The Rise of the Risk Management Industry

November 1, 2013

As he was leaving office, Dwight Eisenhower felt a responsibility to warn the nation of coming threat from within, “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex.” These turned out to be words booth wise and unheeded, as our military expenditures now total nearly that of the rest of the combined nations of the world.

I’m now seeing a new threat from within, rising and to some extent already risen. The risk management industry, with insurance companies at its core, has wormed its way, insidiously and  in many layers, throughout nearly every industry and organization in these United States. This cancer has grown much deeper, though through much the same mechanism as the military industrial complex; by taking advantage of fear, both that of the general populace and the government and corporate entities.

A friend of mine recently posted a saying: “A book is the only thing you can buy that can make you richer”. I would argue that another profitable purchase would be a Congressman. While I do think there are some career fence sitters in office who pretty much just vote in whichever direction offers them the most favors, I like to think most individuals in government feel like they are doing the right thing, though I think getting to that coveted and contested office, I think nearly requires one to be of the opinion that the ends justify the means, and that it would be distasteful too look too closely at how the sausage was made.

Unlike these individuals, organizations, such as corporations, unions, and political parties, are generally run or heavily influenced by committee and legal advisers. The people of these committees see it as their job to do what is in the interest of those they represent. If, for example an industry of large donors made it clear that their donations to a political party would keep coming so long as the party voted in their favor, then it is quite likely that the party would choose to endorse candidates who have agreed to vote accordingly. They justify this by telling themselves that if they don’t go along, then the other party will, and will win, which logically they would see as being a worse choice than taking the support themselves and  then trying to enact their own ideology. The beauty of this situation from the donor’s perspective is that they really can’t lose. All they need to do is give support to both sides and threaten to withdraw it from the one who gives them the least in return.

These days, everyone in business is obsessed with avoiding liability. The blame usually comes down on people who start frivolous lawsuits, but really, the system is designed to encourage such things. There are three main players in this: The business trying to avoid being bankrupted by a large lawsuit, the insurance company trying to sell coverage without actually having to pay anything out, and the individual or government agency trying to get money for a perceived wrong.

Kaufman’s Law: A policy is a restrictive document to prevent a recurrence of a single incident, in which that incident is never mentioned.

The business will hire people to keep track of regulations create appropriate policies, and it isn’t just legal regulations they are following. Insurance companies have their own regulations, some of which must be followed to get coverage, and others which will nullify their responsibility to pay if they are not followed. The nature of such preventative policies is that they raise both the cost and the complexity of doing business to the point where it is nearly impossible for a small business to be competitive. The regulations have gotten so thick that no one even knows them all. This is of course fine with government and insurance companies alike, since anyone not knowing they have violated a regulation is still going to end up paying a fine or be denied coverage as a consequence.

The profit motive of insurance companies should not be discounted. If nothing else, the mere fact that they are profitable means that they are an inefficiency in the system, a middleman who increases wait times, and decreases care options. Obamacare pretends to be a cost saver in the system. The early claims were that it wouldn’t raise costs to taxpayers, that the healthy would be made to pay for the sick. I was disgusted to read this piece of economic ignorance on CNN Money:

“Getting subsidy-eligible people to enroll is important for the overall success of the exchanges. The first to sign up are likely those desperate for health insurance, so they are a sicker and costlier population. They’ll pay for insurance with or without subsidies. But they must be balanced out by younger and healthier folks, many of whom are likely to be enticed by subsidies, experts say. The subsidies were expected to be very popular: The Congressional Budget Office projected that 86% of the 7 million people enrolling in the exchanges for 2014 would be eligible.”

The second problem is one of outreach. Many people, particularly among the lower income, don’t know that they are eligible for subsidies or even that they have to sign up for insurance, said Dan Mendelson, chief executive of Avalere Health, an advisory company for insurers.
“This requires aggressive messaging,” he said. “They need to go into these communities and get them to sign up. The president has been spending his time apologizing.”

So first, the healthy were going to be made to pay for the sick. Now the healthy will have money taken out of their taxes and handed back to them, only to be forced to give it to the insurance companies. And then there is this article in Businessweek, showing that there is a provision in the bill making sure that if the insurance companies find their costs to be too high, that the government will backstop their losses, and also that there are cost saving measures set to make everything seem cheaper at the beginning, which fade out after three years.  Combine this with the website problems and various postponements, and it really looks to me like they are trying to stall until the midterm elections and put forward the appearance that things are great and they are just working out a few minor glitches, rather than making a bubble that will lead to bailing out the insurance companies that we have already paid three times over.

How many times over do we need to pay for our health care? Back in the day a patient went to the doctor with an ailment, saw them promptly, made decisions between the two of them and then the patient payed a reasonable fee. Now we pay insurance companies, our doctors and hospitals pay insurance companies, the government pays insurance companies, and in return, the insurance companies make us go to a doctor who is in their network, they decide what care to pay for, and if you have a problem with your bill, they leave you on hold until the creditors show up. And if that weren’t bad enough, we can’t even wash our hands of the whole thing and take care of ourselves. We’re mandated to pay for the care we don’t use.

Down With Evil Corporations, Dare to be Stupid

October 8, 2011

Tea Party protest facebook public property

Those of you with facebook accounts have no doubt seen one or the other, possibly even both, of the above and below images (the one below had the caption Dare to be Stupid, Click LIKE & SHARE if people calling for “zero taxes” shouldn’t be using public streets and sidewalks .

Dare to be Stupid - facebook Occupy Wall Street using corporate items

The former is an Occupy Wall Street protest. I think there is a bit of validity in the picture in the sense that while government has a monopoly on force, you are allowed to avoid using the products of corporations you don’t approve of in order to vote with your wallet to change their policy. Even so, the Occupy Wall Street message, while vague, seems to be one directed at general wealth disparity of management, rather than opposition to any given company or product.

The latter is a Tea Party protest, with the implication that people shouldn’t be allowed to protest their government in public. These people paid for the things around them, regardless of whether they wanted to. While signs like “CUT TAXES NOT DEFENSE” are hard to defend in our current budget, the post is centered more on the validity of protesting, rather than the flawed message. The first Amendment clearly gives them the right to assemble and redress their grievances, and unlike OWS, they are on public property rather than private.

Both of these posts have tens of thousands of likes and shares. They are unhelpful. They lack substance. They serve only to increase partisan divides through snarky peer pressure.

These two political movements should be embracing each other. They both find their main opposition not in each other, but in the status quo. Ron Paul recently made the point that compromise is when you give up half of your beliefs. He said we need to be finding common ground with others issue by issue, rather than picking one of the two parties and sticking with it blindly. What do they agree on? That those in power are abusing it, that there is too much money in politics, and that the system is broken beyond the point where working within the established system will fix it.

They are both decentralized movements, which is both a strength and a weakness. Those in power (the combination of the two parties and their joint corporate masters) are ridiculing both sides on the airwaves. Photos like those above are shown as if they represent the views of the entire movement. On the other hand, without centralized structure, they are able to pull together a group of people who don’t agree on everything, without forcing any of them to compromise their beliefs. They are a hydra, much like many of the decentralized militant groups around the world. It’s hard to kill something that has no vital organs. And for each, the existence of the other alleviates that which has plagued every third party that has tried to spring up: the kingmaker excuses. If only one of these movements were to exist, the main party on the other side of the spectrum would get an easy win due to the split vote. If they are both strong, the two party system is out of excuses.

National Budget Vs. Personal Budget

September 25, 2011

• U.S. Tax revenue: $2,170,000,000,000 • Fed budget: $3,820,000,000,000 • New debt: $ 1,650,000,000,000 • National debt: $14,271,000,000,000 • Recent budget cut: $ 38,500,000,000

Got it?

OK, now let’s remove 8 zeros and pretend it’s a household budget:

• Annual family income: $21,700 • Money family spent: $38,200 • New debt on credit card: $16,500 • Outstanding balance on credit card: $142,710 • Total budget cuts: $385

I’ve seen the above posted on a number of sites recently. The oldest source I saw for it was here. I think it’s valid to think of the budget in these terms. Sure, there are differences, such as our government’s ability to legally launder money, but the basic principles of home finance do relate, and taking eight zeroes off helps make things imaginable. Considering that there are approximately 300,000,000 Americans, around half of whom don’t pay income taxes, it isn’t even too far off for figuring your own percentage of the debt. Gimmicks aren’t going to change this chart. You can tax the people to give out loans (more debt) to small businesses, but that is mostly zero-sum. You can tax the people to pay for unemployment to encourage the unemployed to spend money to stimulate demand for products and thus create jobs, but that is like buying your employer’s product on your credit card in order to keep them paying your paycheck; It gets you nowhere or worse. You can tax the rich dry and barely make a dent in that number. Just like in your personal finance, if you want to gain wealth, you need to provide something that someone else needs. If we aren’t selling more to foreign nations than we are buying, we are losing. This isn’t so much a supply or demand problem as it is a relative value problem. If we are going to be on the losing side of this equation, we need to be printing money rather than borrowing it. This may not be fair to the savers, but they will fail right along with the rest of us on the current course. Printing money eventually devalues it. A devalued currency will make imports more expensive and exports more affordable, putting us to our rightful place in the market again. I would also support an eye-for-an-eye tariff policy to prevent socialist nations from taking advantage of us. Until one or both of these things are instituted, our economy will continue to decline. Even with those changes, we also need to reduce our spending on the military, foreign aid, micromanaging regulations, incarceration, social programs for non-citizens, and benefits for public employees.

Stereotypes, Taboo, and Equality by Force

September 25, 2011

If philosophy is questions that may never be answered, and religion is answers that may never be questioned, then politics is asking the wrong questions in order to avoid unwanted answers.

There are times when truth is the bane of politics, often justifiably so. It is one of the most central tenets of our nation that everyone is treated equally under the law.

Or so we say.

If a man and a woman go out for a walk topless, only one of them will be arrested for indecent exposure.

When they turn 18, only one of them has to register for the draft.

Sometimes it is somewhat less certain. If a couple are getting divorced, which one is going to get the kids and which one is going to pay the child support? We all know the answer, most of the time.

In Arizona, if you look Mexican they will ask you for your papers.

Age discrimination is so rampant in our legal system that we wouldn’t even know how to remove it. We consider our kids to be old enough to go overseas and kill and be killed in war years before we consider them to be responsible enough to drink a beer.

And then you have groups who claim to be crusading against discrimination, arguing to mandate it in their favor in order to balance the scales. They argue that high crime rates and low test scores among their constituents are the result of  poverty and tests written by the majority for the majority. They suggest that the solution is affirmative action. Grants for minorities, hiring quotas, and legal protections against discrimination based on their minority status.

I would argue that these things cause the very things they claim to prevent. You can’t just give an opportunity to one person without taking it away from another. Denying a job to the most qualified candidate in order to give it to a lower scoring minority breeds dissension and lowers productivity. It foments racist and sexist thoughts in those who are turned down for the job they are best at.

It also creates a perception of incompetence. Would you want to be a minority who had earned their position through skill and hard work, only to have everyone figure you were given the job to fill a quota? I’m not saying such policy should never be made, but that we need to be honest about all of the effects it will have, rather than optimistic cherry picking. If the state of repression is significantly more serious than the ill will generated, such as slavery or segregated schools, then so be it, but there comes a time when the only time you approach equality is when you take the training wheels off.

I say approach equality rather than achieve equality because I don’t believe we will ever get there. There is no divine entity making sure that everyone’s weaknesses are perfectly balanced out by some hidden strength. Some people are just bad people. Some are weak, some are strong. Science tells us that many of these traits are passed on genetically.

So what do we do when science tells us that people with short index fingers are more prone to violence? What happens when a racial profile accurately predicts aptitude? When a gene predicts that you will cheat on your spouse?

Most of us don’t even want to admit that it might be possible. Pretending that such data doesn’t exist is just hiding our head in the sand. It’s out there. People read it. People act on it. The Amish riding around in buggys doesn’t prevent the existence of military satellites.

If we are to have equal treatment under the law, our only hope is to studiously prevent our government from collecting, interpreting, and acting on details of our personal data. This means in order to prevent such profiling, we also need to be rid of the quotas.

These kinds of issues are things I occasionally ponder. If you are interested in getting a much deeper understanding of the news and issues surrounding the battle between reality and social expediency, there is a blogger who seems to devote his every waking hour to the subject, and I’m sure gets a daily earful of people calling him a racist for doing so. Whether he is or not, he’ll make you think, and alert you to news you just won’t hear elsewhere, for example:

The Cherokee Nation voted to amend their constitution to remove the citizenship of descendants of slaves once owned by its members. More casino money for the rest of the tribe?

Asians pulling away in SAT scores.

Race and DNA based medicine.

Study shows other apes don’t have shared goals.

How Microsoft reduced its  taxation from 25% to 6% in one year.

Dept. of Justice legal loophole to discriminate against Americans.

Last Place Aversion

September 5, 2011

The poor often vote against their own interests. The conventional wisdom on this has been that they one day aspire to be rich, and they are empathizing with their future selves’ wish to have low taxes more than their present situation.

A new study by the national bureau of economic research shows evidence of a much more plausible explanation. Participants were given various sums of money, and an income distribution chart that showed where they stood in relation to the field of other participants. They were then given the choice between giving their money to those below them in the income distribution, or to those above them. Which did they choose?

It varied, but for those who were right above the bottom, they tended to give the money to people above them on the chart. Had they given the moeny to the person below them, then they would have ceded their position and fallen to the bottom themselves.

This theory of last place aversion will make sense to you if you’ve worked a low income job in the years when minimum wage increases have been mandated. Let’s say minimum wage was five dollars an hour. You toiled away at the company for a year and got a fifty cent raise. Now along comes a dollar increase in the minimum wage. After a year of training and experience, you find yourself making the same wage as those who are newly hired. Sure, the company could just raise everyone by a dollar, but that’s a huge expense, and if you’ve been there, you know it doesn’t tend to happen, and that there is plenty of grumbling in the ranks, even when they got a bit of a raise themselves.

Why can’t we just be happy for those who got a wage boost? Why must we look to everyone else to determine our own self worth? If you give one of your pets a bigger treat than the other, you will see that we don’t have a monopoly on the concept of fairness. It’s a survival skill. It drives us to stay ahead of the pack, even if it means keeping the rest of the pack down.

Those who complain one day that the rich are too rich, may the next day complain that the person below them got a bigger raise than them. Handouts to specific groups who are seen as lower on the social totem pole can cause enough resentment to more than cancel out their benefits. Fairness is not a universal construct. Where you stand depends on where you sit.

"When I give food to the poor they call me a saint. 
When I ask why the poor have no food they call me a communist." Camara, Helder

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