Insurance for organ donors in Ireland: is it compensation?

Frank McCormick points out this interesting story from Ireland:

If you're donating an organ, you can now get insurance cover
The new Royal London Ireland offering has come in for criticism...

"Royal London Ireland has announced that it will now offer a "financial cushion" for policyholders who donate a kidney, bone marrow or portion of a lung or liver to another family member.

The first-of-its-kind "organ donor cover" has been introduced as part of the insurance provider's Specified Serious Illness (SSI) cover.

Under the newly-revamped policy offering, Royal London will pay a €2,500 one-off lump sum to living donors.

In the wake of the news, concerns have been raised that it amounts to "cash for organs" and is unsavoury and unethical.

Mark Murphy, chief executive of the Irish Kidney Association, has said:

"We don't need insurance companies offering these things, we have a compensation scheme... It's not necessary, it's not needed. They shouldn't be doing it, on the basis that it's not needed."

 Colette Houton, Royal London's underwriting and claims lead, commented:

"The supply of organ donations is an ongoing issue in this country, with an ever-increasing demand from those who are unfortunate enough to need organ transplantation.

"This shortage has led to more people receiving organs from living donors...

"It would be nice to think our pay-out could potentially help to offset the cost incurred as part of the admirable, altruistic acts that living donors are carrying out...

"Potential donors can face loss of earnings coupled with high medical bills and expenses and our goal is to alleviate these worries and concerns somewhat, by providing some financial aid to support them through surgery and recovery time.

"Living organ donation is an admirable, altruistic act and a lump sum can, at least, help to offset any costs the donor incurs following the operation and recovery involved."
*********

Here's a related press release from the Irish Brokers Association:
Royal London Launch Best-in-Class Serious Illness Cover

Insurance markets for terrorism

From Business Week:

The Unexpected Threat to Super Bowl XLIX
By Howard Kunreuther and Erwann Michel-Kerjan, December 09, 2014

"If you’ve already bought tickets for Super Bowl XLIX or are looking forward to watching it with your friends and family, you may be surprised to learn that there is a chance it might not be played. Congress first needs to make a decision on renewing a piece of legislation that you possibly never have heard of: TRIA—the Terrorism Risk Insurance Act.

"TRIA was signed into law in 2002 in the aftermath of the 9/11 terrorist attacks, establishing a risk-sharing partnership between the federal government and the insurance industry that made terrorism insurance widely available to U.S. businesses—among them, organizers of sporting events. Without federal support, most insurers had been unwilling to offer coverage. TRIA was renewed in 2005 and in 2007. It is set to expire on Dec. 31 unless Congress renews it. With two weeks until the deadline, the clock is ticking.
...
"Before 9/11, insurers included terrorism coverage in all commercial policies without charging for it because the risk was below their threshold level of concern. But after paying $44 billion in claims for 9/11—at that time the most costly disaster in the history of insurance—most insurers excluded terrorism from commercial policies.
...
"TRIA addresses the insurance supply problem. Under the program, the federal government provides a financial back-up for insurers by covering a portion of insured losses above $27.5 billion, up to $100 billion, giving the insurance industry some certainty as to its maximum exposure. In return, insurers are required to offer terrorism coverage to all business clients, which can decide to purchase coverage or not. About 60 percent of large businesses carry terrorism insurance, indicating strong demand for it.

Unless TRIA is reauthorized during the next two weeks, insurers will have the right to cancel terrorism insurance policies after Jan. 1. They are likely to do so for fear of insolvency should a massive terrorist attack take place with no government backup. By law, only insurance companies offering workers’ compensation insurance must include terrorism peril in their policies, whether or not TRIA is renewed. The only way for those insurers to limit their exposure to terrorism—say, in large metropolitan areas where they are heavily concentrated—might be to cancel some commercial insurance policies altogether if TRIA is not in place. Some businesses would then be unprotected against a wide variety of risks, ranging from fire to industrial accidents."
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See also the Wharton Risk Center report, “TRIA After 2014

The Financial Times excerpts "In 100 Years"

I've blogged before about the book of essays edited by Ignacio Palcios-Huerta, "In 100 Years..."  Now the Financial Times has published short excerpts of three of the essays, by Marty Weitzman, me, and Bob Shiller. Below are excerpts of the excerpts...

Forecast: The world in 2114
Economists predict that geo-engineering, performance drugs and artificial intelligence will shape our future

Martin Weitzman

If there is one natural bridge spanning the chasm between today and a century from now, it is climate change. We can envision only the foundation of this bridge. Even so, we can make out enough features to sense that something big and possibly ominous may be on the distant horizon.

• Alvin Roth

The biggest trend of future history is that the world economy will keep growing and becoming more connected. Material prosperity will increase and healthy longevity will rise. While greater prosperity will not eliminate competition, it will give people more choices about whether and how hard to compete. Many will opt for a slower track, spending more time accumulating youthful experiences. Retirement will be a longer part of life and new forms of retirement will emerge.

For those who wish to compete, there will be technological developments to help them. Some of these, such as performance-enhancing drugs, are becoming available today but are widely regarded as repugnant. That repugnance seems likely to fade.

• Robert Shiller

The next century carries with it any number of risks as an unprecedented number of people attempt to live well on a planet with limited resources, with more dangerous strategic weapons of mass destruction, and with the flourishing of new information technologies that stir up labour markets and create career risks.

Much of the management of these risks will be in the domain of science and engineering but there is also the purely financial and insurance domain. There is an expectation that with the help of new technology, far better risk management will be deployed against all these risks.

Kidney Grafts Function Longer in Europe Than in the United States

There's a report that Kidney Grafts Function Longer in Europe Than in the United States

"Kidney transplants performed in Europe are considerably more successful in the long run than those performed in the United States. While the one-year survival rate is 90% in both Europe and the United States, after five years, 77% of the donor kidneys in Europe still function, while in the United States, this rate among white Americans is only 71%. After ten years, graft survival for the two groups is 56% versus 46%, respectively.

"The results of the study show particularly large differences in graft survival among children and young adults between Europe and the US. One reason for the poorer results in the United States may be the fact that costs of anti-rejection drugs are usually reimbursed by Medicare for only three years, while in Europe, the statutory health insurance guarantees lifelong reimbursement of costs. In the United States, patients who have undergone kidney transplants often have to pay for these drugs themselves. Costs amount to around US $20,000 per year."

Death and choices

Two apparently unrelated stories in the NY Times both raise the issue of what choices about the end of life are and should be available, for the terminally ill, and for others.  One concerns the experience of Oregon and Washington* with physician assisted death for terminally ill patients, the other concerns the sale of life insurance contracts to investors.  Both involve transactions that used to be, and still often are, regarded as repugnant, in one case between doctors and patients, and in the other between patients (or simply the elderly) and anonymous investors.

Assisted suicide for the terminally ill has long been controversial, and the Washington law insists that prescription drugs be "self administered" which can be a problem when movement and swallowing become hard.  On the insurance side, "viatical settlements" are often regarded as repugnant because the investors win when you die, as opposed to life insurance companies which make their money while you live. But, of course, insurance companies also offer annuities, in which they win when you lose... (See my 2009 post on "Death Pools".)

Here are some quick summary quotes from the two stories...

A Surprise Reflection of Who Picks Assisted Suicide

"Washington followed Oregon in allowing terminally ill patients to get a prescription for drugs that will hasten death. Critics of such laws feared that poor people would be pressured to kill themselves because they or their families could not afford end-of-life care. But the demographics of patients who have gotten the prescriptions are surprisingly different than expected, according to data collected by Oregon and Washington through 2011.
...
"While preparing advance medical directives and choosing hospice and palliative care over aggressive treatment have become mainstream options, physician-assisted dying remains taboo for many people. Voters in Massachusetts will consider a ballot initiative in November on a law nearly identical to those in the Pacific Northwest, but high-profile legalization efforts have failed in California, Hawaii and Maine.

"Oregon put its Death With Dignity Act in place in 1997, and Washington’s law went into effect in 2009. Some officials worried that thousands of people would migrate to both states for the drugs.

“There was a lot of fear that the elderly would be lined up in their R.V.’s at the Oregon border,” said Barbara Glidewell, an assistant professor at Oregon Health and Science University.

"That has not happened, although the number of people who have taken advantage of the law has risen over time. In the first years, Oregon residents who died using drugs they received under the law accounted for one in 1,000 deaths. The number is now roughly one in 500 deaths. At least 596 Oregonians have died that way since 1997. In Washington, 157 such deaths have been reported, roughly one in 1,000.

"n Oregon, the number of men and women who have died that way is roughly equal, and their median age is 71. Eighty-one percent have had cancer, and 7 percent A.L.S., which is also known as Lou Gehrig’s disease. The rest have had a variety of illnesses, including lung and heart disease. The statistics are similar in Washington.
*********************

Are You Worth More Dead Than Alive?
"Fiedler, who owns a firm called Innovative Settlements, knew that a life-insurance policy is an asset that can be resold to a friend or stranger just as a car, boat or house can. In a transaction known as a viatical settlement (for terminally ill patients) or a life settlement (for everyone else), the person selling his insurance gets an immediate cash payment. The buyer, in exchange, is named as the beneficiary and pays the premiums until the insured person dies. Life no longer afforded Robles a traditional way to make money, but to the right investor, Fiedler advised, his imminent death was worth a great deal.
...
"Betting on when somebody will die seems so creepy that it’s hard to believe the practice is legal. Sure, people pay good money to buy life-insurance policies, so perhaps that should confer the right to sell them as well. But the freedoms of ownership are not unlimited, especially when it comes to anything related to life and limb. Possession of and control over what happens to your own body is a fundamental human right. Nonetheless, that hasn’t stopped cultures from banning prostitution, organ sales or for-profit surrogate parenthood. The justification for such infringements upon bodily sovereignty is that people should be protected from financial incentives to harm themselves, and you could argue that a life settlement creates just such an incentive."




*********************

*The Washington Death with Dignity Act, Initiative 1000, codified as RCW 70.245, passed on November 4, 2008 and went into effect on March 5, 2009.

This act allows terminally ill adults seeking to end their life to request lethal doses of medication from medical and osteopathic physicians. These terminally ill patients must be Washington residents who have less than six months to live.

Towards a standard acquisition charge for living donor kidney exchange

The U.S. Agency for Healthcare Research and Quality has awarded a grant to the Alliance for Paired Donation to explore a standard acquisition charge for living kidney donors.

(See this paper for a description of the problem:  Call to develop a standard acquisition charge model for kidney paired donation. Rees MA, Schnitzler MA, Zavala EY, Cutler JA, Roth AE, Irwin FD, Crawford SW, Leichtman AB, Am J Transplant. 2012, Jun; 12(6), 1392-7.)

Here's part of the press release:

 "A pilot project led by The University of Toledo that could increase the number of kidneys available for transplant by the thousands and save U.S. taxpayers millions if implemented nationwide has been funded by the U.S. Agency for Healthcare Research and Quality.

 “Many tests need to be conducted to ensure that a kidney donor and recipient are compatible and that it is safe for the donor to donate,” said Dr. Michael Rees, a University of Toledo Medical Center transplant surgeon and principle investigator of the four-year, $2 million grant. “One of the primary barriers to greater kidney availability is that once an insurance company or Medicare learns that Donor A’s kidney isn’t compatible with Recipient A, they stop funding the tests and no transplant occurs.

“This grant will enable us to create an entity that pays to complete Donor A’s tests, which allows us to discover that Recipient B in another part of the country is compatible,” Rees said. “Once Donor A gives to Recipient B, the insurance company for Recipient B will reimburse the entity for the cost of Donor A’s tests. In a similar way, it may be Donor K or Donor W who ultimately ends up being compatible with Recipient A.”

"Rees estimated that if such a model was expanded nationwide, as many as 1,000 to 3,000 additional kidney transplants would be possible each year.

“The savings to Medicare and insurance companies could reach into the hundreds of millions of dollars due to the elimination of regular treatments like dialysis and other medical efforts for those waiting for an organ,” Rees said.

"To execute the pilot project, UT will partner with the Southwest Transplant Alliance and the Alliance for Paired Donation, an organization founded by Rees to help incompatible kidney donors and recipients find alternative compatible matches. The Alliance for Paired Donation is a Northwest Ohio-based not-for-profit entity that has partnered with more than 80 transplant centers across America to find matches for their patients.

...
"Gold and Rees thanked U.S. Senator from Ohio Rob Portman and Congresswoman Marcy Kaptur for their help in advocating for the value of the grant to those in need of a kidney transplant.
...
"By establishing a standardized charge nationwide for the compatibility testing, removal and transplantation of a kidney, the United States could remove the business disincentive currently in place that inhibits kidney donations across states, across different insurance companies, and between Medicare and Medicaid and private insurers, Rees said.

“This grant will show this idea can work,” Rees said. “The next step will be convincing all parties involved that the concept works and then scaling this project up to the national level using the experience gained to save thousands of lives and millions of dollars every year going forward.”

"In June, Rees and UTMC earned national acclaim for coordinating the first international altruistic kidney donation chain. An earlier chain that began in 2009 has also been covered by People Magazine and published in the New England Journal of Medicine.

Ship insurance, ship ownership, and arms embargoes

The breakout of cold war politics regarding the emerging civil war in Syria casts some light on the insurance markets for ships. Briefly, the United States would like to enforce an arms embargo on the Syrian government, and the Russians are supplying arms. What tools are in Washington's arsenal, short of acts of war?  It turns out the answer is ship insurance. (And ship insurance may be a simpler market than ship ownership...) The Telegraph reports: US enlists Britain's help to stop ship 'carrying Russian attack helicopters' to Syria


"Washington, which last week condemned Moscow for continuing to arm the Syrian regime, has asked British officials to help stop the Alaed delivering its alleged cargo by using sanctions legislation to force its London-based insurer to withdraw its cover.

"Under the terms of the current European Union arms embargo against Syria, imposed in May last year, there is a ban on the "transfer or export" of arms and any related "brokering" services such as insurance. Withdrawal of a ship's insurance cover would make it difficult for it legally to dock elsewhere and could force it to return the cargo to port.
...
"It is insured by Standard P and I Club, which is managed by Charles Taylor and Co Ltd of London, whose offshore syndicate director, Robert Dorey, confirmed on Saturday that they were investigating claims that the ship was carrying arms.
...
"Like most international cargo ships, the Alaed has a complex ownership and management structure. Its registered owner is Volcano Shipping on the island of Curacao in the Dutch Antilles, but it is listed as part of a fleet belonging to a Russian company, FEMCO, which was unavailable for comment last night. According to FEMCO's website, the ship's commercial management and chartering is carried out by United Nordic Shipping, a Danish company based in Copenhagen, but yesterday, United Nordic shipping said that the management agreement had never actually been finalised, and that FEMCO's website was wrong.
************

The insurance on the ship in question has subsequently been cancelled, and the news reports leave me in some doubt about what happens next.

The Telegraph thinks the withdrawal of insurance stops the ship:
Britain stops Russian ship carrying attack helicopters for Syria: A Russian ship believed to be carrying helicopters and missiles for Syria has been effectively stopped in its tracks off the coast of Scotland after its insurance was cancelled at the behest of the British government.

"As it neared the Dutch coast, the authorities there also hailed the ship, the security sources said, and it made an abrupt turn, heading towards Scotland. It was last night now off the coast of the Hebrides but with no insurance covering the ship security sources say it may now have to return to port."

 The NY Times is less sure: Insurer Cancels Policy on Syria-Bound Russian Ship

"The ship, the 400-foot MV Alaed, owned by the Russian shipping company Femco, was last tracked about 100 miles to the west of Scotland early Tuesday, according to data available online. The state-owned Russian news agency Ria Novosti reported that it was carrying “a cargo of Mil Mi-25 attack helicopters” and “coastal-based anti-ship missiles” to Syria.

"Its insurer, the Standard Club, said in a statement that the coverage was withdrawn, raising the prospect that the ship would be delayed as it sought an alternative, because its cargo had breached Standard Club's rules. "We were made aware of the allegations that the Alaed was carrying munitions destined for Syria," the statement said. "We have already informed the shipowner that their insurance cover ceased automatically in view of the nature of the voyage."

"It was not immediately clear why the cargo ship was off the coast of Scotland on its voyage to Syria or whether the ship would continue in defiance of the insurance policy withdrawal."

Mike Rees and Greece: an intercontinental kidney exchange

Greece and USA Complete First Intercontinental Kidney Paired Donation Transplant

International Press Conference at the Embassy of Greece (6/1/12, 11:00 a.m.)

Five Lives Saved and Three More Transplants Scheduled

Six Transplant Centers across USA and One in Greece Involved

               Washington, May 29, 2012 - Medical history was made when a 31-year-old Oklahoma woman altruistically donated her kidney to a stranger—a Greek man living in Athens, Greece.  In return, the Greek man’s wife has now donated one of her kidneys to another person in Wilkes-Barre, Pa., completing the first intercontinental kidney exchange and opening a door that potentially can save thousands of lives in the U.S., as well as others throughout the world. 

               The United States and Greece will be holding an international press conference announcing this first intercontinental Kidney Paired Donation (KPD) and subsequent pay-it-forward chain of kidney transplants. The announcement will be made at the Embassy of Greece by Ambassador Vassilis Kaskarelis, on Friday, June 1, at 11 a.m. 

               The process known as “Kidney Paired Donation (KPD)” takes place when a donor who is incompatible with their designated recipient promises to donate their kidney to a stranger in order to enable their designee to receive a compatible kidney from another stranger. Most often KPDs are between designated donors but can also be started or facilitated by an altruistic donor (someone who gives a kidney without expecting a kidney back for a loved one). Though paired exchanges have been taking place in the U.S. for over 10 years, the idea and concept of enlarging the donor pool, thereby getting more Americans transplanted, by including other nations, has been problematic due to the transplant laws governing other nations as well as those in the United States. 

               The break-through came as a result of the tireless efforts of Dora Papaioannou-Helmis, who had been working to save her husband’s life and to advocate for changes to the Greek law regarding organ transplantation. Dora and Michalis were the first internationals entered into America’s “Alliance for Paired Donation” recipient and donor pool. This achievement was the result of the close work and cooperation between Greece and the U.S.

Michael Rees, MD, PhD, Director of Transplantation at the University of Toledo Medical Center and CEO of the Alliance for Paired Donation, will give an account of what occurred for this intercontinental KPD to become possible. Dora and Michalis, the Greek couple that participated in the KPD, will be present at the press conference, along with Elizabeth Gay, the altruistic donor who started the chain, and the recipient and donor from Pennsylvania. In addition, Greek and U.S. physicians from the hospitals involved in this chain of transplants and those who facilitated and helped change the Greek law, will be present to answer questions.

The Alliance for Paired Donation is an American non-profit organization (501-c-3) supported by public, private, corporate and government grants that facilitates kidney paired exchanges throughout the world. Services provided are completely free for both donors and recipients. Often, financial support for travel, food, and lodging is provided by the Alliance for Paired Donation, when necessary.

What: International Press Conference                                                                                     RSVP or for Further Information

When: Friday, June 1, 2012                                                                                                       Embassy of Greece – Press Office

Time: 11:00 a.m.                                                                                                                        Maria Galanou, Press Attaché

Where: Embassy of Greece                                                                                                       P: 202-332-2727, M: 202-657-1236

2217 Massachusetts Avenue, N.W., Washington, D.C.                                                          Email: pressoff@greekembassy.org 

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Update from Jewish Hospital Transplant Center in Louisville: "The chain began when a 31-year-old Oklahoma woman, Elizabeth Gay, altruistically donated her kidney to a stranger—Dora’s husband, Michalis.  In return, Dora donated one of her kidneys to another person in Wilkes-Barre, Pa., completing the first intercontinental exchange and opening a door that potentially can save thousands of American lives, as well as others throughout the world.  A kidney from the donor in Wilkes-Barre, Pa. was flown to Jewish Hospital for JoAnn Breckinridge, and thus the chain continues.

“We were honored to be part of the first international paired kidney donation,” said Marvin.  “It only takes one caring individual to start the chain that can save so many lives.  We are grateful to the generosity of each donor that was part of this paired donation.”

"The successful transplants were also completed at: The University of Toledo Medical Center, in Toledo, OH; Geisinger Wyoming Valley Medical Center in Wilkes-Barre, PA; and Scripps Green Hospital in La Jolla, CA. Three more transplants in the chain will take place shortly at Piedmont Hospital in Atlanta and the University of Colorado Hospital in Denver. To date, one Greek and four American lives have been saved and three more transplants are expected within weeks as a result of the first intercontinental kidney donor chain. 

"Though paired exchanges have been taking place in the United States for over 10 years, the idea of enlarging the donor pool by including other nations, thereby getting more Americans transplanted, has been problematic due to the variability in national transplant laws. As a result of Dora’s efforts and the keen insight of the Greek government to adopt new health laws regarding organ transplantation, kidney paired transplantation became legal in Greece. In essence, this allowed the Greek national health insurance system to pay for kidney transplants emanating from a paired exchange system within and outside of the country."
********
Further update: the Toledo Blade celebrates Mike Rees: Local surgeon aids historic kidney swap

Penny wise and pound foolish: now in the NEJM

It's truer than ever that in the United States we have a foolish Medicare policy of only paying for three years of anti-rejection drugs following a kidney transplant, even though Medicare covers the larger costs of dialysis and/or re-transplantation.

And now it's peer reviewed: the New England Journal of Medicine picks up the story in its February 1 2012 issue: "Penny Wise, Pound Foolish? Coverage Limits on Immunosuppression after Kidney Transplantation" by Gill and Tonelli.

"As a treatment for end-stage renal disease (ESRD), kidney transplantation is superior to dialysis for improving patient survival rates and quality of life. Its long-term success, however, requires ongoing treatment with immunosuppressive drugs. Ironically, although many of the pivotal discoveries related to immunosuppression have been made in the United States, U.S. kidney-transplant recipients do not benefit from a coherent funding policy for these drugs, and thousands of such patients are therefore at risk for allograft failure and premature death. Ensuring lifetime access to these medications for all Americans with kidney transplants would save lives as well as reduce the total cost of treating patients with ESRD.
...
"Premature transplant failure is the fifth leading cause of initiation of dialysis in the United States. Unfortunately, approximately 25% of patients whose transplants fail die within 2 years after returning to dialysis. This outcome is worse than the 2-year mortality among patients with a functioning transplant from a deceased donor (6%) and still worse than that among age-matched dialysis patients who have never received a transplant (20%).
A second transplant is the best treatment option for a patient whose transplant has failed, but the opportunities for repeat transplantation are much more limited than those for initial transplantation. Candidates for repeat transplantation account for about 20% of patients on the waiting list but (because of sensitization from their failed allograft) receive only 12% of the deceased-donor kidneys transplanted annually in the United States."

Here's my earlier blog post on the subject:

Tuesday, September 15, 2009

Penny wise and pound foolish on kidneys and antirejection drugs

HT: Scott Kominers

Gender and annuities: insurance as a repugnant transaction in EU

Considerations of public policy sometimes contribute to making certain kinds of transaction repugnant.
Ran Shorrer points me to this recent decision: Annuities hit by European court ban on gender bias

"The European Court of Justice (ECJ) has ruled gender based pricing of annuity and insurance contracts is incompatible with human rights.

"The ECJ has confirmed a challenge by Belgian courts asking whether taking gender into account when writing private insurance contracts was incompatible with European anti-discrimination directives.


"The Court has ruled that, in the insurance services sector use of gender bias will be invalid with effect from 21 December 2012.
"Currently the expectation by UK providers that men will live shorter lives means males receive a higher income per year from their annuity contract than women with the same size pension pot."

Ran writes: "Since life expectancy really differs between men and women, and since this is a signal that cannot be manipulated , it was widely used and its ban constitutes a huge problem to the producers."

Jon Baron has a new blog

Jonathan Baron's new blog, Judgment misguided, starts with a great post on Troubles understanding health-insurance reform. Read it, and you're likely to want to add it to your bookmarks, as I did.

He gives a quick quiz on the relevant economics to a web sample of Americans, and finds that indirect effects (let alone equilibrium adjustments of prices and behavior) are hard to understand.

Incentives for buying health insurance when healthy

My colleague Marty Feldstein worries in the Washington Post about potential incentive mis-alignments in new health care legislation: Obamacare's nasty surprise-Fewer insured, higher costs might be the result


"Here's why: A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.
This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.) "


HT: Mankiw

Where burial societies go to die

The NY Times has a story on burial societies, cooperatives set up by immigrants in the 1800s and early 1900s to buy and maintain cemeteries. Membership came with burial rights. But the members of the remaining burial societies are aging, and as the society administrators die, it is hard to find replacements: With Demise of Jewish Burial Societies, Resting Places Are in Turmoil .

Various public agencies have gotten involved, e.g. in NY, the New York State Division of Cemeteries exercises general supervision over cemeteries, while the New York State Insurance Department supervises insurance companies. A burial society is both. The Insurance Department's Liquidation Bureau protects consumers who hold policies with failed insurance companies, and its office of Miscellaneous Estates has taken over the administration of some of the burial societies, until their last members are buried.

"Mark G. Peters, who heads the quasi-public Liquidation Bureau...said the government viewed burial societies as a type of insurer. “They may be a historically anachronistic insurance product,” he said, “but we are essentially the only safety net for people still depending on these societies.” "

At a time when the appropriate role of regulators for a variety of markets, including insurance markets, is under new scrutiny, it's reassuring to hear of a fairly unobtrusive regulator stepping up to do the job for which it was designed.

Penny wise and pound foolish on kidneys and antirejection drugs

Medicare pays for kidney transplants (which are both better and cheaper than the dialysis it replaces and that Medicare also pays for). But Medicare pays for only three years of anti-rejection drugs, which transplant recipients must take as long as they still have a transplanted kidney. It doesn't make any sense, not even financial sense. Here's a nicely reported story by Kevin Sack from the NY Times: U.S. Cost-Saving Policy Forces New Kidney Transplant

"The story of Ms. Whitaker’s two organ donations — the first from her mother and the second from her boyfriend — sheds light on a Medicare policy that is widely regarded as pound-foolish. Although the government regularly pays $100,000 or more for kidney transplants, it stops paying for anti-rejection drugs after only 36 months."...

"Most of the cost of [her] dialysis and the transplant, totaling hundreds of thousands of dollars, was absorbed by the federal Medicare program, which provides broad coverage for those with end-stage renal disease.
Despite that heavy investment, federal law limits Medicare reimbursement for the immunosuppressant drugs that transplant recipients must take for life, at costs of $1,000 to $3,000 a month."...

"By late 2003, her transplanted kidney had failed, and she returned to dialysis, covered by the government at $9,300 a month, more than three times the cost of the pills. Then 15 months ago, Medicare paid for her second transplant — total charges, $125,000 — and the 36-month clock began ticking again.
“If they had just paid for the pills, I’d still have my kidney,” said Ms. Whitaker, who shares an apartment in the La Jolla neighborhood with her boyfriend, Joseph D. Jamieson. “I’d be healthy, working and paying taxes.” "...

"Bills have been introduced in Congress since 2000 to lift the 36-month limit and extend coverage of immunosuppressant drugs indefinitely. They have never made it to a vote, largely because of the projected upfront cost; the Congressional Budget Office estimates that unlimited coverage would add $100 million a year to the $23 billion Medicare kidney program.
But the cost-benefit analysis would seem obvious. The most recent report from the United States Renal Data System found that Medicare spends an average of $17,000 a year on care for kidney transplant recipients, most of it for anti-rejection drugs. That compares with $71,000 a year for dialysis patients and $106,000 for a transplant (including the first year of monitoring)...."

"A provision to cover the drugs is in the sweeping House health care bill, which has cleared three committees. It is uncertain whether the Senate Finance Committee will include it in its bill.
Since 1973, end-stage renal disease has been the only condition specifically covered by Medicare regardless of age. In 1988, coverage was extended for 12 months to anti-rejection drugs, which had recently been developed. Congress gradually lengthened the cutoff to 36 months, and then in 2000 made the benefit unlimited for those who are at least 65 or disabled. The rationale for leaving out younger transplant recipients was simply that the money was not there, Congressional aides said. "

In other kidney news, I understand through the grapevine that the planned September pilot of a national kidney exchange program to be conducted by UNOS has been put on hold for the time being.

"Death pools", coming to life again

The NY Times reports on efforts to buy and securitize life insurance policies, that would be sold to investors by people with terminal illnesses: Wall Street Pursues Profit in Bundles of Life Insurance . The idea is simple enough:

"Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.
Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay. "
...
"Mr. Terrell was the co-head of Bear Stearns’s longevity and mortality desk — which traded unrated portfolios of life settlements — and later worked at Goldman Sachs’s Institutional Life Companies, a venture that was introducing a trading platform for life settlements. He thinks securitized life policies have big potential, explaining that investors who want to spread their risks are constantly looking for new investments that do not move in tandem with their other investments.
“It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes,” Mr. Terrell said. "

But life insurance is the kind of product that has always had at least a tinge of repugnance, which is why many states have "insurable interest" laws saying that someone can only purchase insurance on your life if they have a reason to want you to be alive. "As discussed by Justice Oliver Wendell Holmes Jr. in a 1911 Supreme Court case: “A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end” "

That's from my paper Repugnance as a Constraint on Markets , where I went on to say"The insurance industry lobbies against Stranger (or Investor) Owned Life Insurance (SOLI) and “viatical settlements,” which are third party markets and funds that purchase life insurance policies from elderly or terminally ill patients who wish to realize the cash value of their policies while still alive. The arguments against such funds often focus on the repugnance of having life insurance held by an entity that profits from deaths (in contrast to insurance companies, which make money when their customers continue living). Of course, sellers of annuities also profit from untimely deaths."(p41)

Some of the quotations from the NY Times story make me wonder whether the securitizers have fully mastered the potential repugnance issue of this kind of investment, and whether that might ultimately affect its success. See if any of these lines strike you as courting a reaction of repugnance.

"Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned....Spokesmen for Credit Suisse and Goldman Sachs declined to comment. "
...
"In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected.
It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.
It happened again last fall when companies that calculate life expectancy determined that people were living longer. "
...
"The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet. "
...
"But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed? If the computer models were wrong, investors could lose a lot of money."

Health insurance and incentive compatibility

A widely linked post, called Unconscionable Math by the blogger known as Taunter discusses why health insurance companies don't try hard to check the facts on insurance applications. (They only check your application for fraud, he claims, when you get sick enough to make really big insurance claims, and then they may be able to decline to pay if they can make the fraud claim stick.)

He draws the analogy to Las Vegas casinos, which he says don't check that gamblers are of legal age unless they win big:

"Years ago I was walking a casino floor with a casino executive. It was an incredibly detailed tour, and we got to talking about pretty much everything that came to mind about crowds and gaming. Now, a clever observer might notice that even the tolerant people of Nevada will not allow alcohol in vending machines – wouldn’t want the little ones to be able to get a Bud Light without a human being verifying their ID. But there we were in the middle of acres of blinking lights, with absolutely no one making sure that underage kids weren’t walking up to a slot machine. Indeed, they don’t card for the table games.
The executive told me you are free to play if you are underage, you just aren’t free to win. You can sit down and pump your money into the slots, and if you look presentable you can drop some chips on blackjack or craps. However, if you should happen to start winning, the pit boss or security team will come over and check your ID. The house edge is 100%."

So...be careful with those insurance applications.

Ecclesiastical Insurance

Before you read this post, what do you think Ecclesiastical Insurance insures against? (It turns out to have more to do with hot lead than with lost souls...)



The Church of England is under attack, and not just from the usual schismatics. Here's the story: Church of England fights fiddlers on the roof


"THE Church of England is using nanotechnology – the science of very small things – to fight thieves who strip lead and other valuable metals from the roofs of its ancient buildings.
More than 30,000 of Britain’s 44,000 churches have had their roofs coated in a layer of “nanopaint”, which is visible only under ultraviolet light.
Each church has a different blend of microscopic particles, giving its metal a unique “label”. This enables police to identify church lead found in any haul of suspect scrap, even if it has been melted down."
...
"Recently, church authorities scored a victory in the battle against thieves with the conviction of three men for stealing lead from the roof of St Leonard’s church in Colchester, Essex.
They were caught after police identified the lead stolen from the church on sale at a scrapyard by using the new labelling system."
...
"The number of insurance claims for metal thefts from churches has risen from just 12 in 2002 to more than 2,500 last year – attacks described by Peter Walley, chaplain to the bishop of Lichfield, as “the biggest asset-stripping of churches since the dissolution of the monasteries”."
...
"The demand for scrap is driven by world prices. Those for lead and copper soared to record levels last year with scrap lead peaking at £1,300 a ton. Metal prices fell when the recession hit, but are now picking up again strongly.
Most churches are insured by Ecclesiastical Insurance, which is so concerned at the losses that it recently sent every church a SmartWater kit and warned vicars and bishops it would pay out no more than £5,000 if they failed to use it on their roofs.
A spokesman for Ecclesiastical Insurance said metal theft had become the number one reason for claims. "

Health care as a protected transaction

President Obama makes the case that health care, and health insurance, should be protected transactions (and that some existing insurance practices are repugnant):

"Our reform will prohibit insurance companies from denying coverage because of your medical history. Nor will they be allowed to drop your coverage if you get sick. They will not be able to water down your coverage when you need it most. They will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or in a lifetime. And we will place a limit on how much you can be charged for out-of-pocket expenses. No one in America should go broke because they get sick. "

From Why We Need Health Care Reform by Barack Obama