Category: Insurance Law


Are Liberals Under-Estimating the Chances that the Catholic Hospitals Will Win Against the Health Care Act?

(Disclaimer — I decided soon after law school not to focus most of my efforts on the Supreme Court or con law.  There are brilliant people who work on it all the time, and I don’t.  But I am a law prof who can’t help noticing some things …)

Last week, liberals went through the near-death experience for the Affordable Care Act — far, far, far closer than the confident predictions of most liberals when the law was passed.

This week, I had the chance to speak in depth with an experienced liberal lawyer about the Next Big Constitutional Thing — the Catholic hospital challenges to the ACA’s requirements that contraception and other coverage must be included for the employees of hospitals, universities, and other Catholic institutions that are not themselves part of the Church.

The lawyer confidently predicted that the Catholic hospitals would lose.  After all, everyone knows the peyote case — Employment Division v. Smith, where a neutral state anti-drug law trumped a Free Exercise of religion argument that would have allowed an adherent to use peyote.  The lawyer said there was no precedent for the Catholic hospitals to win, such a holding would disrupt innumerable neutral state laws, and even Justice Scalia would be bound by his prior writings to find against the Catholic hospitals.

My reaction — “here we go again.”  It felt just like the over-confident predictions that the individual mandate inevitably would be upheld.  And my friend sounded like other liberals who have scoffed at the claims of the Catholic hospitals.

My instinct — as a realist prediction of the outcome, and not as a statement of my policy choice — is that the Catholic hospitals very possibly will win if the case goes to final judgment in the courts.

First, I don’t think Justice Scalia will find that a law prohibiting peyote (a “good” and long-standing law) is remotely similar to a law requiring the Catholic Church, for the first time in history, to buy an insurance package that pays for contraceptives.  He’ll think that the latter is a “bad” law.

Second, the Catholic Church has tens of millions of members in the U.S., and is not the splinter group at issue in the earlier case.  In a realist analysis, the views of a tiny church are not the same as those of the largest organized Church in western history.

Third, the views of the Church on contraception are sincere, widely publicized, and long-standing.  Although many individual Catholics don’t follow the doctrine on this issue, the institution of the Church is firmly on record on the issue.  This is not a pretext to take mind-altering drugs; it is a major doctrinal tenet.

Fourth, many Catholic hospitals are deeply religious institutions.  They often have a cross and a Bible in each room.  Many nuns and priests work in the hospitals.  Providing health care is deeply rooted in the mission of the Church, and has been for many years.  In other words, this is not the equivalent of “unrelated business income.”  Instead, religion and healing of the sick are thoroughly intertwined.

Fifth, and my apologies for mentioning it, six of the nine Supreme Court justices are Catholic.  I am not saying that a Catholic judge will hold for the Church any more than a white judge holds for whites and a black judge holds for blacks.  However, the justices will have deep personal knowledge of the healing tradition of Catholic hospitals.  They will read the briefs in the context of their personal knowledge.  I don’t think they will lightly assume that they are bound by cases with facts that seem to them quite different.

After we went through this list, my liberal friend said that he had adjusted his prediction.  He now thought that some of the district court cases, at least, would go for the Church.  He then added an extra idea — the case may arise under the Administrative Procedure Act, on whether the HHS rule was properly promulgated and consistent with the statute.  His point was that a court may have a “procedural” way to block the rule from mandating that the Catholic hospitals pay for insurance that covered contraceptives.  That might be an easier path for a judge to take than overturning Free Exercise case law, if the judge were inclined to stop the rule from taking effect.

Currently, there are over 20 challenges by Catholic hospitals to this provision.  Smart lawyers in each case will be trying to define distinctions that will retain the peyote precedent while letting the hospitals win this case.  Randy Barnett and others had a huge success with the “action/inaction” distinction about the individual mandate. My realist instincts are that we will see the emergence of clever, new distinctions for the hospital cases.

I think that many liberal con law experts were complacent when the individual mandate was challenged.  If they are complacent again about the Catholic hospital cases, then I, for one, will not be surprised to see the current HHS approach struck down.

Excellent Discussion of Long Term Care

As someone who teaches in the health/insurance law area, I get a lot of questions about long term care insurance. Much of the literature in the area is turgid and forbidding for nonspecialists. Corporate brochures are long on promises and short on “worst case scenarios” that could easily befall those who misunderstand the “product.”

I commend the Diane Rehm show for hosting an excellent discussion of LTC here. Lawyers of a certain cast of mind will relish the calls in the last half of the program, featuring real life stories of recissions, pre-existing condition exclusions, hidden premium hikes, and all manner of ingenious fine print designed to keep profits high and payouts low. The CLASS Act would have addressed some of these issues. One of the triumphs of the “Anti-Obamacare” Tea Party movement was to get that repealed. Maybe they’re counting on 401(k)s.

Invisible Hand or Hidden Fist?

In his press conference last week, Ben Bernanke concluded on an upbeat note. He had high hopes for a US recovery, since he believed that the Great Financial Crisis (GFC) of 2008 hadn’t taken from the US any of its basic productive capacity.

Whatever the merits of that view, the GFC did highlight debilitating trends in US finance infrastructure that have been intensifying for years. In this week’s Businessweek, Hernando de Soto (with Karen Weise) highlights one of the most important: the opacity of key markets and relationships. With scant exaggeration, de Soto warns that the US is on its way to levels of uncertainty more common in developing and communist countries:

During the second half of the 19th century, the world’s biggest economies endured a series of brutal recessions. At the time, most forms of reliable economic knowledge were organized within feudal, patrimonial, and tribal relationships. . . . The result was a huge rift between the old, fragmented social order and the needs of a rising, globalizing market economy.

To prevent the breakdown of industrial and commercial progress, hundreds of creative reformers concluded that the world needed a shared set of facts. . . . The result was the invention of the first massive “public memory systems” to record and classify—in rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of account—all the relevant knowledge available, whether intangible (stocks, commercial paper, [etc]), or tangible (land, buildings, boats, machines, etc.). Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: “economic facts.”

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After Makena: Could a Risk Corridors Approach Balance Incentives and Access?

The past few weeks have been worrying ones for expectant mothers who wanted a hormonal treatment designed to stop preterm births. As Rob Stein of the WaPo explains,

A form of progesterone known as 17P was used for years to reduce the risk of preterm birth. . . Because no companies marketed the drug, women obtained it cheaply from “compounding” pharmacies, which produced individual batches for them [at about $20 each]. Doctors and regulators had long worried about the purity and consistency of the drug and were pleased when KV won FDA’s imprimatur for a well-studied version, which the company is selling as Makena.

The list price for the drug, Makena, turned out to be a stunning $1,500 per dose. That’s for a drug that must be injected every week for about 20 weeks, meaning it will cost about $30,000 per at-risk pregnancy. . . . The approval of Makena gave the company seven years of exclusive rights, and KV immediately fired off letters to compounding pharmacies, warning that they could no longer sell their versions of drug.

A day after Stein’s article appeared, the FDA made it clear that it “does not intend to take enforcement action against pharmacies that compound” 17P, “in order to support access to this important drug, at this time and under this unique situation.”

This is a fascinating, and in some ways troubling, response to the accusations of price-gouging by KV. Nonenforcement here has some eerie parallels to the epidemic of waivers now undermining the implementation of the ACA.

Compounding pharmacists had already averred that “many of [KV’s] assertions that the compounding of an FDA approved product is prohibited are not supported by the legal citations it references.” Though the FDA’s letter preserves access to 17P for now, that access could be revoked at any time. As the FDA states on its website:
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Creating Disposable People

Those with criminal records have long faced devastating collateral consequences for their convictions. Those with “preexisting conditions” should also keep worrying, especially if the big plan to repeal the ACA goes ahead. Consider this story on one person’s quest to obtain insurance:

Most employees assume that if they lose their job and the health coverage that comes along with it, they’ll be able to purchase insurance somewhere. . . .My husband, teenage daughter and I were all active and healthy, and I naïvely thought getting health insurance would be simple. . . .

Then the first letter arrived — denied. . . .What were these pre-existing conditions that put us into high-risk categories? For me, it was a corn on my toe for which my podiatrist had recommended an in-office procedure. My daughter was denied because she takes regular medication for a common teenage issue. My husband was denied because his ophthalmologist had identified a slow-growing cataract. Basically, if there is any possible procedure in your future, insurers will deny you. . . .

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I want to provide some support for the claims made in my previous post, summarizing the main findings of my book Perceptions in Litigation and Mediation. Below are two of the many areas that support the “parallel worlds” theme relating to the different understandings of legal case processing and case resolution as between legal actors and lay litigants.


Chapter 2 explores and attempts to make sense of an issue fundamental to litigation in general as well as mediation in particular: What do plaintiffs want? Why plaintiffs sue, and their consequent litigation aims should have a marked impact on their objectives and experiences in litigation and litigation-linked mediations. Likewise, attorneys’ objectives, approaches to their cases and conduct throughout litigation and mediation are affected by their basic understandings of what those who commence these suits want; that is, what the cases are about. Little is known about what litigants really want from the civil justice system and what they aim to achieve. Consequently we have little knowledge of whether litigants’ real objectives are met by the realities of civil litigation including litigation–linked processes such as mediation.


Virtually all physician lawyers were of the strong belief that plaintiffs had sued for financial compensation alone. Even the two who mentioned that non-fiscal objectives might also have been involved put much emphasis on claimants’ primary monetary aims.

The following excerpts are typical of defense physician lawyers in answering the global question, ‘WHAT IN YOUR VIEW WERE THE PLAINTIFF’S AIMS IN LITIGATING?’

‘My view is the issue was money, to compensate for the pain associated with the deterioration, and to compensate for lost income associated with the surgery that was necessary. SO IT WAS MONEY ALONE? I believe so.’ Male attorney-50’s-prescription alleged to have destroyed bone tissue, resulting in 40-year-old plaintiff undergoing hip replacement surgery-litigating several months

‘To settle it. Their assumption was that this would never go to trial; that they would get money out of this beforehand. SO, YOU FEEL IT IS SOLELY AN ISSUE OF OBTAINING FINANCIAL COMPENSATION Yes, but I also think that they are of the view that if they obtain financial compensation it will make…them feel better. I think they’re misguided on that.’ Female attorney-30’s-abdomen not left intact after surgery litigating several months

‘I think in virtually all cases it’s directly driven by their desire for compensation…The sole aim, you know, in most of the cases it is to be financially compensated for the wrong. And I would say that’s in 99% of the cases I do, that’s what plaintiffs want.’ male attorney-30’s-child fatality case-litigating 4 years Read More


Blacklisted from Health Insurance

pills1.jpgFor the millions of people losing their jobs and having to obtain health insurance on their own, they are in for quite some difficulty if they have a pre-existing condition. According to the Miami Herald:

[M]aterial available on the Web shows that people who have specific illnesses or use certain drugs can’t buy coverage.

”This is absolutely the standard way of doing business,” said Santiago Leon, a health insurance broker in Miami. Being denied for preexisting conditions is well known, but when a person sees the usually confidential list of automatic denials for himself, “that’s a eureka moment. That shows you how harsh the system is.” . . . .

Searching the Web, The Miami Herald found underwriting guidelines for Coventry Health Care, which owns Vista; Wellpoint; Assurant Health; and Blue Cross Blue Shield of Nebraska.

Among the health problems that the guides say should be rejected: diabetes, hepatitis C, multiple sclerosis, schizophrenia, quadriplegia, Parkinson’s disease and AIDS/HIV.

For cancer, the key is how patients have been doing in remission. Wellpoint, a national insurer, rejects applicants who have had breast or prostate cancer within the past five years. With other types of cancer, 10 years must have passed. Assurant Health, based in Milwaukee, rejects most patients whose cancer has not been in remission for at least eight years.

Other reasons for automatic denial by various companies: alcohol-related problems of people who have not been abstinent for at least six years, chronic bronchitis, severe migraines, and a cardiac pacemaker installed within the last two years.

Some insurers will automatically reject applicants who are using certain prescription drugs. Wellpoint denies anyone who within the past year has taken Abilify and Zyprexa for mental disorders as well as Neupogen, which is used to treat the side effects of chemotherapy. Vista lists the anticoagulant Warfarin and the pain medication Oxycontin. Both companies list insulin.

The article also discusses how the insurers use database companies to gather data about people’s medical conditions and prescription drug use:

To make sure that applicants are not lying, insurers hire a data-gathering service — Medical Information Bureau, Milliman’s Intelliscript or Ingenix Medpoint.

Intelliscript and Medpoint do computerized searches of a person’s drug use, gleaned from pharmacy benefits managers and other databases.

The difficulty is that if a person has a disease, then it may be nearly impossible for that person to obtain health insurance. My advice: (1) stay employed; (2) don’t get ill. Otherwise, you’re basically out of luck.


Eighteenth-Century Lessons for Credit Default Swaps

hogarthcoffeehouse.jpgOf late I’ve been reading Niall Ferguson’s The Ascent of Money: A Financial History of the World, and I’ve been struck again at how similar the rise of the modern CDS market is with the rise of maritime insurance at Lloyd’s Coffee House in the early 18th century.

Originally, of course, there weren’t insurance companies. Rather, individual merchants and speculators would meet informally at Lloyd’s Coffee House in London. Suppose that there was a merchant with a ship that was about to make a voyage to America that he wished to insure against loss due to the perils of the sea. He would arrive at Lloyd’s with a written contract promising to pay him so much in the event that his ship went down. He would also arrive with money — or at least the willingness to pay it. He would then circulate through the coffee house, looking for those who were willing to sign the contract. Suppose that the contract promised to pay out 5,000 pounds in the event that the ship went down. Some people would sign for one pound of liability, some for 100 pounds, some for 1,000 pounds. Each underwriter would, of course, be paid by the merchant for their signature in proportion to the amount of liability that the underwriter took on. In the end, the merchant would have an insurance contract on his ship signed by a pool of investors who in aggregate were paid less than the insured value of the ship. Of course, while he was at Lloyd’s the merchant might pick up a bit of money by signing on as an underwriter on another merchant’s insurance contract. Before too long there were people who made their living (or at least tried to) entirely with in Lloyd’s Coffee House.

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Why Should the Government Subsidize Terrorism Insurance?

Just before Christmas President Bush signed into law a second extension of the Terrorism Risk Insurance Act of 2002 (TRIA). This Act hasn’t gotten a lot of press, but it provides a pretty substantial subsidy for the insurance industry. In non-technical terms (because the technical terms are so complicated that one needs a slide rule, a pocket protector, and several actuarial tables to understand the terms completely), under this Act the government requires all commercial (not residential) property/casualty insurers to offer insurance for terrorism risks. In exchange, the government agrees to pay 90% of all losses over a certain amount (determined by a complex formula) that result from certified acts of terrorism. In short, the government provides reinsurance for commercial insurers in the case of a terrorist attack. But unlike normal reinsurance agreements, commercial insurers pay nothing up front for the reinsurance. They get to distribute their risk free of charge. Rather, if an act of terrorism occurs, and the insurance industry pays out over their limit, and the government is forced to pony up some cash, then the government has the right to recover its costs from future premiums received by the insurance companies.

Two things puzzle me about this Act: why we need the government to provide this service and why the government is providing this service for free.

The common justification for this act is as follows: Without insurance for terrorism, there would be significant disruptions in certain sectors of the economy and this would have an adverse macroeconomic impact. Insurance companies won’t provide terrorism coverage because terrorist acts are not probabilistic and are thus uninsurable. That is, insurance companies claim that they cannot provide terrorism insurance because they cannot predict how often terrorist attacks are going to occur or how large the impact will be. Thus, the government has to step in to force insurers into the market.

But this doesn’t make sense to me. Certainly we have enough data to make some guess about the costs and frequency of terrorism, and insurance companies can price their products based on that information. Moreover, although it is certainly a possibility that an attack will be so large as to make insurance and reinsurance impossible (e.g., the entire country is leveled in fell swoop), most insurance and reinsurance companies should be able to create a portfolio large enough to eliminate most of the concerns about the size of the attack. Please take a look at this article by Dwight Jaffe and Thomas Russell for a more thorough explanation.

Even if one believes that government should step in to this market, it is unclear why the government is providing this service for free. In any other insurance context, the insured has to pay a premium to receive the security that someone else will step in to pay some of the insured’s losses. Here, the insurance companies are paying nothing up front. The government is taking the entire risk. This is quite a subsidy for insurance companies. I assume that this is being factored into the price of the insurance products being offered, but that just seems like another subsidy for business and industry. Remember, there is no requirement under TRIA for insurance companies to provide residential terrorism insurance.

Yet this bill has created a bit of a topsy turvy world in D.C.: The Dems are on the side of the insurance industry and big business and the Republicans are against. What am I missing here?