Friday, September 25, 2009

NO INSURANCE? NO PROBLEM ... UNLESS YOU'RE SICK

Imagine that you don't have health insurance (1 in 6 of you probably don't). Now imagine how wonderful it would be to seek and get coverage after you were struck with some horrible medical calamity. Wouldn't it be great if you could suddenly access insurance and have the federal government subsidize the effort? Well, you can ... but only if you're a U.S. Senator living in flood zones, own a farm or ranch, or sell terrorism insurance. Here's how it happens.

PUBLIC OPTION FOR PROPERTY, NOT PEOPLE
In yesterday's Huffington Post, David Cay Johnston wrote about homeowners who "have access to public option flood insurance." Johnston tells the story of former Senator, Trent Lott of Mississippi, whose Gulf-front home was nailed by Hurricane Katrina in 2005.


Johnston writes:

Lott had not exercised personal responsibility by taking out flood insurance even though it was available from the federal government at low cost. He did have private insurance, but his insurer refused to pay much of the claim, saying it was not wind damage (which was covered by the policy), but water damage (which was excluded).
What's a man to do? Instead of taking his lumps, and fighting with insurance companies to get them to pay for his uninsured home, Lott did what any other market-loving American would do. He introduced Senate Bill 1936, which would have authorized retroactive flood insurance. Here's how his bill would work.

First, it would let flood victims pay 10 years of flood insurance premiums after-the-fact; i.e. after the disaster hits. But don't worry. It's not a complete give-away. There would also be a 5 percent late payment penalty. Ouch! That should teach them.

As Johnston points out, "Instead of being laughed at by his fellow Republicans for promoting socialism, the concept of retroactive relief was warmly embraced, although not the idea for retroactive insurance. Instead the government went with handouts." It was left to fellow Senator Thad Cochran, also from Mississippi (and a Republican free market proponent) to secure taxpayer benefits for flooded property. At the end of the day, flood benefits were issued and expanded twice. The total cost to you and me was approximately $18 billion. Nice.

In a few words, what we have is a system that provides a retroactive public option for homes, but not people. Johnston asks: "How about a similar retroactive option for people with a pre-existing condition who do not have health insurance?"

PUBLIC OPTION FOR FARMERS-RANCHERS, NOT PEOPLE
In the aftermath of Hurricane Katrina I was told by my conservative colleagues and friends that the people in Louisiana were losers who should have prepared for the inevitable. They should have taken personal responsibility and left when they saw the hurricane forecast, like when Hurricane Floyd threatened (when President Clinton ordered the evacuation). In a few words, they got what they deserved.

Within a few weeks comes along this story. From Colorado it was reported that …

Many ranchers in Southeastern Colorado are unable to find or feed their cattle … state officials requested aid from the Federal Emergency Management Agency as part of their requests for federal assistance following back to back blizzards, to help ranchers recover their livelihoods. 


“We're anticipating that we have a serious disaster down in Southeastern Colorado," said outgoing Colorado Agricultural Commissioner Don Ament … “Those ranchers need money now, they need checks in their hands,” Ament said.
Blizzards and snow in Colorado? Who would have thought that this might occur? God must have been mad at Colorado.

But this story is not isolated. Here in California, "let-the-market-work" crowing farmers and rugged individualist ranchers regularly reach out to the government when the going gets rough. For example, farmers will make investments in vulnerable but very profitable crops like citrus (which are vulnerable to frost). Many buy frost insurance. Many others don't. It's a market risk, and a gamble. So we're told.

But then we get treated to 2007 headlines like this: "Gov. Schwarzenegger Proclaims State of Emergency in 10 Counties, Asks For Expedited Treatment of Requests for Federal Aid for Farmers." In a few words, farmers who gambled, took a risk, and then lost their shirts, went running to Uncle Sam for "retroactive protection" - and got our Republican Governor - to pitch their plight to the feds. This wasn't the first time either.

PUBLIC OPTION FOR INSURANCE COMPANIES, NOT PEOPLE
Have you ever heard of the Terrorist Reinsurance Act of 2002 (TRIA)? Don't worry, many haven't. It works like this ...

After 9/11 most insurers decided to stop providing terrorism insurance, or charged so much that policy holders dropped their policies. Worried about their investments, real estate developers, financial institutions, the hotel industry and many others urged Congress to provide "reinsurance" (nice euphemism; it's really a "subsidy" that is akin to "profit protection") to the insurance industry. The idea is to get the insurance industry to offer "private" terrorism protection (again) by having the federal government cover the industry's losses should another catastrophic terror event occur.


Congress obliged by passing TRIA, which says:

1) In the event of a terrorist attack the insurance industry is insured,
2) The feds would pick up 90% of the insurer's losses,
3) The insurance industry doesn't have to pay up front premiums to the government.
But the industry doesn't get off scot free. The industry must pay 7% of their earned premiums ex post if they want their subsidy. So, what does "ex post" mean? In this case, ex post is code for paying the premium only after a terrorist event occurs. In a few words, the insurance industry has a public option to cover their losses should their industry clients ever get hit with a terrorist claim.

So, let's sum up.

The insurance industry gets to collect terrorism premiums from their clients. They also get to invest the money. This increases portfolios and bolsters industry profits. The industry incurs little risk for offering terrorism insurance because they're not on the hook if a terrorist event occurs (the U.S. taxpayer is), and they don't have to pay premiums to the federal government until a terrorist event happens. At the same time, real estate and other industries get their private property protected through a publicly subsidized program. Sweet deal, huh?

PUBLIC OPTION FOR INDUSTRY, NOT PEOPLE
At the end of the day, if you're a U.S. Senator, a rugged individualist farmer-rancher, and a member of the insurance industry you have access to a public option for your property and investments. But if you're a Regular Joe, middle-class American, you're at the mercy of the "market."


It's ironic that the same people who like to lecture about personal responsibility and the integrity of the market are the first to ask for a handout when their assets are on the line. They're also the first to complain about paying the taxes necessary for keeping their public option "insurance" programs available. Unfortunately, they are also the same people railing against the public option in health care today.

Somehow, "hypocrite" is neither sufficient, nor appropriate here. I like parasite.

- Mark

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