Supreme court and health insurance

It was interesting watching and reading about the Supreme Court arguments on the constitutionality of the health-care law.

This is an interesting moment for constitutional law. Are there limits to the commerce clause? What is the balance of Federal vs. State power? But this is an awful conversation for thinking about reasonable health-insurance and health-care regulation.

The central constitutional weakness of the law is the "individual mandate." We're all supposed to buy insurance, and if we don't we pay a penalty. So everyone is hot and bothered discussing the mandate. But the mandate is far from the central economic problem with the law. So, as a country, we're like a squabbling couple, fighting over who should do the dishes, when the real problem is "why did you buy that stupid boat?" 

Thinking of modifications to the law that make it constitutional are a pretty bad guide to modifications that make it better (less disastrous) economic policy.

For example, the consensus seems to be that a complete government takeover would be constitutional. After all, medicare is, so far, constitutional; so "medicare for all" would likely survive in the Supreme court.  The states have the "police power" to impose mandates. And if the Administration had just had the courage to call it a "tax," the constitutional fight would be over.  I don't think opponents have any of these outcomes in mind. Be careful what you wish for, you just might get it!

I noticed a gaping hole in the arguments: If not this, then what? The law wants "necessary and proper." The opponents seemed pretty strong on the (im) "proper" part, but not so good on the (un) "necessary" part. The Republicans say "repeal and replace" but not very clearly with what. The Administration's argument that health care and insurance markets are pretty dysfunctional went unanswered.  This exchange (from the transcript at NPR) sums it up: 

GENERAL VERRILLI: ...what matters here is whether Congress is choosing a tool that's reasonably adapted to the problem that Congress is confronting. ....
JUSTICE SCALIA: Wait. That's — that's -­it's both "Necessary and Proper." What you just said addresses what's necessary.... But in addition to being necessary, it has to be proper. And we've held in two cases that something that was reasonably adapted was not proper because it violated the sovereignty of the States, which was implicit in the constitutional structure.

In other places the justices seemed pretty nervous about just throwing out the law and leaving the country in a mess. Though in principle im-"proper" should be enough, it would have been more convincing with a clear statement that reasonable alternatives to the whole mess exist.

As blog readers will have guessed, I think the central problem is pathology of previous legislation and regulation, and the answer is  competition and deregulation. (Links below) I was interested that Solicitor General Verilli also pretty clearly blamed the dysfunction of the health care market on...previous legislation and regulation! From his opening statements:

.. for more than 40 million Americans who do not have access to health insurance either through their employer or through government programs such as Medicare or Medicaid, the system does not work. Those individuals must resort to the individual market, and that market does not provide affordable health insurance.

It does not do so ..because the multibillion dollar subsidies that are available for the.. employer market are not available in the individual market... That is an economic problem. 

No, that's a regulatory problem!  But if "multibillion dollar subsidies" for the employer-based group market are what killed the individual market, maybe, just maybe, the answer is to get rid of those subsidies?

Economists left, right and center have bemoaned the effects of the tax deduction for employer-provided group insurance. If your employer or you contribute to an individual plan, which you can take with you from job to job, and has guarantees that you won't be dropped if you get sick, it's not tax deductible.

Why is individual health insurance "unaffordable?" Because both Federal and State regulators have salted it up with mandated coverage that people wouldn't buy on their own. Young, healthy, uninsured need simple catastrophic coverage, or even just a contract that allows them to buy insurance later if they need it. They can't buy it because it's regulated out of existence.

Those same people could pay cash for their non-catastrophic expenses.  In a functioning market, like car repair, or vet services for your dog, you can pay cash and receive services. Lack of insurance is only a problem for a small sliver of people who don't have enough money for an unexpectedly large  needed service. But it's essentially impossible to just pay for health care. As Solicitor General Virilli pointed out

The Affordable Care Act addresses a fundamental and enduring problem in our health care system and our economy.  Insurance has become the predominant means of paying for health care in this country.

But whose fault is that? Isn't the answer to deregulate the cash market so it functions again, and remove payments for regular predictable expenses -- and the huge moral hazard that such payment engenders -- from legally mandated "insurance?"

I noticed two other curiosities in the economic part of the Supreme Court discussion.

First, nobody mentioned the fact the mandate is unworkable. The penalty for not buying health insurance is much less than the cost of buying insurance. Moreover, consider the stereotype uninsured person: making say $50,000 a year when employed, but perhaps unemployed right now, with health problems that make getting insurance or employment hard, maybe facing financial pressures. This might be the typical person that the Administration is trying to shower with mortgage forgiveness. We're really going to make a person like that pay a substantial fine for not having health insurance? Right.  

Second, the central argument for the mandate in the Supreme Court is the cost of emergency room care for uninsured people. This argument is correct as a matter of economics, but it is trivial in magnitude. Yes, if you are a charitable society that won't let people die in the gutter, then there is moral hazard that people will take advantage of charity and not protect themselves.

But emergency room and charity care for the uninsured is a trivial part of our bloated health-care expenses. The real expense problem is over-use (moral hazard) by people who have insurance, and by their doctors. (Honest doctors have a strong incentive to practice defensive medicine, for fear of being sued; and a few less-honest doctors have an incentive to pad the bill. After all, insurance is paying.) This  is what's driving the cost of insurance so high that people choose not to buy it, and the reason they have to be forced to do so. We could easily pay for charity care for the small number of indigent uninsured in an otherwise functioning market. 

The uninsured and preexsiting conditions are a real economic problem. The health law's answer is to force insurers to sell everyone insurance at the same price, and to force "insurance" to cover every imaginable expense. If you do that, the price is very high, so you have to force healthy people to join. Given "guaranteed issue" the mandate is needed. Yes, that makes the elements inseparable, so if the court strikes down the mandate, it has to strike down guaranteed issue as well. But that also means opponents need a clear alternative to a genuine problem.

But there  is a simple economic answer: individual, portable insurance that includes the right to buy insurance in the future. For more, see previous  Articles,  Opeds, Blog posts.  This approach recognizes that our current troubles are, as Solicitor General Verilli amazingly admitted, creatures of past legislation and regulation, not intrinsic market failures. And this can be the heart of a coherent deregulation strategy.

(Yes, I know there are theoretical problems with health care and insurance markets,adverse selection, asymmetric information. But we've never tried it to see just how bad those problems are in a really deregulated and competitive system. The same theories predict that markets for used cars, car repair, vet services and dentistry should not exist.  Just perhaps, the legal and regulatory burdens are what cause dysfunction in health insurance and care markets, not theoretical economic problems.)

This case also strikes me as a poor test case for the commerce clause. I'm rooting for the overturn of  Wickard v. Filburn too. (This is  the 1942 case against a farmer who grew wheat to make his own bread, in violation of  Federal wheat production limits. If that's "interstate commerce" so is anything.)  But the mandate is really a poor case for thinking about the limits of Federal economic regulation, as its constitutional problems are a poor framework for thinking about health reform.  As I'd hate to end up with a constitutional "medicare for all" solution, or "current law but replace 'mandate' with 'tax'", so I'd hate to end up with "the only limit imposed by the commerce clause is that the Federal Government can't force you to buy something."

One little piece of good news: 

 "GENERAL VERILLI: ..The — the rationale purely under the Commerce Clause that we're advocating here would not justify forced purchases of commodities for the purpose of stimulating demand"

 Whew! Write that in stone, please.

Documents needed for filing claim under 3rd party claim for accident to MACT

Documents needed for filing claim under 3^rd party claim for accident to MACT

Following documents should accompany the petition for filing claim under 3rd party claim for accident to MACT:

1. Copy of the FIR registered in connection with said accident, if any.

2. Copy of the MLC/Post Mortem Report/Death Report as the case may be.

3. The documents of the identity of the claimants and of the deceased in a death case.

4. Original bills of expenses incurred on the treatment along with treatment record.

5. Documents of the educational qualifications of the deceased, if any.

6. Disability Certificate, if already obtained, in an injury case.

7. The proof of income of the deceased/injured.

8. Documents about the age of the victim.

9. The cover note of the third party insurance policy, if any.

10. An affidavit in support of the above documents and detailing the relationship of the claimants with the deceased.

You will find this list useful so that complete documents are lodged and claim / case is settled at the earliest.

Should Insurance Companies reward customers having good eating habits?

Should Insurance Companies reward customers having good eating habits?

Scientific studies reveal that there is a definite correlation to what we eat to our health conditions. Lot of research is going on and there have been many studies which have established this correlation. Recently, we have come across two different studies which have shown that the two most deadly diseases especially are related to the lifestyle and prove have definite correlation to what we eat.
Study 1 “Soft drinks raise heart attack risk”.

“Drinking one sugar laden soft drink every day dramatically raises the odds of having a heart attack” A study has confirmed. Diet varieties of Soft drinks /Cakes/ Ice-cream /or frozen yogurt (that use artificial sweeteners) got a clean bill of health. It is found out that a daily sugar sweetened drink raised risk of heart attack – including a deadly one – by 20%.
The study, reported in the journal “Circulation” also found that the more sugary drinks someone had, including still fruit squashes with added sugar, the chances of risk rose. Water, coffee and tea are the best drink choices, followed by low fat milk. Tea and coffee are okay too, but only if taken without sugar.
Study 2 “Regular & daily intake of large bowl of white rice increases chances of diabetes”

British Medical Journal has covered a study which was conducted over a period of 4 to 22 years. According to this “Eating one large bowl of white rice every day increases the risk of diabetes by 11%.”

A team of Harvard School of Public Health and Harvard Medical School who looked at 2 studies in Asians (Chinese and Japanese) and two in western populations found that every large bowl of white rice eaten a day is linked to an 11% increased risk.

As these studies are having large sample base and are conducted over long period we come to the conclusion that it is high time that the insurance companies in India will start rewarding people, who have healthy food habits. At the same time in comparison to this diet if the person consumes too much of sugar laden soft drink or is habitually a rice eater then premiums can be loaded.

We invite comments from you.

Pasco County Prescription Savings Program Update

 COUNTY PRESCRIPTION SAVINGS PROGRAM

Pasco County has re-launched the Points of Care prescription savings program, available to all County residents regardless of age, income, or pre-existing conditions. This program is designed to assist residents who do not have prescription drug coverage through their insurance or for savings on medications that are not covered through insurance.

Residents simply present their card at one of over 45,000 participating pharmacies nationwide, including CVS, Kmart, Publix, Sam’s Club, Sweetbay, Target, Walgreens, Wal-Mart, and Winn-Dixie to begin saving!

Points of Care is a no-cost savings program that will save residents up to 50% off their prescription medications, diabetes supplies, durable medical equipment and hearing aids. 

Average savings has been 31% off the pharmacy retail price.  

Residents can visit www.PascoRxCard.com to print a card and start saving today.  Residents can also pick up the prescription savings cards at locations throughout the County, including Community Services Offices and Libraries.  

Points of Care, administered by Universal Rx, provides services and benefits that improve health outcomes and reduce overall healthcare costs.  Founded in 1995, the are a leading national provider of managed care and discount prescription services.

To learn more on how to use this program: 

• contact Pasco County's Customer Service Center at (727) 847-2411
• visit the county's Point Of Care website for a list of card pick up locations & participating pharmacies.  

Japan

I'm in Japan, one great data point on the ineffectiveness of fiscal stimulus, and the reason for blog silence for the last week or so. I will be giving a talk about asset pricing, based on the "Discount Rates" paper, at a Chicago Booth  event on Friday evening March 23 at the American Club in Tokyo, details here. Blog readers and ex-students most welcome. It's a public event, but you have to register.  

Austerity, Stimulus, or Growth Now?

(This is also a Bloomberg "Business class" column, with minor improvements.)

Austerity isn't working in Europe. Greece is collapsing, Italy and Spain’s output is declining, and even Germany and the U.K. are slowing down. In addition to its direct economic costs, these “austerity” programs aren't even swiftly closing budget gaps. As incomes decline, tax revenue drops, and it is harder to cut spending. A downward spiral looms.

These events have important lessons for the U.S. Our government cannot forever borrow and spend 10 percent of gross domestic product each year, with an impending entitlements fiasco to boot. Sooner or later, we will have to fix our finances, too.  Europe's experience is a warning that austerity -- a program of sharp budget cuts and (even) higher tax rates, but largely putting off “structural reforms” for a sunnier day -- is a dangerous path.

Why is austerity causing such economic difficulty? What else should we do?


Lack of “stimulus” is the problem, say the Keynesians, epitomized by the New York Times and its columnist Paul Krugman, who has been crusading on this point. They claim that falling output in Europe is a direct consequence of declining government spending. Yes, 50 percent of GDP spent by the government is simply not enough to keep their economies going. They -- and we -- just need to spend more. A lot more.

Where will the money come from? Greece, Spain and Italy simply cannot borrow any more. So, say the Keynesians, Germany should pay. But even Germany has limits. The U.S. can still borrow at remarkably low rates, they point out. But remember that Greece was able to borrow at low rates right up to the moment that it couldn’t borrow at all. There is nobody to bail out the U.S. when our time comes. What should we do then?

The traditional Keynesian answer was: move on to monetary stimulus. Deliberately inflate and devalue. Break up the euro so the southern European countries can inflate and devalue even more.

Lately, Keynesians have been pushing an even more audacious idea: deficits pay for themselves. In a March 17 column, Krugman wrote: “there’s a plausible case that spending more now actually improves the long-run fiscal picture.”

U.S. Federal revenue is less than 20 percent of GDP. For deficit spending to pay for itself, then, $1 of spending must create more than $5 of output. Economists have been arguing about whether this “multiplier” is more or less than one; five is beyond any reported estimate. Keynesians made fun of “supply siders” in the 1980s, who made similar claims for tax cuts. At least those cuts had incentives on their side, which stimulus doesn't.

Is there another explanation, and a more plausible way forward?

The stimulus explanation is curious for what it omits. Think of Greece. Is it irrelevant that Greece is 100th on the World Bank’s “ease of doing business” list, behind Yemen, 135th on “starting a business” and 155th on “protecting investors?” Is it irrelevant that professions from truck driving to pharmacies are still rigorously protected, that businesses can’t fire people, that (according to a Greek colleague) you can’t even get a driver’s license without paying a bribe? Does it not matter at all that, as the International Monetary Fund delicately put it in its latest report on Greece, the “structural reform program” aimed at “deeply ingrained structural rigidities in labor, product, and service markets” got nowhere?

Does it not matter that Greece has a high combination of individual, corporate, wealth and social taxes, higher still under "austerity?" True, Greeks famously don’t pay taxes, but businesses that must operate illegally to avoid taxes are much less efficient.

Money is fleeing Greece, Italy and Spain. Does talk of exiting the euro, followed quickly by devaluation, inflation (the IMF predicts 35 percent in Greece, should it leave), and capital controls, have nothing to do with lack of investment?

Keynesians urge devaluation to gain competitiveness. Greek wages have in fact declined about 10 to 12 percent, according to the IMF -- so much for the impossibility of nominal wage declines. Yet investment and production aren’t turning around. Greek “demand” needn’t matter -- the whole point of the euro area is that Greece can sell to Germany, so long as Greece stays in the Eurozone. But it isn't happening. Is that a mystery? Would lower wages compel you to invest money in Greece, surmount a thicket of regulation, expose yourself to the threats of wealth, property and business taxation, currency expropriation and capital controls, or even nationalization?

In sum, isn't it plausible that a good part of Europe’s austerity doldrums are linked to “supply,” not “demand,” “microeconomics” not “macroeconomics,” weeds in the economic garden, not a want of fertilizer? Isn't it plausible that factors beyond simple declines in government spending matter in the economy’s response to a debt crisis?

That insight suggests a different strategy: Let’s call it “Growth Now.” Forget about “stimulating.” Spend only on what is really needed. We could easily stop subsidies for agriculture, electric cars or building roads and bridges to nowhere right now, without fearing a recession. Most "spending" is in fact transfer payments, which even Keynesian economics recognizes are not very stimulative, not the mythical (and curiously carbon-intensive)  roads and bridges, and most of that goes to people who are relatively well off

Rather than raise tax rates further on “wealth” and the “rich,” driving them underground, abroad, or away from business formation, fix the tax code, as every commission has recommended. Lower marginal rates but eliminate the maze of deductions. In Europe, eliminate the fears of wealth confiscation, euro breakup and currency devaluation that are driving saving and investment out of the south.

Most of all, remove the profusion of regulation and (increasingly) direct government management of the economy.

Growth is the key to paying off debts. The only way to escape large debt/GDP ratios is to embark on a decade or more of solid  growth. Growth like this comes from long-run productivity, not short-run stimulus. 

Europe is beginning to figure this out. Italy’s prime minister, Mario Monti, is addressing his country’s debt crisis by proposing far-reaching deregulation, now. While his proposals aren't complete or close to radical enough, and they are combined with some unfortunate business-stifling tax increases, it’s remarkable that anyone in Europe is beginning to talk about this approach.

“Structural reform” is vital to restore growth now, not a vague idea for many years in the future when the stimulus has worked its magic. Europe learned that it’s also a lot harder politically than the breezy language suggests. “Reform” isn’t just “policy” handed down by technocrats like rules on the provenance of prosciutto; it involves taking away subsidies and interventions that entrenched interests have grown to love, and support politicians to protect. They will fight it tooth and nail.

That is even more reason to address growth now, while there is a crisis. The will to do so will evaporate if better times return, and the ability to do so will disappear if the economies plunge.

Government wishes PSU banks going to exit from Insurance, which is a non core activity.

Government wishes PSU banks going to exit from Insurance, which is a non core activity.


Everyone one wants to diversify when times are good but when the times are tough there is heat to squeeze. The banks have been asked by the government to get out of non core business such as Insurance. It could be a big blow to banks if this is implemented. Some of the banks would have to exit joint venture and industry would be seriously hampered, considering the agency model for insurance is under question due to high attrition and lack of professionalism.

As per the news published in Economic Times the Government’s pre-conditions for capital infusion stems from the concern that a number of non-core banking activities, particularly life and non-life insurance activities are capital guzzlers. Banks have to infuse capital for years in these ventures since it may take several years to break even. "The government is worried that demand for capital will rise every year if banks decide to undertake these activities. As an owner, they will then be obliged to infuse more capital to sustain the bank, something they would want to avoid when the fiscal deficit is out of control," said a senior bank official from public sector bank.

If this is indeed implemented then we as a country will need new non banking players to enter the insurance business In the recent past many business houses who entered got disheartened and have been in the mode to exit. Some of these are

• Bharti Axa : Bharti

• DLF Pramerica : DLF

• Future Generali : Future group

We wonder whether 49% FDI in insurance sector will make much impact.

Few days are left for making Significant Savings in Health Insurance Premium

On April 1, 2012 the service tax on health insurance premium would increase to 12.36% from the existing rate of 10.30%. It means that you have to pay a higher premium. For example if you pay a premium of Rs. 20,000/- for the health insurance premium, this is how you will be impacted:

Let us take elaborate this example. Total premium payable during this 2 years period is Rs 44,532 (Rs. 22060 + Rs. 22472) assuming that you decide to buy it before April 1, 2012.

It will be much better for you to go in for 2 years policy being offered by certain Insurance companies by giving discount of 7.5%.

From the above example you can see that you will be able to save Rs 3,721 on the 2^nd year premium which is equal to 16.87% whereas banks FD for the same duration would not give you more than 6%-7% returns.

Health Insurance may Touch Rs. 141500 crores if all are covered

Health Insurance may Touch Rs. 141500 crores if all are covered

In my blog of 1st February,2010 I had come out with a suggestion that all senior citizens should be asked compulsorily to go in for health insurance so that this portfolio increases. For initiating this great initiative, Government can support the scheme initially with some subsidy and later on reduce the same.

Hindustan Times has covered the news according to which now Indian Government is considering to cover all citizens with Health Cover during Five year Plan (2012-2017). It is a welcome step by the government to include all under the ambit of health Insurance. It is heartening that Clinical Establishment will also be regulated.

Let us see what it means for us. Below are the assumptions

India population: 120 crores
Family size: 5
Households: 24 crores

If we take an average of 5 lacs crore dedicated for healthcare for the 12th Five year plan it translates to expenditure of 1 lac crore each year. Dividing this by the 24 crore households the average expenditure comes to around Rs.4167each year. The question arises: Is Rs. 4167/- per house hold sufficient?

If we talk of providing health insurance to all the people the average annual premium per family would be

If we talk of only insurance premium required each year to cover the households the average cost per family each year would be Rs. 5896/- . Clearly there is a deficit of Rs 1700/- per year for each household.

However, what will be interesting is to know how the government will be able to bridge this deficit. Even in countries where it exists for example Australia Medicare levy (tax) is charged. The levy funds the scheme that gives Australian residents access to health care. The Medicare levy surcharge (additional tax) may apply to high income individuals or families who don't have private patient hospital cover or Mediclaim.

The Restore Option – New terminology in Family Floater Health Insurance

The Restore Option – New terminology in Family Floater Health Insurance

People often asked me whether I should go for Individual policy for family members or should I go for Family Floater.

Our answer had been consistent, If you can afford, then individual policy would be better especially, if the policy includes people of higher age.

Most people would abide by our recommendation and buy family floater for young family (immediate family consisting of spouse and children) and individual plan for aged people.

Of course when this was recommended there was no restore option in family floater plan.

What is Restore Option?

It essentially means that there shall be automatic restoration of the Basic Sum Insured immediately upon exhaustion of the limit of coverage during the policy period.

For example the couple has family floater policy for 3 lakh. If the one of the spouse covered under the policy was admitted to the hospital and underwent a Bypass Surgery costing 3 lacs and unfortunately, in the same policy year the other spouse had to be hospitalized due to accident and the expenses incurred during hospitalization was Rs1 lac. The insurance company would have only paid Rs. 3 lacs for 1st hospitalization and the couple would bear the cost of the 2nd hospitalization from their own savings.

In case they had bought the policy with the “restore option” Both the hospitalization would be covered. As soon as the limit gets exhausted the sum insured would be automatically reinstated to the original insurance cover.

Let us understand further, suppose the 1st claim for Bypass Surgery is 4 lacs instead of 3 lacs. Then amount payable for 1st claim would still be 3 lacs and 1 lac for the 1st claim would be paid by the couple from their savings. The 2nd claim for the accident would still be paid under the restore option for the other spouse’s hospitalization.

In the same example, if the 1st claim for Bypass Surgery is 2 lacs and the 2nd claim for accident for other spouse is 2 lacs then 2lacs for 1st claim is payable. However, only 1 lac for the 2nd claim for other spouse is payable. The restore is only triggered when basic sum assured is exhausted.

Who offers the restore option?
As on today there are three plans offering this facility:

• Optima Restore from Apollo Munich
• Family Health Optima from Star Health Insurance
• My health Medisure Prime Insurance from L&T Insurance

All these plans are relatively new. L&T Insurance offers the restore option only in case of second hospitalization due to an accident.

How much does it cost?

For Insurance cover of 5 lacs with Restore option, a family of two kids below 18 years and parents aged 36-44 years residing in Delhi. The premiums are below.

It sound really great, Are there any catches?
• This option is not available for lower sum insured. Both Apollo and Star Health plan provide this benefit for cover of Rs. 3 lacs and above.
• The restore benefit cannot be claimed on the disease/illness for which the claim has already been made in the policy year.
• If you are looking for plan with additional benefits such as maternity benefits, critical illnesses cover, cash benefit for accompanying the insured child etc, these plans would not be providing these benefits.
Overall the plans are appealing and have been received well by the buyers of health insurance policy. Companies are even accepting portability under these new plans.

To London

I'll be at the Booth campus in London next Monday March 12 as part of a panel discussion with Francesco Garzzarelli and Charles Goodhart on "Financial Stability and the Macroeconomy," sponsored by the Becker-Friedman Institute. More information on the event here. Presuming, of course, that the fact that Greece has finally defaulted doesn't mean the end of the world, as so many predicted. Ex-students, colleagues, and blog readers, if you come to the event, stop and say hi. 

Health care costs will go on going up as the price of real estate goes up in New Delhi & other Metro cities

Health care costs will go on going up as the price of real estate goes up in New Delhi & other Metro cities.

It is interesting to see ad of Delhi Development Authority (Government body controlling land in the capital city of India- Delhi/ New Delhi) which has advertised for plots for:

Hospitals
Nursing Homes
Polyclinics

in different parts of Delhi state.

You can look at sr. no. 2 where reserve price for 6 Hectar plot is Rs.464 crores. Assuming 500 beds will be available in this hospital the fixed cost of land for every bed will be Rs.92 lakhs. To this you have to add the following costs.

Construction cost
Equipment cost
Manpower cost

You can well imagine what a patient will have to pay when he is admitted to this hospital in 2016 or 2017, when the hospital will be operational.

This leads us to conclusion that one must have Health Insurance policy to pay for those costs.

Take up your claim with Insurance Ombudsman- There are good chances of Success

Take up your claim with Insurance Ombudsman- There are good chances of Success


RIA Insurance Brokers Pvt. Ltd. has always stood by its customers and helped them to get settlement of health insurance claims from insurance companies and their TPAs.
In a recent case one of our client’s claim was rejected by the Insurer on the ground that the insured was not required to be hospitalized for abdomen pain. Furthermore, they contested that the insured should not have ever gone to hospital for such pain. The claim amount for hospitalization was Rs 18,732/-.
We believe that treating doctor’s decision is important (also proved in this case). An insured person should not take any symptom related to his health lightly, however minor it may seem. In this case too, the insured followed the advice of the doctor and was hospitalized. In a recent case we have seen that a young man collapsed during the Gurgaon Marathon due to dehydration. Unfortunately, the young man died in a leading hospital in Delhi after being hospitalized for over 30 days due to complications caused as a result of dehydration.

We advised our client to take the next step as per the process i.e to approach the Insurance Ombudsman. We helped the client in presenting his case before the Ombudsman. The Insurance Ombudsman directed the Insurance Company to pay the claim amount along with interest @ 8% from the date of the claim. The Insurance Company has paid Rs. 18,958 along with the interest @ 8% i.e. Rs. 2,401 to our customer as directed by the Ombudsman.

The settlement of Rs. 18,958 has again highlighted the fact that persistence is the key. We have always maintained that if you are persistent and have professional guidance then the chances of your insurance claim being settled in your favour are more than 98%.

Maternity cover -Is it covered under health insurance ?

This is the most common question we come across from customers. The answer is yes as well as no.

No, because most of the companies do not cover maternity under individual or family floater policy .
Yes, because some companies cover this but with conditions .Let us have a look at this .

Apollo Munich covers from 7 th year ,which means you should have been having the policy in existence for 6 years.
Max Bupa covers from 3rd  year.
L& T  covers from 5 th year.

Yes there are limits & sub limits, which one should keep in mind.
Is it that our insurance industry is having a short sighted approach in not covering this risk.I feel it should be covered by all insurance companies from 2 nd year .This will increase the size of the market .

Have you faced inconvenience in using Health Insurance portability within the company and within the city?

Have you faced inconvenience in using Health Insurance portability within the company and within the city?

We appreciate the concept of health insurance portability which was introduced by IRDA in October 2011. As a result a policy holder can shift from one insurance company to another insurance company within the city and within the country without losing the benefits accrued on the previous policy. Those who have shifted their policy in recent months are having a feeling of satisfaction. However, in case of public sector companies such as National Insurance Company Ltd, The New India Assurance Co. Ltd, The Oriental Insurance Co. Ltd and The United India Insurance Co.Ltd. It is a practice that different branches of same insurance company have different TPAs even within the same city. As a result of that if the customer wants to shift from one branch to another branch even within the same city then hassles are being created because the data from the old branch or TPA has to be shifted to the new branch as well as new TPA. Lot of difficulty is being faced by the customers in this regard.

It is high time that PSUs come out with policy that either all branches of the company in the same city use the same TPA or instructions should be given to the TPA and data transfer should be immediate. This will result in removing hindrance in shifting from one branch to another.

When one can shift from one company to other then why not portability from one branch to another?

Is prosecution of officials of National Insurance right step?

Is prosecution of officials of National Insurance right step?
According to a news item- 3 officials of National Insurance are to be prosecuted.

Is it a right step? It can happen for those who are working for PSU’s then why not for those who are working for Private Companies? Does it curb innovation, motivation to take decisions? Is it that those who do not take any decision get promoted because their track record is clean? Your comments are invited.

Too big not to fail

The Economist has a great article, "Too big not to fail" about the Dodd-Frank regulation. Readers of this blog will know I'm no big fan of Dodd-Frank, for example an article in Regulation, collected opeds, and collected blog posts on reform. I've made most of these points before. But to hear it from the liberal-leaning Economist, with very detailed documentation, is good news.

A few delicious quotes:

The scope and structure of Dodd-Frank are fundamentally different to those of its precursor laws, notes Jonathan Macey of Yale Law School: “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies.” ...

Take the transformation of 11 pages of Dodd-Frank into the so-called “Volcker rule”, .... In November four of the five federal agencies charged with enacting this rule jointly put forward a 298-page proposal which is, in the words of a banker publicly supportive of Dodd-Frank, “unintelligible any way you read it”.  It includes 383 explicit questions for firms which, if read closely, break down into 1,420 subquestions, according to Davis Polk, a law firm. 

And each subquestion presages another rule in the final version.

This is an important point. Most laws are laws. Most of the actual pages of Dodd-Frank are just directives for agencies to write the actual rules.

More importantly, it's not just explicit rules: 

But the really big issue ...Officials are being given the power to regulate more intrusively and to make arbitrary or capricious rulings. The lack of clarity which follows from the sheer complexity of the scheme will sometimes, perhaps often, provide cover for such capriciousness.

For example, the new CFPB will have latitude to determine what type of financial products can be provided to which consumers and at what cost, as well as the right to pursue institutions for acting in an “abusive” fashion (a term with no legal definition). Requirements for “living wills” that encompass hypothetical business plans have to be pored over by regulators; “stress tests” insert government assumptions deep into the decisions banks make about their capital. ... the befuddling form the act gives such ideas unintentionally opens a path to much more state interference.

That's putting it mildly.  Dodd-Frank is really not about rules at all. It just gives regulators power to decide what you do and how you do it. And it's going to be awfully hard for even the best intentioned regulator not to slide in to protecting from competition the business he's regulating (they are "systemically important" after all), or merging goals ("Nice bank you got there. If you were foreclosing a bit slower we sure could help a bit on consumer financial protection approval of that new credit card.") Or, as the Economist puts it,

Loans that might not fit into a category favoured by regulators are being trimmed or withdrawn.

..some well established banks consider themselves better able to handle the costs than smaller or newer ones, particularly those that don’t have cushy relationships with regulators. 

Mission creep:

....a provision in Dodd-Frank concerning the extraction of minerals from in and around the Congo will mean that they [manfuacturers] will have to begin filing information on their entire supply chain to the SEC. This is officially estimated to affect 1,000-5,000 companies at a cost of $71m. The US Chamber of Commerce thinks it will affect hundreds of thousands. The National Association of Manufacturers estimates it will cost $9 billion-16 billion. Conflict minerals are a disturbing issue. They were not one of the causes of the global financial crisis....

Even Dodd-Frank’s creators can bring no similar clarity to its intentions. In 2009 Mr Frank attempted to frame the new law’s goals under four heads: securitisation, compensation, liquidation and systemic risk. But in a single speech his ambitions overflowed to consumer protection and the reform of ratings agencies, too. Ambition is often welcome; but in this case it is leaving the roots of the financial crisis under-addressed—and more or less everything else in finance overwhelmed.

This point really nails the fundamental flaw of Dodd-Frank. It never really thought about what the most important core problems were, and how to fix them. Instead, it basically thinks we didn't have "enough" regulation, so proceeds to "regulate" more, and to regulate anything vaguely associated with "finance."  But, not knowing what went wrong really, it's approach is just to deputize appointed officials great power to write rules, or, more basically, direct affairs in real time. 

Regulation is not "more" or "less" to be poured about. It is "smarter" or "dumber," solving clearly understood market failures with transparent rules, or simply sending busybodies around to muck things up.

We need "smarter." Soon.

Manna from Heaven: the Harvard Stimulus Debate

Last week there was a fiscal stimulus debate between titans John Taylor and Larry Summers, at Harvard. Taylor wrote his opening remarks on his blog, which I recommend without further comment.  Summers was quoted in the Harvard Crimson:

Summers also said that in studies comparing states that received varying amounts of stimulus money, those that received more money experienced higher levels of job growth.

This makes no sense as an argument for overall fiscal stimulus. 

The fact is certainly possible. A good example of such studies is by Emi Nakamura and John Steinsson, summarized in their VoxEu blog post. Output rises in states that get more military spending:

...when aggregate military spending in the US rises by 1% of GDP, military spending in California on average rises by about 3% of California GDP, while military spending in Illinois rises by only about 0.5% of Illinois GDP. ...we can use regional variation associated with these buildups to estimate the effect of a relative increase in spending on relative output. Our conclusion is that when relative spending in a state increases by 1% of GDP, relative state GDP rises by 1.5%. 

But they're upfront about the limits of this result: 

Are multipliers of 1.5 too large to be true? ... some care is required in interpreting these empirical results. ... in our setting, the region getting the spending is not paying for it. (My emphasis) 

And that's the problem.

Sure. Suppose the government pays contractors to build a military base, or to dig a  ditch from Fresno to Bakersfield (high speed rail.) Is anyone surprised that GDP goes up in those areas? The contract itself is a government purchase, and adds to GDP, whether or not the project is of any use at all. When a donut shop relocates from LA, and people spend their salaries on donuts, that counts for more multiplier.

But where did the money come from? Showing that the government can move output around does not show that it can increase output overall. To build the base or rail line, the government had to tax or borrow the money.  Cross-sectional studies do not measure the loss of demand in (say) Chicago from the money that got spent in Bakersfield.  Actually, the studies can count the loss for stimulus: Every dollar that Chicago's GDP goes down from the extra taxes or borrowing means that the relative output in Bakersfield goes up.

Amazingly, our government has seemed unable to accomplish much of this manna-from-heaven local stimulus in the recent recession.  (Steinsson and Nakamura's study was on military expenditure in general, the potential for such "stimulus," not how much of it actually happened in this recession.)  John Taylor shows that the actual stimulus didn't even get spent, and when it did, didn't create many jobs. The Wall Street Journal had a nice article a few weeks ago, showing in detail how a $10 billion in stimulus money for wind farms produced few jobs. Even taking administration numbers at face value, we spent hundreds of thousands of dollars for each $50,000/year job "saved."

Larry may be citing studies of the recent recession that disagree.  But I think it is a mistake to get too deep in this argument: As  a matter of economics, the government should be able to move output around, making one area worse off and another better off. The delicious irony that it was unable to do much of that in this case shouldn't blind us to the fallacy of composition:

Stimulus has to be paid for. In evaluating stimulus for the whole economy, you have to count the loss of demand from the paying-for-it side equally with the raise in demand or employment from the spending-it side.

(If you like to cite New-Keynesian models, beware they are "Ricardian" so you can't even rely on the magic of borrowed money -- you have to defend the idea that taxing Chicago to dig a ditch in Bakersfield raises output on both places by one and a half times the tax. Not impossible (Jon and Emi try), but not as easy as it seems either.)

Summers was also quoted: 

“Use your common sense,” Summers said. “Do you really believe if we had done nothing in response to the crisis in 2008, it would have been a good idea?”

That's too easy. Medieval doctors said, "the patient is dying, we must do something" before each  bleeding.

I know it's  unfair to criticize quotations in a college newspaper, so take these as comments on the (very common) ideas rather than anything personal about Summers or exact about the views he presented at the debate. I presume Larry said something a lot deeper.

The debate will be repeated at Stanford, and I hope we get a transcript or a video of this important event. This could be the Scopes Trial or Huxley–Wilberforce debate for fiscal Stimulus.

A story from Davos, and how Grumpy got his name

I was reading Nick Paumgarten's New Yorker article about Davos in the bathtub this morning, and ran into this gem:

The Belvedere [hotel], ... is the annual meeting’s hub after dark. Often, there are a half-dozen parties going on at once. To get into it,...you must pass through airport-like security ... The line, on this night, was long enough that a Nobel laureate in economics, who, moments earlier at the Hotel National, had been holding forth on unfairness, deemed it worth cutting. 

It would be easy enough to figure out who it was, but I like the story better as it is, a reflection on the Davos attitude, not a snarky comment on one individual. (If you know, please don't run it by outing him in the comments.) 
 
A while back, on a lovely spring night, I was walking home with my family after dinner out. We observed one of Hyde Park's Great Liberal Minds, walking his ill-trained dog. He watched his dog deliver a a large steaming poop, and walked off, leaving the poop behind.

I opined, "well, there goes the Great Liberal; I suppose he thinks there is a Federal Department of Picking up your Dog Poop."

The kids laughed and dubbed me "Grumpy Economist" on the spot.

Update: I removed a few comments. I really do not want this to be personal.  

Benn Steil and I debate house prices

Last week Benn Steil wrote a very interesting oped on housing. (Originally at Financial News) He unearthed the amazingly large number of young people who bought houses in the boom, and then lost a lot when house prices fell. One quote:

What effect did the housing bust have on them? Household balance sheets among the Facebook generation were the hardest hit: between 2007 and 2009, half of those under the age of 35 lost over 25% of their wealth. A quarter of those under 35 lost over 86% of their wealth. Not surprisingly, they have been badly hit by the foreclosure tsunami; the median head of household in foreclosure being eight years younger than the median not in foreclosure. Younger households typically started off with less wealth than older ones and, following the bust, ended up with much less.

This bodes badly for their future, and the country’s

I wrote back, and the following exchange might be useful for blog readers here.  We don’t come to hard and fast answers, but I think we clarified a lot of channels that do and don't work.

John:
Your oped was very interesting, but I have to disagree with a basic point.  Lower house prices are great news for the majority of young households.
They either don’t own a house or are looking to trade up. Cheap stocks are also great news for them. Even those that lost money in one house will still want to live in houses for a long time, so they can buy a new house for the same low price that they sell their old houses for.  Lower prices are only bad news for old people who want to downsize.

Benn:
For those that did buy – a lot – the data I cite say they’re in bad shape.  For those that didn’t, you surely have a point, with the major caveat that credit standards are much, much tighter now (I’ve been through a mortgage and a refinancing over the past 2 years, and they were hell).  You yourself have commented several times on the great rates that no one seems to have access to.

John:
The ones who bought surely are in bad shape, at least on paper.  A young person who bought stocks on margin leveraged 90% in 2006 would also have lost a lot of money!  But together with a collapse in wealth, there also has been a big decline in the cost of living – houses are cheaper. They don’t need as much wealth as before.

View it another way. They still have the house. If you bought a house in 2006, and you’re still employed, by and large your wages haven’t shrunk. You can have exactly the standard of living you had planned for in 2006, and it doesn’t matter a whit that the resale value of your house has declined. Really, look at it: same wage, same mortgage payment, same prices for stuff. So what if the house price went down?  And even if you want to move - - again, you buy a new house for the same low price you sell your old hose. You can keep the planned standard of living.

OK the ones who are not employed have trouble. Or the ones whose wages are cut. But really, employment is the source of their trouble, not that the value of their house has gone down. 

Benn:
If your net wealth, including home value, was $100,000 in 2006 and $10,000 today, you could still “have exactly the standard of living you had planned for in 2006”?

John:
If you can afford to buy the same basket of goods, you have the same standard of living.

Basically, it’s deflation. The deflation is not yet recorded in statistics because they use the rental equivalent measure of housing costs.  If your net worth goes from $100,000 to $10,000 but there is a 90% deflation you are exactly as before.

As an extreme, suppose technical improvement makes housing free – we figure out how to grow houses from chia pets in a week. The price of existing houses goes to zero. There are winners and losers here too. But obviously as a society we are much better off.

Benn:
If I lose 90% on a stock am I no worse off because the broader index is also down 90%?

John:
You don’t live in stocks…

So,  yes. If you lose 90% on a stock, but the stream of dividends is completely unchanged, then yes, you’re just as well off as before. If before you were planning to live off that stream of dividends, you can still do so. If before you were going to exchange the stock for a different one that gave a similar stream of dividends, you can still do so.

The key difference: Stocks typically fall when there is a big bad shift to the expected stream of dividends. When your house price falls, there is absolutely no effect whatsoever on its value to you as living space.

As with houses, you’re worse off if you were just about to switch from stocks to bonds. And you’re better off if you were young and about to invest in stocks, as now you get to buy the same dividends much cheaper.

(In retrospect I’m being a bit too strong, as usual. The fall in house prices comes with a lot of foreclosures and neighborhoods that are no longer great places to live.  A lot of  the houses are now in the “wrong places,” so genuinely less valuable. But for the argument here, that’s really about foreclosures costs, and the rise and fall of neighborhoods, i.e. collateral damage from house prices, not the direct effect of house price falls per se. Also, if you don't have the cash to pay off a mortgage and take the loss, moving is tough.)

Benn:
Is the ability to borrow against my appreciated home worth nothing, then?

John:
Now I have to give in a bit. Yes, this is a good point, and I ignored your credit point above. 

Remember though that borrowing has to be paid back. So you bought a $100,000 house in 2005 with $10,000 down, and $1,000 per month mortgage.  It goes up to $200,000. Great! Now you can refinance and take an extra $90,000 out of the house and go on that round the world cruise you had been hoping for. (Or start a business, or whatever.)

Whoops.  Except now you have to pay the loan back. You have to pay $2,000 per month on your bigger mortgage. As long as you want to live in the house – or another one of the same size – you didn’t get any more wealth.  “Removing a borrowing constraint” is different from “having more wealth.”

So you are better off, but only if you knew you were going to get a big raise, so that you wanted to borrow a lot of money but the bank wouldn’t let you.   That might be true for a lot of people. On the other hand, we are perhaps becoming skeptical that it is such a great idea for young people to pile on a huge amount of debt, so perhaps not such a social tragedy that they can’t do it as easily any more.

But don’t confuse the size of a possible borrowing / collateral constraint with “wealth.”

That’s part of the transfer question. Those who rented did worse when house prices went up, and do better when house prices go down.  There’s no question that It’s better to be a renter if you know prices are going down and vice versa. Just as it’s better to be out of the stock market when prices are going down.

Benn:
My point is precisely that the young, as a group, are worse off (irrespective of what they thought they knew about where prices were headed).  I think there’s more than a fair debate to be had about the macroeconomic effects of this going forward.  But surely what I’ve found on the demographics must be relevant to the question – so at least worth raising.  No? . . .

John:
Yes indeed!  I think we’ve talked about all sorts of interesting channels by which some groups benefitted, some were made worse off, and we all were made worse off by the end of the housing boom. Less collateral (for better or worse), houses built in the wrong places, half-finished houses, foreclosure externalities, the difficulty of young people starting carrers and so on.

 But let’s also steer clear of the things that aren’t true, like the idea that just because the resale value of your house declines, you are automatically a lot poorer, especially if you are young and going to live in the house for a long time.  


(A special thanks to Benn for graciously agreeing to let me post our exchange.)