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.