Category Archives: legislation

Michigan Auto Insurance Reform (maybe)

The Michigan legislature is making another run at reforming the state’s beleaguered no-fault auto insurance law.  Despite the major selling point of no-fault (i.e., lower costs by eliminating most litigation that may arise from auto accidents), Michigan drivers pay the highest auto insurance premiums in the nation.  Why?  Two reasons…

Michigan is the only state in the country that mandates unlimited lifetime personal injury protection (PIP) benefits on every auto insurance policy.  Sounds great, until the bill comes due.  Speaking of those unlimited lifetime medical benefits, if you’ve ever visited a Michigan hospital emergency room with an injury you have likely been asked by the staff checking you in: “Are your injuries the result of an auto accident?”  Why does that matter? Because an affirmative answer means you/your auto insurer will be charged higher prices for the tests and treatment you receive.  The x-rays, MRIs, and whatever other services you receive will be billed at rates that may be 2-3 times more than they would be otherwise.  There are no fee schedule restrictions on what providers can charge auto accident victims.  Sweet deal for Michigan Hospital Association members – not so much for all of us who pay the premiums to cover these inflated charges.

The latest auto insurance reform proposal attempts to reduce the cost of Michigan auto insurance by giving drivers the option to choose a limit on their PIP benefits ($250,000 or $500,000 at last check) or keep the current unlimited benefit.  Naturally, the premium paid will reflect the choice made by each auto insurance consumer.  The reform proposal also places a limit on what providers may charge by capping the fees based on Medicare fee schedules.

Naturally, the hospitals and medical providers are apoplectic about reform that endangers their auto accident gravy train.   There are indignant howls that the reform will leave people with serious brain injuries out in the cold… how cruel, how heartless.  Enough.  Let’s be genuine about this… there will be resources for those seriously injured in auto accidents to receive the care that they require.  Health insurance benefits may kick in after the auto insurance PIP benefits are exhausted.  Medicare or Medicaid will apply in some cases.  Some argue that all this reform accomplishes is cost shifting.  Well, yes.  The cost of caring for seriously injured auto accident victims is going to be paid somewhere by someone.  As a society, Michigan must decide if it wants to continue the current system where the entire cost is borne by drivers and the cost is inflated by the inequitable fee structure of the medical community that is taking advantage of the current system, or have some of the cost be spread among the broader health insurance and social insurance system with some equity imposed upon the fee structure.

This is a political question which is why the lobbyists are out in full force.  That is also why previous reform attempts have died.  Will this one succeed or will Michigan drivers continue paying the highest premiums in the country to subsidize the medical providers with inflated fees? Your guess is as good as mine.

Crop Insurance Cutback


It has been a big week for political news.  We had the election of a new Speaker of the House in Rep. Paul Ryan.  We had a Republican presidential candidate debate that was allegedly tainted by media bias.  We had a two-year federal budget deal that presumably takes debt-ceiling crises and government shutdowns off the table until 2017.  But there’s something within the budget deal that has received relatively little attention.  Lurking in this budget deal is a $3 billion cutback (over ten years) in the federal subsidies for crop insurance.

Naturally, this cut (which reportedly came as a complete surprise) has midwestern legislators up in arms, characterizing the cut as “devastating” to the crop insurance industry.  I am the son of a farmer, and I fully understand the nature of the economic risk that farmers and ranchers face.  Droughts and storms have wreaked havoc on farmers in recent years.  The federal crop insurance subsidies support the availability and affordability of crop insurance.  When I do the math, a $3 billion cut over ten years is a reduction of $300 million per year, for a program costing north of $9 billion per year, which is roughly a 3% cut.  Devastating?  Really?

Opponents argue that farmers have already endured a $12 billion cut in the crop insurance program since 2008, and a further erosion of federal crop subsidies in last year’s farm bill.  There is also the argument that this could have a long-term negative effect on the viability of the U.S. agricultural economy and our affordable food supply.  Farmers in some parts of the U.S. have been challenged with extreme droughts and I’m sure that crop insurance cutbacks must feel like yet another whack to the head for them.

As sympathetic as I am to the agricultural business, my personal skepticism about government intervention in any market causes me to wonder if it isn’t a long overdue weaning of the industry off of government supports.  I remember my father declining to participate in subsidy programs in the 1970s and 1980s that could have paid him handsomely but he felt they were “government nonsense” that served no practical purpose other than subjecting him to a myriad of government rules and bureaucracy.  These latest crop insurance cuts hardly strike me as “devastating” although perhaps the cumulative effect with previous cuts may appear to be devastating.  Then again, government economic interventions tend to be highly distorting over time and so perhaps it is time to “devastate” this free market distortion and allow the free market to work as it should once again.

Agree or disagree?

ACA Legal Challenge, Part 3


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?


Affordable Care Act Survives (Again)


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.

Certificates of Insurance – Devices of Good or Evil?


There has been a quiet (or not so quiet, depending on your vantage point*) battle within the risk management and insurance field for decades.  In any business relationship of consequence, there is a prudent risk management interest in requiring and verifying that proper insurance is in place.  The purchaser of products or services has a valid risk management interest in verifying that the provider of said products/services has sufficient and proper insurance, and perhaps even add the purchaser as an additional insured on that insurance policy.

Here’s why: Suppose I am a retailer buying products from a manufacturer to sell in my store.  If those products were to injure a customer or customer’s property, I want to be assured that the manufacturer has adequate insurance to address such claims, and that it will also protect me as the reseller of the manufacturer’s product.  Likewise, if I hire a contractor to plow the snow out my retail store’s parking lot, I need to know that they are insured (and that the insurance will protect and defend me) if that snowplower accidently runs over a customer or damages a customer’s vehicle.

Enter the venerable certificate of liability insurance.  Good ol’ ACORD Form 25 (let’s just call it the COI).  Its job is to convey to an interested third-party (e.g., me and my retail store) that the firm I am doing business with has certain types and amounts of insurance.  Insurance agents and brokers have traditionally issued these documents as a favor to their insured customers for decades.  Agents and brokers don’t particularly like this non-revenue generating activity, but many realize that it is part of the customer service they provide.  Some even view it as a valuable touch point to strengthen the relationship with their customers.  But there is a darker side to the COI…

Sophisticated risk managers and corporate legal departments have become more and more aggressive about demanding that the COI contain certain phrases and text.  For example, they want it to state that “ABC Corporation, its directors, officers, employees, and agents are additional insureds” – and that is a brief example of some required additional insured language which can drag on to paragraph length in some contracts.  They also demand at least 30 days written notice of cancellation or material change of any of the insurance policies represented on the COI.  These are both very prudent risk management demands intended to protect the assets of the buying firm in the relationship.  There are more, but these two examples are common demands.

However, the COI is not a contract.  It’s just a snapshot in time that reflects certain attributes of insurance at that moment in time.  The limits on the certificate may be exhausted by other claims just a few days after the COI is issued.  The disclaimers on the COI make very clear that nothing on the COI itself can amend or alter the contract terms of the actual insurance policies represented on the COI.  And yet, there have been legal cases where information on the COI was relied upon by the third-party, and thus the insurers or their agents (through their E&O coverage) have been held to the information on the COI.

So now on to the latest front in this battle… several states (roughly half of the 50 states at this writing) have passed laws that make it illegal to issue a COI that does not accurately reflect the actual insurance policy terms, and in some states, make it illegal to request that a COI contain information that is counter to the actual policy.  So now, what was previously an obvious ethical breach is now an illegal act.  Progress?  Only for the legal profession.  The real objective of these laws is to give the agents/brokers and insurers a statute that they can point to when receiving demands for COIs from risk managers, and allow them to say, “See, what you’re asking me to do is break the law – and actually you’re breaking the law by even asking for all this garbage on the certificate in the first place.” I call BS on that.

Here’s the dirty little secret.  Except for a few unscrupulous characters, no professional risk manager wants an agent/broker to issue a COI that does not reflect the actual policy terms.  The implied (if not contractually stipulated) requirement behind a risk manager’s “unreasonable requests” for the COI (as one supporter of the Massachusetts COI law characterized them) is that the insurance policy will be amended or altered so that it meets the insurance requirements that the agent’s customer (e.g., the manufacturer or snowplower from my earlier example) agreed to in the contract for the business relationship.   Then the agent can legally (and ethically) issue a COI that stipulates to the additional insured language because the policy has indeed been endorsed to add the additional insured as requested.  Ditto for the cancellation requirements.  In the case of the cancellation notice requirements, the industry is loath to agree to this because it creates significant logistical and operational burdens that frankly, the industry is fearful that it cannot live up to.  So the industry lobbyists go to work and convince legislators that great atrocities are being committed by those pesky risk managers and their crazy COI demands.

Let’s take a deep breath.  The insurance industry is in the business of financing risk, and risk managers are in the business of managing risk.  The kerfuffle over COIs and new statutes intended to “curb their abuse” is misguided, in my humble opinion.  The problem lies further upstream.  The problem is that risk managers want as much protection as possible in any business relationship their firm happens to form.  But there is risk in any business activity and sometimes, in the interest of accomplishing the larger mission (i.e., having products on the shelf of the retail store or the parking lot clear of snow) compromise must be made and some risk accepted.  The problem is in the negotiations of these business relationships.  If the insurance industry absolutely cannot abide by strict requirements to provide cancellation or “material change” notifications, then the industry (i.e., the agents) must educate their customers not to agree to such things in their contracts with customers. Once the contract has been signed, the train has left the station.  The new statutes which purport to curb the abuse of COIs only serves to give the insurance industry an excuse for contributing to their customer’s breach of contract.  In short, risk managers need to lighten up and curb their demands, and the insurance industry needs to stop running to the legislature to create laws that protect themselves from their own operational weaknesses.

And so the battle rages on…

[* Full disclosure: The author formerly owned a service company that provided business process outsourcing related to certificates of insurance.  So the battle has been far from quiet in my ears.]