The Iron Triangle

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The health insurance industry has a new high-profile employee.  Marilyn Tavenner was the chief bureaucrat running Medicare, Medicaid, and the Obamacare exchanges.  Now she’s the CEO of the health insurance trade group America’s Health Insurance Plans.  No doubt, her deep connections to the Washington political class and the federal government’s new and deep role in our country’s health care system makes her an appealing hire.  It’s also a stark example of the “iron triangle” that is common in the top echelons of American political power.

Color me skeptical that this is a good thing for America’s individual health insurance providers, let alone consumers.

ACA Legal Challenge, Part 3

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Just two weeks ago I wrote about the Supreme Court’s ruling that upheld nationwide federal subsidies and preserved the Affordable Care Act.  In my closing paragraph I said that the legal challenges now seem to be exhausted and its time that we accept the ACA and move on.  Personally, I am not a fan of the massive health care reform law but as a businessman and insurance professional I’m growing weary of the uncertainty surrounding the law.  Well, as it turns out, I was wrong about King v. Burwell being the final judicial word on the ACA.

There looms another potential judicial dagger aimed at the heart of the ACA in the lesser-publicized case of Sissel v. HHS.  The case lost at the D.C. Circuit when the three-judge panel applied logic that resembled a mental version of the game “Twister.” The plaintiffs are now seeking an en banc review of the case at the D.C. Circuit, and the next stop could be the Supreme Court.  [sigh] Here we go again.  What is an insurance professional attempting to help their clients with health insurance and benefit plans to do?

At its core, Sissel’s argument is that the ACA violates the Origination Clause of the Constitution which requires that all taxation bills must originate in the House of Representatives.  In the murky legislative mechanics that gave us the ACA, the bill originated in the Senate.  When the original 2012 Supreme Court (SCOTUS) ruling came down, it upheld the individual mandate because SCOTUS ruled that the monetary penalty for not purchasing health insurance was actually a tax.  Chief Justice John Roberts took a lot of heat for that tortured legal conclusion, just as he did for last month’s interpretation of the law’s language regarding subsidies.  The two milestone SCOTUS rulings on the ACA have seemed to give incredible deference to the ACA and its intentions, more than its language.

If Sissel v. HHS makes it to the SCOTUS in the near future, things will get very interesting.  The biggest problem for SCOTUS is that its 2012 ruling that proclaimed the ACA’s penalities to be taxes now gives Sissel an opening to challenge the entire law as a violation of the Constitution’s Origination Clause.  On its face, I wonder how Chief Justice Roberts will reconcile what appears to be a slam dunk argument.  How can SCOTUS possibly rule that the law includes taxes as the justification for upholding the individual mandate, and then not rule the entire law to be unconstitutional on the grounds that it violated the Origination Clause?

What happens next will be very interesting.  SCOTUS could refuse to take up the case and let the D.C. Circuit’s ruling against Sissel stand.  The problem with that is that the D.C. Circuit’s ruling essentially obliterates the Origination Clause, and SCOTUS may not be able to stomach that precedent.  If SCOTUS does take up the case, all bets are off.  Personally, I thought the plain language at the core of the issue in King v. Burwell was a slam dunk and I was wrong.  I am actually somewhat intrigued by the notion of a trifecta ruling in favor of the ACA and especially the judicial acrobatics that would most certainly come out of such a ruling on Sissel v. HHS.

I can anticipate a few such legal gyrations… SCOTUS might rule that the ACA bill did actually originate in the House because there was some monkey-business with “empty shell” bills from the House that were filled with the ACA language by the Senate.  That’s a political game that the nation’s Founders certainly did not intend but SCOTUS seems to be willing to give more weight to certain intentions than others these days (see King v. Burwell).  Another way out could be to somehow massage the D.C. Circuit’s logic that declared the ACA’s taxes were not intended to raise revenue but to expand health insurance.  So the ACA included a tax in order to uphold the individual mandate but it’s not a tax in the sense that it is not a revenue-raising bill that must originate in the House.  Huh?  What is a tax if not a means for government to raise revenue?  Good luck John Roberts.

One thing is certain… I do not envy my insurance industry colleagues who specialize in the health insurance market these days.  Does the ACA cover whiplash?

 

Happy Independence Day

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The July 4th weekend typically marks summer’s midpoint as we gather on the beaches and campgrounds of our land to enjoy the great outdoors and celebrate our country’s independence.  The celebration is punctuated by the liberal use of pyrotechnics and fireworks, which pose some inherent danger.  Adding to the minor danger of exploding firecrackers and multi-colored rockets is the news that terrorist chatter has been on the uptick in recent days.

The celebratory use of fireworks and the possibility of terrorist attacks intruding on our nation’s holiday represent opposite ends of the risk spectrum but both require prudent risk management all the same.  Let’s all practice good personal risk management as we celebrate this weekend.  Be careful as you celebrate, and be vigilant for those who would attempt to harm us.  Let’s all be risk managers as we celebrate our freedom and independent this weekend.

Be safe out there.  Happy Independence Day.

Affordable Care Act Survives (Again)

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The U.S. Supreme Court has spoken on the highly anticipated King v. Burwell case.  Subsidies are legal in all 50 states, rather than only in the states with their own insurance exchanges.  The political debate continues and the Justices will receive criticism/praise (depending on one’s personal viewpoint) for having upheld the universal subsidies implementation of the ACA law.  This ruling seems to contradict the plain language of the law and the evidence that the language was intentionally written as it was to coerce the states into setting up exchanges.

Ironically, the Supreme Court found in 2012 that the federal government could not coerce the States into expanding their Medicaid programs under the ACA.  I can’t help but wonder if that specific ruling played into the Court’s ruling on King v. Burwell.  Stay with me… If the court had found that the plain meaning of the ACA language and the evidence (as provided by Gruber) suggested that subsidies were limited only to States setting up their own exchanges, then the Court would have to say that the federal government was once again attempting to coerce the States.  And since it already ruled once that the federal government could not coerce the States on Medicaid expansion, would it not then have to say that the subsidy/exchange coercion is also illegal and thereby throw out the subsidies entirely… in all 50 states regardless of exchanges?

If you follow and buy into my logic, then the Supreme Court Justices (most notably Chief Justice Roberts and swing vote Kennedy) were choosing between upholding the imperfect law as is, or a significant rebuke of the ACA’s subsidy system that would have left them with a glaring inconsistency with their 2012 ruling on Medicaid expansion, or a complete destruction of the ACA law by revoking all subsidies.  Given those choices, I’m not surprised that Roberts and Kennedy chose the first option.  The SCOTUS is not supposed to be political or partisan, but they are human.  I don’t believe that Roberts and Kennedy were comfortable with any of the choices other than upholding the subsidies, despite the statutory language and clear intent of the law’s architects.

Another effect of this ruling could be a further centralization of the U.S. health care system at the federal government level – an outcome that is likely fine with the Obama administration’s single-payer acolytes.  The New York Times suggested that the ruling removes a primary reason for States to establish and operate health care insurance exchanges, so many States may just let the Feds takeover the entire process.  Another bit of irony since that reasoning further supports the notion that the law’s intention was indeed to condition subsidies on State-run exchanges.

The political battle over the ACA will continue for years to come.  For now though, the significant legal challenges that might upend the law seem to be exhausted.  From an insurance perspective, it seems to me that it’s time we all accept the ACA as settled law, for good or for bad, and figure out how to best live with it.  And if you happen to believe that the law includes provisions supporting “death panels” then this may be easier said than done.

Wanted: Cyber Insurance

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Staying with the theme of last week’s post – which was an exercise in exasperation over the ongoing stream of high-profile data breaches – I decided to examine the insurance industry’s readiness/appetite to respond to this risk.  My conclusion?  The demand for cyber insurance is clearly surpassing the available capacity for such coverage.  That conclusion certainly isn’t a surprise to anyone, and the reasons given for limited cyber insurance capacity are logical.  Nevertheless, your humble blogger senses that there is reason to be concerned that the nascent cyber insurance market may not develop as risk managers hope and expect.

Insurance Journal reports that there are just a few insurers cautiously wading into the cyber insurance market at this time, and that their offerings are limited by policy exclusions and low limits of insurance.  Insurance buyers are seeking far more coverage than the insurance industry is ready and able to supply at this time, reportedly because the actuarial data is insufficient to properly model cyber risk and to price the risk appropriately.  More time and data is needed, experts say.  Red flag alert.

Underwriting more conventional risks such as property losses caused by fires and storms, or liabilities for slips/falls, will clearly benefit from mounds of historical data.   Fires, storms, and slip/fall hazards present relatively stable risks.  One can argue the nuances, such as improvement of flooring technology to reduce slips/falls, and better fire protection systems, but the inherent nature of fire, slips/falls, etc. are fairly constant.  Personally, I am not convinced that the cyber actuaries and underwriters are going to find anything close to a stable risk model for the cyber risk insurance products they are working on.

If we have learned nothing else over the past 20 years, we have learned that “internet time” passes by very quickly.  Just as we become comfortable and proficient with the latest technology, obsolescence sets in.  In my past life as a software developer, I spent a fair amount of time with my fingers in source code and I know just how quickly those coding skills atrophy simply because of the swift passage of time that brings about new software tools, methods, and insights.  The basis of many cyber risks is in the billions of lines of source code throughout our systems.  It stands to reason that just as the insurance industry grows comfortable with the cyber risk threat from an actuarial and modeling perspective, the target will have moved as the software and systems rapidly evolve – frequently with insufficient time to harden and protect the code from the creative attacks of hackers.

There should also be some concern over the extent to which cyber risk is or is not an insurable risk according to the textbook definition.  The insurance industry functions best when the law of large numbers can work across a multitude of similar exposure units, and when losses are independent and not catastrophic.  Geographic concentration of a book of business without adequate reinsurance in hurricane-prone locations has killed some insurance carriers in the past.  What might a particularly nefarious and unanticipated piece of viral source code do to the Fortune 500 and their cyber insurers if it proliferates through a common and previously unknown code vulnerability in common platforms such as Oracle databases or Cisco routers?

Cyber insurance is in great demand, and the headlines provide witness to why this is so.  The unanswered question remains, to what extent can and will the insurance industry have the capacity to meet this demand or will alternative risk management techniques be forced to fill the gap?  The cyber insurance market may well be even more challenging than the terrorism risk insurance market.

We live in interesting times.

Another Day, Another Data Breach

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It’s no wonder that the cyber risk sessions at April’s Risk and Insurance Management Society Annual Conference were standing room only.  We’ve just learned that as many as four million people’s information has been breached on government computers.  This comes on the heels of an IRS admission that 100,000 taxpayers may have had data from past tax returns stolen.  These instances prove that even our government is far from immune to the dangers and failures that have plagued the likes of private sector giants, Target, Home Depot, and Anthem Health.

I don’t have a particular statistic to cite, but my fear is that we are seeing only the tip of the “data insecurity” iceberg.  How many small breaches of far less secure databases are occurring for each one of these high-profile, high-stakes breaches?  Even if there are not a multitude of smaller breaches occurring, the aforementioned highly visible breaches cast a pretty wide net.  I have no indication that I or my family have been caught up in the federal government’s latest data breaches, but between my wife and I, we are receiving complimentary identity protection services as a result of links to all three of the aforementioned private sector hacks: Target, Home Depot, and Anthem.

Perhaps the larger question should be (spoken with utter exasperation), “What in blazes is going on?!”

The explosion of the internet in 1990s ushered in an era of exponential connectivity and information sharing, which is generally a good thing.  Unfortunately, it seems apparent that the rapid expansion of connectivity has outpaced our ability to protect the valuable data that naturally results from all of this connectivity.  In our rush to automate and connect everything (and to benefit from the incredible productivity and wealth growth that results) have we put the proverbial cart before the horse?  Or is it just a fact of our new digital life that our vast connectivity of devices and databases means that data is going to be at risk to some extent no matter what we do?

No matter how these questions are answered, risk management and insurance are both going to play integral roles in the cyber risk world.  It looks to me like we’re in the midst of a “Wild West” sort of era – and my concern is that there is likely to be a shoot-first-ask-questions-later approach to our data systems and our risk management processes.  That tends to produce considerable collateral damage.

Experiencing the Risk and Insurance Industry

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Just one month ago I was in New Orleans attending the 2015 Risk and Insurance Management Society Annual Conference with Ferris State student Corey Bledsoe.  The conference featured engaging keynotes speakers such as Erik Wahl (pictured here) and Arianna Huffington, and numerous educational sessions and networking opportunities.  I asked Corey to share his thoughts about the RIMS experience from his perspective as a student:

Being able to attend and participate in the RIMS conference was an excellent opportunity for me as a student to experience the insurance industry on a much grander scale than what I get to experience in Big Rapids, MI.  Having companies from all over the country and even the world in one location is an experience I won’t soon forget.

I was able to tour the Superdome on my first day in New Orleans and it was cool getting to see how risk management played a part in helping the Superdome recover after hurricane Katrina.  I was able to hang out with other insurance students from around the country and see how their programs compared with ours here.  I knew many of the students there through the professional fraternity I am in, Gamma Iota Sigma. 

While at the conference I got to see inspirational keynote speakers like Erik Wahl, world-renowned speed painter and Simon Bailey.  After the speakers the exhibit hall would open up and thousands would flock to hundreds of exhibitors showcasing their products there.  As a student it was extremely overwhelming because I had no idea where to start.  Many exhibitors were aimed away from my demographic but it was still nice to see so many people involved in our industry.  The major thing that I took away from this conference is that the industry will be seeing a large part of its professionals retiring in the next few years.  This means that young people like myself will have ample room for growth and experience.

The most fulfilling thing for me was definitely the sessions that the conference offered.  I was lucky enough to be able to volunteer by introducing the CEO panel who were discussing claims and also discussing underwriting.  It was a great opportunity to hear more about what it’s like running a large multinational corporation and all of the things that go into making a company successful.  As an Anita Benedetti Scholar I was welcome to many of the events hosted by companies and even to FM Global’s yearly party that featured a performance by the band Foreigner.  I highly suggest that anyone interested in attending the RIMS conference apply next year for the scholarship as it will be in San Diego.  This conference is a great experience to learn more about the industry and connect with industry professionals from all over.  Having connections is a huge part of this industry and RIMS is an excellent place to do just that.

Corey’s experience attending the RIMS conference exemplifies the experiential learning opportunities that Ferris State strives to offer its students across many of its academic programs.  It is certainly one of my top goals for the risk management and insurance program.  Let’s face it, the risk and insurance industry doesn’t have much of a reputation as an exciting and dynamic career although those of us in the industry know otherwise.  We need to do more than tell our young students about the opportunities – we need to show them through experiential learning.  See you in San Diego in 2016!