Posted by: theoptimisticconservative | October 14, 2009

Another Thing Government Can’t Fix

The Washington Times today tells the story of 37-year-old Ian Pearl, a man with muscular dystrophy whose insurance coverage was cancelled.  In the course of the story, we learn that Pearl’s round-the-clock home care costs $1 million a year, and was covered under his parents’ insurance until the company, Guardian Life, cancelled the whole line of insurance that provided such coverage.  Guardian Life’s reason was that it could not make its policies affordable and attractive to small businesses while carrying such high-payout lines.  We also learn that Pearl’s parents are millionaires, and that his brother is best-selling novelist Matthew Pearl (The Last Dickens).  The parents had paid monthly premiums of $3700 ($44,400 a year) to receive the $1 million a year in benefits for Ian.  They are trying to get the federal government (HHS) to force Guardian Life to resume paying out $1 million a year for Ian’s care.  They don’t want to consign their son to a care facility on Medicaid, which they feel would be a death sentence.

The Pearls – Pearl Père a construction firm owner – may be a bit too well-off to serve as the poster family for a political campaign to ensure that coverage is never denied for any reason.  Nevertheless, most of us would sympathize with them, a lot.  TWT reports that Guardian Life listed profits last year of $437 million, and many people (mainly those who have never run a business) would point to those profits and demand to know why $1 million of that couldn’t go to Ian Pearl?  TWT also reports that in a company email, someone at Guardian Life referred to the insured clients who receive very high claims payouts on a recurring basis as “dogs” that the company would like to get rid of.  So that’s ugly and mean-spirited.

But let’s unpack this a little, because it’s worth doing.  One of the first things we must notice is that the Pearls were paying in $44,400 a year and getting back $1 million a year.  That means that, just to keep making the annual payout on this one policy, Guardian Life had to supply both $955,600 and the costs of administering the account.  This it would do by collecting premiums from others, and by borrowing from its assets.  When Guardian Life offered this type of coverage as one of its policy lines, it could well have had (probably did have) more than one such client:  receiving $1 million of round-the-clock home care every year.  Each client of this type would be a very large net drain on the company’s income and assets, as long as he lived.  No one but the most committedly obtuse would refuse to see that this affects the premiums a company has to charge to meet its projected claims.

Moreover, does any other expenditure in life give us back $1 million a year for $44,400?  In what alternate universe is that an enforceable demand – a “right”?  It’s one thing if a client pays $4000 a year for 25 years and, in three of those years, presents claims that, all together, total $150,000.  In 25 years that client has cost the insurer, by the simplest calculation, $50,000.  (He has actually cost the insurer less, because the insurer has realized investment profits on some portion of his premiums over those 25 years.)  It’s entirely another when a client costs the insurer very close to $1 million a year, and is guaranteed to continue doing so for as long as he is a client.

The next thing that must strike us is the $1 million-a-year cost of round-the-clock home care.  Why, exactly, does it cost $1 million a year?  What is it in Ian Pearl’s package of requirements that is so expensive?  If he has, for example, two dedicated full-time nurses, that would seem to come to at most $150K, if they are contracted through a home care company.  Even if it came to $200K, does the rental of machines plus medications and routine check-ups with physicians, etc, really come to $800K a year?  And if so, why?  As long as this is a private transaction it’s none of my business – but it is Guardian Life’s business.  I wonder if Guardian Life would have found it more feasible to continue offering this kind of coverage to clients if this level of home care, or one that was adequate but perhaps had fewer features, cost more like $250-300K a year.

Relying on – insisting on – insurance companies as bottomless ATMs has combined with Medicare and Medicaid to divorce the price of medical services more and more from the comparative value the customer actually puts on them.  The pressure of the bottom line is felt by the home care company and the insurance company, but not by the client.  The home care company probably contracts with Medicare, and is underpaid by Medicare in terms of its actual costs.  If it can recoup those costs by overcharging private insurance, it will.  We can’t know if that is going on here, but the likelihood is very high.

We should also say a word on Guardian Life’s $437 million in profits last year.  Business owners will understand that the vast majority of profits are plowed back into the business in investment.  Guardian Life has to plan for growth, in its current income and asset sheet, if it expects to remain viable.  Insurance companies have a special requirement to grow their asset sheets, since the consummation of their trust responsibility is big pay-outs to their clients.  Ray Kroc, the late founder of McDonald’s, once said that that real business his company is in is real estate.  In a similar sense, the real business insurance companies are in is investment.  They attract clients to pay premiums, but they put tremendous effort into financial investment because that’s how they grow their assets, and maintain a viable posture for the bad years, when more people die, get sick, see their homes burned down or flooded out.  $437 million isn’t $437 million Guardian Life “doesn’t need.”  A good 90% of it is Guardian Life’s down payment on the future.  Some amount will be paid in employee bonuses, and some will go to corporate charity.

And again, Ian Pearl is one individual.  But as long as Guardian Life offered the policy line he benefitted from, it was susceptible to having other clients with similar conditions and requirements.  That $437 million would evaporate quickly, resulting in the company’s financial position being compromised faster, with even a couple hundred $1 million-a-year clients.

The final thing we need to recognize is that nothing the government plans to do or even can do will “fix” this problem the way the Pearls want it to be fixed.  Guardian Life found it impossible to keep providing this kind of coverage and also remain competitive in the insurance market.  This is because, if Guardian Life has to charge $900 a month per employee, but a dozen other insurance companies can offer an employer the same policy for $750 a month, the employer will pick one of the $750 companies.  They charge less not because the average client gets less, but because the insurers do not offer to cover home care to the tune of $1 million a year.

If government were to mandate that insurers have to cover $1 million-a-year home care, and that they can’t compete by not offering that coverage, is there anyone here who doesn’t understand that that means everyone’s premiums have to go up?

But of course, government will resist the upward pressure of uncontrolled coverage on premium prices.  Government’s solution is not ultimately to have insurance companies charge you more, but to get you shifted from private contracting for your medical care to being the government’s client.  And our Democratic politicians have been, in their planning as well as their speeches in remote venues, remarkably straightforward about the fact that that means less care per individual:  not the same care at less cost – and certainly not more care at less cost.

Neither non-denial mandates for insurance, nor public health care, would ensure that Ian Pearl’s home care can continue on the same basis Guardian Life was once paying for.  We need to all get that straight in our heads.  If Congress forces insurance companies to keep providing such coverage when it is not sound business for them, premiums for the average client will go up, the incentive of everyone to “get his money’s worth” will increase, and the rise in claims will drive many insurance companies under.  For a $1 million-a-year beneficiary, he can see his benefits end now, or he can see them end later, but they’re going to end.  With the public health care option, of course, he will be just where the Pearls don’t want to see Ian:  on Medicaid.  In no part of the globe does national health care provide anything close to what Ian Pearl was getting courtesy of Guardian Life.  Public assistance for people like Ian is welfare-level care, period.

None of us is walking in the Pearls’ shoes.  But that doesn’t mean we are unable to recognize economic reality.  The truth is, government cannot successfully mandate that Ian Pearl receive the same benefits he once did from Guardian Life.  It doesn’t matter how much you want it to be so:  it can’t happen.  That doesn’t mean there can be no compassionate assistance from others for the Pearl family.  Of course there can.

If we had properly run governments at the city, state, and federal levels – governments that were not overextended and drowning in debt – we could use tax money to earn interest in assistance pools, and provide vouchers to help people with financially catastrophic medical problems.  There are already charitable organizations that would provide assistance to a family like the Pearls, with a son requiring long-term, round-the-clock care.  Insurance companies could run their own non-profit charitable organizations, designed to help beneficiaries over and above the contracted coverage they have, and offer premium-payers a monthly tax-deductible donation option.  This isn’t precisely the same idea as the relief organizations of the armed services, but it’s similar.  Electric power and gas companies offer this option to their customers, as a means of assisting others having financial difficulties, in most parts of the country.

But there is no choice here, to “fix” things for Ian Pearl, either by mandating that insurance companies cover everyone for everything, or by putting health care under the complete control of the government.  Government can’t “fix” this.  Government measures will only produce a different result:  the breakdown of the insurance industry, and Ian Pearl on Medicaid.



  1. You want to explain the purpose of buying insurance if the company shouldn’t be held liable to pay out legitimate claims under the policies that they’ve sold to you?
    Guardian Life claims assets upwards of $39 billion.
    Where did that money come from and why is it that they shouldn’t pay out?

  2. Ask the US federal and state governments these questions, fuster. They allow insurers to cease offering policy lines, and to cease paying claims to clients formerly covered under those lines. That information is all in the original contract you sign. The law covering Guardian Life required the company to pay out for a year after it ceased offering the policy line, which the story says it has done.

    One thing we know for sure is that none of the $39 billion you cite came from the Pearls’ premiums.

  3. I notice that Guardian life isn’t cancelling the policies of the thousands of healthy policy-holders that are seldom if ever claimed on. Interesting, because I thought the principle of insurance is the pooling of resources and risk.
    The insurers want the resources without the risk. Nice for them if they can get away with this scam.

    Perhaps you might also like to tell your readers about the bonuses the GL execs paid themselves last year. It might give them a more rounded insight into this company and its priorities.

    You might also like to compare and contrast the threatened fate of Mr. Pearl with that of Stephen Hawking the cosmologist who is kept alive at much greater cost by the much maligned British NHS.

    Your argument about the wealth of the Pearl family is also specious. You seem to be arguing that insurers should be free not to pay out where an insured person is wealthy. GL should have told the Pearls, before they paid their premia that because they were wealthy their cover was discretionary. Come to think of it, (using your argument) auto insurers and life insurers should be allowed welch on their policies where the beneficiary is a member of the undeserving rich.

    Having ranted on ad nauseum about death-panels and health rationing, here we have both, red in tooth and claw – not the nasty government, but private enterprise.

    Lets hear the outrage now.

  4. Sorta sounds like buying lottery tickets with an annual pay out.
    Lose big and you’re gonna collect and then the payout…………vanishes

  5. I do think that you can conclude that a heaping great bunch of that money came from people such as the Pearls.

  6. It would indeed be interesting to see the itemized bills for this individual’s care that add up to a million dollars a year, 2739 dollars a day. And why should the insurance company fill the bad guy role by itself? How much money is the care provider making? Aren’t they evil, greedy capitalists as well?

  7. Ya, chuck. the health-care providers will be about one-tenth as bad as the insurer as soon as they pitch the kid into the street when the money stops coming in.
    They’ll be closer to as bad if they first promise not to abandon him and then bail.

  8. “Ask the US federal and state governments these questions, fuster. They allow insurers to cease offering policy lines, and to cease paying claims to clients formerly covered under those lines. That information is all in the original contract you sign. The law covering Guardian Life required the company to pay out for a year after it ceased offering the policy line, which the story says it has done.”

    I find myself agreeing with much of what you state JED. That said, I have to partially agree with fuster.

    I do not have an issue with any company deciding that it can no longer afford to continue to offer a line of insurance.

    I do have a problem with the company ceasing to pay claims to clients already covered under a plan and who have already filed a claim.

    That smacks of bait and switch.

    The US government saying its ok does not make it ok. It just makes it the current law. Some laws should be changed.

    Insurance is predicated and sold upon the premise that IF this happens to you, your participation in this plan will protect you. That’s patently untrue if the company can arbitrarily cancel its payments to those already insured who filed the claim before the insurance line was canceled. It’s an unconscionable ‘escape clause’.

    A ‘claim’ extends for the duration of the illness not for as long as its financially convenient for the company. Contracts are two-way streets.

  9. The situation here, according to JED’s account, is that the insurance company discontinued this whole insurance product, which affected not only the Pearls but also other purchasers of this product. They paid out according to the agreement, and the agreement included the possibility that the product might be discontinued.

    JED’s main points seem to be overlooked in these comments. First, the cost of this care is probably being inflated because others who are not able to pay (or able to be made to pay) are being carried by GL in this case. Second, the government alternative, Medicare, is exactly what this family is seeking to avoid. Why would we take this extreme example as an argument in favor of government supervised medical care?

  10. Thanks, Margo. I appreciate you coming back to the main point.

    GB, I hear you, but I’m not convinced that insurance companies should never be allowed to end policy coverage. Do you believe, for example, that a company should not be permitted to drop from auto coverage a client who wrecks three cars in two years?

    The point is not that all such situations are the same, or should be decided on the same principle, but that there are, in fact, circumstances under which we routinely accept the termination of coverage by insurance companies. It’s not inherently evil or evidence of bad faith to do so.

    peterwise — Welcome to the blog. Any comments from now on will post automatically. My apologies for the delay on the appearance of yours.

    Your point that Guardian Life isn’t cancelling the policies of people who rarely make claims is pretty much the point of “insurance.” Since you bring up the bonuses paid to GL executives, I’m not surprised that you mistake my mentioning the means of the Pearl family for an argument that they shouldn’t receive insurance payouts. Neither set of facts is relevant to whether GL “should” have to continue to pay out on all policies it started in the past.

    The Pearls are not indigent, and that IS relevant to how the public would see their elgibility for PUBLIC assistance. I may not have made it clear that that was the relevance of the point. It also matters to their ability to take other measures to care for their son as the insurance runs out. They have options a paycheck-to-paycheck wage household would not.

    It’s very, very easy to be sanctimonious about what other people are doing with their money, which is why I won’t presume to tell the Pearls how they should be handling this. I also, however, won’t join in the mob fury at insurance companies in which I am not invested, and whose management I have nothing to do with.

    It is a legitimate and difficult question what obligations we should levy on indemnity companies in situations like this. If we prevent them from ever terminating a policy they have contracted for, as GB seems to suggest for this situation, they will simply never offer such policies. That does the opposite of make coverage available for clients like Ian Pearl.

    I’m not convinced we can come up with a one-size-fits-all, universal solution for cases of this kind. That’s an open question, as far as I’m concerned. What’s not an open question is that all efforts to reduce the discretion of insurance companies over what they cover, whom they cover, and what they pay out will cause premiums to increase and coverage to be less available. Massachusetts and Maine have seen these consequences since they adopted their sets of mandatory-coverage laws in the last decade.

  11. If you won’t join the “mob fury” perhaps you’ll consider whether the Guardian Life management might be acting in the manner of cads and bounders.

  12. “JED’s main points seem to be overlooked in these comments. First, the cost of this care is probably being inflated because others who are not able to pay (or able to be made to pay) are being carried by GL in this case. Second, the government alternative, Medicare, is exactly what this family is seeking to avoid. Why would we take this extreme example as an argument in favor of government supervised medical care?”

    I for one stated that, in the main, I agreed with JED’s points.

    Care of which the cost is ‘artificially’ or due to inefficiencies, inflated is a problem but it is a separate one from the criticism I and some others made. Two wrongs don’t make a right.

    And I for one am strongly opposed to government run health care.

  13. I appreciate that the rationale (but perhaps not the purpose) of your comment was to argue that rationing of healthcare is inevitable in certain instances – irrespective of whether the entity paying the bills is the government or a private insurer. That is an honest concession which most conservative commentators have failed to face up to. Instead, they have resorted to scatological arguments and allegations of “death panels”. I need only say that if a government provider had done, either here or in Europe, what this insurer had done, there would have been gleeful finger-pointing and “told-you-sos” from the conservative fringe.

    However, now that we are all agreed that the right to healthcare provision is not unlimited (whether by reason of design or economic realities), what becomes crucial are the grounds and criteria for making these decisions (and who should make them).

    I should first say that it is unlikely that Ian Pearl is a unique case. It is far more likely that we are hearing about him because his family is rich, powerful, and probably has influence with the media, as such people do. Had Ian Pearl been a struggling middle-class employee or small businessman, he would probably have passed (literally) into the darkness without remark or notice beyond his immediate circle. Alternatively, his family would have been left bereaved – having first been financially ruined. We ration healthcare on the basis of wealth. Most of the victims of this fact of US life are not the feckless poor or illegal immigrants but the insured (or formerly insured) middleclasses. It is only in those rare instances where rationing hits the rich and influential that the realities of US medicine come under the searchlight.

    I’m not for “socialized” medicine (Nor would I make the Marxist-like argument that you have made about the wealth of the Pearl family). However, we seem to have a system that combines the worst allegations that have been thrown at alternative models of healthcare-provision. We have rationing and “death-panels” operated, not even by doctors on therapeutic grounds, but by insurance company bureaucrats and acturaries on the basis of maximizing profitability. We also have the most expensive healthcare in the world with distinctly mediocre health-outcomes. We die younger, more of our children die in infancy, and we enjoy fewer healthy years of life in the course of our shorter lifespans than citizens of comparable advanced democracies. We pay more for less.

    I do not concede that rotten value is a conservative or American “virtue”. This is a great country and world leader in many areas. Other nations have no problem copying or adopting the better ways we do many things. That’s called smart. I always thought “smart” and value for money were, “par excellence”, American aspirations. Not when it comes to healthcare, it seems. Other countries have manifestly done it better. But in the US a combination of lobbying by enormous insurance bureaucracies, ideological irredentivism, lack of community, and the “not invented here” syndrome, have constantly bedevilled attempts to get better valuefor our citizens.

    The reviled French (yup, the surrender-monkeys who actually fought in 1939 instead of looking the other way) have done it better. They don’t have socialized medicine (like the socialist British NHS). Their doctors are independent and mostly self-employed. Their hospitals and clinics are (like ours) a mixture of private-for-profit, charitable-private, and public. Their insurers are owned by policy-holders and their priority is not to generate bonuses for their execs and profits for their shareholders. Their priority is to bargain the best deal from the care-providers on behalf of their members. France has universal health-insurance required by law, but the policies are the property of the individual. All French citizens, rich and poor, deal with the care-providers as “consumers”, and all have access to private and public care-providers. Therapeutic decisions are, by law, a matter solely for the doctor and patient. It is not a matter to be determined by insurance company pen-pushers, as here. Needless to say, administrative overheads are much lower in French “mutuals” than in US insurers because, community-rating, inability to refuse cover, and the prerogative of their members interests (rather than avoiding “medical loses”) means that enormous administrative resources are not squandered on evading claims and devising confusing policies with complicated exemption clauses. Oh, and yes, the French don’t have waiting-lists.

    It isn’t clever, conservative, or “the American way” to reject what is proven to work better, and is better value, to boot. It’s just dumb.

    • Peterwise, regarding the French health care, I totally agree. There should be legislation preventing providers from overcharging. There needs to be a place provided for people such as the pearls where they can get reasonable care at reasonable prices. Perhaps this place would be only for such high cost cases. I don’t see anywhere other than the government where that can be done. I do believe though, that the Pearls shoud have been grandfathered in rather than dropped, perhaps until they could find other means of taking care of their son. What is the solution?

  14. GB — not to worry, I wasn’t under the impression that you favored government-run health care. I also want to make clear that I have no problem with insurance being regulated: it already is, and for reasonably good reasons. But regulating insurance isn’t a fix-all, any more than buying insurance is.

    peterwise — do enjoy arguing with your strawmen. You haven’t addressed the main point in my post, which is that no government measure can routinely and adequately address a problem like Ian Pearl’s. France’s doesn’t. You won’t find a French Ian Pearl getting $1 million worth of care per year there. He’ll be getting the level of care offered by Medicaid in the US.

    • With respect, you are not quite correct. A French person in the position of Ian Pearl would receive similar or better medical care. What I am not sure about is whether he would have a right to the same level of care provided in his own home. It is more likely that a French person requiring such a high level of support would be in a specialized hospital or clinic of the patient’s choice. (The writer of the autobiographical novel (and film), “The Bell Jar and the Butterfly” was in such a facility).

      One major difference between France and here is the actual cost of high-tech medicine (French medicine is technologically on a par with the best here). Typically, unit costs in France for MRIs and other procedures and diagnostics, as well as specialized care and drugs, are a fraction of what they are here. Ian Pearl’s care would cost a fraction of what it is currently costing if he were in France. The much cheaper cost of such care means that the costs of treating persons with catastrophic illness are not catastrophic to the insurance system (or taxpayer) as well. Incidentally, I am unaware of any French doctors or pharmacists who have starved to death recently.

      I should add that the French healthcare system isn’t perfect. No human construct is. But it is better than ours in terms of outcomes and value for consumer and taxpayer. (Just because it’s French doesn’t mean its “socialist” or inferior. They also got it right when they went ahead with a third generation of nuclear power stations when everyone else was moaning and hand-wringing about nukes – 80% of their electricity now comes from carbon-free nuclear energy)

      To be fair to the good ol’ US, the French have a less lawyer-friendly society. This helps to keep costs down too – but not to anything like the degree some commentators here seem to believe. This is one area where “socialist” reform might really work. We should introduce a system of no-fault compensation for victims of medical accidents with compensation assessed by an independent assessment board. The system would be financed by a small percentage levy on insurance premia. (New Zealand has done this with great success). We could save serious money by cutting out most of the legal and administrative costs. However, with the threat of malpractice suites removed as a disincentive to medical cock-ups it would have to be accompanied by the introduction of better structures for dealing with rogue doctors and to ensure that rigorous standards of care are observed by providers.

  15. When a private enterprise decides to offer an insurance product for sale it does a risk calculation with certain assumptions in mind and those assumptions become their conditions for buying that product. As a private enterprise, their objective is to make a profit. If those conditions change or changes are forced on them from outside entities, the government in this case, their risk calculation is changed, and hence the amount of their profit might change. The change may be enough for them to decide that product no longer produces enough profit to make it worthwhile to offer the product for sale anymore.

    This is a contract between 2 private parties, each provides something in return for something else for a set period of time. We could argue ad nauseum about whether one side or the other upholds their side, but it’s irrelevant to the contract itself.

    If a public entity, the government, offers a product, they also do a risk calculation, but it’s much less transparent or straight-forward. Their continuum is somewhere between raising all money needed through taxes and fees, or changing the conditions (changing who is covered or for what). Each move on their part one way or the other risks getting them booted from office. Their risk calculation is a lot mushier and changeable depending on their constituency and everything else that drives political calculations.

    The point is that for a public entity, it’s not a contract. The public entity can change conditions or taxes/fees at virtually any time. Someone could argue that politicians get elected by making certain promises or taking positions on issues, but that argument would only hold water with me if the person making the argument can point me to a case were a politician was sued successfully because he didn’t keep a promise.

    It’s also why all those arguing for government involvement in healthcare can claim that Ian Pearl would be better off. After all, they don’t have to sign a contract, and it’s only if their plan gets implemented would he be better off.

    But if the government does take over healthcare it will be a mish-mash of everyones so-called plan. And then if Ian Pearl were to die from neglect, it’s easy enough for everyone to say “well, if they had included MY idea, that wouldn’t happen.”

    No contract, no accountability.

    • Contracts are most certainly agreements between two parties. But not necessarily between two equal parties. Anyone who has been refused insurance, or offered only limited insurance because of an existing condition, or who has had their insurance rescinded is painfully aware of this.

      Your assumption that private enterprise is more “transparent” than public enterprise is (with the greatest respect) a nonsense. Healthcare-consumers have little access to the decision-making process in private companies, or to information that determines decisions made by these companies which may have profound consequences for them. Public bodies, subject to publc law and freedom of information provisions are much more transparent.

      US healthcare is the most expensive in the world, and as a result, health provision here is going to be expensive irrespective of what model is used. Our host has grasped this. However, leaving aside the moral issues of whether or not a civilized society should exclude a large portion of its people from decent secure health-provision, we should be asking why our insurers spend so much of their resources (compared to European insurers), not on delivering healthcare, but on administrative overheads. One of the reasons is that their core ethic is not providing healthcare, but limiting the “medical losses” which erode profits. They maintain vast expensivebureaucracies dedicated to devising means of preventing their policy-holders from successfully claiming on their policies.

      The fault-based compensation system is also a vast edifice of lawyers (this writer admits to being a member of this class of pariah) and courts which consumes public and private financial resources which exceed the sum of the compensation it delivers to the negligently injured. It seems not to care either that the un-negligently injured suffer just as much. Medical negligence litigation is also an extremely inefficient way of investigating medical malpractice. We would save billions by introducing a no-fault compensation system for victims of medical accidents and giving the investigation of medical negligence and malpractice to a specialist tribunal with disciplinary and regulatory powers.
      Finally, we actually have universal health-care. However, for a portion of our population (the uninsured) healthcare is haphazard, often availed of only too late and in extremis, and delivered in the most expensive and inefficient way possible (by way of ER in our public hospitals). Most of the uninsured are not feckless indigents but the working poor and self-employed. Increasingly they are middleclass too. We are the only advanced nation on Earth where people are regularly financially ruined by medical costs. No one has yet calculated the financial cost to our economy (even ignoring the human suffering) of the resulting morbidity. It is probably gigantic.

      Fred Hayak, the great conservative economist and patron saint of Thatcherism, conceded that healthcare was one of the few areas of economic life where the unregulated market did not work well. I agree.

  16. Regulating insurance is a two-edged sword. On the one hand, it makes sure that the provisions of policies are understandable by cusomters and intuitively fair, and it can guard against various kinds of chicanery. Of course, insurance companies themselves in a competitive situation have an interest in doing the same things.

    On the other hand, a lot of the regulation of insurance that we’ve seen has been at the service of a few customers over the majority of customers. That is, a lot of it has required payouts for kinds of treatment that many people don’t want, such as acupuncture, and also coverage for routine medical services, such as check-ups. This kind of regulation drives up the cost of routine services so that more esoteric ones can be covered. And of course, by removing the routine services from payment directly by the consumer, it prevents much downward pressure on costs from the consumer.

    A lot of the expense of medical insurance and medical services is caused as unintentional consequences of regulations.

  17. Margo — absolutely. All regulation imposes a monetary cost. In some cases the cost is not all that much; and it’s almost always obscured in the price mechanism, which simply subsumes it by operating around a higher settling point.

    But all regulation makes things cost more. There is an argument to be made, regarding whole categories of regulation, that they could be dispensed with and the problems they are intended to correct addressed with existing laws against fraud. Unfortunately, one big effect of regulation is that a lot of people become dependent on it for their livelihoods. Eliminating it eliminates government jobs, and can put regulatory compliance companies out of business.

  18. Same level of care but not in one’s own home is actually a different level of care.

    • In fact, because of the higher level of medical expertise and equipment to hand in the hospital/clinic setting, the level of care is probably surperior. For the same reasons, doctors usually prefer women to give birth in dedicated obstetric units.

      However, this is an unresolvable argument. I suspect that French residents and Americans with sufficient insurance (until his or her insurance is rescinded) would receive similar care at home or in hospital depending on which was more therapeutically appropriate to the individual circumstances of the patient.

  19. Greg Inman — welcome. Good to see you around here. Your posts will come up automatically from now on. You make a very good point that with a government-run system, we are not contractually guaranteed anything. There is nothing the government can be “held to,” since it can change the terms of the transaction at any time.

    Margo — exactly. Care in a facility is NOT the “same level of care” as home care. Besides the significant “quality of life” difference for the patient and his family, facility care means that he would be attended by nurses whose attention was at all times divided among him and other patients. When his parents feared that Medicaid would be a “death sentence,” that appeared to be what they were talking about. Ian Pearl requires continuous monitoring on his machines to ensure that he is not having system failure. Divided attention from the skilled caregiver would not meet that need: that’s what I understood from the Pearls’ concern.

    Even in the quality-of-life realm, the difference in care is game-changing. Without the private home care — whatever the price tag in local currency, and however determined by technology and economic and regulatory factors — without it, Ian Pearl would have lived in a care facility virtually his entire life. (The Pearls would tell us he wouldn’t even be alive now, but would have died earlier from lack of dedicated, continuous monitoring.)

    MS is diagnosed very young, and he has been literally kept alive by very expensive care for decades. The difference in the quality of his life and his parents’, if he had had to live through that whole period in a care facility, matters in multiple ways.

    This recitation is not an “indictment” of national health care, which naturally will not provide the level of care to which Ian Pearl has been accustomed.

    Quite obviously, market-based insurance can’t do it either — at least not under the existing, heavily regulated conditions of US health care — because the insurer would have to charge ALL its customers uncompetitively high premiums in order to pay for this level of care.

    I can imagine that a level of home care that would satisfy the Pearls could be achieved for no more than a third of what Ian’s care costs, if the pressures of mandated cost-shifting and limitless malpractice litigation were lifted in the US health system. I don’t know that Guardian Life would have continued the line of coverage that paid for it, even if it were substantially cheaper. But the smaller amount would certainly be easier for the Pearls to find a way to get to, through their own means and private charitable assistance. Voucher assistance from a state high-risk pool could also kick in some portion of what was needed.

    What is clear, however, is that Ian Pearl’s problem is not an argument for government health care, because government health care would not give him the level of care he has been receiving. Favor government health care as you will, but don’t use Ian Pearl as an argument for it.

    • You are quite correct in saying that government provision might not provide the level of care Mr. Pearl was receiving before his cover was rescinded. However, the insurance company rescinded his cover by rescinding cover for entire classes of cover. Presumably, many (perhaps most) of the victims of this recission were people receiving palliative and maintenance care at a much lower level – comparative to what they might receive under medicare or Medicaid, and on the balance of probabilities, most were not as wealthy as the Pearls. Many will now be faced with the unappetising choices of financial ruin – or worse, unless the bad ol’ government steps in. In that sense, by highlighting the way our healthcare “system” works in certain situations, the Pearl’s predicament does posit the case for reform.

      The House bill, as I understand it, would stop this risk-dumping (onto the taxpayer in many cases).

  20. I don’t see how the House bill stops risk-dumping. On the contrary, it dumpts the risk more widely, requiring everyone to buy into the risk pool so that those with pre-existing conditions can be insured without facing financial ruin. It also polices people like the Pearls, to keep them from buying the high level of medical care they want for their son. The Baucus bill would turn the policing onto doctors, fining them if they offer patients a level of care beyond that at a certain level averaged over their life expectancy.

    Under both these bills, the Pearls would find their options for their son severely limited, even if they were to pay directly for medical services.

    • All insurance is a risk-pooling operation – whether public or private, universal or partial. The greater the pool, the better the economics.

      There is nothing whatsoever in the Baucus proposals to stop the Pearl’s from buying extra cover on the market.
      France, has compulsory insurance which covers treatment in public and private hospitals, and covers all normal healthcare requirements – (including some of the best palliative and intensive care maintenance on the planet). However, in France, the health-consumer, unless indigent, must pick up the tab for a small part of the cost of most out-of-hospital medical treatments to remind consumers not to be wasteful and that healthcare costs real money. However, most French residents buy extra insurance to cover this unpaid balance. They also buy cover from private “mutual” health insurers to pay for alternative therapies and luxury private clinics not covered by the basic plan.
      The French pay 11% of their national wealth on healthcare. We pay 16% of ours for worse health outcomes, unnecessary wealth-destroying morbidity, and chronic insecurity for many.

      Incidentally, in France most treatment is paid for by health-consumers by way of “smart-cards”, and the system is highly computerized. This has largely eliminated the mind-numbing and resource-devouring paperchase which bedevils healthcare administration in the US. Administrative overheads, at insurer level, and in the doctor’s surgery, are a fraction in France of what they are in the US.

      (I should at this point reveal that I am a retired lawyer from NY State who is now living in Brittany, France, running a leisure-marine business)

  21. So, Peter, if you don’t mind my asking, what dog do you have in this hunt?

    • None presently. When and if I return to the US someday (if I live so long) I will probably have medicare – socialized medicine at the taxpayers expense.
      I am presently covered (I have to be, its a requirement for all French residents, citizens or not) by a combination of the compulsory universal healthcare insurance paid for by contributions from my salary plus additional cover from a big private health-“mutuel”. The lot costs me about €3,000 per annum. It allows me deal with the (mostly private and self-employed) healthcare-providers as a private individual consumer of their services. I pay for my (thankfully rare) visits to the doctor and hospital (I recently had my annual check-up cystoscopy) by smart card which automatically registers with my insurers, who then credit the service-providers at the negotiated rate for that service.


  22. The smart card is a very good idea.

    But in a way, you are not dealing directly with your doctors. They are providing medical care according to a nation-wide set of guidelines for reimbursable treatments. Treatments not within the guidelines, even if they are used successfully elsewhere, will not be mentioned to you. And your doctor will not adapt a new treatment to your case no matter how difficult it may be. So it’s not a good system in which to have an unusual or very serious condition, and it’s not a system that generates strong medical innovation.

  23. I note that there are US providers that use smart cards as well. I don’t know if the practice has spread beyond HMOs, but in at least some parts of the country, HMOs like Kaiser-Permanente use smart cards. Administrative efficiency is hardly unique to France.

    I note also that although my insurance doesn’t offer a smart card, the process of making my co-pay for an office visit or diagnostic procedure is certainly not onerous. The physician’s or dentist’s office does all the legwork (well, phone-work) of determining what will be compensated, and how much the co-pay will be, if any.

    I believe the percentage of those surveyed who like their current health insurance and want to keep it is 86. If you asked the average American what, exactly, is the urgency of health care reform, the thing he would NOT say is that his own access to it functions poorly.

    He would also, as Margo implies, NOT say that his access to new and more effective treatments and procedures is excessive, and that he’d rather “save society’s resources” by limiting the access of everyone to such improvements.

  24. I had written on this very issue, and to me, two relevant points come up:

    1. ERISA allows insurance companies to skip out on their contracts on the flimsiest of excuses. Contract law in most States in other fields wouldn’t allow a company to bail on a contract like this. Only ERISA allows that sort of loophole specifically for insurance companies.

    2. This issue is used a club to bludgeon opponents of either the current health reform proposals or a single payer system. However Medicaid, where Ian would be relegated to, would not pay for home health care. According to Ian’s parents, Medicaid is a “death sentence.” Some public “option.”

  25. Welcome, lil mike! My apologies for the delay on your post. Had to be away from the computer.

    But all your posts will come up automatically from now on.

    You have a useful point about ERISA. Another telling point is that Medicare has a substantially higher percentage of claims denials than private insurance companies. With the Medicare cuts envisioned by all of the Democratic health care bills, that record would get worse.

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