Severity Squared

Individual Mandate (as an excuse)

2010-12-17T12:24:00.000-08:00

The challenge to the individual mandate will fail when the Supreme court rules
probably by the end of next year. Premiums, of course, will keep going up.
Insurance companies will then insist that the penalties are not high enough.
Of course, these are just excuses to keep raising premiums. Once the penalties
are the same cost as the insurance policy (and costs keep going up anyway) they will simply move on to other excuses for raising rates.

Health Care Reform Changes Not Likely

2010-11-07T08:43:00.000-08:00

Although the republicans were voted in response to public anger about the health care reform law, expect no changes to the law other than those "friendly" to insurance companies and medical providers.

The individual mandate will not be repealed. In fact, the insurance lobby will ensure that the penalties for non-compliance are increased. This will be done as a "tack on" for some politically popular bill. The republicans will not have the political courage to restrain costs in healthcare spending. They will blame the democrats for the bill, while simultaneously revising it to actually make it worse. So by 2012 we will have:

1. No healthcare costs control board (Medical providers will lobby and succeed in getting it abolished)

2. Increased penalties on not complying with the individual mandate.

3. Lessening of restrictions on insurance companies (Minimum percentage spent on healthcare, etc.)

Sort of like the democrats given the right punch and the republicans giving the left punch and then both blaming each other for skyrocketing health care costs.

2010-04-10T04:44:00.000-07:00

Tops Reasons for Anger against new Healthcare Reform Law:

Anger is about:

1. Bailouts of FIRE economy of which Health Insurance industry is one of those.

Although the original intentions of the bill may have been noble, the "sausage" making turned the bill into a Health Insurance industry bailout bill by enslaving Americans to be permanent customers of the industry.

2. Not reforming costs in system. Rewarding entities that fell to reduce costs.

HII (Health Insurance Industry) rewarded for not reducing costs by having government compel individuals to buy health insurance from private companies.

3. More onerous than Bank bailouts because money was printed via the federal reserve for bank bailouts. Money comes directly from individuals for HII bailout.

4. See "reform", as currently signed, as increasing costs, not reducing them. Many rational people see that you cannot increase benefits without improving efficiencies in the system. Only token actions to increase efficiencies are in the law.

5. A large section of the lower middle class will receive greatly subsidized healthcare. The greatest burden of this benefit falls upon the middle class (just above the subsidized group). These people reason correctly that there costs will go up. At race to the bottom may ensue. The have a legitimate concern that may very well be poorer as a result of this law.

6. Individual Mandates justified on the basis of saving a failing industry. Could you imagine justifying slavery in the 1860s based on saving the cotton industry?

Anger is NOT ABOUT:

1. Government Healthcare - This false perception is created by the Health insurance industry and lobbyists.

2. Health Care Reform in general. Many wanted to see STRONG cost reduction / efficiency mechanisms. Empower the PURCHASING CONSUMER, not the insurance companies.

Individual Mandate is Actually a Very Large Tax Increase on the Middle Class

2009-09-15T11:23:00.001-07:00

That's right.

Most will be forced to pay for service that they will never need or overpay for services based on their demographic group. This extra money is effectively a tax (redistribution) that the government can redestribute as it sees fit. The beautiful thing (from the government's viewpoint) is that this is not sold as a tax increase.

What will happen with "Health Care Reform"?

2009-08-11T15:04:00.001-07:00

What will happen with "Health Care Reform"?

1. Health Care will become more expensive by all nearly all measures - as percent of GDP, as percent of average household income , cost per procedure, etc. Politicians will claim that it would have been worse without the reform to protect themselves from political fallout.

2. Access to Healthcare will decrease - waiting times will increase for all.

3. Those on the low end of the income spectrum will be better off because of increased subsidized care. The middle class will be worse off because of having to pay higher premiums and taxes (as well as lower access as mentioned above).

4. Private insurance companies will grow significantly with increased profits from mandated insurance premiums on enterprises and individuals. Small private insurance companies will merge or go out of business because of not being able to function with government mandates. The companies left will achieve the same status as TBTF financial firms. They will use this financial muscle to increase their political clout. Expect to see similar scandals concerning bonuses in the health insurance industry similar to what we currently see in the financial sector.

5. The mandated insurance premium money stream will be taxed by the government to fund other activities (in addition to subsidizing healthcare for low income families). This will cause the costs of the premiums to go up. Politicians will not call this a "tax" but it will be functionally one anyway.

6. The federal government bureaucracy concerning healthcare will also greatly increase in size because of the huge regulatory and enforcement burden from all the rules and mandates.

7. Politicians that voted for the reform will insist that "Health Care Reform" is working by pointing to the increased numbers of insured families (although this was achieved by mandates to purchase covereage). They will also say that more time is needed for the reforms to work.

Socialized Healthcare

2009-07-12T06:57:00.000-07:00

Healthcare in the US will eventually be nearly completely socialized. Though a "free" market
in healthcare would produced the lowest costs and highest quality of care, the disparities in quality of care between rich and poor will simply not be politically acceptable.

Once one accepts the inevitable fact of socilized healthcare, then it is easy to see that there is very little role for private health insurance. Private health insurance carriers in neary all cases would be in the "Too Big to Fail" (TBTF) category because the government will not let a private health insurance company fail leaving the premium holders without health insurance. We now know that TBTF means an implied government backing. Implied government backing induces private enterprises to engage in risky profiteering behaviour because they know the government will bail them out if their ventures fail. The private insurance companies will pay themselves hefty salaries and bonuses similiar to AIG.

So it is obvious. Private insurance in this environment would be needless "middle men" entities raking in profits for its own benefit with negative effects to the payers in the system.

If socialized healthcare is inevitable, I do not want the private health insurance companies "pretending" to represent a bogus free market in healthcare. Many, like myself, see that they are only positioning themselves to siphon money from the socialized healthcare complex.

More Lies of 2010

2009-07-09T10:00:00.000-07:00

Top insurance executives were grilled by a congressional committee to explain why the average health insurance premium has skyrocketed by more than 20% in less than a year after healthcare reform was signed into law:

Executive X said that is was because of the increased demand in healthcare services. "The increased demand in healthcare services was not expected."

Robert Coulter, blogger at severitysquared.blogspot.com, was one of the few that predicted the sharp increase in insurance premiums upon passage of healthcare reform. He said that it was obvious that once healthcare insurance wss mandated that individuals would tap the healthcare system for more services to extract all the value they can out of their policies. Why let the premiums go to waste or to someone else?

Lies of 2010

2009-07-09T09:51:00.000-07:00

What the future will look like:

Healthcare reform bill of 2009 was signed into law late last year. Since then the average cost of a health insurance premium has gone up more than 20%. Many also complain of inadequate access to healthcare.

Senators R,B on capitol hill set there have been some hard transistions but on the whole the health care reform has been a success with many millions more now having health insurance. "The main goal was to increase the numbers of insured not to lower cost. Lower costs will come later."

Free Rider Myth

2009-07-07T05:22:00.000-07:00

I am amazed at the tolerance of the American public to the healthcare individual mandate. It seems that most believe that this will lower their insurance rates because "free riders" will be forced to pay into the insurance pools. Nothing can be further from the truth.

Healthcare providers collect their bills like any other enterprise. If someone has the money, they will pay. "Free Riders" are actually those who cannot afford healthcare and therefore could or can not afford their healthcare premiums. Nearly all of these individuals will receive free or greatly subsidized healthcare paid for by increasing premiums on others or the taxpayer.

So what is the real purpose of the mandate? I am afraid the answer is very sinister.

Healthcare costs are increasing rapidly with no sign of slowing down.
Currently, one could make a rational decision not to have health insurance and decide to pay their healthcare costs 100% out of pocket and tap into savings if a major illness is encountered. This would be like self-insuring.
This actually cuts the insurance company out of the loop. One pursuing this strategy is also much less likely to
seek professional healthcare for trivial medical issues. This would act as a natural brake on the runaway costs of healthcare and health insurance. If health insurance is mandated; however, this natural brake cannot happen. The mandate
is meant to force YOU to stay in the health insurance system. It may seem like a smart decision now, but when healthcare costs go through the roof you will wish to unload your useless and expensive mandated insurance policy but will be unable to do so.

--Like being in a runaway car with your foot shackled to the gas pedal.

Universal Health Insurance at the Point of a Gun

2009-07-03T12:00:00.000-07:00

How to solve the problem of so many citizens not purchasing expensive health insurance?
Make them buy it anyway.

Problem Solved.

Mandatory Car Insurance Not Analagous to Mandatory Health Insurance

2009-07-03T09:57:00.000-07:00

There is a huge logically flaw in the argument that if car insurance is mandatory that health insurance can be manadatory also.

The fallacy is easily exposed when you realize that you are not required to own a car.
There are many things in life where if you choose "A" you will get or be required to have "B".
Car insurance is "B" and is totally conditionally on someone making a choice to have "A".
So you do have a choice not to have car insurance buy not owning a car. There is no corresponding analogy to mandatory health insurance. You will not be able to legally escape it.

Shared Responsibility

2009-07-02T11:28:00.001-07:00

Shared Responsibility

The euphemism for "individual mandate".

We now know that "Health Care Reform" is really about who will
"pay" or "benefit" from the "great" program to increase health insurance -
particularly to those who cannot afford health insurance now.

Special interests groups correctly perceive that there is a lot at stake here.
Lobbyists are working hard to ensure that their clients win this game, or at the very
least, are not thrown under the health care reform steamroller.
The main stakeholders, or "shared responsiblity" parties, are as follows:

1. Healthcare providers
2. Healthcare insurance companies
3. Employers
4. American citizens

Of the above four groups, only the first three have a significant lobbying
effort on capital hill to protect their interests. Healthcare providers do not want
their payments cut. They will probably succeed or negotiate much better terms for
themselves (less pay cuts). Healthcare insurance companies do not want the government plan.
Why? The government plan would be less costly. Their profits would be reduced drastically. It would be like banning public schools and being forced to send you kids to a private school. Unfortunately, they will most likely succeed in getting the government plan removed.
Employers do not want the mandate to force them to offer health insurance. They will probably succeed or get this provision with a lot of loopholes to get around it.
Amazingly, American citizens seemed to be complacent over the individual mandate. Which, as noted by Michael Cannon
at the Cato Institute, is comparable to the military draft in its scale of loss
to civil liberties.

Sadly, I must conclude that the final bill will put nearly all the burden on group (4), the American citizen.
The "shared responsibility" will be nearly 100% on the backs of the American citizen.

The correct answer should be:

1. Force Healthcare providers to be more efficient or go out of business.
2. Offer the government plan to force private insurers to be competitive.
3. Remove the tax exemption for employers to provide health insurance or at least provide it for individuals.
4. Do the above three and the individual mandate would not be needed.

Health Care Rationing Coming

2009-06-17T09:04:00.000-07:00

I don't mean this as a scare tactic to warn of the supposed faults of a "government plan". It is just simply inevitable. The ONLY way to avoid rationing is to go back to a truly market place oriented healthcare delivery system.

The Health Care Reform bill will get negotiated in congress and turn in to a big fat tax increase to continue to feed the broken healthcare system.

Think of are Health Care System like the monster plant in the "Little Shop of Horrors". When it was small it begged to be fed, and it was fed. Now the monster is so big that it can demand to be fed and it gets fed out of fear that the feeder will become the lunch.

The ONLY way to make the monster smaller is to stop feeding it.

Real Indicators of Health Care Reform

2009-06-15T13:15:00.000-07:00

In a previous post I mentioned how one may determined when real healthcare reform is in effect.
Remember, the whole issue is about the COST of healthcare being way too high relative to GDP. Yet, over and over again, articles and news shows want to focus on something else like how to pay for healthcare reform (so the problem is cost but I have to pay more?!).

REAL Healthcare reform cannot occur with the approval of the health care / health insurance industry. The only thing that they will agree on is the collection of more taxes and fees to feed their industry. Unfortunately, based on what I am seeing in the news, they look to get their way.
Congress and President Obama will ask them pretty please to reduce costs. They will say give us more money and we will consider it. Or at least think about it. They think about it up to the point they get the extra money.

Ominous Future of Health Care Spending

2009-06-14T15:23:00.000-07:00

If Obama has his way, a health care reform bill will be signed into law by the end of the year.

Sadly, based on the way things look, this will greatly accelerate the costs of health care because it will do nothing to reform the system. The powerful interests groups are not going to let that happen. Special interest groups will gladly endorse new taxes on individuals and an individual insurance mandate so they can pass their bloated costs onto others.

This brings to mind anothe big lie that is going around:

1. If everyone is insured , costs will come down.

This reason this is a lie is that this only works with things that SHOULD be insured -- like low frequency, high severity, random acts of nature. It also should be pointed out that this does not lower the costs of medical treatment. It just lowers the average costs per individual paying into the healthcare / insurance system (because there are more payers).

The problem is that so much of our healthcare costs are not for low frequency high severity random acts of nature. The high costs are associated with high frequency, low severtiy, random and not-so-random acts of nature. Once one is required to buy an insurance policy, they will tap that policy to pay for these high frequency events otherwise they will feel they are wasting their money on the premiums. Costs go up like crazy.

Someone will then declare that "high demand" for medical services is driving up costs.
Go figure.

How to Recognize Real Healthcare Reform

2009-06-14T08:49:00.000-07:00

So if the current "Healthcare Reform Bill" is really about raising taxes, increasing premiums, removing medical expense deductions, and mandates forcing individuals to purchase insurance, what would real healthcare reform look like?

You will recognize it when the following occurs:

1. Inefficient and non-productive health care providers are no longer rewarded.
2. Efficient and productive health care providers are rewarded and allowed to increase their domain.
3. DOL stops making extremely optimistic projections about the numbers of workers in the
healthcare increaing at rates that cannot be afforded by the US economy.
4. The productivity of the average worker in the healthcare industry increases.
5. Healthcare costs start to come down as measured as a percent of GDP.

This means winners and losers MUST be determined. I prefer a market based solution. Others prefer some kind of government intervention. In either case, it must be done.

No Real Health Care Reform in the Cards , Just the American Public Getting Forced to Pay More into a Broken System

2009-06-10T09:53:00.000-07:00

It is easy to see that the Health Care / Insurance Industry (HCII) will get their way with so called "Health Care Reform". That is, no or little mandates for them and no push to make them be more efficient and productive. They will gladly support the government in making the individual mandate go through. So they get rewarded for having their costs rise at two times the rate of inflation.
Employers, through their lobbyists, will succeed in avoiding a mandate for themselves.

There is absolutely no way that this is going to lower costs. Forcing everyone to buy health insurance will drive up the demand without increasing the supply. If the supply does increase, a corresponding greater increase in premiums will be imposed.

No Government Plan + Individual Mandate = Worst of all Worlds

2009-06-09T13:46:00.000-07:00

Much debate is centered on whether there should be a government health insurance offered to the public to compete with private plans.
Naturally, the private insurance doesn't want government interference in as much as the government may compete with them on a service. Yet, they will gladly support the government in forcing an individual mandate to purchase insurance from them.

Imagine if they get their way what it will be like. Insurance rates will go up. Services will become more scarce. Yet, you must buy the policy by force of law. The insurance companies hold all the cards. They will offer the policy that is the most profitable for them.

You ask "Wouldn't the government plan be just as bad?". The difference is that, at least in theory, you can complain to your representative. The insurance lobby will be enriched and emboldened to hold on to their turf.
No doubt increasing their lobbying with the very premiums that you are forced to pay.

As far as the $2 trillion dollars of savings? This is a big lie.
It doesn't matter what the costs are 10 years from now, they will claims that $2 trillion dollars were saved anyway.

How are We Going to Pay for Health Care Reform?

2009-06-09T10:16:00.000-07:00

The above question has to be the most ironic question of the current times. I often hear this question when Health Care Reform (HCF) is discussed on a news talk show. An expert talks about the latest proposals from Washington and then the interviewer asks the above question.

This is the wrong question. How did this get to be the question? This is a bad question and a leading question. It presumes that one agrees that more money must be thrown at the problem.
The problem IS the money. The problem IS that we cannot put more money into it because we cannot afford it. I offer several other questions that news interviewers should be asking:

1. How do we make the Health Care System more productive?
2. How do we reduce costs in the Health Care System?
3. How do we improve efficiency in the Health Care System?

It's the Health Care Mandates Stupid!

2009-06-09T06:56:00.000-07:00

Piling on more Healthcare mandates will make the problem worse. It will add cost and/or make healthcare service more expenses. The health care industry resists changes that would require them to be more efficient. Remember, our costs are their income. They simply pass on the costs of the mandates to a third party payer which is increasingly becoming the US public at large.

What I am hearing of the proposals for heath care reform it is all about more mandates including "ideas" for collecting fees and taxes to pay for healthcare when it is already generally recognized that too much is already being paid. Very little is being suggested on concrete proposals to improve efficiency and productivity in the healh care sector. It will take someone of courageous political will to do this. They will have to fight a well lobbyied health care industry (healthcare servicers and the insurance providers).

(In the above I consider a "mandate" a forced entry of a party into transaction or forced terms of a contract if entered. This could be health care servicer, insurance company or a party being forced to provide a service or pay a fee, tax or purchase a premium.)

Health Insurance Companies Poised to Impose Great Evil on the US Public

2009-06-07T05:05:00.000-07:00

Private insurance companies as they now stand are not evil. They do not compel one to buy their product. This may change by the end of the year.

These insurance companies are losing business because their product is too expensive for many.
These individuals have made the rational decision that it was in their best interest to save the money they would give to the insurance company and hope for best.

Let's assume that the insurance companies get their way. What will happen?

1. Insurance premiums will sky rocket because of the government forcing a party into a contract. A demand is articially created by force of law.
2. Health care demand / costs will sky rocket because of individuals who were forced to purchase insurance will tap the more trivial healthcare services in their policies in an attempt to recoup their monies.
3. Because of (2) insurance premiums will be raised.

No Way This Will Hold Down Health Care Costs

2009-06-06T04:32:00.000-07:00

This is from finance.yahoo.com. My comments are in parentheses.

"
WASHINGTON (AP) -- Employers would be required to offer health care (give money to insurance companies) to employees or pay a penalty -- and all Americans would be guaranteed health insurance -- under a draft bill circulated Friday by Sen. Edward M. Kennedy's health committee.

The bill would provide subsidies to help poor people pay for care, guarantee patients the right to select any doctor they want and require everyone to purchase insurance (give more money to insurance companies), with exceptions for those who can't afford to.

Insurers would be supposed to (don't have to and probably will not) offer a basic level of care and would be required to cover all comers, without turning people away because of pre-existing conditions or other reasons ( to give insurance company even more money!). Insurance companies' profits would be limited (profits will be guaranteed), and private companies would have to compete with a new public "affordable access" plan that would for the first time offer government-sponsored health care to Americans not eligible for Medicare, Medicaid or other programs.

It all adds up to sweeping changes (the largest transfer of money from the American public to a specific industry since the bank bailouts) in how America's health care system operates and aims to achieve President Barack Obama's goal of holding down costs (how is that!?) and extending health coverage to 50 million uninsured Americans."

So basically this is everything about forcing the American public to pay a whole lot more into an inefficient and bloated health care industry and nothing about making the health care system more productive and efficient!

Forced Purchase of Health Insurance

2009-06-04T11:03:00.000-07:00

This issue deeply disturbe me.

I, unlike many others, see no parallel to a mandatory car insurance policy.
You can live without a car. You may not live where you desire. This; however, would be your decision.

Where could you go to escape having to purchase a health insurance policy?
Apparently nowhere. What if you have assets but very little income? Will they force you to liquidate your assets to pay the premium?

The cost of these policies will be quite high which makes this issue even more disturbing. There is no guarantee that the policy will be of any value to the person required to purchase it. One must assume that this is basically a mandatory fee/tax. It would be a very large tax increase.

Health Care Costs

2009-06-02T05:25:00.000-07:00

When the government gets involved in an aspect of the economy the usual result is higher costs.
This is certainly the case with health care. Two "trumpet blares" are being shouted simultaneously concerning health care in the US:

1. We need to do something about the 50 million uninsured
2. Rising healthcare costs will bankrupt the country.

Depending on your policital persuasion you would consider either 1 or 2 above a higher priority and would want that item addressed first. IMO, if you do 2 first you can easily handle 1. If you do 1 first then 2 is very difficult.

I believe that the recent announcement by the health insurance/medical industry that costs will be cut by 2 trillion dollars is a meaningless statement meant to gain political standing.

Unfortunately, I believe the insurance industry will get it's way and have manadatory health insurance for all citizens. This will drive up costs -- not reduce them.

Other Poor "Cause" Phrases

2009-05-03T10:15:00.000-07:00

"Not Enough Training" - Of course, there is never enough training. Hmmm. "I wrecked my car because it did not receive enough driver's training". See it just doesn't work. A rational person understands when they have enough training to perform a function. The problem with this "cause" is that it is often more of an excuse than a reason. The "excuse" being used by the investigator to avoid drilling down further into the more salient causes. Regardless of how much training one receives, an unsavory investigator can usually get an operator to state that the training wasn't adequate or deficient in some way.

"Not enough money spent on safety" or "Cost cutting weakened the safety programs."- Hmmm. "I wrecked my car because I did not have enough money to fix my brakes". Another excuse often used in absence of good investigation techniques. The question should be if the safety protocols were comprimised. The "cost cutting" aspect implies that one needs high cost to have a good safety program. Is an expensive car necessarily a safe car? I think you get the point.

Systemic Administrative Failure

2009-05-03T05:41:00.000-07:00

Instead of using a vague phrase like "Process Safety Culture", I suggest using a more concrete phrase like "Systemic Administrative Failure" (SAF). This points directly to the problem. For example, if a site does not have a proper process management of change procedure (PMOC) or fails to enforce PMOC, then this would be a type of SAF. Another type of SAF is a failed internal auditing program (otherwise how would the failed PMOC program not have been corrected?).

Drilling down into the typical problems with PMOC failure, this is what I see is typically found:

1. Entrenched historical modifications to operating procedures without proper engineering review and documentation. This is UPC as mentioned in earlier posts.
2. Failure to rigidly enforce PMOC on the startup of major modifications or new projects.

More on this topic later.

Process Safety Culture - What is it?

2009-05-02T10:17:00.000-07:00

A current fashionable phrases to use these days is "process safety culture" (PSC). What the heck is this? This appears to have popped at about the time of the space shuttle Columbia disaster and has also been regarded to have been a major cause of the BP refinery explosion/fire in Texas in 2005. Reading the Chemical Safety Board report and the Baker report on the BP fire doesn't seem to give me a firm understanding of PSC.

Let's assume that there is something called a PSC index. If a facility/company scores a 10 on the PSC index then it has the highest process safety culture grade. If a facility/company scores a 1 then it has the lowest grade. The critical question is how does one determine the PSC index? How would it be different than simply auditing a facility/company and checking its records and comparing them to the applicable standards?

I am afraid PSC is simply one of those meaningless phrases that could be conveniently applied to safety failures with the side effect of distracting one from finding meaningful remedies to systemic process safety issues.

Swiss Cheese Regulation

2009-04-29T07:27:00.000-07:00

No doubt many of you have heard of cries of either "More Regulation!" or "Less Regulation!". The problem can't be defined as having reached an extreme of one of these choices. The best analogy I could think of is to think of current regulation as a giant block of Swiss cheese. The solid part of the cheese represents credible enforceable regulation. The holes represent exclusions, exemptions, loopholes or regulation that is not enforceable or enforced arbitrarily. Of course, any entity subject to swiss cheese regulation (SCR), tries their best to fit inside one of the holes.
The goal is to be able to pass right through the block without touching the sides!

My first encounter with SCR was 20 years ago when I attended a seminar on environmental regulations in Dallas , TX. There I was introduced to one of the most Swiss cheesiest regulations of all time - CERCLA. This is the rule infamous for introducing the "deep pocket" concept where a very trivial contributor to a Superfund site could be socked for the entire cost of the cleanup. Also, oil companies were for the most part exempt from its provisions.

My rallying cry is "No More Swiss Cheese Regulation!".

More on UPC

2009-04-27T04:31:00.000-07:00

In the previous post I introduced the concept of UPC - Undocumented Procedure Change. To illustrate, let's consider the following hypothetical, but typical, situation:

A procedure for unloading a railcar of propane specifies the use of a non-sparking hammer for removing the fittings. As time goes by and personnel changes ocur, the engineer that wrote the procedure finds another job. A new operator is assigned to unloading the railcar. The SOP is followed until one day the operator cannot remove an unusually tight fitting. Anxious to complete his task, and after the nonsparking hammer is damaged beyond use, he picks up a regular hammer and completes his task without incident. The non-sparking hammer is put aside, and the regular (sparking-type) hammer takes its place. Since no incident occurs , the regular hammer is used from then on. A year or two goes by and it is noted that railcar unloading times have decreased. The unloading operator is given more tasks to do.

A newly graduated engineer is assigned the unloading operation as one of her responsibilities. Her boss asks her to review the unloading procedure to make sure it meets code. She does this and her review indicates that it does meet code. A couple of days later she happens to observe the unloading operator remove a fitting and notices that a regular hammer is being used. She questions this and tells the operator that this is the wrong type of hammer. The operator complains that the nonsparking hammer is incapable of removing the fittings in the allotted time.
He also says the procedure is outdated and does not reflect the time contraints of the unloading operation. The regular hammer has caused no incidents he adds. She boldly insists that the nonsparking hammer be used per the procedure. At this point the operator locates the old bit-up nonsparking hammer and hands it to the young engineer and tells her to unload it herself. The engineer backs down and sheepishly walks away.

The engineer expresses her concern to the engineering manager. He reluctantly realizes that is is not possible to go back to the regular hammer without delaying the unloading time. Under pressure to keep costs down, he adds a recommendation to revise the unloading procedure to the plant corrective action list. The corrective action list, of course, has many other recommendations similar to the one just added. This new recommendation is added to the new engineer's list of responsibilities.

The young engineer is demoralized and eventually finds a new job in government. Another year goes by and a major fire occurs at the propane unloading station. The unloading operator is killed.

The incident investigation report blames the incident on the sparking hammer and the "outdated" operating procedure.

Robert Coulter

New Acronym Needed , UPC

2009-04-25T13:37:00.000-07:00

The following is the text of a recent release from the Chemical Safety Board (CSB) concerning the explosion at Bayer Crop Sciences last year.

http://www.chemsafety.gov/index.cfm?folder=news_releases&page=news&NEWS_ID=465

The problem of operating procedures not matching the official written versions is a common occurence. So much so that I think an acronym is needed for it. Let's call it UPC, Undocumented Procedure Change.

The reason the UPC is so insidious is that it's presence seems to be always misrepresented. Unfortunately, I believe the the CSB has contributed to this misrepresentation. UPC has its origin as a failure in the Management of Change (MOC) system. The operating procedure mismatch is a result of MOC system failure. Because of this the undocumented procedure (UP) has no credibility and should not be presented as such. The CSB gives the impression that the UP has validity because it works whereas the standard procedure (SOP) does not. Later in the article, the CSB mentions the failure in the MOC system. I believe that the MOC failure should have been mentioned first and mentioned in the title of the article.

Systemic Failure means High Interest Rates

2009-03-31T05:52:00.000-07:00

This is from Rick Newman at US News and supports my position in a previous post concerning systemic failure in that high interest rates is the real fear:

"If AIG failed, it would be more damaging than the Lehman Brothers collapse last year. That’s what AIG contends, anyway. In its submission to Congress, AIG paints a doomsday scenario that gives some idea what the Fed and the Treasury Dept. felt they’d be faced with last fall if they stepped aside and let AIG implode. More than 1,500 major corporations, for instance, would lose money on derivatives issued by the Financial Products division. That could generate a commercial-grade bank run by thousands of other companies seeking to redeem contracts and get their money back.

[See why the AIG bonuses are a welcome scandal.]

AIG’s insurance, aircraft, and financial-services businesses could create other shock waves if the company failed. The results, according to AIG, could impact 30 million U.S. policyholders, and another 44 million policyholders in other countries. Retirement accounts containing $134 billion might be jeopardized. Boeing and many airlines would take a huge hit, as AIG’s large fleet of commercial aircraft got sold off at steep discounts, bringing down prices for every kind of competing aircraft. The U.S. dollar would fall, the U.S. government’s borrowing costs would rise, and investors worldwide would suddenly question the ability of the United States to support its banking system. If true, all of that makes AIG too big to fail, too complex to succeed, and too dangerous to abandon. Not a good choice among the lot. "

Financial Systemic Risk / Failure - What is it?

2009-03-17T12:07:00.000-07:00

The following post brings up the same question I had.

AIG Must Fail

In chemical process safety, one of the requirements is to note the consequences of the failure of a control.
We don't seem to be doing that with the financial system.

Systemic Failure

2009-03-08T16:02:00.000-07:00

I am continuing my "thought experiment" of comparing financial models to chemical process risk models.
I will pretend that large financial institutions represent huge tanks or reservoirs. The "systemic failure" is the collapse of these reservoirs. What would cause these reservoirs to collapse? I think in this case it would be over-capacity. If the reservoirs are considered safe then water can be placed in the reservoirs with confidence. If they are unsafe then water is withdrawn.

Systemic Risk

2009-03-08T12:48:00.000-07:00

The phrase "systemic risk" is a buzz word heard in the media often in reference to the perilous position of the world financial institutions. In all the articles I have read on this subject (and I have read many), I do not recall seeing anyone describe the harmful effects of a systemic financial failure. Why is this? OK, the best I know is that it would be a global run on world banks. Is this what is trying to be avoided? If someone can describe the ulimate negative effect of systemic failure, please do so.

Until someone steps up and gives me the answer to the above, I will offer the following conjecture:

1. The thing that is most feared is a sudden uncontrollable surge in global interest rates.

Will someone please disprove conjecture (1) above?

What You Should Fear II

2009-03-08T12:32:00.000-07:00

I checked the typical insurance policy. Some things not covered in your home insurance policy:

"

Ordinance or law, such as demolition or construction required to bring your house up to code.
Earth movement, such as shockwaves, sinkholes, landslides and mudflows.
Water damage, such as floods, sewer back-ups and water that seeps through the foundation.
Power failure.
Neglect, meaning you failed to take reasonable means to save your property during or after a loss.
War, including undeclared war and civil war.
Nuclear hazard.
Intentional loss, meaning something you did on purpose with the intent to cause a loss.
Governmental action, such as the destruction, confiscation or seizure of covered property by any governmental or public authority.
Loss to property resulting from faulty zoning, bad repair or workmanship, faulty construction materials, and defective maintenance.

"
This above obtained from the following link:

http://www.insure.com/articles/homeinsurance/exclusions.html

So is it reasonable to presume that these are the things one should worry about the most?

What You Should Fear

2009-03-07T13:05:00.000-08:00

I have spent my career concerned with the risks of major accidents in association with chemical production facilities, etc. Ironically, maybe because I understand risk of chemical accidents much better than the average person, this is not a major worry of mine. I worry more about a nuclear accident .but this could just be a bias of mine since I do not work in that field. I once worked with two maintenance technicians at a chemical plant that showed the most fear of chemical exposure of all chemical plant employees I have met.
Yes, they had previously worked in the nuclear industry which from their perspective was very safe.

So, what should one fear? Maybe the way to answer this is to look at what insurance companies will not insure.

Severity Squared Defined

2009-03-07T07:11:00.000-08:00

The typical risk equation is severity X frequency. Severity Squared is the conjecture that the severity term should be weighted more -- (severity)^2 X frequency.