Saturday, January 30, 2010

Commissioners Participate in Discussion on How To Cut Health Care Fraud

During the recent debate on comprehensive health care in Congress, cost was one of the concerns that kept surfacing. This past week, during a National Summit on Health Care Fraud, it became apparent how fraud can take money from the health care system.

During a press conference following the all day summit in Washington on January 28, state insurance commissioners from Illinois, Kansas and Ohio detailed the days events and some of the ways they feel that state insurance regulators can coordinate their efforts with federal regulators.

Ohio Director Mary Jo Hudson pointed out that medical costs have increased 13-15% and that expenses associated with fraud has helped drive up premium expenses. In fact, Illinois Director Michael McRaith noted, fraud is responsible for 3-7% of health care costs.

Hudson said that more data sharing is needed and that both state regulators and federal regulators may each have resources that the other does not. So, she continued, sharing that data makes it easier to root out fraudulent activity.
There are a lot of separate entities trying to address the same problem, says Sandy Praeger, Kansas insurance commissioner and former president of the National Association of Insurance Commissioners, Kansas City, Mo. “There needs to be greater cooperation and data sharing to perform the job more effectively.”

Among the types of fraud commissioners said were discussed during the Summit, according to Hudson, was fake patients, increasing the cost of services, pharmaceutical fraud and performing procedures that are not necessary.
Praeger detailed a fraud discussed during the Summit during which dentists pulled teeth of children that did not need to be pulled.

The conference was hosted by U.S. Department of Health and Human Services Kathleen Sebelius and Attorney General Eric Holder. Sebelius is a former Kansas insurance commissioner and NAIC president. Work groups held sessions that focused on technology to prevent and detect health care fraud and improper payments and development of effective prevention policies and methods for insurers, providers and beneficiaries.

Friday, January 29, 2010

Goldman Details Reason For Leaving Life Settlement Business

Goldman Sachs, New York, confirmed that it was taking apart the second leg of a three-leg stool in the life settlement business and plans to exit the business entirely.

“We are getting out of the business for commercial reasons. When we bought the business [Longmore Capital, LLC] in 2006, we thought it [the life settlement market] would evolve into an institutional marketplace. But we believe it will remain a small market for some time to come,” says Michael DuVally, a Goldman spokesperson.

Longmore operations, based in Southborough, Mass., are currently being terminated, he continues. Goldman also will leave the third leg of its life settlement stool, Institutional Life Services, New York. ILS is a joint venture with National Financial Partners, New York, and Genworth Financial, Richmond, Va. DuVally declined to say what stake Goldman holds in ILS.

Last month Goldman announced that it had discontinue its Life Settlement Index (QxX) and turned it over to AVS Underwriting LLC, Kennisaw, Ga., a partner in the venture. Philip Loy, AVS founder and owner says that he will continue to operate the index although details of how it will continue are still being determined.

A spokesperson for NFP states that “Life insurance liquidity needs, in the form of life settlements, continue to be in high demand by consumers, although the current credit environment has partially limited these transactions from a capital perspective. That stated, Institutional Life Services, LLC (ILS) remains active settling policies on an ongoing basis with a diverse group of life settlement buyers and NFP and its firms continue to support ILS. Beyond that, as a matter of policy, we do not comment on the details of our investments, other than as required to be disclosed in our public filings.”

This article first appeared in Life Settlement Review.

Monday, January 25, 2010

Commissioners Delay Annuity Rider Termination Proposal to Ensure Consumer Rights

A proposal before regulators that would give life insurers the discretion to terminate guaranteed living benefit riders if they are sold by a consumer to an institutional investor will receive further scrutiny because of a controversial debate weighing consumer property rights against the cost of those benefits.

The decision made this afternoon by the Management Committee of the Interstate Insurance Product Regulation Commission, Washington, would ask for further input by the IIPRC’s Product Standards Committee without actually sending it back to the Committee for more work. The IIPRC is the entity that is a single point of filing for life insurance products. In order to facilitate filing, the Commission is currently in the process of developing product standards for product filings. The IIPRC was developed and is affiliated with the National Association of Insurance Commissioners, Kansas City, Mo.

The Management Committee has already asked an actuarial subgroup to look at a paper submitted by the American Academy of Actuaries, Washington, on the issue. The subgroup work was part of the discussion on a conference call today.

The three proposed standards create product filing requirements for guaranteed living benefits for individual deferred non-variable annuities; individual deferred variable annuities; and guaranteed minimum death benefits for individual deferred annuities.

Commissioners on the committee have been paying particular attention to the public policy issue of a consumer’s contract rights, particularly the right to sell a contract, while keeping in mind that exercise of that right could result in an increase in the cost of that feature.

Ohio Director Mary Jo Hudson, chair of the Management Committee as well as Oklahoma Insurance Commissioner Kim Holland, NAIC Secretary-Treasurer, and Wisconsin Commissioner Sean Dilweg took great care to open comment up so that both sides of the issue could be examined. There was general agreement that the issue should be reviewed further before final action is taken.

As part of that examination, the Management Committee heard the findings of an IIPRC actuarial subgroup. The subgroup agreed with an Academy report that if riders with these guarantees are sold to institutional investors, there would be additional concentrated risk for companies that would make the guarantees more expensive. An increase in cost could affect consumer choice, the subgroup found.

When asked by Miriam Krol of the American Council of Life Insurers, Washington, whether the subgroup had examined a part of the Academy report that addressed how consumers who planned to sell the feature would be favored and those who planned to retain the feature for personal use would be discriminated against, Peter Weber, representing the subgroup responded that the issue had been vetted. The Academy pointed out that if the cost increased, those who planned to sell the rider would still benefit, while those who planned to retain the benefit would be subsidizing that activity. Weber answered that that part of the Academy paper had not generated much discussion.

John MacBain of Actuarial Resources Corporation, Clearwater, Fla., consulting for the life insurance industry, said that the proposed guidelines would not prohibit a change of ownership if the change was to a trust or to a family member. The rider would only terminate if it was transferred to an institutional buyer, he explained.

Maureen Adolph, representing Prudential Financial, Newark, N.J., said that companies would have the option of whether to write a termination provision into annuity contract riders. She questioned whether consumers buying the feature for purely personal reasons should pay for the right to sell a contract and stated that it opens up the market to “inappropriate” use of the provision by those who really only intended to sell it.

Brian Staples, president of RIGHT LLC, Versailles, Ky., representing the Life Insurance Settlement Association, Orlando, Fla., said that “if the features are performing as they should be performing there will not be a need to bring it to the secondary market.” And, he noted that the contract has to be approved by the insurance company which should have a review process in place to ensure that it is a legitimate transaction and the agent is acting properly. The life insurer should be making sure that “the agent involved is not part of a stealth project.” This is a public policy issue, he said.

John Kissling, chief deputy commissioner of the Indiana insurance department said that the conditions under which a life insurance contract is purchased can change and that in a free market a consumer should be able to use the policy purchased in a way that is beneficial to that consumer. “If companies want to be competitive, they should be competitive in purchasing the contract” and offer something comparable to what the market offers,” he suggested.

Prudential's Adolph responded that what was being described was a life settlement and not riders associated with annuities.

Saturday, January 23, 2010

Maine’s Kofman Explains Proposed Amendment to Life Settlement Law

By Jim Connolly
Maine Insurance Superintendent Mila Kofman says that her state was one of the first to put life settlement legislation in place, a good law that only needs technical adjustments. In an interview with Life Settlement Review, Kofman explains why LD 1523 was introduced.

“Maine has had a framework for life settlements for a while. We were one of the first states to have one,” Kofman notes. However, at the end of the last session we were asked to give a report to the legislature about consumer protections, she continues. The report made the legislature aware of technical problems that were too late to fix in that session but which can be fixed in this session, she says.
Maine’s legislature meets in two year cycles. Last year was a long session that ended in June and the current session runs from Jan. 1 through mid-April, Kofman adds.

Among the issues that surfaced, she says was when it made sense for a life insurer to send out a pamphlet when an event concerning a policy change is triggered. Under the current law, she says, when an event such as the lapse of a policy or the failure to pay a premium occurs, the company is required to send out a notice detailing options available to the policyholder. Among the options detailed is the right to settle a policy.

For very small policies such as those with face amounts of $10,000 or lower, there is not likely to be a market to settle those contracts, according to Kofman. So, in such cases, it would not make sense to send out a notice about settlements for policies that are that small, she continues.

The department has suggested a threshold number of $100,000, but said that it is still a point that is being discussed, Kofman says.

She says that the Maine bureau hopes to make a pamphlet available by the end of February. Currently, it is waiting for Washington state to finish its pamphlet because it is not necessary to create a new document when that work is already being done, Kofman explains. There is an administrative savings to the Bureau by not duplicating work being completed by another state insurance department, according to Kofman. If work on the pamphlet is not completed in the next few weeks, Maine will write its own she says.

LD 1523 will also correct “confusion” in the last sentence of the current law, Kofman continues. “It is unclear and creates ambiguity,” she adds. The change would amend the definition of stranger-originated life insurance.

Kofman says that the Bureau’s position will be detailed in testimony during the first week of February.

To read the proposed amendments, go to:

This article first appeared at

Saturday, January 16, 2010

If The Health Care Train Leaves The Station, Make Sure These Concepts Are On Board

Just when it seemed like sweeping health care legislation was on a straight path to completion with Congress starting the work of melding together House and Senate bills, yet another bend in the road surfaces.

A special election to fill Sen. Ted Kennedy’s seat in Massachusetts is proving surprisingly close with the real possibility that Republican candidate Scott Brown may edge out Democrat Martha Coakley. If Brown wins the special election, his win could undo the Democratic voting bloc needed to give health care reform its final push to completion.

It’s pretty ironic that filling the seat of probably the staunchest advocate of health care reform may cast doubt on its future as Kennedy envisioned it.

But, it is also highly unlikely that the whole effort will fall apart and that no reform legislation will be completed. There was a positive note this week when an accord between labor unions and Congressional Democrats was reached over taxation of rich health care plans.

And, in spite of the partisan bickering and voting, after all that work Americans will expect some legislation to be delivered. And if it isn’t, the question they may be asking is ‘How effective is Congress if it can’t deliver on an issue that is of critical importance to American citizens?’

And since some form of law will probably be finalized in the near future, different insurance constituents are weighing in on what the final bill should look like.

On Jan. 14, leadership of the National Conference of Insurance Legislators, Troy, N.Y., wrote to Nancy Pelosi, speaker of the House, and Sen. Harry Reid, majority leader in the Senate, expressing “our unwavering support for the McCarran-Ferguson Act’s limited antitrust exemption for insurers…” NCOIL warned that “Rolling back the antitrust exemptions for health and medical malpractice insurers, as H.R. 3962 proposes, would increase costs while reducing competition, harm consumers by creating confusing, conflicting regulation, and ignore already-existing state antitrust protections.”

NCOIL points out that “The limited exemption fosters competition by granting insurers the ability to share loss history and other information, and it ensures that smaller and more regional insurers can compete with large insurers that are less dependent on industry-wide data.”

Leadership of the National Association of Insurance Commissioners, Kansas City, Mo., also weighed in the pending law. NAIC commended provisions in the bill that would:

.Extend guaranteed issue protections to the non-group health insurance market.
.Eliminate pre-existing condition exclusions and annual and lifetime limits.
.End the practice of rating policies based upon gender and health.

However, it urged Congress to:
• Oppose the creation of a new federal Health Choices Commissioner and Health Choices Administration. Instead, regulators recommend health insurance exchanges be established and administered at the state level with the flexibility to meet the needs of local markets and consumers.
• Ensure that all group policies be subject to the bill’s reforms at the end of a five-year grace period and ensure that any risk adjustment be applied to both grandfathered and newly-issued policies.
• Impose stronger penalties under the individual mandate provisions.
• Avoid any provision that could separate the regulation of premiums from the regulation of solvency.
• Allow the federal government to quickly shut down fraudulent multiple employer welfare arrangements (MEWAs) that falsely claim to be exempt from state regulation.
• Ensure that the effective dates of provisions in the new law are coordinated with implementation of the individual mandate and subsidies in order to mitigate the risk of adverse selection.
• Insist that nationally-sold plans be subject to all statutes and regulations that apply to other plans being sold to the same population and that they remain subject to the oversight of state insurance regulators.

The American Council of Life Insurers, Washington, advises Congress that the Community Living Assistance Services and Supports (CLASS) Act should not be part of any final legislation. “It’s a well-intentioned program but has been shown to be unsustainable,” notes Whit Cornman, an ACLI spokesperson.

Frank Keating, ACLI president and CEO, summed up the ACLI’s position when he explained that “…it appears highly unlikely that enough Americans will participate to ensure its fiscal soundness. Indeed, the Congressional Budget Office has estimated that perhaps only 3.5 percent of Americans will participate. Its success relies on participation by a wide range of the populace, including young and middle-aged individuals. But with so many Americans struggling to make ends meet, it is unlikely that enough will enroll in a program that will take, at present estimates, $123 monthly from their paychecks. A program that is underfunded by individual payments will require the federal government to make up the difference at a cost that is likely to be in the tens of billions of dollars.”

And America’s Health Insurance Plans, Washington, acknowledges the need for reform but in a way that does not increase costs. Earlier this month it noted that data released by CMS, Washington, shows that U.S. health care spending grew 4.4% in 2008. AHIP cites CMS figures stating that “Despite the slowdown, national health spending reached $2.3 trillion, or $7,681 per person, and the health care portion of gross domestic product (GDP) grew from 15.9 percent in 2007 to 16.2 percent in 2008.”

Last month following passage of both the House and Senate versions of health care reform, Karen Ignagni, AHIP’s president and CEO, reiterated how crucial it is to provide health care to Americans but in a cost effective way. She noted that health plans support guaranteed access with no pre-existing condition limitations and no health status-based premiums.

Monday, January 11, 2010

Insurance Compact Commission Hears Annuity Rider Debate; Advances Long-Term Care Standards

The Interstate Insurance Product Regulation Commission, Washington, advanced standards for long-term care product filings and decided to have actuaries review a proposal that prohibits a consumer’s ability to sell annuity guarantee riders to institutional investors.

Three proposed standards creating product filing requirements for guaranteed living benefits for individual deferred non-variable annuities; individual deferred variable annuities; and guaranteed minimum death benefits for individual deferred annuities are the source of debate as the Commission considers possible adoption. The Life Insurance Settlement Association (LISA), Orlando, Fla., and Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, have criticized the proposal, asserting that it will restrict a consumer’s right to the use of property that has been purchased from a life insurance company.

Life insurers represented by the IIPRC’s industry panel, have countered, asserting that the behavior of consumers and industry differ and such a requirement would increase costs to consumers and discriminate in favor of consumers that are healthier and who have bigger contracts.

During the IIPRC Management Committee’s conference call today, chair Mary Jo Hudson, Ohio insurance director, moved to have the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo., review the issue, particularly cost and pricing considerations. The committee approved the proposal.

The decision was made after comments were received. Barbara Lautzenheiser, spoke for the American Academy of Actuaries, Washington. Lautzenheiser explained that permitting individuals to purchase GLB riders will increase the initial price of the feature even if contract holder later has the ability to sell their contract at a price exceeding the cash surrender value. The reason, she explains, is that individuals are more likely to use the benefit to guarantee income while institutional investors are more likely to cause concentration risk if they exercise contract rights for a block of contracts at the same time.

Lautzenheiser added that the increased upfront costs benefit certain consumers, namely those who intend to sell the rider, those who are likely to live longer and consequently are able to sell their rider if they choose; and those with larger annuities who would create more attractive buying opportunities for institutional investors.

Lautzenheiser offered rough estimates based on a GLB product for guaranteed minimum withdrawal benefits that suggest that if a contract owner chose a 50/50 split between stocks and bonds and the institutional preference is a 70/30 split, the extra exposure would increase the cost to the insurer by approximately 35%.
And, she added, these rough estimates also indicate that if institutional investors purchased all of a carrier’s GLB annuities that were 25% ‘in the money’ that the cost of the feature would increase by approximately 50%.

Maureen Adolph, representing Prudential, Newark, N.J., said that consumers who were dissatisfied with their contract’s performance would not be restricted from doing with the contract what they deemed appropriate. Rather, she continued, the restriction would be on the rider. The point of the rider, according to Adolph, is to guarantee that the performance is reached.

Bruce Ramje, a Nebraska regulator, raised concern that there is not a regulatory framework available to prevent these transactions being used to create stranger-originated life insurance (STOLI) transactions.

Brian Staples of RIGHT, LLC, Versailles, Ky., representing LISA, responded by saying that the rider is what often gives a contract its value both to the carrier who markets the feature and the buyer of the annuity.

The Management Committee also advanced long-term care standards for product filing, approving standards for forms, rate filings and advertisements. The IIPRC notes that consideration of these standards began in November 2008 and since that time 54 meetings have been held to review these proposals.

Bonnie Burns of California Health Advocates, Scotch Valley, Calif., voiced concern that the standards incorporate the highest in the country. And that the requirement that a contract holder meet not be able to perform three activities of daily living rather than two ADLS, would restrict valuable home benefits.

She also expressed concern that allowing the IIPRC to approve rate increases would in effect be allowing it to act as a regulator.

The Management Committee’s Hudson said that there will be a public comment period during the spring NAIC meeting in Denver in March and there will also be a period of public comment. Wisconsin Insurance Commissioner Sean Dilweg made a motion to adopt the report which the management committee did in an 11-0 vote with 1 abstention. Missouri’s abstention was more procedural since its representative did not have the proxy authority to vote the issue.

Friday, January 8, 2010

Off to a Good Start

Life insurers are starting their New Year on the right note with news reported by Bloomberg that the Obama administration is examining the possibility of encouraging Americans to create guaranteed streams of income using 401(k) savings and individual retirement accounts (IRAs.)

Bloomberg reports that the U.S. Treasury and U.S. Labor Departments are preparing to request comment on the concept as early as next week. Request for comment had not been received as of this posting.

When asked for comment, the American Council of Life Insurers, Washington was cautiously optimistic. “We certainly support fully Labor and Treasury's efforts to examine how 401 k plan participants can be encouraged to make annuities a bigger part of their retirement income. We think plan participants should have an option at the workplace to turn retirement savings into a lifetime income stream,” according to Whit Cornman, an ACLI.spokesperson.

Carriers have always provided the option of creating regular income by using annuities. And for the last five years, life insurers have been promoting what they have always offered by under the moniker of income planning. So, conceivably, insurers are poised to step in and help with that conversion should comment be taken and a decision made to advance the proposal. And, over the last few years, mutual funds have tried to come up with products that compete with annuities for income planning dollars.

Hopefully, the Administration ultimately gives the proposal a nod, strong suitability standards will be in place to protect Americans.

Wednesday, January 6, 2010

Will the Third Time be the Charm?

Faced with what he describes as dire financial prospects for the state and New York City, New York Gov. David Paterson announced, among other things, that New York is going to pursue the establishment of an insurance exchange.

The sobering assessment of the state’s financial position was made during Paterson’s state of the state address.

In a conference call following the address, representatives of the Governor’s staff and New York Insurance Superintendent James Wrynn tried to detail the proposal. Wrynn said that the Exchange would be based on the concept of syndicates of private capital from multiple sources including hedge funds, wealthy investors and private equity firms similar to Lloyds of London.

Although he could not say specifically how much money would be generated, Wrynn did note that half of the money received by Lloyds comes from North America. And, he continued, even a portion of that would result in substantial revenue for New York.

Wrynn predicted that the venture would bring both jobs to New York City where a headquarters is anticipated as well as upstate where jobs from back office operations could be created. He noted that the Exchange would meet the need for more insurance for complex risks including reputational, cyber, terrorism and climate change risk.

This is the third effort to create a successful insurance exchange in New York. The first attempt ran from 1980-87. A second attempt was contemplated by former Superintendent Eric Dinallo but was scuttled by a financial meltdown that had Dinallo and the insurance department running up to the Federal Reserve, sometimes on a moment’s notice, to address issues that had arisen.

The exchange does not contemplate business in life settlements but could conceivably make it possible for life insurance companies to more easily participate in reinsurance or facilitate the sale of very large policies similar to what Lloyds currently does, according to Department spokesman David Neustadt.

The amount of money the exchange would generate and when it would be up and running is not known at this point, according to Wrynn. However, he did say that work on its development would start immediately. When asked whether a soft market cycle would impact efforts, Wrynn said that he anticipated that when it was up and running the market cycle would be harder.

And, when asked if the state would become the insurer of last resort, Wrynn said that it was not intended to be the case and that it was anticipated that the Exchange would be self-sustaining.