As I mentioned earlier, I’m starting to rev up the studying for the licensing exam. A lot of the studying takes the form of practice questions. They’re actually a lot of fun to do: they force you to think actively about the clinical scenario, keep you on your toes, and make it near-impossible for your eyes to glaze over as you semi-consciously read the same page for the 10th time in a row as your eyelids begin to feel heavy, droop, and you start to….
Yikes! Where was I? Right! The Cavalcade is back! Since I’m sure that most of you don’t believe me when I say that doing practice questions is actually fun, I’m going to use this opportunity to try to convince you. With the aid of sophisticated, peer-reviewed psychometric techniques (or not), I have converted each entry into a USMLE-style “single best answer” multiple choice question. Let’s see how you do!
Cavalcade of Risk: Step 1
Instructions: For each of the following test items, select the one answer that best answers the question posed in the stem.
From Boomer at Boomer&Echo: Which of the following behaviours of financial advisors correlates with the lowest risk of defrauding investors?
a) Claiming to have secret/exclusive insider tips that “your broker doesn’t want you to know.”
b) Counseling clients that investments with higher expected returns tend to be riskier.
c) Offering to move your money offshore to avoid taxation.
d) Pressuring you into making a hasty decision on an “exploding offer.”
e) Charging abnormally high membership fees.
From Ken Faulkenberry at the AAAMP Blog: If shares of the Notwithstanding Blog Internet Empire (NBIE) earned a 8% return in 2011 and exhibited a beta of +1.2 relative to a benchmark of shares in all medical blogs that collectively earned a 5% return, then:
a) The alpha for NBIE in 2011 was +2, making it a good investment.
b) The alpha for NBIE in 2011 was +3, making it a good investment.
c) The alpha for NBIE in 2011 was -3, making it a bad investment.
d) The alpha for NBIE in 2011 was -6.8, making it a bad investment.
e) The alpha for NBIE in 2011 cannot be calculated with this information.
From Van R. Mayhall III at the Insurance Regulatory Law Blog: Which of the following statements DOES NOT accurately characterize insurance company insolvency:
a) Most state-based insurance guaranty associations are more comparable to private member-based associations than true state agencies.
b) Insurance companies are subject to unique state-based insolvency protocols in lieu of entering the federal bankruptcy system.
c) Payouts from state insurance guaranty associations are subject to statutory caps.
d) Insurance guaranty associations are intended to provide “bailout” financing to prop up faltering insurers.
e) None of the above.
From Emily Holbrook at Risk Management Monitor: The shoe-shopping website Zappos.com recently earned positive press for:
a) Losing your examiner’s personal information, along with that of millions of other customers.
b) Locking out customers from your examiner’s home country for 4 days after a data breach.
c) Being named in a potentially-class action lawsuit seeking damages as a result of a data breach.
d) Having “some analysts” criticize the company’s response.
e) Having “some analysts” praise the company’s response.
From Jason Shafrin, the Healthcare Economist: Medicare’s new value-based purchasing initiative, which aims to reduce payment to “low-quality” doctors, currently uses treatment costs for which of the following chronic diseases as an element of its cost measure (as distinct from its quality measure):
b) Alzheimer’s disease
d) Lung cancer
e) Breast cancer
From Louise Norris at Colorado Health Insurance Insider: Colorado’s Medicaid program has recently undergone much change and provoked a great deal of controversy. What happened at the end of 2010 to put Colorado’s Medicaid program on better financial footing?
a) Successful negotiations to lower the fee schedule for physicians’ services.
b) A 55% increase in enrollment relative to 2007.
c) A one-time $13.7 million grant from CMS.
d) New dedicated revenue from a sales tax increase.
e) The introduction of Medicaid Managed Care programs.
From Dr. Jaan Sidorov, the Disease Management Care Blog: Which of the following is an accurate characterization of Dr. Sidorov’s assessment of Health Insurance Exchanges (HIEs) and recent Kaiser Health News commentary on the subject?
a) The left is doing their best to nurture this fledgling institution to maturity in anticipation of the PPACA’s full rollout.
b) It’s reasonable for consumers to spend more time shopping for consumer electronics than for health insurance.
c) Government-run HIEs will eventually match the ease-of-use and “cool” factor of iPhone apps and online purchasing aids.
d) Multiple insurance options on HIEs include variations in provider tiers, out-of-pocket costs, and exclusions.
e) Consumer expectations for HIEs will eventually be exceeded.
From Julie Ferguson at Workers Comp Insider: Doctors’ deaths differ from the deaths of other Americans in that:
a) Doctors often choose to forgo lifesaving chemo, radiation, and procedures.
b) Paradoxically, doctors often do not have access to the full range of lifesaving technologies as the rest of society.
c) Non-physicians tend to be more ready to accept death.
d) Doctors have a cultural bias against accepting death that isn’t shared by society at large.
e) Non-physicians who choose to fight their disease are often pressured by friends and family to be serene in the face of death.
Of course, since you read all the entries, you don’t need one! But just in case: B; A; D; E; C; C; D; A.
As always, it’s an honour and a pleasure to host the Cavalcade of Risk! If this is your first time at the Notwithstanding Blog, or if you’re coming back after a prolonged absence, I encourage you to take a moment and poke around some of other posts here. From health care policy to health professions training (i.e. medical school), I’ve got it covered.
The 150th(!) Cavalcade will be hosted on February 8th at My Wealth Builder.
July 2011 has given us many causes to celebrate, and we’re not even half-way in! Early July is when we see Canada/Independence/Bastille Day celebrations in Canada, the United States, and France respectively. This past Saturday was the first day of independence for the brand-new Republic of South Sudan. And today, for the 135th iteration of the Cavalcade of Risk blog carnival, I am pleased to present nine incredibly informative and insightful submissions (plus one of my own) for your edification.
In recognition of all of the countries with July independence days, we’re going to be running a carnival sideshow at this blog carnival today. Interspersed with the submissions will be a small number of flags with trivia-esque hints for countries with July national days; the names of the countries will be at the end of the post. Hopefully this will be an entertaining mid-July “trivial pursuit” to accompany the serious business of risk discussed in the submissions!
Two related posts from Jacob Irwin and a guest blogger at My Personal Finance Journey discuss the perils of e-commerce and sharing financial information online. Jacob dissects an example of a common ‘phishing’ scam, and the red flags that should cause one to be suspicious of an email that seems designed to separate you from your personal information (and eventually, your money!). His guest blogger, Les Roberts, talks about how to stay safe while shopping online, and discusses some of the basic technical aspects of secure online transactions.
Tom Drake at the Canadian Finance Blog has a comprehensive post addressing what he claims is the conventional wisdom regarding life insurance: buy term and invest the difference. He argues that while the strategy has its obvious appeal, it’s highly sensitive to the assumptions used in the term vs. permanent comparison. Well worth a read!
Hank Stern, writing at InsureBlog, notes in the context of recent floods in North Dakota that sometimes taking a risk with your insurance coverage can be justified, but as with the analysis in the previous post, that it all comes down to how robust your assumptions are. Come to think of it, isn’t that the case with just about anything?
Wondering about health insurance exchanges? Dr. Jaan Sidorov (aka the Disease Management Care Blog) took one for the team and dove into the depths of the details of Utah’s already-existing exchange. He notes that setting up an exchange is far more complicated than one might think at first glance, and that it’s unlikely that they will be functional in every state of the union come the 2014 deadline. He also ponders the potential for exchange listing/delisting to be used as a quasi-extra-legal cudgel (my words, not his!) by state insurance regulators seeking additional ways to force insurers into line.
“Oh no they didn’t!” is a common refrain from business owners wondering how that absurd claim could have been paid out by their workers’ compensation carrier. Nancy Germond has a clear and concise explanation of why, “oh yes they did!“, along with an interesting history of how workers’ comp came to be in the first place. Read on at Allbusiness.com.
Do you remember the Dodd-Frank bill? Thought it only applied to big banks and high-falutin’ investment securitization shenanigans? Van Mayhall III has a post at his Insurance Regulatory Law blog reminding us that the new provisions of the law could also affect larger insurance companies and their affiliates in ways that management will want to be aware of well in advance of anything going wrong.
At Colorado Health Insurance Insider, Louise Norris asks whether eligibility criteria for the newly-established federal high-risk health insurance pools is hampering enrollment. Colorado is an interesting vantage point from which to observe this: the twenty-year-old program “CoverColorado” is very similar to the new federal one. The differences between the two programs’ eligibility rules generate good insight into where the federal program is going wrong in attracting enrollees.
Workers Comp Insider Julie Ferguson and I seem to have been on the same wavelength for this blog carnival! I recently wrote a post arguing that the problem of poor price transparency in health care may be an objection to the use of consumer-directed health plans now, but that early adopters will pave the way forward for the rest of us. The chicken-and-egg issue is not all that intractable! Julie Ferguson, on the other hand, has a far superior post addressing the same topic. She points out the immense price differences for the same medical services that exist across state lines and across street intersections alike, and provides links to seven (count’em!) different resources for employers and individuals to use to get the best bang for their medical buck.
This brings CoR-135 to a close. Thank you to all of the submitters for their quality posts on risk, and thank you to Hank Stern for his tireless work managing the behind-the-scenes logistics of every edition of this blog carnival. It really is an honour for this callow medical student to be invited to sit at the grown-ups’ table and host the Cavalcade!
The next edition of Cavalcade of Risk will be hosted by Jacob Irwin at My Personal Finance Journey on July 27th.
For those of you who tried your hand at the national flags-and-trivia sideshow, the answers are here.
The first one was something of a trick question. It’s France! French Guiana sits atop the northern coast of South America, and is every bit a part of France as Paris or Nice, and as such France has land borders with Brazil and Suriname. Bastille Day: July 14.
It’s not an American flag, but there is a reason it sorta-kinda looks like one. Liberia was established as a place to which to “repatriate” black Americans in the early 19th century, the idea being that they could live a life of greater freedom there than in the antebellum United States. James Monroe was one supporter of this effort: the Liberian capital is Monrovia, after him. Proclamation of independence from the United States: July 26.
Next up: Belgium! It’s been quite a while since they’ve had an official government, and the country is wracked by political tensions between the Flemish and Walloon communities. Oath of the first King of the Belgians: July 21.
St. Thomas in Portuguese is Sao Tome (can’t figure out accents, sorry!), and the flag is that of Sao Tome and Principe, a small island nation located along the Equator in the waters west of Gabon and Equatorial Guinea. Independence from Portugal: July 12.
Prior to 1995, the Pacific island country of Kiribati was split by the international date line. Makes inter-state time zone differences in the US seem incredibly convenient by comparison, doesn’t it? After kinking the IDL a bit to the east to accommodate the entire country on one side, Kiribati was positioned to be the first country in the world to see each new day. Independence from the UK: also July 12.
I’ve alluded to AMSA’s… interesting choices regarding who they will and will not take money from (or at least, who they will claim not to take money from). Here’s the long-promised photographic evidence: the swag I collected from conference exhibitors.
What you’ll find below the cut includes:
- A pamphlet, a bag, and some pens from Medical Protective, a professional liability insurance company owned by Berkshire Hathaway.
- A Merck Manual (yes, that Merck… the one that makes all these ”pharms” of which AMSA claims to be ”free”).
- Materials from various academies of quackery (as seen earlier).
- A pen, a magnet, and some other swag from the FDA.
- Application forms for various forms of insurance/consumer credit provided by or through AMSA.
- Some stuff from banks.
- Swag NOS.
I’m not the first person to have made this point, but a recent post on HIT/EMR adoption at KevinMD got me thinking about it again:
Many clinicians are resisting the implementation of electronic medical records and other forward-thinking technologies because they dislike change, and technology for that matter. This is likely because the technology that is being imposed on them is difficult to use, or doesn’t feel natural to them.
This is something one hears a great deal of during discussions of physicians and technology. “Physicians are stubborn and resistant to change.” Let’s be honest, who doesn’t know a physician (or 2, or 20) that fits this description?
On its own, this is not a facially illogical explanation for low EMR uptake and resistance to health IT mandates from the government. Of course, many of the prominent organizations who believe that our salvation lies in EMRs and that those pesky, technophobic physicians need to fall into line (think Commonwealth Fund) are the ones who continually remind us that the reason behind the long, inexorable march of increasing health care costs is…
… physicians’ constant readiness and willingness to adopt new technologies and innovations when they feel it will improve patient care, or the bottom line.
Having never seen anyone from these schools of thought even try to explain how these two views are compatible, I can only conclude that some hard doctrinal choices are in order.
Argument by Anecdote!
Last week, I was shadowing an older, outpatient physician in a procedure-heavy specialty who is on the voluntary faculty at SUMS, and admits to SUMS’ main teaching site. We talked for a while about the hospital/med school EMR, which we both agree is a nightmarish monstrosity. He was explaining how he was holding off on the paper –> electronic conversion for as long as possible (i.e. until the school forced him), because the product was just so terrible.
He then proceeded to show me the brand-new Siemens ultrasound system that he and his partner had purchased not two weeks ago. He explained the effort that he went through to train himself on it and its new features, and how it was already an improvement over the model he had been using previously. He then proceeded to reminisce about all of the technical wizardry that had been invented in his professional lifetime that he now uses routinely in the office, because he feels that it enhances his ability to care for his patients.
He really, really does not want to switch to the hospital EMR.
Stubborn, resistant to change, and fearful of new technology? You tell me.
Fun tidbits, health-related and otherwise, from around the ‘tubes:
- How do the media deal with new research? How should the media, or anyone else for that matter, interpret new research? Unfortunately, the New York times only devotes a couple of paragraphs to this first question, but even that is enough to illuminate the complex web of incentives facing those in the science communications industry, and what it means for the science coverage that you see. A blogger at Foreign Policy provides some useful advice in response to the second question.
- The Placebo Journal Blog takes on a proposal to save family practice… by extending the residency to 4 years from 3 (in contrast, FP residency in Canada is 2 years). The comments are harsher than the post itself. A family practitioner blogging at Better Health gives an example of how opting out of Medicare can be win-win for the doctor and the patient. This strikes me as a better option than an extended residency. Even if primary care can be saved, it probably won’t happen soon enough to stave off what could be a massive increase in Emergency Department utilization by newly insured patients as a result of the PPACA.
- File these under “overutilization” for sure: Dinosaur accuses the American College of Obstetrics and Gynecology of “usurping” primary care’s scope of practice with new guidelines recommending OB/GYN visits for younger teenagers; MD Whistleblower blows the whistle on various “pre-emptive” CT scans that are being advertised to patients despite the fact that they don’t do much good for anyone.
- Science-Based Medicine writes a rebuttal to a Slate piece linked to in the last edition of AtM: Why Big Pharma should not buy your doctor lunch. SBM also featured some well-written commentary about new CMS head Don Berwick, touching on his lax attitude towards pseudoscience, and the Central Berwick Paradox of supporting unlimited patient choice and top-down government rationing. Or something like that.
- Via EconThoughts and Megan McArdle, we find a story in the WSJ describing how some unions hire non-union labour to staff their picket lines. Delicious. Less delicious is the story told by House Appropriations Committee Chairman David Obey (D-Wis) of how the White House suggested paying for spending on teachers by cutting food stamp benefits. Does anybody remember who the largest donors to federal Democrats are? I’m having trouble, but I don’t think it’s food stamp recipients.
- TJIC and Coyote Blog talk about “big picture jobs,” adding real value through real work, and what Scott Greenfield would call the “Slackoisie” that is much of my generation (I hope not to fall in with that crowd). We have critiques of recent NY Times letter-writer Arielle Eirienne, Washington Post interviewee “little-miss-altruist Beth Hanley,” and “big-picture jobs” and the people who think they should have one. They use lots of harsh words (well, TJIC does), but honestly… they’re right, painful as it may be for some of my contemporaries (heck, a number of my former classmates) to acknowledge.
- Let’s talk safety. It’s important, right? Important enough to flex some muscle and shut down a business just for the hell of it? Coyote finds that some agencies would say “yes” to that. Toyota and the NHTSA, in a move that didn’t surprise those who cared to think about the issue, announced that virtually all of the so-called “sudden acceleration” issues are attributable to driver error “pedal misapplication.” Whoops. Coyote asks “how safe is safe enough” in the context of dioxin, pointing out that new EPA efforts at regulation are probably superfluous, as is their existing safety standard. Lastly, can we afford to hire government employees to supervise children’s dietary intake? What’s scary is that there are people out there who take the question seriously.
- Doctors aren’t the only ones who deal with emergencies. There is such a thing as a legal emergency as well. Why not regulate emergency legal services in the same we that we do emergency medical care? Of course, like physicians, sometimes lawyers can be breathtakingly, hilariously incompetent.
- Economic mismanagement was a common theme this past week. From EconThoughts we have Obama’s Dirty Dozen; InsureBlog explains how his state is implementing the PPACA’s high-risk pool provision (not very well, it seems). Coyote explains why a government program’s popularity is a terrible metric by which to judge it, just as high corporate profits can sometimes spell bad news for the larger economy.
- Ending on a lighter note, we have an interpretation of Toy Story 3 as a libertarian-inspired parable, and an animation of an orthopedist consulting with an anesthesiologist. “There is a fracture. I need to fix it.” Hilarious.
As the New York Times, its Prescriptions blog, and the San Francisco Chronicle have been reporting, there’s been a scandal of slightly more-than-minor size involving the UCSF Chancellor’s stock holdings. Dr. Susan Desmond-Hellmann — the oncologist at the head of UCSF’ — disclosed shareholdings in the area of $100,000 in Altria, the company formerly known as Phillip Morris that makes most of its money from tobacco-related products. Since that disclosure, followed promptly by divestment, Dr. Desmond-Hellmann’s holdings in health products/pharmaceutical companies and fast food companies — this time to the tune of millions of dollars — have come to light. The investments were apparently made by a third-party financial advisor without her knowledge, and this advisor has since been instructed to purge her shareholdings in alcohol, tobacco, and firearms manufacturers.
Reading these articles prompted me to consider one of my earliest posts here, in which I argued that there is nothing unethical, unseemly, or untoward about life/health insurance companies holding shares in fast food companies. Does the same argument apply to Dr. Desmond-Hellmann’s holdings?
Yes and no.
In my mind, the most problematic of her stocks are the pharmaceutical and health products companies. These firms are probably vendors or research sponsors at UCSF, or have the potential to be. The Chancellor’s shareholdings in these firms are substantial, and the potential for a conflict of interest is definitely present. As one of the ethicists quoted by the Chronicle points out, recusal from decisions that would trigger this conflict may be all that is required, but continuing to hold the shares certainly creates the appearance of impropriety. While some have pointed out that physician-industry relationships aren’t always eeevvvilll, as others would have us believe, there is a difference between productive collaboration of the sort Dr. Rich discusses and passive shareholding of the sort at question here.
I personally find her other shareholdings to be less objectionable. Alcohol, firearms, soft drinks, and fast food are all legal products that can be used or abused, depending on who is doing the ab/using. I see nothing intrinsically “evil” about them that should force medical leaders to steer clear. Many of these firms (McDonalds, Pepsi, etc.) are also components of major equity indices, and as such may well have been chosen for that reason. It’s highly unlikely that they will be directly involved with UCSF as vendors, donors, or sponsors, though I could be wrong about this. Tobacco, however, doesn’t pass the smell test with me, especially not when we’re discussing an oncologist. Arguably, it’s the only one of the products in question that is inescapably harmful regardless of how it’s used. Of course, I would be remiss if I didn’t point out that there are lots of anti-smoking groups out there who have let their love for tax revenue outweigh their desire to reduce smoking. This doesn’t make Dr. Desmond-Hellmann’s Altria holdings more palatable, in my view. It just places them in the context of “how worse could it be/what company is she in.”
There is a growing obsession with rooting out conflicts of interest in healthcare, often under the rubric of reducing “waste and fraud.” Much of this is a good thing, though as people like Dr. Rich point out, this obsession comes with a risk of harmful side effects. More and more attention seems to be paid to “who owns which shares.” Given that companies like McDonalds, Pepsi, and Altria are major blue-chip companies that are components of the DJIA/S&P 500 — thus likely to be held by many people and institutions — and targets for public health activists, it will be interesting to see how this plays out in the future, and where the line will be drawn for medical professionals who want to be perceived as “ethical investors.”
No, we really shouldn’t, recently published misinformed scholarship notwithstanding.
The WSJ Health Blog brings to our attention a gem of a “study” performed by researchers at the Harvard Medical School-affiliated Cambridge Health Alliance.
The article opens with the supposition that “[l]ife and health insurance firms profess to support health and wellness,” then reminds us of the various evils of fast food and of the various efforts at the municipal level to rein in fast food firms. We learn that certain large insurers hold shares in certain fast food firms. The article closes with the claim that insurers should “be held to a higher standard of corporate responsibility,” and thus their only ethical options regarding fast food shareholdings are to 1) divest, or 2) become activist investors and push for “practices consistent with widely accepted public health principles,” possibly even “turn[ing] over their proxy votes to an independent nonprofit organization.”
Is this such a widespread problem? Is this a problem at all? How did they get to this conclusion?
Researchers, “sensing [a] potential disconnect” between insurers “responsibility to share- or policyholders to maximize returns” on the one hand, and “their health-promoting mission” on the other, decided to look at the value of major insurers’ investments in: Jack-in-the-Box; McDonald’s; Burger King; Yum! Brands (mainly Taco Bell, Pizza Hut, and KFC); and Wendy’s/Arby’s. Of these five firms, McDonald’s is a component of both the DJIA and the S&P 500 indices; Yum! Brands is a component of the S&P 500. The study examined the holdings of eleven major insurers who, on aggregate, write life, health, and long-term disability policies in Canada, the US, and the UK.
The results are, in my view, pretty vanilla. The researchers looked at the state of the world on June 11, 2009. Between them, these eleven insurers had positions worth $1.88 billion in the five fast food firms, of which $1.18 billion was McDonald’s holdings and $0.404 billion was in Yum! Brands shares. The current (April 15, 2010) market capitalization of these five companies combined is approximately $101.24 billion; McDonald’s alone has a market cap of $74.41 billion. The article states that, at the time, these eleven insurers together owned shares worth 2.2% of the combined value of the five fast food companies.
(There are some mildly interesting factoids to be gathered by looking at individual insurers: some have large fast food stakes, some have minuscule stakes; some have holdings across all five fast food firms, some only hold shares in one; the three two insurers who write health insurance in the US hold stakes that are minimal relative to the others’; no information is given as to the size of any firm’s total investment portfolio)
The authors suggest three reasons why insurers whose alleged “mission” is to promote health would invest even a dime in these Evil fast food firms. Firstly, the return on investment in these companies might exceed the “potential financial liability associated with their policyholders consuming fast food.” Alternately, insurers might simply be “unaware of the social impact of their investments.” And lastly, the authors suggest that the claims and underwriting sides of large insurers just might not be aware of what their colleagues on the investment side are up to. Holding the shares is just not an option. After all, “”[t]hey’re profiting directly off the people who eat fast food, and if that leads to obesity or cardiovascular disease, they’ll charge you more for premiums if you have some of those conditions,” says Boyd. “They’re making money in either case.””
Even assuming the objections raised by the insurers about the data’s accuracy are incorrect, let’s see if the researchers’ normative conclusions are justified.
Any insurer’s first priority will be to its shareholders; a legally enforceable fiduciary duty exists between a firm’s management and its owners. Its next priority (or first priority in the case of a non-profit insurer) should be to its policyholders. Specifically, an insurer should uphold its end of any policies that it has written, and should take steps to remain solvent so long as it has policies outstanding.
Nowhere is there an obligation — legal, moral, or otherwise — for life or health insurers to promote health and wellness either among their policyholders or in the community at large. It’s possible that some insurers, particularly health insurers, might find it cost-effective to do so, but it is not within the scope of their obligation to policyholders. A study author claims that insurance ownership of fast food stock amounts to ‘double-dipping.’ Insurers exist to insure against risk (sounds so simple, doesn’t it?). Faced with a riskier prospective policyholder applying for an underwritten product, they will increase the premium to reflect the expected increase in claims paid out to that policy’s beneficiary. To the extent that underwriting differentials are actuarially fair, it doesn’t matter to an insurance company how many Big Macs their policyholders choose to eat, so long as their policies are priced appropriately. If anything, owning fast food shares could be seen as a (vastly inefficient) hedge against unexpectedly increased policyholder obesity from fast food consumption. It’s most certainly not a way to directly profit off of their own customers.
Why would any insurer hold shares of anything in the first place? I can think of two main reasons. The first is unique to life insurance. With universal life insurance or segregated funds, life insurers hold shares on behalf of policyholders. Policyholders may choose to invest the cash value in a number of ways, including in fast food securities. The WSJ blog post quotes a Prudential executive as pointing out that much of their shareholdings could be attributed to these policies and funds. I can think of no policy or ethical reason to prohibit these investors/policyholders from investing in fast food shares, nor do the authors venture one.
The second is common to most insurers: they need someplace to invest their float (the money collected from premiums that do not yet need to be paid in claims). Profits from the float can be good for consumers: insurers can use float profit to offset underwriting losses, and even to maintain looser-than-otherwise underwriting standards or lower-than-otherwise premiums. A vanilla investment strategy might include buying shares of major companies that form part of the Dow Jones Industrial Average or S&P 500 Index… such as McDonald’s or Yum! Brands. I see nothing sinister about it.
Even if insurers were to divest their and their client’s holdings of fast food companies, what effect would it have? Someone else would own the shares and derive profits from them. Instead of profits from those shares being used to reduce the need for premium increases or tighter underwriting standards, they would accrue to someone else. Assuming these shares were held in the first place as part of a profit-maximizing investment strategy on the part of the insurers, this divestment would not serve their policyholders. It’s also hard to see how it serves the larger community in any meaningful way. Buying or holding shares in the secondary market sends no money to the company whose shares are being bought.
In short, this study is much ado about squat.
Life and health insurers have obligations first to their shareholders, then to their policyholders, neither of whom would benefit at all if insurers were to divest from fast food firms. The larger community would receive no benefit from divestment either. Aside from the symbolic value (which would be close to nothing, given the tiny amounts of these companies actually owned by insurers), divestment would do absolutely nothing for the cause of public health.
The larger community, I should add, I include in this analysis only because the authors do. The role of private insurance in managing risk is one that is poorly understood generally, barely acknowledged in the recent health insurance reform conversation, and one that I hope to return to at the Notwithstanding Blog. Generally, however, it does not include improving the health or well-being of the underlying community for its own sake.
Physicians’ organizations spent most of their (limited) political capital during the recent reform conversation arguing for more money for themselves (a goal that I largely agree with), and arguing that ‘more be done for the patients,’ without, in most cases, displaying a serious understanding of the issues involved in the latter. If physicians are to be taken more seriously on these topics in the future, it would behoove them to avoid the pitfalls of understanding that plague this study.
Update (15 minutes later):
I decided to look for information about these investments relative to the insurers’ portfolios. I looked at Manulife and MetLife 2009 Q4 investment fact sheets; it’s unclear how much, if any, of these portfolios are client-directed. Interestingly, MetLife doesn’t seem to offer health insurance, as the study authors claim.
Manulife had an investment portfolio worth C$187.5 billion, including C$9.38 billion in stocks, including $0.1461 billion in shares of McDonald’s and Yum! Brands.
MetLife had an investment portfolio worth $309.3 billion, including $8.66 billion in corporate equity, including $0.0020 billion in holdings of Wendy’s/Arby’s.
I see no reason to believe that the inferences drawn here are inapplicable to the other nine insurance companies in the study.
What this quick number-running tells us is that not only are these insurers’ holdings of fast food shares insignificant in terms of the fast food companies’ market capitalizations, but also in terms of their own portfolios (these two insurers have portfolios an order of magnitude larger than McDonald’s market cap).
Given that there really isn’t anything to be gained from divestiture, this only reinforces the conclusion that this study’s authors are trying to make a capital crime of a traffic violation.
Study citation: “Life and Health Insurance Industry Investments in Fast Food.” Mohan et al. Am J Public Health.2010; 0: AJPH.2009.178020v1
Disclosure: two of the eleven insurance companies studied are Manulife Insurance and SunLife Insurance, which in turn are two of the top 10 holdings of an ETF of whose shares I own a small number. I hope this satisfies the FTC.
 – The authors’ argument is strongest for companies who write health insurance in the United States. Of the 11 insurance companies evaluated, only three two did so. Most of the insurers in question are life insurers, which leads me to think this whole hullaballoo is based on a giant red herring. Private health insurance doesn’t generally cover the “bread and butter” health expenses of Canadians or Britons, and life insurance is a whole other matter entirely, so the authors’ arguments, weak as they are, are barely applicable to their own dataset. Back to text
 – One could argue that someone in the insurance sector should be looking out for the community at large . That may be the case, but it’s not a job to be stuck on private, for-profit insurance, whose existence is a given here. Back to text