does the market need regulation? Absolutely. But given the situation, I'm not sure there's an easy solution here.
I'm not sure why people in the US find it so hard to even imagine the idea that the government could handle insurance. I believe it is a failure of imagination, but also isolation. Who else does things this way?
posted by krinklyfig at 12:17 PM on January 12, 2010 [3 favorites]
I'm not sure why people in the US find it so hard to even imagine the idea that the government could handle insurance. I believe it is a failure of imagination, but also isolation. Who else does things this way?
posted by krinklyfig at 12:17 PM on January 12, 2010 [3 favorites]
To inspire the American people to take Socialism seriously.
See, I look at this issue and go the complete opposite direction -- turn the government off, because it's already doing too much, and doing much of it poorly.
But this isn't about any -isms. This is corruption, waste and malfeasance, which would happen under any -ism.
posted by Cool Papa Bell at 12:30 PM on January 12, 2010
See, I look at this issue and go the complete opposite direction -- turn the government off, because it's already doing too much, and doing much of it poorly.
But this isn't about any -isms. This is corruption, waste and malfeasance, which would happen under any -ism.
posted by Cool Papa Bell at 12:30 PM on January 12, 2010
and frustrated and the sort of naive "everything should be fair" approach people take to companies' profits.
It's not naive to demand service on your own terms. If providers can't offer the service in a way that adequately satisfies the demand, then they shouldn't be in the business.
When consumers say insurance isn't fair, it's a legitimate form of expressing dissatisfaction with services provided. It's in no sense "naive" to complain about the quality of a service you receive if you aren't satisfied with it, especially when the purchase of those services is legally mandated, as insurance in many common scenarios (home ownership, auto ownership, etc.) is compulsory. What is naive is to think consumer complaints about the insurance industry all simply boil down to a lack of appreciation for the actuarial realities. What consumers are in fact saying in many cases is that the actuarial constraints on the for-profit health insurance industry are precisely why the industry shouldn't be a private for profit enterprise: because that model, by its own necessarily profit-driven logic, cannot provide the level of health services most consumers want to see.
Consumers have every right in the world to tell insurance companies (or any other service provider for that matter), "Sorry, but the best you can do profitably still isn't good enough." In the past, it was more commonly understood that there are limits to the kinds of public needs that free market competition can satisfy. Hence, public works, public programs, public mindedness.
Where health insurance is concerned, of course, the consumer's position is especially weak because having insurance may literally be a matter of life or death for the individual. The weakest consumer of all, in the current scheme, is the consumer who's actually very ill. If the purpose of the insurance industry, from the consumer's perspective, is to provide consumers some protection from the financial burdens of serious illness, the current system is an abysmal failure that very nearly does the opposite of what its supposed to do, pooling the resources of the healthy to drive up basic medical costs while excluding the actually ill, who suffer most as a consequence of the medical cost inflation driven by those lucky enough to be insured.
posted by saulgoodman at 12:45 PM on January 12, 2010 [6 favorites]
It's not naive to demand service on your own terms. If providers can't offer the service in a way that adequately satisfies the demand, then they shouldn't be in the business.
When consumers say insurance isn't fair, it's a legitimate form of expressing dissatisfaction with services provided. It's in no sense "naive" to complain about the quality of a service you receive if you aren't satisfied with it, especially when the purchase of those services is legally mandated, as insurance in many common scenarios (home ownership, auto ownership, etc.) is compulsory. What is naive is to think consumer complaints about the insurance industry all simply boil down to a lack of appreciation for the actuarial realities. What consumers are in fact saying in many cases is that the actuarial constraints on the for-profit health insurance industry are precisely why the industry shouldn't be a private for profit enterprise: because that model, by its own necessarily profit-driven logic, cannot provide the level of health services most consumers want to see.
Consumers have every right in the world to tell insurance companies (or any other service provider for that matter), "Sorry, but the best you can do profitably still isn't good enough." In the past, it was more commonly understood that there are limits to the kinds of public needs that free market competition can satisfy. Hence, public works, public programs, public mindedness.
Where health insurance is concerned, of course, the consumer's position is especially weak because having insurance may literally be a matter of life or death for the individual. The weakest consumer of all, in the current scheme, is the consumer who's actually very ill. If the purpose of the insurance industry, from the consumer's perspective, is to provide consumers some protection from the financial burdens of serious illness, the current system is an abysmal failure that very nearly does the opposite of what its supposed to do, pooling the resources of the healthy to drive up basic medical costs while excluding the actually ill, who suffer most as a consequence of the medical cost inflation driven by those lucky enough to be insured.
posted by saulgoodman at 12:45 PM on January 12, 2010 [6 favorites]
There's some Harry Truman quote somewhere about war profiteering being tantamount to treason. I agree with him wholeheartedly.
posted by Jon_Evil at 12:53 PM on January 12, 2010 [2 favorites]
posted by Jon_Evil at 12:53 PM on January 12, 2010 [2 favorites]
saulgoodman, I don't disagree with you to some extent. But the consumer of this insurance is the government, and the government enacted the plan that creates the perceived unfairness. Which is why I suggested that the insurance companies are not the appropriate target of the dissatisfaction, because from my understanding they are providing the policy type and service type that the government-consumer (who, unlike you and me, has the bargaining power to change terms) wants. I don't disagree that the present insurance system is flawed, but I don't think this example is a great example of it (insofar as the perceived inadequacies appear to be legislated-for).
I do disagree that people are as informed about the actuarial realities of insurance as you seem to think, but I hardly think that is the crux of either of our points. Anecdotally and thus admittedly not particularly persuasive, the vast number of Americans I've debated this issue with believe that the present system is flawed because insurance companies are supposed to be there when you are in need, like a good buddy who cares about you, more or less without regard to policy terms and insurance principles. I did certainly misstate the exact approach I consider naive - expectation of fairness is not naive; expecting that fairness requires that claims never be denied, that pre-existing conditions always be covered, etc., certainly is.
posted by bunnycup at 12:56 PM on January 12, 2010
I do disagree that people are as informed about the actuarial realities of insurance as you seem to think, but I hardly think that is the crux of either of our points. Anecdotally and thus admittedly not particularly persuasive, the vast number of Americans I've debated this issue with believe that the present system is flawed because insurance companies are supposed to be there when you are in need, like a good buddy who cares about you, more or less without regard to policy terms and insurance principles. I did certainly misstate the exact approach I consider naive - expectation of fairness is not naive; expecting that fairness requires that claims never be denied, that pre-existing conditions always be covered, etc., certainly is.
posted by bunnycup at 12:56 PM on January 12, 2010
the vast number of Americans I've debated this issue with believe that the present system is flawed because insurance companies are supposed to be there when you are in need, like a good buddy who cares about you
funny how this is also a pretty good summary of every single insurance commercial and advertisement I've ever seen.
posted by Jon_Evil at 1:05 PM on January 12, 2010
funny how this is also a pretty good summary of every single insurance commercial and advertisement I've ever seen.
posted by Jon_Evil at 1:05 PM on January 12, 2010
Where do people get the idea that because the government fucks up occassionally, it logically follows that removing them entirely from the market will make things better? Without government interference, the market would cut off our legs, feed it to us as supper, and charge us 150% the cost of the operation.
posted by Astro Zombie at 1:10 PM on January 12, 2010 [8 favorites]
posted by Astro Zombie at 1:10 PM on January 12, 2010 [8 favorites]
But the consumer of this insurance is the government
Which is, ideally at least, just the collective governing body of the people it represents--a sort of legal advocate for the people as a collective. So, if the people the government represents collectively decide that the services as provided are inadequate, then those services should be renegotiated, or in the event the parties can't come to new terms, terminated. My point is only that as taxpaying members of the public, we enjoy the absolute right as the ultimate end-consumers of those services our government may have negotiated on our behalf to criticize the terms of those arrangements as we see fit.
As consumers, we have no obligation to make reasonable demands. If we collectively decided that AIG's contracts should be canceled and AIG sued for treason because we don't like their logo, that would be perfectly reasonable and within our rights as consumers, because the providers have no reasonable claim to any right whatsoever to dictate the terms of our demands beyond either offering to satisfy them according to whatever arbitrary criteria we see fit or simply getting out of the market if they can't meet our arbitrary demands.
Free markets aren't just about the producer side of the equation. Healthy market economies depends on consumers having enough power on their side of the bargaining table to reach mutually beneficial arrangements with producers. The system can only yield equitable outcomes if consumers have the absolute power to define their demands on their own terms. Otherwise, the push and pull that allows the markets to set fair prices and satisfy consumer demand fails.
posted by saulgoodman at 1:13 PM on January 12, 2010 [1 favorite]
Which is, ideally at least, just the collective governing body of the people it represents--a sort of legal advocate for the people as a collective. So, if the people the government represents collectively decide that the services as provided are inadequate, then those services should be renegotiated, or in the event the parties can't come to new terms, terminated. My point is only that as taxpaying members of the public, we enjoy the absolute right as the ultimate end-consumers of those services our government may have negotiated on our behalf to criticize the terms of those arrangements as we see fit.
As consumers, we have no obligation to make reasonable demands. If we collectively decided that AIG's contracts should be canceled and AIG sued for treason because we don't like their logo, that would be perfectly reasonable and within our rights as consumers, because the providers have no reasonable claim to any right whatsoever to dictate the terms of our demands beyond either offering to satisfy them according to whatever arbitrary criteria we see fit or simply getting out of the market if they can't meet our arbitrary demands.
Free markets aren't just about the producer side of the equation. Healthy market economies depends on consumers having enough power on their side of the bargaining table to reach mutually beneficial arrangements with producers. The system can only yield equitable outcomes if consumers have the absolute power to define their demands on their own terms. Otherwise, the push and pull that allows the markets to set fair prices and satisfy consumer demand fails.
posted by saulgoodman at 1:13 PM on January 12, 2010 [1 favorite]
funny how this is also a pretty good summary of every single insurance commercial and advertisement I've ever seen.
lols, I totally had the "State Farm is there" soothing jingle in my head while I was writing the part you quoted.
posted by bunnycup at 1:14 PM on January 12, 2010
lols, I totally had the "State Farm is there" soothing jingle in my head while I was writing the part you quoted.
posted by bunnycup at 1:14 PM on January 12, 2010
that an insurance company earned more than it paid last year. Of course it did. It has to. That's called being solvent
No, being solvent is having more profits than losses over time. Since when is every company supposed to magically show profits every single year? Even the year after it has to be bailed out?
posted by nicwolff at 1:16 PM on January 12, 2010
No, being solvent is having more profits than losses over time. Since when is every company supposed to magically show profits every single year? Even the year after it has to be bailed out?
posted by nicwolff at 1:16 PM on January 12, 2010
Even the year after it has to be bailed out?
Hmm, well this entity is on the property casualty side and I know the AIG life companies better but as I understand it (from press releases from the NY Insurance Commissioner) the core insurance businesses remained solvent and secure. How exactly are they supposed to earn the money to pay back the bailout without making profits?
posted by bunnycup at 1:21 PM on January 12, 2010
Hmm, well this entity is on the property casualty side and I know the AIG life companies better but as I understand it (from press releases from the NY Insurance Commissioner) the core insurance businesses remained solvent and secure. How exactly are they supposed to earn the money to pay back the bailout without making profits?
posted by bunnycup at 1:21 PM on January 12, 2010
krinklyfig, the reason that Medicare is more "efficient" is because if you ran the financials on Medicare as an insurance company it'd have been insolvent a while ago. So sure, their overhead is low compared to their revenue, but that's because they're in the business of giving away money. Private insurers are not.
posted by valkyryn at 1:42 PM on January 12, 2010
posted by valkyryn at 1:42 PM on January 12, 2010
Every time I think I've reached the bottom of the lunacy, ineptitiude and profiteering that is US healthcare, yet another thing pops up.
posted by Coobeastie at 1:42 PM on January 12, 2010
posted by Coobeastie at 1:42 PM on January 12, 2010
"It's almost like war is a racket. Someone should write a book about this."
Oh, c'mon. It's not like they're gouging taxpayers.
House Panel: Defense Contractors Gouging Taxpayers
..oh.
Well, in order to make any money on this, the insurers would have to deny serious claims.
Injured war zone contractors fight to get care:
"The insurance companies responsible for their treatment under taxpayer-funded policies have routinely denied the most serious medical claims."
...ah.
From Simon Cameron to GM and Standard oil, the more things change....
Still, there was a bill to prevent war profiteering back in 2007.
This bill never became law.
...oh.
posted by Smedleyman at 1:43 PM on January 12, 2010 [9 favorites]
Oh, c'mon. It's not like they're gouging taxpayers.
House Panel: Defense Contractors Gouging Taxpayers
..oh.
Well, in order to make any money on this, the insurers would have to deny serious claims.
Injured war zone contractors fight to get care:
"The insurance companies responsible for their treatment under taxpayer-funded policies have routinely denied the most serious medical claims."
...ah.
From Simon Cameron to GM and Standard oil, the more things change....
Still, there was a bill to prevent war profiteering back in 2007.
This bill never became law.
...oh.
posted by Smedleyman at 1:43 PM on January 12, 2010 [9 favorites]
It's not a brain fart of an idea, it's another tiresomely typical rip-off by the fucking "free market" that is going to save us all from the horrors of not getting killed in unnecessary wars, not eating toxic food, etc.
posted by Mister_A at 1:51 PM on January 12, 2010 [1 favorite]
posted by Mister_A at 1:51 PM on January 12, 2010 [1 favorite]
Smedleyman: "...oh."
Fantastic. Smed, you, or someone with a name similar to yours, should write this war profiteering book.
posted by mullingitover at 2:19 PM on January 12, 2010 [1 favorite]
Fantastic. Smed, you, or someone with a name similar to yours, should write this war profiteering book.
posted by mullingitover at 2:19 PM on January 12, 2010 [1 favorite]
turn the government off
The position of the teabag movement, is it not?
What is the point of the insurance company if taxpayers are paying for the premium and then also paying for the medical bill?
Surely this will bring an end to the Presidency of George Bush and thus bring the troops home!
posted by rough ashlar at 2:33 PM on January 12, 2010
The position of the teabag movement, is it not?
What is the point of the insurance company if taxpayers are paying for the premium and then also paying for the medical bill?
Surely this will bring an end to the Presidency of George Bush and thus bring the troops home!
posted by rough ashlar at 2:33 PM on January 12, 2010
krinklyfig, the reason that Medicare is more "efficient" is because if you ran the financials on Medicare as an insurance company it'd have been insolvent a while ago. So sure, their overhead is low compared to their revenue, but that's because they're in the business of giving away money. Private insurers are not.
I do believe administrative overhead is a major consideration to the consumer, however. I don't really have sympathy for private insurers. We need what works for us, not what produces the most profit for insurance companies and the medical industry.
posted by krinklyfig at 2:43 PM on January 12, 2010
I do believe administrative overhead is a major consideration to the consumer, however. I don't really have sympathy for private insurers. We need what works for us, not what produces the most profit for insurance companies and the medical industry.
posted by krinklyfig at 2:43 PM on January 12, 2010
And the reason I mentioned it is because there is a common misunderstanding that government-run insurance or medical care is not efficient by design. That is flat-out false.
posted by krinklyfig at 2:44 PM on January 12, 2010
posted by krinklyfig at 2:44 PM on January 12, 2010
Metafilter: there is always innovative work to be done in the field of asshology.
posted by Michael Roberts at 3:21 PM on January 12, 2010
posted by Michael Roberts at 3:21 PM on January 12, 2010
Bunnycup: it seems to me entirely conceivable that there is a much higher risk of loss in insuring contractors in an active war zone. More risk, requires a more favorable (to the insurer) premium-to-loss ratio, don't you think?
Depends on the risk you're talking about. If it's the risk that any given contractor will be injured (or injured in a more expensive to treat way), and you have enough contractors being insured, then premiums will need to be higher (larger risk to individual => larger expected cost in benefits to the insurance), but the risk to the insurance company should stay low. It's the whole goal of insurance—if enough people each pool (benefit in $) x (chance of requiring that benefit), you should end up with enough money collected to cover claims paid out. If AIG is collecting 60% more than you're paying out, then they're either not estimating the risks to contractors well (consistently, and in a systematic direction), or intentionally making a large profit.
The risk to AIG is not that the risk to contractors is high, it's that it will be unexpectedly high—say, a sudden surge in attacks against contractors. However, the government reimburses them in that case, so all we're really left with is the risk of a sudden surge of non-combat injuries, the same risk any worker's comp insurance has to handle.
So no, I don't think AIG is running a risk commensurate with their profits.
posted by JiBB at 3:24 PM on January 12, 2010
Depends on the risk you're talking about. If it's the risk that any given contractor will be injured (or injured in a more expensive to treat way), and you have enough contractors being insured, then premiums will need to be higher (larger risk to individual => larger expected cost in benefits to the insurance), but the risk to the insurance company should stay low. It's the whole goal of insurance—if enough people each pool (benefit in $) x (chance of requiring that benefit), you should end up with enough money collected to cover claims paid out. If AIG is collecting 60% more than you're paying out, then they're either not estimating the risks to contractors well (consistently, and in a systematic direction), or intentionally making a large profit.
The risk to AIG is not that the risk to contractors is high, it's that it will be unexpectedly high—say, a sudden surge in attacks against contractors. However, the government reimburses them in that case, so all we're really left with is the risk of a sudden surge of non-combat injuries, the same risk any worker's comp insurance has to handle.
So no, I don't think AIG is running a risk commensurate with their profits.
posted by JiBB at 3:24 PM on January 12, 2010
See, I look at this issue and go the complete opposite direction -- turn the government off, because it's already doing too much, and doing much of it poorly.
Cool Papa Bell: Go live someplace where the government has been turned off, then come back and tell us how much you like it.
posted by dubold at 3:28 PM on January 12, 2010 [1 favorite]
Cool Papa Bell: Go live someplace where the government has been turned off, then come back and tell us how much you like it.
posted by dubold at 3:28 PM on January 12, 2010 [1 favorite]
My point is only that as taxpaying members of the public, we enjoy the absolute right as the ultimate end-consumers of those services our government may have negotiated on our behalf to criticize the terms of those arrangements as we see fit.
saulgoodman makes a valid point here. I'm not sure why Americans seem so opposed to the idea of our representatives working for us. It seems to me that's an idea that both parties could get behind.
posted by dubold at 3:38 PM on January 12, 2010
saulgoodman makes a valid point here. I'm not sure why Americans seem so opposed to the idea of our representatives working for us. It seems to me that's an idea that both parties could get behind.
posted by dubold at 3:38 PM on January 12, 2010
The position of the teabag movement, is it not?
From what I've seen the position of the teabag movement is that they want a theocracy. It sounds like they're saying "more government is bad" but what they mean is "any government that isn't based on my sect of religion is bad".
posted by breath at 4:31 PM on January 12, 2010
From what I've seen the position of the teabag movement is that they want a theocracy. It sounds like they're saying "more government is bad" but what they mean is "any government that isn't based on my sect of religion is bad".
posted by breath at 4:31 PM on January 12, 2010
War profiteering is like drunk driving: discreetly engaged in by millions who speak out vehemently against it.
posted by tehloki at 9:48 PM on January 12, 2010
posted by tehloki at 9:48 PM on January 12, 2010
saulgoodman:
Consumers have every right in the world to tell insurance companies (or any other service provider for that matter), "Sorry, but the best you can do profitably still isn't good enough." In the past, it was more commonly understood that there are limits to the kinds of public needs that free market competition can satisfy. Hence, public works, public programs, public mindedness.
Amen. I'm all for capitalism, but there are some things that should be publicly owned & operated. Usually where lives or public safety are put at risk by the normal profit-maximising focus of private enterprise - health insurance is the prime example - or where massive private monopolies run public utilities, (e.g. telecommunications, power, and transport infrastructure) and block out competition.
posted by joz at 10:55 PM on January 12, 2010 [1 favorite]
Consumers have every right in the world to tell insurance companies (or any other service provider for that matter), "Sorry, but the best you can do profitably still isn't good enough." In the past, it was more commonly understood that there are limits to the kinds of public needs that free market competition can satisfy. Hence, public works, public programs, public mindedness.
Amen. I'm all for capitalism, but there are some things that should be publicly owned & operated. Usually where lives or public safety are put at risk by the normal profit-maximising focus of private enterprise - health insurance is the prime example - or where massive private monopolies run public utilities, (e.g. telecommunications, power, and transport infrastructure) and block out competition.
posted by joz at 10:55 PM on January 12, 2010 [1 favorite]
In most cases I've seen, government-run insurance has far less overhead and inefficiency. Medicare is the most efficient medical insurance system in the US, with overhead significantly lower than any private insurer.
Medicare is not, strictly speaking, "insurance" at all. It's a government administered health care plan.
posted by atrazine at 9:09 AM on January 13, 2010
Medicare is not, strictly speaking, "insurance" at all. It's a government administered health care plan.
posted by atrazine at 9:09 AM on January 13, 2010
Medicare is not, strictly speaking, "insurance" at all. It's a government administered health care plan.
It is insurance, just paid by the government. Ever been denied a Medicare claim? That's insurance!
The first paragraph on Wikipedia: "Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. The program also funds residency training programs for the vast majority of physicians in the United States. Medicare operates as a single-payer health care system."
posted by krinklyfig at 1:53 PM on January 13, 2010
It is insurance, just paid by the government. Ever been denied a Medicare claim? That's insurance!
The first paragraph on Wikipedia: "Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. The program also funds residency training programs for the vast majority of physicians in the United States. Medicare operates as a single-payer health care system."
posted by krinklyfig at 1:53 PM on January 13, 2010
Wrt Medicare profitability; If I ran an insurance plan that only covered old people, I'd expect it to be a loser . That's why the only way to fix it is to let young healthy people pay into it.
posted by butterstick at 3:21 PM on January 14, 2010
posted by butterstick at 3:21 PM on January 14, 2010
It is insurance, just paid by the government. Ever been denied a Medicare claim? That's insurance!
Sorry to come back to this two weeks later, but what I meant was that it isn't actuarial (at least not on an individual level). The British NHS also denies some treatments - more than Medicare, that doesn't make it insurance.
There is no management of a risk pool by varying premiums (though the financial risk for the pool as a whole is managed by not covering treatments that cost too much.)
posted by atrazine at 5:04 AM on January 25, 2010
Sorry to come back to this two weeks later, but what I meant was that it isn't actuarial (at least not on an individual level). The British NHS also denies some treatments - more than Medicare, that doesn't make it insurance.
There is no management of a risk pool by varying premiums (though the financial risk for the pool as a whole is managed by not covering treatments that cost too much.)
posted by atrazine at 5:04 AM on January 25, 2010
Much too late, but atrazine is precisely correct and krinklyfig is wrong: whatever Medicare may be, "insurance" is not it.
"Insurance" is the business of accepting risk in exchange for a premium calculated using actuarial science to be adequate to cover the exposure. Every insured will pay a slightly different premium based on their insurance characteristics. Insurance policies have limits, i.e. maximum amounts the insurer will pay for any given loss and for all losses.
Medicare is a program whereby the government just pays for health care. How much you pay has nothing whatsoever to do with your risk: every American pays the same percentage of their income. There is no limit, contractual or otherwise, to how much the government will pay for any single person, either all at once or over your lifetime.
This is why 1) insurance administration costs are higher than Medicare's as a percentage of claims paid, and 2) why insurers make money in the long run and Medicare can't. Calculating insurance rates--and complying with regulations that you haven't made up yourself--is actually a lot of work, and though Medicare has to pay loss adjustment expenses like a private insurer would, they really don't need underwriting, actuarial, or compliance services. Because they aren't an insurer. But because they aren't an insurer, the amount they pay out in claims has absolutely no rational connection to the amount they take in. Yeah, it's been in the black so far, but this is entirely a historical accident. So yeah, their costs are arguably lower, but this is mostly because they're not in the business of accepting risk in exchange for properly rated premiums, they're in the business of giving away money.
Maybe that's how you think health care should be provided and paid for in this country. That's an argument that can be made. But arguing that Medicare is an example of an efficient insurer is just flat out wrong. It's nothing of the sort.
posted by valkyryn at 11:36 AM on February 8, 2010
"Insurance" is the business of accepting risk in exchange for a premium calculated using actuarial science to be adequate to cover the exposure. Every insured will pay a slightly different premium based on their insurance characteristics. Insurance policies have limits, i.e. maximum amounts the insurer will pay for any given loss and for all losses.
Medicare is a program whereby the government just pays for health care. How much you pay has nothing whatsoever to do with your risk: every American pays the same percentage of their income. There is no limit, contractual or otherwise, to how much the government will pay for any single person, either all at once or over your lifetime.
This is why 1) insurance administration costs are higher than Medicare's as a percentage of claims paid, and 2) why insurers make money in the long run and Medicare can't. Calculating insurance rates--and complying with regulations that you haven't made up yourself--is actually a lot of work, and though Medicare has to pay loss adjustment expenses like a private insurer would, they really don't need underwriting, actuarial, or compliance services. Because they aren't an insurer. But because they aren't an insurer, the amount they pay out in claims has absolutely no rational connection to the amount they take in. Yeah, it's been in the black so far, but this is entirely a historical accident. So yeah, their costs are arguably lower, but this is mostly because they're not in the business of accepting risk in exchange for properly rated premiums, they're in the business of giving away money.
Maybe that's how you think health care should be provided and paid for in this country. That's an argument that can be made. But arguing that Medicare is an example of an efficient insurer is just flat out wrong. It's nothing of the sort.
posted by valkyryn at 11:36 AM on February 8, 2010
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The point, of course, is for the insurance companies to take a middle-man's cut without actually bringing any value to the table.
Nice work if you can get it, really.
posted by darkstar at 11:24 AM on January 12, 2010