October 4, 2010

Pay To Spray

When we lived in Tennessee, one of the more jarring cultural differences I found was being presented with a bill for emergency services. Paramedics, firefighters, and the like are certainly not free and if we ever used them I fully expected to be billed for their services. But having to sign up for a subscription to an ambulance and paramedic service was foreign to my existence from California. Here, such things are simply provided to anyone who asks for them, and the bill is presented after the fact.

The system is not perfect. One of my clients is an EMT who works for the largest of the various ambulance companies here. She confirms what I had already been led to believe, which is that there are those people who make emergency calls for ambulances when what they're really looking for is transportation to a routine, maybe necessary but not emergent, medical appointment.

This is quite expensive. Therefore, only the very poorest of people do it, since they won't be paying anything anyway.

If this seems like an abuse of the system, well, it is, but for the most part the rest of us shrug it off because, well, what are you going to do? Everyone knows the high cost of medical services is because of all those damn lawyers filing medical malpractice lawsuits. It has nothing to do with poor people who use emergency ambulance services like taxis.

Getting back to Tennessee. We signed up for and subscribed to the emergency services district, believing that if we ever needed the services (the Gods forbid) we would want to have subscribed and we'd be in a world of hurt without them. The $75 per year or whatever the subscription fee was seemed like peanuts compared to having to drive, wounded or only partially conscious, to a hospital. What was galling, though, was learning that our medical insurance and homeowners' insurance did not pay for this fee and it was an additional expense.

So what is looking like the Outrage Of The Week in development is a Tennessee emergency situation. A homeowner in a rural area did not pay the annual subscription fee to the emergency services district and therefore opted out. Saved himself $75 a year and hey, times are tough, so you skimp on things. Sure enough, his home caught fire. And the firefighters drove out -- not in response to his calls for help but rather those of his rate-paying neighbor, who feared that the fire would spread and harm his insured house -- and watched the house burn down, ignoring the homeowner's offer to pay the entire cost of saving his. So now the homeowner has learned a terrible, expensive, and deeply painful lesson about what insurers call "moral risk."

Now, this looks awful for the libertarian purist. The guy said he offered to pay the firefighters their full expense for saving the property; they were already there and ready to go in case the fire spread out to the insured neighbor's home. So why not go ahead and take his money? While there are a bunch of reasons one might suggest, bear in mind for all of them that the homeowner probably didn't really have the money. After all, this is a guy who chose to not spend $75 or $100 or whatever it was on subscribing to the service in the first place. Desperate people will say pretty much anything to escape the pressure of their desperate circumstances and while I'm not passing moral judgment on that, I do think it's reasonable to not place a lot of trust in a promise made by a person whose house is literally burning down in front of his eyes.

Saving the home would have to have been done as an act of charity by the fire department. One is never obliged to give to charity; that is the definition of "charity," after all. An insurer is not obligated, and in fact would be foolish and doing a disservice to its regular policyholders, to take a premium on a policy at the very time that a loss was occurring.

There is the point that before voluntary subscriptions were available, the fire department simply didn't service this area. A worthwhile point, but none of these economic arguments sweetens the taste of firefighters watching a house burn down.

At some point, we just have to say that a public service has an obligation to serve the public, financial arrangements be damned.

Which is not to say that the homeowner shouldn't pay for the service. Or that the fire department, which is normally paid for by these sorts of subscriptions, should lack an effective remedy for its ability to recoup those costs from a non-subscriber. After all, I'm assuming that despite his (no doubt sincere) promises to pay, he simply won't have the thousands of dollars that this sort of service would cost available.

The real issue is a poverty of remedies in the law. It appears that the way the law was set up, either you paid and got firefighting services, or you didn't and your house burns. I suggest that there should be a third way to go, one that requires and enforces a full-cost payment by the non-subscriber -- enforceable by a priority lien on the property, which is forecloseable within 90 days if mutually-acceptable payment arrangements are not made and confirmed in writing.

The homeowner gets the service and a chance to get back up on his feet, the firefighting company gets paid. Now, if it goes to a foreclosure, the bank gets screwed, a little bit, because the emergency services lien would take priority over the mortgage in disbursements from a foreclosure sale, but this would only be a few thousand dollars and the bank can probably live with that, especially if the house is upside down and the bank is going to wind up taking title on a full credit bid anyway. And the 90-day period allows the homeowner to make new financial arrangements, take a second job if he can, make claims on other insurance if it's available, raise money from charity or family, or as a last-ditch measure, sell and recoup what he can from the sale. If worse comes to worse and the foreclosure has to go through, then yes, that homeowner is now homeless -- which he would have been anyway had his house burned to the ground so while it's cruel to note it, in fact he's not that much worse off than he would have been anyway.

To the rational actor with the ability to pay a subscription fee, advance payment is obviously far preferable to having to deal with a short-period emergency services property lien.

Or, of course, you could simply have a public firefighting service, paid for from property or sales or income taxes, and which recoups its costs as best it can from the properties it saves. That seems to work well here in California. But given that firefighting services must be provided on a volunteer rather than tax-supported basis for particular areas (particularly rural ones), then the automatic priority lien seems to be a good third option that avoids both the moral hazard of rewarding free riders, and the moral inequity of making people suffer.

8 comments:

Φ said...

Given how the law presently stands, I am surprised that mortgage holders and insurance companies do not themselves contract for these services and bill them to the escrow account.

I'm not a lawyer, but it seems that allowing a third party to "jump the line" in front of the mortgage holder would set a bad precedent, and would need to be carefully gamed out for its effects on mortgage rates, etc.

Transplanted Lawyer said...

The IRS and most state tax collection agencies already jump the line, so the precedent has already been set. With that noted, I've no quarrel with the idea that careful thought should be given to the idea before it is implemented.

And I was quite surprised myself that my mortgage lender in TN did not do exactly what you suggest. My guess is that the national lender simply did not want to bother with the details of learning which local service did what; the transaction costs of doing so would be high and probably no one has ever done the math of comparing structure loss experience or medical expense loss expenses to the manpower cost for determining when and how to subscribe those emergency services.

Maxwell James said...

There's something I don't understand here. Given that this was a volunteer fire department, could not individual firefighters have volunteered to put out the fire?

Especially given that once they were on the scene waiting for the neighbor's property to catch fire, the marginal cost of water and equipment depreciation could not have been that great.

Maxwell James said...

For instance, here's a budget for a fire department that is largely staffed by volunteers. Supplies (which I presume would be the main marginal cost once the firefighters arrived on the scene) come to a whopping 7% of it. Am I missing something?

mythago said...

Like most vaguely libertarian solutions, this only works in Utopia, not the real world.

And surely I can't be the only person here who has had a company claim they never received your payment, or have a 'computer error' that prevents them from accessing your payment record, bill you twice, or simply misplace evidence of payment. When your house is burning down is really not the time when you want to have to produce a receipt showing, in fact, you did pay your $75 this year.

Yes, there are poor people who misuse public services, just as there are rich people who do - in California lots of firefighters complain that their putting out fires in wilderness areas amounts to protecting summer homes for the wealthy.

Transplanted Lawyer said...

@Maxwell James -- this is not a volunteer fire department. It is a municipal fire department that offers service to people outside city limits -- in other words, it is acting like a private company for areas outside those from which it draws taxpayer support and provides true public service. There are other for-profit businesses that do this sort of thing, but here we're dealing with something of a hybrid.

I'm not sure if @Mythago is critical of the idea of a for-profit emergency services company, with the offering of a "subscription service" by a (quasi-)public utility, or my suggestion about the emergency services lien.

Maxwell James said...

Thanks, I missed that detail.

trumwill said...

this is not a volunteer fire department. It is a municipal fire department that offers service to people outside city limits

Municipal fire departments are often volunteer fire departments, too. Do we know that this particular fire department was not both?