Claims of the Week – 866,000 of ’em

That’s how many Florida health-care exec Larry Duran took the rap for last week, as he was sentenced to 50 years in prison for Medicare fraud.

Take it away, PropertyCasualty360:

Orchestrating one of the largest Medicare cons in U.S. history, Duran submitted 866,000 dirty claims worth more than $205 million for worthless mental-health treatment. His spoils added up to $87 million.

The company, American Therapeutic Corp., was a chain of seven Florida clinics co-owned by Duran, 49, and his girlfriend, Marianella Valera, 40.

Duran bribed halfway homes, assisted-living centers and others up to $400,000 a month to funnel patients to his clinics. Doctors frequently faked records or signed off on charts without seeing any patients.

How’d he get away with it for so long? Well, his Washington lobbying efforts didn’t hurt:

He set up an advocacy group called the National Association for Behavioral Health (NABH) to convince Capitol Hill to allocate more money to him and make it easier for his clinics to operate.

In five years NABH spent more than $750,000, holding fundraisers for legislators, staging “fly-ins” on Capitol Hill and advising group members how to get around Medicare denials.

Fraud besieges Florida no-fault

I used to live there, so I feel comfortable in saying Florida never saw a scam it didn’t like. Friday, PCI blew the lid (.doc) off Florida no-fault fraud.

Regrettably, the Florida no fault system is completely broken. There are more auto lawsuits in Florida than other no fault states, rates are climbing due to accelerating underlying costs, and rampant fraud is leading to a two-tiered system with most honest Florida consumers paying for the unnecessary medical bills and sky-high attorney fees of those taking advantage of the system.

The tab: $800M over the past five years.

The direct evidence for this is always a bit murky, since it’s hard to investigate fraud when your claims department is swamped, but consider this chart, which shows that bodily injury claims in the state have grown 19% since 2006, while everywhere else claims frequency is flat or lower:

More evidence, and proposed solutions at the link.

Why health insurance subsidizes the elderly

Over at the Speaking of Actuaries blog, SOA President Brad Miller puzzles over why Obamacare has younger buyers subsidizing older ones:

I discussed this with someone who works on Capitol Hill. I told him I understood the criteria for the first three but was struggling to understand the reason for the young to old age subsidy. Was Congress and the president trying to emulate the group insurance market? Were they making a statement about the appropriateness of age-based pricing? The person just looked at me and smiled. He said, “Brad, you are such an actuary. You try to impute logic where there is none. There is one reason and one reason alone for the 3 to 1 limit that subsidizes the old at the expense of the young.” I said, “OK, what is the reason?” He said, “It is the price that AARP (American Association of Retired Persons) extracted for their support of the bill.”

“It is the price AARP extracted to support the bill.” Totally non-actuarial. Totally political. Old people vote, young people don’t. If you are under age 35 this should make you pay particular attention.

I think Brad and the aide have set up AARP as a straw man here. There are political considerations to any bill (er, that’s politics), but there are sound public policy reasons for the subsidy. Health insurance is unbelievably expensive if you are over 50. $10,000 a year for a healthy couple is not out of the question.

For many people, that makes it unaffordable in the same way it would be unaffordable for a young, poor person. If you require someone to buy insurance, but they can’t afford to, you haven’t solved a problem. You’ve just created a new class of criminal.

Also, they may be focusing on the current concept of health insurance as a one-year policy. However, the individual mandate – assuming it remains in the law – turns health insurance into a lifelong purchase for every consumer. This makes a bit of sense, since health insurance is a lifelong need.

In that circumstance, it’s not inappropriate to charge a customer more in the early years of coverage and less in later years. I’m pretty sure you can buy a term-life policy that works this way.

Another way to look at it: The young person will probably become old, so they will move from subsidizing to receiving the subsidy

Brad’s larger point is on target, though: Actuaries tend to see actuarial considerations when addressing problems. But there are other ways, and they are equally valid.

The Week in a Minute, October 28, 2011

• The 2011 march of catastrophes continues:
• Thailand’s Office of Insurance Commission indicates flood claims filed so far exceed $3B. Guy Carpenter updates; Artemis.bm has a thorough report.
• Earthquake in eastern Turkey (Van) claims hundreds of lives. AIR puts insured losses between $100M and $170M. Eqecat’s range: $100M to $200M.
• Fortunately, Rina shrank down to Tropical Storm status off the Yucatan and as I write this (11:40 Thursday) seems unlikely to restrengthen.
• AIR updates its U.S. terrorism model with lower frequencies and severities, reflecting, in part, “the reduced capability for large-scale coordinated attacks in the United States from al-Qaida and its allies.”
• David Sandberg becomes AAA president today.
• Actuarial Standards Board approved revisions to two casualty-related standards:
• ASOP 20 (Discounting of P/C Unpaid Claim Estimates)
• ASOP 38 (Using Model’s Outside One’s Expertise)
• Interview with a pet insurance actuary.

Update: A couple things I forgot to add:

• European uber-quasi-regulator EIOPA gave good report cards to regulators in Bermuda, Japan and Switzerland. It’s a big step to getting those countries named compliant with Solvency II standards, which will make it easier for them to do business in Europe.
• Earnings season going full force. Most insurers getting dinged by Q3 catastrophes, which you can see in the Q3 Link-o-rama. Otherwise notable: Ace lost $790M on investments, many tied to its variable annuity portfolio. On the other side, Fairfax posted a $1B+ gain on bonds. (Fairfax is not big enough to make the roster on the Link-o-rama, but it’s a notable result anyway.)

Q1 quakes continue to pound Partner Re

Though earnings season is in full swing (see here), preliminary reports on cat losses trickle in, so I keep updating that page, too. Most have been small, so I haven’t flagged the updates. But today Partner delivers a doozy:

The Company expects to record $136 million in losses associated with changes in estimates related to catastrophe-related large losses that occurred during the first quarter of 2011. The total net impact of changes in loss estimates associated with the Tohoku earthquake in Japan is expected to be $101 million. Of this total, $112 million will be recorded in the catastrophe sub-segment, with a corresponding decrease of $11 million being recorded in the Company’s other Non-life sub-segments and its Life segment. The balance of $35 million relates to a re-estimation of losses associated with the Lyttleton earthquake, which impacted New Zealand in February 2011 and will be recorded in the Company’s catastrophe sub-segment. These revised estimates are based upon all currently available information, including revised client advices.

The total of all losses expected to be recorded in the Company’s catastrophe sub-segment for the third quarter of 2011 is $169 million.

That’s $180M by my math – $169M in the cat segment and $11M elsewhere.

Q3 earnings reports: updated

New at the Link-o-rama today: Transatlantic and Assurant.

I’m also updating previous entries for webcasts, etc., when I find them.

Solvency II thumbs up (mostly) for Bermuda, Switzerland, Japan

I was hoping someone else would slog through today’s reports by EIOPA, the EU’s uber-quasi-regulator. Thanks, Reuters!

LONDON, Oct 26 (Reuters) – European insurance watchdog EIOPA has said Bermuda’s regulatory regime for big insurers mostly complies with its own strict Solvency II rules, easing fears of a mismatch that could have hindered Bermudian players’ access to the European market.

“EIOPA’s advice is that Bermuda meets the criteria set out in EIOPA’s methodology for equivalent assessments under Solvency II,” EIOPA said on Wednesday in a submission to the European Commission.

EIOPA also said Switzerland and Japan’s regulatory regimes mostly complied with Solvency II, a set of rules aimed at bolstering European insurers’ capital expected to come into force in 2014.

The reports themselves are written in classic Euro-gook, but if you want, here’s:

• Bermuda
• Japan
• Switzerland

Investment results push ACE to Q3 loss

The company booked a 90 CR but lost money. Let Chairman and CEO Evan Greenberg tell you how:

“As a result of an historic drop in interest rates — the lowest level in over 100 years — and an equity market correction driven by Federal Reserve action and a flight to safety by investors, we incurred a substantial charge to book value from a negative mark to market in our variable annuity reinsurance business and our corporate fixed income investment portfolio. In our judgment, the majority of this mark will be transient and will reverse over time making a positive contribution to book value in future quarters.”

He’s referring to $790M in realized capital losses on the quarter, which turned a $759M profit into a $31M loss.

Few details out tonight, but what I’ve found is at the Link-o-rama. Webcast is 8:30 a.m. Eastern on Wednesday, can be accessed here.

Be like Tebow

Never followed him in college, but am intrigued by Denver Broncos quarterback Tim Tebow. And his experience has lessons for the actuarial exams.

If you follow football, you know Tebow led his team back from 15 points behind late to win Sunday’s game. Apparently Tebow has crude quarterbacking skills. His only skill, it seems, is winning.

But his ties to the actuarial world arrive via Advanced NFL Stats, a site that crunches football numbers the way the Sabermetricians have long done for baseball.

We’ve heard one statement over and over since Tebow joined the Broncos last season: Kyle Orton gives the Broncos the best chance to win.  I disagree.  While Orton is the better and more consistent quarterback, Tebow gives the Broncos the best chance to win.

A bit counterintuitive. Tebow apparently hashes things up most of the time. But when he plays well, he is fantastic.

And when you are on a bad football team (which the Broncos are), you don’t want consistency, because then you will consistently lose. You want Tebow playing, and you hope he is operating at his rare top level, because then you might win. If he plays poorly, it’s no big deal – you were going to lose anyway.

Blogger Keith Goldner puts it into three distributions, one for the Broncos with Tebow at QB, one for the Broncos when led his safe, competent alternative, Kyle Orton.

The third distribution is the performance of Denver’s opponent in a typical week. If Orton is quarterback, Denver wins when the green line is to the right of the red line. With Tebow at quarterback, Denver wins when the blue line is to the right of the red line.

Notice that the mean performance of each quarterback – where the distributions peak – is the same. So, on average, there’s no difference between the two. However, look at how much more frequently the blue Tebow line surpasses the red line – much more frequently than the green Orton line does.

The lesson: When you think you’re going to lose, you are better off gambling. You benefit by increasing the variability of the result.

This has a direct application to some of the upper level actuarial exams, especially on the casualty side. The multiple choice sections have a guessing adjustment. If the MC gives you five choices you get one point for a correct answer, no points for leaving the question blank and negative 1/5 point for filling in the wrong answer. Some trivial math shows that the expected value of guessing is zero. Should you guess?

Tim Tebow tells us what to do, because like his performance vs. Orton’ – the expected performance – doesn’t change. But by guessing you increase the variance of your score. If you think you’re going to fail, you might as well guess and hope for luck. But if you think you are going to pass, you should not guess – luck is more likely to work against you.

(Early joint SOA/CAS exams don’t have this adjustment. So you should guess in any case – a problem in game theory instead of probability.)

Claim of the Week: Comp fraud, Vol. Whatever

Ohio Man Caught on Camera Roofing While on Workers’ Comp.

Common enough news story, except the video also showed him . . .

. . . leaving the worksite to attend a hearing on his workers’ comp case, and later returning to finish the job.