Monday, May 19, 2014

A Captain's Guide To Voiding Insurance Coverage In One Easy Step

I seem to cover this topic quite a bit but it is very important so I'll keep covering it until we all have a firm grasp on it.

Recently I was having an online exchange with a captain about insurance coverage being voided due to acts of yacht crew and the captain commented that, “…if they (crew) can void your coverage, your coverage is garbage.” While I can understand the emotion I think it’s important to discuss the reality of just how easy it is to void insurance coverage, but first lets start with some basics. 

If you READ YOUR POLICY it will tell you in no uncertain terms who the policy covers, what the policy covers, where the policy provides coverage, when the policy provides coverage, how the policy provides coverage and - most importantly - situations why a policy won't provide coverage.  The 5 Ws and H of insurance.  The terms of coverage, duties of the insurance company and the duties of the insured are spelled out in plain and relatively easy-to-read English;  but still, captains and crew manage to find ways to reduce or void coverage.  Today we'll look at one way to void insurance coverage and how to avoid it. 

A very common way (and probably the most popular and easiest way) to void your cover is to sign any contract that assumes liability, releases another party from liability or in any way attempts to modify terms of coverage or assign the policy without the insurer's written approval.  And you can do ALL of these things by simply signing a yard contract - something I've seen not just captains do but mates, engineers and yacht managers do as well.  Shockingly, as a bosun on a 43m even I was asked to sign one (and the answer is "no, I didn't sign it").

Lets take a look at some wording from a standard yacht policy.  This wording comes from a single policy and is only a small portion of wording contained in the policy terms that deals with explaining how actions of the insured can lead to coverage being terminated:

  • Failure to comply with any warranty will, in normal circumstances, void this insurance from the time of the breach.”  
  • If the insured gives up rights to recover damages from anyone who may be liable so as to deny Us the benefit of such recovery had We made payment of a claim, We may consider this policy null & void.”  
  • "This insurance shall inure to Your benefit only and shall be void in case this policy or the interest insured thereby shall be assigned, transferred or pledged without Our previous consent in writing…"
  • "You must assume no obligation, admit no liability…without Our written permission…"
  • We do not provide liability coverage for:  liability assumed by You under any contract or agreement unless specifically endorsed hereon…"

Now lets look at wording from a local yard contract and compare what it requires to what the insurance policy forbids:

"...YACHT OWNER agrees to release YARD...from any liability to YACHT OWNER for, and YACHT OWNER will defend, indemnify and hold YARD, its co-ventures, partners, customers, contractors, officers, shareholders, members, directors, employees, agents, invitees, vessels, masters, and crews, and the representatives of any of them (collectively called "YARD GROUP") harmless from and against all suits, actions, claims, and damages based upon personal injury, death, property damage, or loss, whenever occurring, suffered or incurred by YACHT OWNER, its own contractors and sub-contractors, or its invitees, or the officers, employees, agents, invitees, or representatives of any of them (collectively called "YACHT OWNER GROUP"), arising out of or in any way directly or indirectly connected with access to (including without limitation ingress and egress) and/or use by any member of YACHT OWNER GROUP of any vessel or property owned and/or operated by YARD GROUP... whether or not caused or contributed to by the sole or partial negligence, strict liability, or fault of YARD GROUP, or the un-seaworthiness of any vessel or appurtenance owned or operated by YARD." 

Did you catch all of that?  If you - or any crew member - sign a yard contract with this wording you are telling the yard that the owner’s insurance policy will cover ALL liability and ALL negligence of the yard; effectively you are agreeing that the yacht’s insurance policy will become the yard’s insurance policy – and you do NOT have the authority to make that call without the insurance company giving you prior written approval to do so.  

I cannot stress this enough.  You – as a captain – do NOT have the authority to negotiate terms of cover for or on behalf of the owner/vessel without the prior written consent of the insurance company.  You do NOT have the authority to assume liability and you do NOT have the authority to assign the policy.  Doing so can - and probably will - void cover.  This is not "garbage" - this is basic insurance procedure.

Regarding yard contracts, a maritime attorney friend of mine said, “Most captains are signing these things without understanding what they’re signing until there is a problem and at that point it’s too late.”  The executive vice president of an insurance company and head of yacht underwriting told me, “What we find is the captains don’t understand what they’re signing and the yards don’t understand what they’re asking people to sign – but they’re still signing.”

A lack of understanding seems to be a common theme so lets lay down some ground rules with regards to third party contracts and how to deal with them.

First, send the contract to the vessel’s owner and insurance agent before signing and do NOT sign the contract until you get written approval to do so. I suggest having captains/crew avoid signing them all together. Next, make sure the yacht owner's representative reads the contract and then get written confirmation from the insurance company that the yard's contract is acceptable before signing.  Some insurers require vessels to submit a list of work to be done for underwriting approval prior to the work being started and they also require a copy of the yard’s liability cover.
Most importantly, do not take advice on signing yard contracts from anyone not authorized to exercise authority over the yacht's insurance policy.  And here’s the kicker:  as a captain you do NOT have this authority. Neither do owners.  Neither do yard owners, yacht managers, brokers, etc…  The only party who can make that call is the insurance company.

If you sign a hold harmless and if you assume the yard's liability without an insurer's permission or assign the terms of your yacht policy to another risk you can count on your coverage being voided and there's no excuse for this happening - ever.  And this is just one of many ways captains and crew can easily void a yacht's insurance cover, regardless of that policy being "garbage" or not.  

My point is this:  Ask questions, engage the insurance agent/company, call an expert.  As one charged with the huge responsibility of taking care of the owner's asset you owe the owner at least that much; and it doesn't cost you anything.  

You see, when you purchase an insurance policy you purchase all of the insurance expertise and advice that goes along with it.  Use the agent, the broker, the underwriter, the insurer’s legal department, etc… and avoid making the mistakes that could lead to the policy being voided because if the policy is voided due to the actions of captain or crew it's not the policy that's "garbage," but rather the actions of the offending crew member - which could lead to his career being trashed.

Next week we'll discuss what could happen if you, as captain, void an owner's insurance cover.

Monday, May 12, 2014

With Drama Below Deck Safety Suffers On Deck - The Media's "Reality" Of Yachting Is Fake

I was having a rather intense conversation with a captain friend of mine (and member of the Yacht Captains Association) about a continued effort by the media to glamorize our industry without paying attention to the reality of the inherent dangers in yachting.  As a result, we have begun to see an influx of young crew who enter the industry with the misguided notion that it's okay to party and screw their way through the industry; responsibility be damned.  We both agreed that, as a result, our industry could be heading down a very slippery slope.

Here's a little reality you won't see on any reality show.

The IMO puts out stats on merchant mariner casualties each year, and the statistics show that deaths among crew run between 100-200 crew each year for all reporting sectors.  According to the USCG between 700 and 1,000 recreational boaters will die in the US each year.  In the past week alone the Sun Sentinel has reported on a man killed after being caught up in the props of a boat;  two boaters who were rescued by the USCG after their boat flipped and; another accident resulting in death in the Jupiter Inlet.

Furthermore, so far this year we’ve seen hundreds of passenger deaths due to a lack of attention to safety and another couple dozen people died after their 30' boat capsized with more than 60 people on board.

“But Gary – this has nothing to do with yachting.”  Perhaps. But it DOES show that maritime activities have inherent dangers that result in thousands of injuries and deaths each year.  And it does show (unscientifically) that it appears people are more likely to die in the recreational marine industry than in the commercial industry. And while certain desperate circumstances may be the driving force in some cases, these deaths support the notion that no amount of passion, emotion, desperation or drama can override the realities of the dangers of our industry, nor can these aspects prevent injury or death. Stated simply:  In the reality of an onboard emergency there is no room for drama.  

It's a bit of a paradox, actually.  Because the most important safety element on board a yacht - the human element - is the same element a certain "reality" TV show uses to exploit conflict and salacious onboard drama in order to sell their show to networks and advertisers.  Basically, they are cashing in on a huge part of what responsible yachtsmen and women do NOT want in the industry - drama.  

It's funny to watch the trends the media creates.  Put out a show about Navy SEALs and everyone wants to be a SEAL.  Put out a show about space and everyone wants to be an astronaut.  Put out a show about drunk, horny yachties and suddenly that’s what permeates the industry. 

Perhaps, instead of focusing on the crew member sitting on a PFD while hanging on the anchor chain drinking a beer making out with a stew while on charter, these shows should show more instances of deck crew engaged in MOB drills or collision/grounding drills or fire drills, or an engineer dealing with a fuel leak or a chewed up impeller.

And instead of showing idiots running around naked and drunk maybe the show should infuse its content with sidebars on the dangers of onboard fires or what happens to the guests and crew when a guest’s son is killed while riding a waverunner, or a guest has a heart attack snorkeling, or a crew member is injured doing their job in order to protect the guests.

And lets not forget about crew members in foreign ports who are mugged, robbed, beaten, raped and murdered… THIS is the unglamorous reality of our industry; yet viewers are more concerned with who the deckhand is screwing or what type of bug the stew is going to have up her butt today. TV "reality" is produced while REAL reality is ignored.

Whether we (or "reality" TV) choose to acknowledge it, we work in a dangerous industry.  More people die in marine-related incidents each year than in aviation-related incidents;  BUT the media continues to focus on all the BS drama that a lot of crew seek to avoid.  Why?  Because drama labeled “reality” sells.  This needs to change.

I’m going to give another shout out to the Yacht Captains Association because I truly believe we need an organization like this in order to re-direct our industry back to an ideology of “Safety First.”  We need responsible and qualified captains and crew who take their jobs seriously and focus on the safe operation of vessels, and who understand that if the vessel is operated safely the fun will naturally follow.

We need a paradigm shift in our industry.
These days we are seeing an increasing number of MCA and USCG ticket holders taking positions for which they are not suited which, potentially, puts everyone on board and within the vessel’s LOA in danger. We see green crew hired on large vessels for which their present skill-sets are not adequate.  We see captains who overlook alcohol and drug use or who overlook basic watchstanding guidelines whilst underway.  And now we have the added benefit of a "reality" show that glamorizes irresponsible and/or unqualified crew.  And it all contributes to increasing the likelihood that an accident will happen…and accidents WILL happen.

Steps need to be taken to redirect the focus of yachting from this perceived carefree, glamorous lifestyle back to safety.  The MCA and USCG must step up their efforts of safety compliance and enforcement, insurance companies must also overhaul their underwriting guidelines with regards to who can and can’t operate a vessel, and everyone in the industry should support the YCA in its efforts to support captains, to assist captains, to mentor captains and to ensure that capable and qualified captains are onboard (and in command of) yachts; captains who understand that safety is our number one priority – not ratings or readers.  And crappy reality TV shows need to be more responsible when they represent our industry to the general public (yeah, that'll happen…).  A paradigm shift.

Regardless of your feelings on the glamorization of our industry (I think it’s clear where I stand on the issue), when it comes down to it the FACTS regarding our industry remain the same in spite of any contrived "reality" a TV show chooses air, and the facts are: the work is hard and requires knowledge, experience and skill; the danger is high and requires situational awareness, maturity and responsibility and; the injuries and deaths are real – the TV shows and articles are not.

Monday, May 5, 2014

Drugs And Yachting: Who Is Responsible For Irresponsible Crew?

I was talking with a stewardess last week who was telling me about her situation on board with a chef/stew team who enjoy a bit of Bolivian Marching Powder and she asked me, “Why don’t insurance companies require drug testing for crew?”

The answer is simple: It is not necessarily the insurance company’s responsibility to make sure crew members are sober and drug-free; it’s the owner’s responsibility. That’s right; it’s not the insurance company’s job to be HR manager for their clients and manage yacht crew. Although insurance companies insure vessels based upon manning requirements and licensing agencies may require drug testing at renewal or upgrades and insurers may review and approve captains, they do not search for, vet, interview, drug test, hire/fire, or pay captains or crew. That’s the owner’s responsibility - through his captain.

Just as is the case in most every employment contract, the owner (captain) is responsible for conducting thorough interviews, running background checks, and obtaining all the information he needs in order to make a decision regarding hiring employees. Insurance companies don't necessarily mandate drug testing as a condition of cover; they require owners to exercise due diligence during the hiring process and then provide the insurer with a "warranty" regarding the seaworthiness of the vessel and a warranty stating that the vessel will be used responsibly, legally and in accordance with its stated intended purpose. Since it is the owner's responsibility to make this promise to the insurance company, then the owner needs to know if he's hiring "clean" crew, so the owner has to submit his "warranty" that he is doing so.

What is a warranty?  A warranty is “…a term of the policy whereby a state of fact exists or is stated to exist and or the insured person undertakes to do or not do something or to fulfill or not fulfill some condition. If the insured person does not strictly comply with the terms of the warranty, cover under this policy will cease and any loss that occurs at that time or thereafter will not be paid.”

In an insurance contract (specifically a yacht insurance contract) there are a lot of these warranties at play.  Let's look at a few.

Compliance warranties lay out obligations of the insured. The compliance warranty states the insured will, “comply with all laws, rules and regulations that apply to the uses to which the insured employs the yacht.” This means the owner promises that he and his crew will abide all laws while using the yacht - including drug laws.

The warranty of seaworthiness says that the owner has the responsibility of maintaining the yacht in a seaworthy condition and ensuring the yacht is operated responsibly. The owner must exercise due diligence and ensure that crew hired to operate the vessel do so in accordance with all applicable local, national and international laws and regulations. And I would be willing to bet that there are few - if any - jurisdictions that allow employees to keep, transport  and use drugs recreationally.

At the end of the day, it is the yacht owner's responsibility to make sure that the yacht is crewed with professional staff that are suited to their positions by education, training and experience - NOT the insurance company's. And if an owner utilizes the services of a crew agency or management firm the owner must ensure that those organizations act in his best interest. If a crew agency or management firm does not act in good faith or fails to perform due diligence, and that failure leads to a loss, it remains the OWNER’S responsibility.

And if a loss occurs and it is determined that drug use played a role in a loss, the insurer may argue that the owner’s failure to exercise due diligence regarding his crew lead to the loss – and at that point the insurer may have cause to deny claims or cancel the coverage, as per the terms of the insurance contract which means the owner can be held personally responsible for the loss without having the benefit of an insurnace company to defend him.

Regarding drugs, some folks feel a little recreational drug use is harmless while others feel it is absolutely wrong.  I’ll avoid opinion and stick with facts: the recreational use of controlled substances is illegal and I would be willing to bet the USCG and MCA would have a problem licensing those who test positive for illegal substances. (I wonder if people with this cavalier attitude toward drugs would feel the same about recreational drug use if they applied that attitude to commercial airline pilots.)

Furthermore, local, state and international standards and licensing authorities notwithstanding, all yachts have crew operations manuals that are very clear on alcohol and drug policies - and every employee who signs their employment contract promises to abide these policies - so it's up to the captain to ensure that crew strictly obey on board policies designed to keep EVERYONE on board safe

I advocate routine drug testing in spite of the fact that insurers don't require it because in this day and age it is the safe and responsible thing to do. I’ve heard the argument that owners don’t want to have to pay for drug testing – in which case those owners had better be prepared to personally pay for any claims that are the result of “polluted” crew members causing the insurance company to reduce or deny claims.

So what have we learned? It is the yacht owner's responsibility, through his captain and crew, to ensure the yacht is seaworthy and adequately crewed for its intended use and the owner must warrant this seaworthiness to the insurance company;  which means captains MUST be vigilant in their efforts to ensure that they and their crew uphold ALL legal and social requirements in order to make that warrant true.

I would go one step further and say it is the responsibility of the captain and crew to exercise discretion, responsibility and respect for the owner and his assets and entirely avoid the use of illicit drugs while under the employ of a vessel. The owners spend millions and millions of dollars on their yachts and millions more crewing them, fueling them, provisioning them and insuring them - only to potentially have their insurance cancelled and their yacht and perhaps their personal assets attacked as the result of irresponsible crew.

Monday, April 7, 2014

NEWSFLASH: The MCA and USCG Grant Licenses To Operate Yachts NOT To Insure Them

It never ceases to amaze me that captains – by virtue of their experience behind the wheel – feel qualified to offer insurance counsel to their owners.

Now, some captains have a greater grasp of insurance issues than others- granted; but on Friday last a captain called me to discuss a basic insurance issue.  He didn’t fully grasp the concept and kept asking questions that did not apply to his owner’s situation or scenario.  I asked him if he’d like me to discuss this with his owner via a conference call and he said, “No – I’m shopping the insurance.  I don’t want to bother the owner with this silly stuff.”

“Silly stuff.”  Hmmm…

The ONE thing the owner has that puts its money where its mouth is.  The ONE thing that, if done correctly, will pull an owner’s financial butt out of the fire faster than any captain.  The ONE thing that, if done wrong, a captain can walk away from leaving the owner to pay the tab.

Folks, insurance is not “silly stuff” and it certainly should not be attended to by anyone not qualified to do so or by anyone who thinks it’s “silly stuff.”

There are a number of reasons why unqualified people should not step outside their area of expertise, but I’ll leave the common sense arguments alone and focus on the legal aspect. 

Florida statutes state that unless you are licensed insurance agent it is unlawful to engage in insurance activities:

69B-222.060 Unlawful Activities by Unlicensed Insurance Personnel
The following actions are never allowable by unlicensed personnel.
(1)  Comparing insurance products; advising as to insurance needs or insurance matters; or interpreting policies or coverages.

Note the phrase “never allowable.”  Not a whole lot of grey area there.

There is a reason for this.  It is because insurance professionals know insurance and understand the ramifications of an improperly structured insurance policy.  We know the financial consequences of coverage gaps or coverage exclusions. We know how to explain the product and (in some cases) we have the authority to make statements and assertions on behalf of an insurer.

And think about this:  A unlicensed captain behind the wheel of an insurance policy is just as financially dangerous as an unlicensed insurance agent behind the wheel of a yacht.  And when things go wrong it’s the owner who is screwed.  Insurance professionals get this – captains may not.

Captains should not counsel owners on insurance, make insurance determinations, base insurance decisions on cost, negotiate insurance contracts, negotiate any contract with insurance conditions, etc…  It’s outside their area of expertise no matter how many times they tell you, “I’ve been doing this for years,” because I’ll tell you all one thing right now:  Dedicated insurance professionals have forgotten more insurance than most captains will ever know.

I’ve said it before and I’ll say it again:  do what’s right by your owners and ALWAYS refer them to a qualified insurance professional.  And if a captain is spouting off insurance information ask him/her to produce an insurance license, E&O insurance and confirmation of a selling agreement with an agency or insurance company.  Otherwise, kindly thank him/her and get your insurance counsel from someone qualified to provide it.

Monday, March 24, 2014

Hold Harmless Forms? Hold The Phone! A Yacht's SOP Can Lead To Yacht Owners And Charterers Being SOL

This post is a bit lengthy but it’s a very important topic that all parties to a charter contract need to read and understand.

I was talking shop last week with a charter broker and she asked, “What if my client has to sign a water toy indemnification form on the yacht?”  My response was, "Why are guests being asked to amend charter contracts by yacht crew?" 

If you are a captain or crew on a boat and you are reading this, pay attention and please contact me if you have any questions on this topic and I'll gladly give you a detailed explanation as to why what you are doing is wrong and potentially dangerous.

People think of water toy indemnification forms/hold harmless agreements as standard operating procedure that are just matters of formality - which could not be further from the truth. These “harmless” indemnification forms can be dangerous if they are not understood.  And having charterers sign them AFTER the charter contract has been consummated can have disastrous consequences. 

Okay, let's start by defining terms. 
  1. Indemny/indemnification:  to make a party whole or to (financially or monetarily) restore that party to their pre-loss position.
  2. Hold harmless:  releases one party from responsibility or liability, regardless of which party is negligent.
  3. Negligence:  an act or a failure to act that causes property damage or bodily injury to a third party.  
  4. Third party; anyone other than the insured or the insurance company.
Most hold harmless/indemnification forms I've seen usually read, "(Party A) agrees to hold harmless AND indemnify (Party B)," with Party B being defined as - in the case of yacht chartering -  the owner, the captain and crew, the management company, charter agent, charter brokers, yacht broker, all contractors and subcontractors, all provisioners, all board members of the owning entity, family members of the board, the family dog and that crazy guy from high school… just to name a few.  So what this says is that the only person who bears legal/financial responsibility is the charterer.  And still they sign...

Now, when it comes to water toy indemnification forms the one thing we must all understand that is vitally important is this:  when a charterer signs a water toy indemnification form they are not simply agreeing to pay for the water toy or pay the yacht owner for any damages; they are agreeing to be personally financially responsible to anyone affected by any damages AND they are assuming liability once held by the yacht and her insurer. Basically, the charterer is now the insurance company.  Does this sound "harmless" to anyone?

Let's look at a scenario:

The bosun of a 50m yacht reports to the first officer that the throttle on waverunner A sticks a little. The first officer takes the report and delivers it to the captain. The captain authorizes the first officer to call for a service tech to come repair the waverunner.  The service tech arrives.  The bosun is off the boat so the first officer takes the service tech to the waverunners and mistakenly shows the tech to waverunner B.  The tech opens the engine compartment, checks the throttle cable and throttle body, makes some adjustments, tests the throttle, shows the first officer the throttle works properly, signs off on the service, gets paid and leaves.  The service is logged in waverunner A's log - but waverunner A was never serviced.

Next week a charter boards.  Prior to launching waverunners the captain has the charterer sign a water toy indemnification form. Waverunners A and B are launched, guests board and off they go.  While enjoying the day waverunner A's throttle sticks and the waverunner is now out of control. The operator bails off. The waverunner bounces of a boat, hits a person on a kayak then screams onto shore killing a person laying on the beach before burning up the engine.  

So, the negligent act of the yacht crew failing to service the waverunner has now lead to third party losses.  Who pays? 

Well, the insurance company will investigate and upon being notified that the charterer assumed all liability they can walk away leaving the charterer to deal with the claims.  The charterer then turns to his charterer liability carrier only to find out that signing the water toy indemnification form voided his CL cover, so the charterer may now be liable for:  damage to the other boat, damage to the kayak, damage to the person in the kayak, civil and criminal penalties, compensation for the death of the sunbather, etc… and he owes the yacht owner a new waverunner.  

A possible (and I'll say "likely") scenario is that the yacht owner's policy will step in and defend the yacht owner, but - and this is very important - any amounts the insurer spends defending the owner from third party claims for which he was held harmless by the charterer and which are the result of the negligent acts of the charterer may be claimed against the charterer - and the charterer's liability insurance will more than likely not defend the charterer.  Why? Because he signed the water toy indemnification form.

I've asked FYBA reps, AYCA reps, MYBA reps, CYBA reps, charter agents, charter brokers, etc… why these forms are there in the first place and no one can give me a solid answer.  The only answer I can come up with is that the authors of these contracts don't fully understand what these hold harmless forms do and how they can impact an insurance policy.  I understand the concept and in some cases hold harmless agreements work;  just not here.

Furthermore, yacht crew who ask guests to sign these forms on board have no clue what they are asking guests to sign and should not ever have a hand in independently negotiating this particular aspect of a charter contract - EVER - because here's the deal:  If the vessel is properly insured and if the water toys are properly insured and the guests are instructed as to their proper use and they are properly instructed by one qualified to instruct them and they are monitored, then there should be no need to release anyone from liability.  

So when you're negotiating charters and a captain requests the indemnification forms be signed ask them, "Why?"  If he/she responds, "Because we don't want to be responsible for the damages," tell them, "That's why the vessel has insurance and charter contracts have loss/damage clauses."  If they tell you it’s “boat policy” have them provide you written documentation of the boat’s operations manual, the boat's insurance policy and an insurance policy endorsement allowing them to negotiate terms of coverage without insurance company approval.  Better yet, have them call an insurance professional who can evaluate the policies and inform them of the impact these forms could have on the charterer's insurance policy and the yacht owner's policy.

I am not trying to make insurance specialists out of charter agents, brokers or captains – but what I AM trying to do is to help everyone understand the variables in play so that mistakes do not happen.  This is a very sensitive issue and the relationship between contract and policy is delicate at best which is precisely why charter brokers/agents, captains/crew, yacht managers, etc… should not be automatically requesting indemnification forms or hold harmless agreements be signed as a matter of SOP.  I'm not telling anyone how to do their jobs, I'm just letting you all know to let attorneys and insurance professionals do theirs.

Next week I'll give you the brutal, no nonsense reality of insurance terms and charter contracts.

As always, I am here to help so please call or email and we’ll take good care of you and your clients! 

Monday, March 17, 2014

The Affordable Care Act Unmasked

I was having a discussion with a friend of mine recently and as is usually the case during a conversation between a recovering health insurance professional and a registered nurse the topic turned to health care, health insurance and the Affordable Care Act.

I told my friend my ideas about lowering expenses and costs associated with health care in the United States and she encouraged me to write these ideas down in hopes of opening dialogue among folks who have interest in this concept and who may be able to communicate these ideas with someone in a position to possibly consider taking a more effective approach at resolving the issue of the high cost of health care and health insurance in America.

Some may think my ideas are silly, foolish, immature, stupid, etc…and that's fine. I'm not trying to convince anyone of anything. I'm simply spreading information in hopes that people will see that regardless of your feelings on our health insurance and health care systems, our government has failed us.

Okay, so hear we go.

First of all let’s define some terms because the government and the supporters of the Affordable Care Act (ACA) have failed miserably in this regard, which has Americans using terms improperly.

First and foremost we must all understand that there is a night-and-day difference between “health care” and “health insurance.”  Health CARE is not health INSURANCE which means the Affordable CARE Act is a grossly misleading title - the ACA is actually a mandatory/compulsory Health Insurance Act, but I'll get to that.  For the sake of this discussion we will keep the definitions simple.
  • Health care - the provision of care to a patient by a medical professional 
  • Health insurance -  an insurance product that provides insurance for health risks
  • Health insurance company - a company that sells a health insurance product
  • Insured – one who purchases insurance
  • Patient – one who receives care
Now open your mind. 

At present, depending on who you believe, there are anywhere from 14 million to 43 million Americans without health insurance.  And while the ACA has enrolled approximately 5million new insurance customers (a significant percentage being tracked straight into the Medicare plan) the problem of an underinsured population still exists and will exist until the government works WITH all stakeholders in the health insurance and health care industry to solve the underlying problems; because while there are 5 million enrollees in the government plan, more than six million have lost their coverage since January 1, 2014.  

So what are the underlying problems?  There are a few.

First there is fraud.  According to the FBI, health insurance fraud is running right at $80,000,000,000 per year.  Eighty BILLION dollars. This fraud is perpetrated by patients, health care providers, health care facilities, drug companies and medical supply companies, etc… which leads to a trickle down effect.  Here’s how.

If an insurance company is paying fraudulent claims it negatively effects their bottom line in the form of greater losses and assumption of more risk which could lead to the need to hold more cash in reserves to pay claims.  In order to do so the insurance companies are forced to increase premiums to meet their financial obligations - which forces people to pay more premiums or lose coverage… and they end up hating insurance companies labeling them "evil" or "greedy."

Do you see the irony?   These “ greedy, evil” insurance companies that continue to raise rates are simply responding to being stolen from.  And while insurance companies continue to get fleeced for billions, expenditures for health care exceed our national rate of inflation – a negative financial “double whammy.”  And the ACA does nothing to solve this problem.

Another main factor of increasing health care costs is increasing fees charged by doctors and facilities. You see people are ignoring the increasing power that doctors and facilities have over insurance companies.  It is the proverbial financial tail wagging the dog.  They have operated unchecked for decades and now we’re paying the price.

An economist from Princeton University stated, “Everyone is beating up on the insurance companies but (they) may be shooting at the wrong target.”  Warren Buffet said, “Insurance is not the problem,” and Paul Ginsburg said, “…no one has focused on the providers' power to get higher rates from insurers.” There are reports that fees charged by physicians and facilities are increasing at a rate more than twice that of our annual rate of inflation; and again, the ACA does nothing to solve this problem.

So the main factors driving health care cost increases which lead to higher rates for health insurance is abuse of the system and greed - and not necessarily by insurance companies.   These abuses cost the system and its end users tens of billions of dollars per year.

And who’s to blame?  WE ARE; but it’s much easier to blame the insurance companies because no one understands insurance which is why when a president irresponsibly tells you that the insurance companies are to blame you don’t understand or appreciate the depth of his irresponsible and callous disregard for the truth.  The president and his colleagues are lying to us when they tell us the government can create a better and more efficiently operating health care/health insurance plan than the private sector.  Why?  Because they don't have a dog in the fight.  Whether or not they succeed or fail WE will pay the bill; and if they fail they will blame someone else for failure - probably the insurance companies (which is pretty much what they're doing already).

Just so we're clear on the role of insurers I think a quick sidebar might be in order regarding the role of health insurers. Health insurers have certain obligations and do certain things.  Here are the top obligations:  
  • Underwrite health risks / assume risk transferred by insureds
  • Generate revenue; turn a profit
  • Sell patients to doctors and hospitals
  • Sell doctors and hospitals to patients
  • Provide a platform to receive premium payments and pay claims
Assuming health insurance companies should be altruistic and benevolant entities is misguided.  Insurance companies are in business to make money and they try to build their products to maximize profits and minimize premiums to claims ratios.

And while we're on topic, it is not out of the ordinary for a health insurance company to run at a 75% loss ratio ($0.75 of every dollar goes toward claims) which means the remaining 25% of premium dollars pay for operating costs. Would people call YOU greedy if you demanded a raise from your boss because 75% of your paycheck went toward paying off debt leaving you with 25% to pay for food, rent/mortgage, utilities, gasoline, insurance, etc… if a significant portion of your debt was due to people stealing from you? 

Enter the Affordable Care Act.

Al Gore had his “Inconvenient Truth” and now Obama has his “Convenient Lie.”  I will be brief on this but I will give my honest and brutal opinion. The Affordable Care Act is an abortion of legislation that adds another layer of governmental interference to a problem that the framers have completely failed to solve because they have completely failed to address and understand the underlying reasons as to why Americans are uninsured or are struggling to pay their monthly health insurance premiums.

You see, the government thinks that the reason why Americans can’t afford insurance is because insurance companies are evil, uncaring, unfeeling, heartless money-grabbing whores;  but the same can be said for any number of industries such as banking, entertainment, sports, fast food, candy/soda, clothing, cosmetics… and the list goes on. 

Throughout the rollout of the ACA the government repeatedly demonized insurance companies, bad-mouthed their underwriting practices, verbally assaulted their policies and tried to convince America that the insurance companies deserve to shoulder the blame for the predicament in which we find ourselves. Forget about insurance fraud, insurance and health care abuse, public assistance abuse, etc…the government has put a lot of effort into convincing the minions that insurance is expensive because of the greed of insurance companies, and this just isn’t true.  I think it was Lenin who said, "A lie told often enough becomes the truth."

Think about this: insurance companies are in business to make a profit but when people defraud them of $80 billion each year it makes it hard to do so, so they have to take measures to hedge against the financial crimes perpetrated against them.  So blame them if you must, but understand their position.  Insurance companies raise rates because we force them to do so, but the ACA supporters tell us it's the insurance companes' fault that rates are increasing - and the government telling us that it’s the insurance companies’ fault that they are defrauded of $80 billion a year  is like saying that a woman who dresses provocatively deserves to be raped.   The argument is so fundamentally flawed that if it weren’t so tragic it would be laughable.

Why is the government selling the ACA this way? Two reasons.  The first reason is because the worse they make the insurance industry look the better the government looks; and the second is because the government doesn’t understand the problem which means the trillion-dollar solution they’ve given us is a non sequitur. But let’s blame the insurance companies… Deflecting responsibility is a move invented by the government and they used it to perfection to pass the act and they continue to use this move in support of it; but Americans are becoming wise to this tactic.
Basic ACA review.

As we all know, the ACA places a legal requirement on Americans to obtain health insurance – either through their employer, individually or in the newly created health insurance marketplace.  If they don’t they may be fined indefinitely and increasingly. It mandates that insurance companies have to insure people regardless of health condition, it provides minimum levels of coverage and attempts to “level the playing field” based upon gender and age.  It also places requirements on businesses to provide health insurance for their employees.  Good stuff, for the most part.  

BUT, it also gives businesses an “out” in that they do not have to provide insurance for part-time employees which has lead a large number of businesses to cut back hours on employees, effectively giving them a pay cut AND forcing them to pay for 100% of their health insurance. Furthermore, some businesses have found that paying the fines is less expensive than providing insurance.  (I'm purposely not addressing "gender equity" and "age-based premium equity" - another blog, another time)

Also, non-partisan reports are that between six million and seven million people have actually LOST coverage due to plans being non-ACA compliant or through employers cancelling their employer-sponsored plans. Couple that with the fact that there are thousands of people who have gone on to the government site, signed up for cover and either have not paid their premium OR the insurance company of the plan they've chosen has no record of their enrollment or their payment and you can see that the ACA is inherently flawed.  And for those of you who argue, "Things have to get bad before they get better,"  I say, "BS!"

This particular aspect of the ACA proves that the government that created, supported and backed the plan has almost no grip on the reality of its effects on Americans who –unlike them – have to show up to work each day and work to pay for their own health insurance one way or another.  The ACA is the government’s attempt to force a pseudo-social program through a private sector delivery system coupled to a government-run management platform using negative reinforcement while attempting medical homogeny.  And, AGAIN, it does not address the problems. 

So now that we have our context out of the way lets look at my solution.

Since fraud and abuse are two of the major underlying problems – and the experts agree that the insurance companies are having their collective hands forced – is the solution to inject 43 million new patients into a broken system or should the solution seek instead to be an actual SOLUTION and not an expensive sociopolitical experiment?  I vote for an actual solution.

Let's set this up using a silly and simple example.  If you’re driving down the road and you get a flat tire you would be more likely to:
  • pull over, change your flat tire then have the puncture repaired or the tire replaced; OR
  • abandon your car and buy a new one
I would assume that most responsible adults would get out and change their tire.  You see, there is nothing wrong with your car - you just have a flat tire.  So you fix the flat and you’re back on the road.  Well, there’s nothing wrong with our health insurance and health care systems - we just have a breakdown in one of the major elements.  We don't need new systems, we need to fix the ones we have… and the ACA doesn't do it.

Fact:  The United States has one of THE BEST health care systems in the world.  Perhaps not THE best, but definitely one of the best.  People come from all over to get health care here; most of the time paid for by our tax dollars.   

Fact:  The US has one of the most abused systems in the world.

And as far as access goes, if you are inside our borders – regardless of your citizenship – and you need to see a doctor, you have access.  The US has exceptionally easy access to doctors and providers. These are not points that can be argued.  If you say our health care system is bad and there is no access you are wrong.

So we have exceptionally high quality of care and we have arguably some of the easiest access to that care but we are sitting around complaining about affordability while doing nothing to stop the root cause of escalating costs.   And our government thinks a new plan will solve the problem.  I have news for you – it, alone, will not.


My solution is very basic and will probably draw some ire for its simplicity and perceived basis in fantasy but I’m putting it out there.  My solution is obvious and simple:  We eliminate systemic abuses.

See?  Simple.  So how do we do this?

Well, Obamacare is going to cost us $1,500,000,000,000, and economists and experts agree that in spite of its best efforts health insurance rates will continue to go up and no one has in any way, shape or form addressed the cause of these increases;  and until systemic abuse is reduced or eliminated costs will continue to go up with or without the ACA.  Putting $1.5 trillion into a broken system is a very bad idea.

And let me say this:  The ACA is not a bad idea because it’s “social medicine” or “national healthcare” becuase it is neither of those.  The ACA is a bad idea because it is built on a fundamentally flawed concept that in order to make health CARE affordable we must make health INSURANCE compulsory.  If you take away one idea from this please let it be this one:

You see this is NOT an affordable CARE act – this is a mandatory insurance act; and again – health care is NOT health insurance.  Repeating – this is NOT an affordable care act, it is a mandatory INSURANCE act.  Make sure you understand this as we move forward.

My idea for a solution is as follows:
  • First - instead of spending $1.5 trillion on a flawed social experiment, we come up with a realistic amount of budgeted tax dollars to expand funding to the FBI and create a no-nonsense anti-fraud team that will work inside insurance companies to set up systems to prevent insurance fraud, track down the fraudsters and recoup money. 
  • Second – work with tech companies to create a technologically advanced reporting system for ALL stakeholders to eliminate fraud in all aspects of health care.  Obama is spending billions creating a “data hub” which is ridiculous.  I propose re-directing spending to upgrade the MIB and develop a claims reporting, filing, payment, UR, platform that – like the MIB – will be universal in scope for all insurance stakeholders; which means all stakeholders can communicate across a unified platform to track claims by patients, reporting by doctors, etc…We work toward biometric coding for ID cards, streamlined reporting of claims, caps on incentives offered to providers/facilities who test drugs, etc… and we put in place penalties for non-compliance by all stakeholders not just the end users.
  • Threatening people with penalties and enticing them with tax credits that they may or may not qualify for is ridiculous.  Businesses should receive more credits, concessions, benefits, etc… for providing plans for their employees, period.  As it stands, businesses are encouraged to cut back on full-time employees and do away with plans. Encouraging people to buy expensive crap that is always going to be crap that will increase in cost is moronic - penalizing them for not doing so?  Idiotic.
  • Next.  The government should encourage insurance companies to work with tech companies to continue to push and fund these advances in order to stay out in front of fraud and abuse.  Perhaps tax breaks, perks or subsidies that reward and support insurers who reduce fraud and save policyholders money.  “What?  Give insurance companies MORE money?”  Yes.  Money they will spend making their products better – which benefits insureds/patients.
  • We re-tool the FDA to streamline the introduction of new meds and new technology.  This hastens the product to market, lowers costs on the front-end, lowers the price tag on the back end and (God forbid) helps America keep pace with the rest of the world in medical advances available to patients – which might mean Americans get healed faster instead of treated longer, which does what to long-term health care costs?
  • The government and private insurers work together to develop a national UCR fee schedule so that all doctors, all hospitals and all medical supply companies are playing from the same sheet music.  We legislate fees and reduce or eliminate balance billing inside any and all insurance contracts.  If a doctor contracts with an insurer he/she is bound by the contract and the reimbursement rates and he/she cannot balance bill any patient at any time under any circumstances. If you provide a service inside the terms of an insurance contract you are bound by that contract – period.  If people are cash patients this rule does not apply.  This means that doctors, hospitals, patients and insurance companies all play by the same rules and when you ask, “How much is this going to cost me,” a billing specialist should be able to tell you a cash price and an insurance price.  Anti-competitive?  Nope.  Let doctors, providers, facilities and insurers compete based upon service and quality of care so that their financial success is based upon the results they get not the amounts they bill.  Even Warren Buffett said, "We are paying for procedures not results" and this needs to stop.  Further to this, fewer bills go unpaid, fewer people go to collection, less debt charged off, etc… and doctors who sign contracts know exactly what they will be paid and customers know that the law is on THEIR side regarding the financial aspect of their treatment.
  • And with regards to underwriting, pre-ex, etc… if the government worked WITH insurance companies toward this systemic solution and they did help them reduce their exposure to fraud, the insurance companies might not be so hesitant to voluntarily yield to requests by the government to modify coverage terms, and (and go with me here) with an $80 billion reduction in fraud the insurers might be able to affordably expand coverage, remove restrictive terms and negotiate more competitive and consistent contracts with providers. 
  • Finally:  Health care services will be paid for by users either with insurance or cash money.  If you are a cash-patient you are on your own BUT you can BE a cash patient.  You should not be forced to buy something you don’t want or need, but if you receive care you WILL pay for it one way or another.  Either you have insurance, you pay for services at the time services are rendered, you work out a payment plan with the provider or have your wages garnished.  Bankruptcy will not remove medical debt.  Exceptions, of course, for true indigents.
See?  None of these solutions involves creating a trillion dollar boondoggle.  They all focus on the abuse and fraud that has created our expensive system.  They focus on introducing solutions not adding an additional layer of problems.

If we could come up with a strategy to reduce the amounts paid for fraud and systemic abuses and work toward paying for consumption and stabilizing costs we could put billions and billions of dollars each year back into our own pockets without spending hundreds of billions each year to further populate a system that is broken! But we have to understand that everyone has to stop pointing the finger of blame and start taking personal responsibility to solve the problem.

If we are to provide affordable health insurance and affordable health care then we must do so by understanding that the problem with affordability is not a product problem, an access problem or even and affordability problem:  it is a systemic problem and any solution needs to target repairing the system and not rebuilding the products made expensive by it.    

The ACA (in its present form) is not the solution to the problem – it is an extension of the initial  problem masquerading as a solution.  And while the government is to be commended for spending time addressing the issue I think they really need to admit that the ACA is a cop out.  It is nothing more than the appearance of progress.  The sad news is our government doesn’t understand this and because they don’t understand this they lie to us and send us the bill.

Please understand this:  I believe that everyone should have health insurance BUT I am against the ACA in it's present form; but being against Obamacare doesn't mean one is against affordable access to health care and health insurance.  It simply means that I do not agree with the argument that to make health CARE affordable we make health INSURANCE compulsory and use financial penalties to enforce compliance.  It's anti-competitive and adversarial.

There you have it.  My insurance rant on what I would suggest as solutions to fix the system instead of simply covering up the problem and convincing everyone that the issue of affordability is the insurance companies’ fault when in fact it is OUR fault.  I have specifically left out other aspects that affect our health care systems such as an aging population and a population that is fatter, lazier and sicker than ever before…

Regardles, it's my opinion that making something affordable should focus on reducing or eliminating factors that contribute to unaffordability and NOT on adding more factors that contribute to unaffordabiity - which is what the ACA does.

Again, I believe with all my heart that every American should have health insurance.  And I also believe that if the system can be fixed then there is room for the ACA and private-sector insurers without the need for mandatory compliance or penal provisions.  We need to create a system that is affordable that people want to be a part of and we CAN create a system that is affordable and fair for everyone; but it’s going to take more than just an improperly labeled, emotionally marketed, ineffective law to do so.  And it’s going to take more than a catchy slogan or a warm feeling of hope and change.  It’s going to take WORK.

Work that can’t be farmed out to day laborers.  Work that can’t be sent overseas.   And the work that needs to take place is the work that we elect officials to do – so we must force them to work and get this done or fire every last one of them.