Demsey, Filliger & Associates

WSJ

January 13, 2009

Dr. Fred W. Frick (”Health-Care Rationing Is Inevitable, So Get Over It,” Letters, Jan. 6) asks why it’s OK for a health-insurance executive to deny coverage, but not for a Washington committee. The consumer has choices and options in dealing with the private sector, but not with government. She can switch to the competition at renewal time. She can obtain legal recourse and make the insurance company honor its contract. Fear of the latter, by itself, should be a motivating factor for the private sector to do it right. Meanwhile, the government board member is only accountable to his political and bureaucratic bosses, not to the consumer.

Those who complain about the lack of access to health care have ignored the government mandates to cover more and more. They also ignore government tax incentives for employee-paid insurance, which have deprived health care of the consumer-driven market discipline that has worked remarkably well in other areas, such as auto insurance. These are the main reasons for the horrendous price increases. Small wonder that health care is out of reach for millions.

By the way, how can one place health care as a higher need than others, such as food and shelter, and make it an entitlement? We know what happens when a society labels all these needs as entitlements. When the private sector is crowded out by the enormous power and resources of the government, people have fewer choices. They become dependent on the government program. They become vote banks. They vote for politicians who resist any meaningful change until it’s too late.

Those of us who ran away from such central planning know this movie plot too well. We are all running out of places to run to. One by one, the shining cities on the hill are disappearing.

Rayasam V. Prasad, M.D.
Stockbridge, Ga.

AB 554 was signed by Governor Schwarzenegger today. This law will permit non-PEMHCA agencies to join CERBT, the Section 115 Trust managed by CalPERS. LF

Wrapped up as we have been in the fight to abolish mandated actuarial assumptions, it’s easy to lose sight of the bigger picture.  AB 554 has been enrolled and has been or will be presented to the Governor for signature or veto some time in the very near future.  While our arguments against AB 554 make perfect sense to us, we must admit objectively that Governor Schwarzenegger would have much to lose and very little tangible to gain from vetoing the bill, at least in the short run.  If I were in the Governor’s position, would I sign or veto?  The fact is, I’m glad I’m not in his position.  I fear enough retribution from just our stance on one bill.  Multiply that by the thousands of bills that come before the Governor each year…. it is truly staggering.  How can he know whom to believe?  How can he take the time to research every bill on his desk?

We’ve been very impressed with his signing and veto messages - he’s consistent, thoughtful, honest, and for all appearances, has the welfare of most Californians at heart.  And, it’s hard to keep from shuddering at the thought of how poorly Governor Davis rose to these challenges and how much worse off the State would now be had not Governor Schwarzenegger arisen on the scene to rid us of Davis’ endless dithering and uninformed decision making.  Even our climate seems better now with Arnold at the helm.

When Governor Schwarzenegger takes the proverbial pen to AB 554, we of course continue to hope for the veto, because we believe that it is absolutely vital to check PERS’ meddling in affairs best left to private actuarial professionals.  But, if the Governor signs the bill instead, we understand that he is doing so for his vision of what’s good for the State of California.  For that we applaud him and thank Providence that he is in the Governor’s office at this critical time in history.   We’d rather have Governor Schwarzenegger and AB 554 than Governor Davis and no AB 554.   After all, whether AB 554 be signed into law or vetoed, the real fight is only just beginning.

LF

The next hearing on AB 554 is Thursday August 30th, day after tomorrow.  The bill was amended last Thursday (August 23rd) to strike the urgency measure and return the bill to being subject to a simple majority vote rather than a 2/3 majority as it had been for the last 2 months.

We have been unable to learn the reason for this change.  Looks like we will just have to do what actuaries don’t do very well - wait patiently to see what the future brings. 

I’m a big one for analogies, and I would have to categorize our recent foray into California politics as being analogous to doing a 3,000 piece jigsaw puzzle without the box lid, in the dark,  and having the feeling that you’re missing a couple hundred of the pieces but not knowing for sure. 

In summary, I am eager to get back to just doing actuarial work - it seems so simple by comparison to politics.  And I’m sure there are those who will not be overly upset when they don’t hear my name for a while.  It’s been a good dress rehearsal for the fight against socialized medicine - of course, that is the fight that really matters.  And let me tell you, we’re gonna take a shellacking if we don’t get better organized.

LF

When was the last time you made a conscious decision knowing it would cost you money?  It’s an increasingly rare practice, as far as I can tell.

We all like to think of ourselves as highly principled.  But then we come to that crossroads, (and it is a crossroads, make no mistake) where it might behoove us to “rethink” our position a little bit.  Maybe we were too hasty to say we’d never bend or compromise.  Well, what’s changed?   Maybe we’ve just matured….. more likely, we just didn’t think about how following our principles might call for a little sacrifice.

The actuarial profession lectures all its members endlessly about the importance of ethics - about doing the right thing - and yet, when our profession’s reputation is really put on the line, the powers that be mysteriously turn a deaf ear.  Well, it’s OK for the actuarial bodies to come down hard on the little guy - I mean, how else you gonna make sure he stays little? - but when a really difficult situation comes along, such as the one we now face in California - being muscled by the state retirement systems and by the unions that control them (and practically everything else) - those actuarial bodies simply aren’t anywhere to be found. 

Blame it on East Coast bias - if it happens West of the Mississippi, and nobody hears it, does it really make a noise? 

 Anyway, like the Jayhawkers who crossed Death Valley in 1849 in search of a better life in California, we’re finding out now just how “on our own” we really are.  And we’ll either find that better life in California, or leave our bones scattered along the way, but as long as we keep our principles, as Jesus Jones said, “there is no other place we’d rather be”.

LF

We encourage California cities, counties, and districts that are in the process of putting out RFPs for GASB 45, to permit responding actuarial firms to begin with a clean slate as far as selection of assumptions and actuarial cost method.

Coming to an actuary and saying first thing: “As a condition of your firm being awarded this assignment, you must agree to using a pre-determined set of actuarial assumptions and a pre-determined  actuarial cost method”  is almost precisely analogous to walking into a doctor’s office, and before even saying “God, it’s cold in here!”, demanding that the doctor prescribe you a particular form of pain reliever you’ve decided would be good for you, and walking out the door if the doctor refuses.

In other words, you’re taking all the value of the actuary’s professional experience and throwing it out the window, and supplanting it with someone else’s. And in the present situation, it might even be the professional experience of someone less qualified to be making the diagnosis than the actuary receiving your RFP.

Actuaries are required to pass a series of 10 actuarial exams that frequently take 7 or more years to complete. Actuaries are held to the highest ethical standards. If we have a conflict of interest, even an apparent conflict of interest, we’re required by the code of our profession to disclose it up front.

That’s why when you get advice from an actuary, you won’t have to wonder whether there’s a financial axe to grind that perhaps you’re unaware of. Unfortunately, this statement does not extend to organizations that serve as fronts for actuaries, but do not permit you to deal directly with the actuary.

In summary:
(1) Make sure you know who you’re dealing with
(2) Make sure you know how they are compensated
(3) Make sure you give them a chance to show their stuff.

LF