AMERICA'S RAW STORY

11th Post

Soaking the Public: The Insurance Industry and Captive Government

This is another occasional article in my crusade to put venal corporate America and its pawn, corrupted, captive government, in their well deserved slime light, one that can’t be missed by anyone who is observant and not fooled. Nevertheless, this article may shed some further slime light.

Industry Overview

The industry evolved from the public’s and various organizations’ and enterprises’ needs to be protected at a cost less than being unprotected from the risks that might occur from various mishaps such as those associated with property damage, death, automobile accidents, health care; etc. The earliest instances of transferring or distributing risk date back 5,000 years to Chinese and Babylonian traders. In the U.S. today the industry is a booming trillion dollar annual business comprising over 6,000 companies and employing over two and one-half million people.

There are nearly 30 different kinds of insurance offered by the industry. There are even “back-up” reinsurance companies to insure the up-front insurance companies. No company offers all of the different kinds of insurance. Most insurance companies specialize in only one or a few of the different kinds.

Overview of the Regulators

Because the insurance industry can affect the public in bad ways there are various State and Federal regulatory entities with the purported purpose of implementing and enforcing laws designed to protect the public from wrongdoing by the protectors. Initially, insurance companies were regulated solely by the States where the companies operated, but a US Supreme Court self-reversing decision in the early 19^th century led to some Federal laws and implementing regulations such as in cases of price fixing. Not that it mattered though as we shall see.

Capture of the Regulators by the Regulated

There probably isn’t any industry operating intra and inter-state in America that has not “captured” their regulators, making them protectors of the regulated and leaving the public unprotected. That is simply the way America’s corpocracy operates; namely, Government America’s acquiescence to Corporate America. The insurance industry, of course is no exception. Regulators become the protectors of unscrupulous protectors, so to speak.

There are several ways in which the insurance industry has captured State and Federal regulators; by financing political campaigns; by lobbying; by ghost writing lax and loophole regulations; and by skirting accountability or by minimizing fines for malfeasance. These modalities, of course, are not peculiar to the insurance industry.

Greasing Politicians’ Palms Campaign donations are simply bribes in disguise since corporations expect returns from their donations. The insurance industry is a major donor, giving in the 2012 election cycle nearly $55 million to parties and candidates.

Lobbying and Ghost Writing. In 2015 the industry spent over $150 million to lobby politicians to favor the industry. This amount triples the financing contributions, which tells us that some candidates who won weren’t the most favored ones so lobbying becomes much more important and expensive. A lobbyist’s penultimate achievements I should think are being allowed to ghost write favorable regulations and to thwart the passage of unfavorable legislation and ensuing unfavorable implementing regulations.

Revolving Door   Public officials with responsibilities for governing the insurance industry leave government and join the industry or vice versa. The revolving door is a proven way to keep influence peddling by the industry moving along and the soaking of the public unabated.

Never Get In Jail and Wrist Slapping  Because government, rather than being public controlled, is corporate controlled, that very same government will bend over backwards to be ignorant of or lenient with corporate wrongdoing. The insurance industry, like the other industries, benefits from government’s cover. When was the last time you read about an insurance executive going to jail or an insurance company given more than a slap on the wrist for legal wrongdoing?

Three Examples of the Industry’s Malfeasance and Government Complicity

I have searched for examples of legal and/or unethical industry malfeasance and government complicity in three of the larger and more familiar sectors; namely, health insurance, auto insurance, and home owners’ insurance.

Health Care Insurance The primary interest of the largest health insurance companies, being publicly traded on Wall Street, is to satisfy it and shareholders of huge financial investment firms. America’s health is incidental. And, according to the activist group, Americans for Health Care Now, the business practices of these companies “have become the model for the nonprofit insurance companies with which they compete.”

The model is more of wrong than right doing. Insurers confuse policyholders about their benefits’ forms; unduly deny coverage; constantly raise deductibles while shrinking coverage; and give stratospheric compensation to their CEOs for benefitting shareholders, not policy holders who continually get soaked by the CEOs’ decisions; and establish mergers that drive up the cost of premiums. And as is the case with the entire industry, its sophisticated and computerized technology helps the industry stay a step ahead of the regulators. Maybe the insured should unite and demand that NASA take over the oversight role! Just kidding. 

The most egregious case of government collusion in this sector occurred when Obamacare was being drafted. Drafted by whom, you might ask? By revolving door people, of course. Here’s the low (and it’s very low on the ethics scale) down.

In this case the revolving door phenomenon created a health insurance system without a public option that has been a bonanza for health insurance companies while thoroughly soaking the public. As reporter Glen Greenwald explains, the main character in this nefarious plot was the chief health policy counsel in Congress who drafted Obamacare. She was previously a VP at the nation's largest health insurance provider; before that was on the staff of the same Senator’s office; and, after doing her drafting work, left for the pharmaceutical industry, a sleazy compatriot of the health insurance predators. Greenwald concluded that “it would be difficult to find someone who embodies the sleazy, anti-democratic, corporatist revolving door that greases Washington as shamelessly and purely as” that counsel. Glen, keep digging and you will surely find other equivalent cases.

If this true story were not enough “soak the public” nausea, the “gang of six” (i.e., the cabal within Congress that prevented single payer legislation), even proposed fining people who refused to buy health insurance. Now that’s trying to add a ton of salt to a very sore wound. 

Auto Insurance Auto insurers gripe about spending money to defend against purported false claims and sometimes losing or missing the claims altogether. Tit for tat, I say. You don’t hear auto insurers brag about really achieving any meaningful self reform, do you?  Here are some of their unreformed practices: coercing car repair shops to use cheap parts and sometimes dangerous practices (e.g., “headlights held together by glue, dented rims and a new hood that's already coming apart”); disputing in court and finally settling personal injury claims; overcharging policy holders; requiring, at least in some areas, unlimited personal injury protection and no-fault coverage; hem hawing in honoring claims; and short changing legitimate claims.

I will tell you an anecdote close to home, literally, since it involves a nearby neighbor of mine. Their vehicle, occupied by a family of four, two adults and their two teenage children, was sideswiped by another vehicle and went tumbling off the highway. The family was helicoptered to the nearest hospital with serious, but not fatal injuries. After a long period of medical care and spiraling medical bills the family recovered to a normal life again. Their insurance company, one of the industry’s largest and ranked by knowledgeable people as the worst, refused to pay all of the bills. The couple went to court but their lawyers bungled the case.

The most egregious collusion between this sector and government along with its laxity in enforcing the law is the government’s requirement that all auto drivers be insured. This mandate is obviously not only a bonanza but a life saver for auto insurers. The public not only gets soaked by this mandate but it also creates the so-called “moral hazard” among drivers, providing them with less of a disincentive to drive safely. The mandate is also prohibited by an article in the U.S. Constitution that forbids forcing individuals to enter into contracts against their will. When I told my neighbor about this illegal mandate her immediate response was that of comparing her experience with a totally uninsured experience, proving once again the “moral bind” “that you can’t live with insurance and you can’t live without it.” 

Home Owners’ Insurance   Fewer people own homes than own autos but enough do to make the home insurance industry a huge one.  Needless to say, owning a home is a major investment. Risks to it obviously need to be shielded by insurance. The insurers, though, according to some reporters seem more interested in soaking than shielding policy holders by using various tactics “to reduce, avoid, or stall claims in an effort to boost their own earnings;” “routinely refuse to pay market prices for homes and replacement contents; use computer programs to cut payouts; change policy coverage with no clear explanation; ignore or alter engineering reports; sometimes ask their adjusters to lie to customers; and to “overestimate their losses and vastly overprice premiums.”

In General Throughout the Industry

As I was searching the web for the three sectors I would occasionally run into relevant items. For instance, a few cases of insurers being fined were found in my search, but the fines seem paltry compared to the overall profits of the insurers. No jail sentences were found for any company executives, but four State Insurance Commissioners have been sent to prison since 1991. All told, though, government sanctions for the industry’s malfeasance are rare and immaterial.

As for the industry’s campaign financing of candidates for State Insurance Commissioners, three-fourths of those positions are appointive rather than elective. No aggregate data were found in a cursory search for the industry’s financing of gubernatorial candidates or for candidates for the few elective positions. And no data was found showing how much the insurance industry lobbies governors and State Insurance Commissioners.  

In Closing

No significant industry reforms seem to be in sight, so we can expect to keep being soaked by it.

My motivation to write this article was heightened by my longstanding conceptual and experiential distaste for the industry. Conceptually, it is like a large casino that bets I am a low risk to it and will nevertheless extort me while I, on the contrary, am betting heavily and acting like I am a high risk to it. Experientially, I am a low risk policy holder (no claims ever), but I pay high risk premiums for auto and homeowners’ insurance policies. My premiums are always rising. My auto insurance company makes me share the costs of large claims (sometimes overloaded with law suits) from other policy holders; and a former homeowners’ insurance company-“you are in good hands with them”- washed their hands of all Florida policy holders even though my home is in a locality that has escaped a major hurricane in over 75 years.

To summarize my own reactions to the insurance industry; it is a necessary evil.