Connecticut Insurance Commissioner Thomas Sullivan released draft regulatory guidance for adopted amendments to the Suitability in Annuity Transactions Model Regulation approved by the Life Insurance and Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo.
The amendments will be considered during the spring NAIC meeting in Denver on March 25-28.
The guidance was drafted by insurance regulators in several states. Sullivan, the chair of the “A” Committee, released the document in conjunction with North Dakota Insurance Commissioner Adam Hamm, “A” Committee vice chair. He noted that both he and Hamm had originally intended for the document to be shared only by regulators but “in the spirit of transparency, we are sharing it with interested parties prior to the Denver meeting.”
The document states that the model was adopted to:
--Establish a regulatory framework that holds insurers responsible for ensuring that that annuity transactions are suitable (based on the criteria in Sec. 5I), whether or not the insurer contracts with a third party to supervise or monitor the recommendations made in the marketing and sale of annuities;
--Require that producers be trained on the provisions of annuities in general, and the specific products they are selling; and,
--Where feasible and rational, to make these suitability standards consistent with the suitability standards imposed by the Financial Industry Regulatory Authority (FINRA).
It describes some of the changes made during the NAIC winter meeting and states that “Insurers are responsible for any unsuitable annuity transactions – regardless of whether it is due to the action or inaction of the insurer or the producer and regardless of whether the insurer contracts with a third party to supervise or monitor the recommendations made.”
And, according to the released document, “an insurer will also be expected – and may be ordered -- to take reasonably appropriate corrective action for any consumer harmed by the insurer’s violation of the regulation, or its producer’s violation.”
Producers will also be held accountable, according to the document which says that “General agencies, independent agencies and insurance producers will be expected – and may be ordered -- to take reasonably appropriate corrective action for any consumer harmed by a producer’s violation of the regulation.”
Tuesday, March 9, 2010
Monday, March 8, 2010
Phoenix Details Impact of Secondary Market on Cost of Insurance
Deviations in pricing assumptions from actual experience in its life insurance products have adversely affected profitability and will result in an increase in the cost of insurance rates for certain universal life policies effective April 1, 2010, Phoenix Cos., Hartford, Conn., states in a March 2, 2010 10K filing with the Securities and Exchange Commission, Washington.
The filing states that these deviations could continue in the future. The company says that the adjustment on April 1 and any other permitted adjustments “may not be sufficient to maintain profitability.”
Phoenix also notes that “In addition, increasing charges on in-force policies or contracts may adversely affect our relationships with distributors, future sales and surrenders and may result in claims against us by policyholders. Furthermore, some of our in-force business consists of products that do not permit us to adjust the charges and credited rates of in force policies or contracts.
Phoenix explained that among the assumptions factored into pricing is persistency and that “recent trends in the life insurance industry” include “the evolution of the financial needs of policyholders and the emergence of a secondary market for life insurance” as well as increased availability of premium financing. In short, according to the 10K, “the reasons for purchasing our products are changing.” The company also notes an increase in sales of policies to older individuals.
Consequently, according to the Phoenix 10K, in spite of controls it says it instituted, “We believe that our sales of universal life products include sales of policies to third party investors who, at the time of policy origination, had no insurable interest in the insured. The effect that these changes may have on our actual experience and profitability will emerge over time.”
In addition to changes in cost of insurance rates, according to Phoenix, deviations in actual experience from pricing assumptions may result in an increase in the amortization of deferred policy acquisition costs, which would negatively impact results of operations.
Recently, Phoenix has received the attention of rating agencies. On Feb. 12, Standard & Poor’s Ratings Services, New York, lowered the company’s counterparty credit rating to ‘CCC+’ from ‘B-‘ and lowered the counterparty credit and financial strength ratings of the companies operating subsidiaries including Phoenix Life Insurance Co. to ‘BB-‘ from ‘BB.’
"The downgrade follows Phoenix's release of its fourth-quarter 2009 results, which showed that its statutory surplus and asset valuation reserve decreased by $26.2 million in the quarter, or a 4% decline, and $279.1 million for the full year, or a 33% drop," said Standard & Poor's credit analyst Adrian Pask. "The company also reported a GAAP operating loss of $34.2 million."
"The decline in surplus stemmed from increases in reserves for discontinued group accident and health business and credit losses."
In September 2009, Moody’s Investors Service, New York, rated the carrier’s financial strength ratings a ‘Ba1.’
In its rating explanation, Moody’s stated that “The life insurance company investment portfolio has incurred substantial realized and unrealized losses, and contains a significant unrealized loss position relative to the company's statutory surplus. Capital of the life insurance business has declined materially in 2008 and again in 2009, despite efforts to stabilize the company's capital position, including transactions designed to specifically improve Phoenix Life's risk-based capital (RBC) ratio. Operating earnings of the insurance operations have been depressed--impacted by the difficult market impacting the rest of the life industry--and the company's financial flexibility is constrained.”
Moody’s added that “Major distributors that had previously marketed Phoenix's products through their affiliated producers have indefinitely suspended sales of Phoenix's products since 2009Q1 because of their credit concerns with Phoenix. As a result, Phoenix's 2009 product sales will be substantially lower than those in 2008, and Moody's believes there is little likelihood that they will return to meaningful levels in the near to intermediate term.”
However, Moody’s did note strengths including “a lLarge existing block of permanent life insurance to affluent individuals and businesses, very long term maturity of its debt obligations and modest cash needs at the holding company.”
On January 13, 2010, A.M. Best Company, Inc., Oldwick, N.J., downgraded the company’s financial strength rating from to ‘B+’ from ‘B++’ and downgraded our senior debt rating to ‘bb-‘ from ‘bb+.’ Best maintains a negative outlook on the company’s ratings.
The filing states that these deviations could continue in the future. The company says that the adjustment on April 1 and any other permitted adjustments “may not be sufficient to maintain profitability.”
Phoenix also notes that “In addition, increasing charges on in-force policies or contracts may adversely affect our relationships with distributors, future sales and surrenders and may result in claims against us by policyholders. Furthermore, some of our in-force business consists of products that do not permit us to adjust the charges and credited rates of in force policies or contracts.
Phoenix explained that among the assumptions factored into pricing is persistency and that “recent trends in the life insurance industry” include “the evolution of the financial needs of policyholders and the emergence of a secondary market for life insurance” as well as increased availability of premium financing. In short, according to the 10K, “the reasons for purchasing our products are changing.” The company also notes an increase in sales of policies to older individuals.
Consequently, according to the Phoenix 10K, in spite of controls it says it instituted, “We believe that our sales of universal life products include sales of policies to third party investors who, at the time of policy origination, had no insurable interest in the insured. The effect that these changes may have on our actual experience and profitability will emerge over time.”
In addition to changes in cost of insurance rates, according to Phoenix, deviations in actual experience from pricing assumptions may result in an increase in the amortization of deferred policy acquisition costs, which would negatively impact results of operations.
Recently, Phoenix has received the attention of rating agencies. On Feb. 12, Standard & Poor’s Ratings Services, New York, lowered the company’s counterparty credit rating to ‘CCC+’ from ‘B-‘ and lowered the counterparty credit and financial strength ratings of the companies operating subsidiaries including Phoenix Life Insurance Co. to ‘BB-‘ from ‘BB.’
"The downgrade follows Phoenix's release of its fourth-quarter 2009 results, which showed that its statutory surplus and asset valuation reserve decreased by $26.2 million in the quarter, or a 4% decline, and $279.1 million for the full year, or a 33% drop," said Standard & Poor's credit analyst Adrian Pask. "The company also reported a GAAP operating loss of $34.2 million."
"The decline in surplus stemmed from increases in reserves for discontinued group accident and health business and credit losses."
In September 2009, Moody’s Investors Service, New York, rated the carrier’s financial strength ratings a ‘Ba1.’
In its rating explanation, Moody’s stated that “The life insurance company investment portfolio has incurred substantial realized and unrealized losses, and contains a significant unrealized loss position relative to the company's statutory surplus. Capital of the life insurance business has declined materially in 2008 and again in 2009, despite efforts to stabilize the company's capital position, including transactions designed to specifically improve Phoenix Life's risk-based capital (RBC) ratio. Operating earnings of the insurance operations have been depressed--impacted by the difficult market impacting the rest of the life industry--and the company's financial flexibility is constrained.”
Moody’s added that “Major distributors that had previously marketed Phoenix's products through their affiliated producers have indefinitely suspended sales of Phoenix's products since 2009Q1 because of their credit concerns with Phoenix. As a result, Phoenix's 2009 product sales will be substantially lower than those in 2008, and Moody's believes there is little likelihood that they will return to meaningful levels in the near to intermediate term.”
However, Moody’s did note strengths including “a lLarge existing block of permanent life insurance to affluent individuals and businesses, very long term maturity of its debt obligations and modest cash needs at the holding company.”
On January 13, 2010, A.M. Best Company, Inc., Oldwick, N.J., downgraded the company’s financial strength rating from to ‘B+’ from ‘B++’ and downgraded our senior debt rating to ‘bb-‘ from ‘bb+.’ Best maintains a negative outlook on the company’s ratings.
Saturday, March 6, 2010
NCOIL Legislators Tackle Tough Annuity, Settlement and After-market Parts Issues
State insurance legislators tackled emerging issues including annuity sales to investors, the possible re-opening of a life settlement model and property-casualty issues including steering and after-market crash parts.
The issues were addressed during the spring meeting of the National Conference of Insurance Legislators, Troy, N.Y. in Charleston, S.C. The meeting drew 255 attendees and runs from March 5-7.
State Rep. Robert Damron, D-Nicholasville, Ky., NCOIL’s president, says that there was discussion about separating the after-market parts issue from the issue of steering policyholders to insurer favored body repair shops. Those issues were deferred until the July summer meeting in Boston on July 8-11.
On the life insurance side, he added, the right to sell annuity guarantees on the secondary market was discussed as well as the possibility of re-opening the Life Settlements Model Act to reflect the possible need for an update given the laws that are being put in place in many states.
Whether the annuity issue will be incorporated into any changes to the life settlement model or will be treated as a separate model will be determined during the July meeting, he adds.
Damron noted that producers are the ones who are selling annuities and insurers have not been performing underwriting on those annuities. So, companies which are seeing annuities and their riders re-sold to investors are being impacted not only by the resale but also by the commissions they are paying producers on annuities sold.
The Life and Financial Planning session this morning included a presentation from Larry Kosciulek, director of the Financial Industry Regulatory Authority (FINRA), in Baltimore, Md., discussed life settlement activity as it relates to variable life and annuities policies as well as how FINRA has treated life settlements since 2006.
Following Kosciulek’s presentation, state Rep. Brian Kennedy, D-Hopkinton, R.I., detailed the purchase of variable annuity products on terminally ill individuals so investors could profit once the individual died. It was agreed that more information is needed. Oklahoma Insurance Commissioner Kim Holland, secretary-treasurer of the National Association of Insurance Commissioners, Kansas City, Mo., detailed a planned hearing on the issue in New York on May 4 (see story on interview with Connecticut Insurance Commissioner Tom Sullivan below posted on March 4.)
Georgia state Senator Ralph Hudgens, R-Hull, Ga., discussed his concerns over insurance producers who are prevented by insurers from discussing the life settlement option. The issue will receive more discussion at NCOIL’s July meeting.
The issues were addressed during the spring meeting of the National Conference of Insurance Legislators, Troy, N.Y. in Charleston, S.C. The meeting drew 255 attendees and runs from March 5-7.
State Rep. Robert Damron, D-Nicholasville, Ky., NCOIL’s president, says that there was discussion about separating the after-market parts issue from the issue of steering policyholders to insurer favored body repair shops. Those issues were deferred until the July summer meeting in Boston on July 8-11.
On the life insurance side, he added, the right to sell annuity guarantees on the secondary market was discussed as well as the possibility of re-opening the Life Settlements Model Act to reflect the possible need for an update given the laws that are being put in place in many states.
Whether the annuity issue will be incorporated into any changes to the life settlement model or will be treated as a separate model will be determined during the July meeting, he adds.
Damron noted that producers are the ones who are selling annuities and insurers have not been performing underwriting on those annuities. So, companies which are seeing annuities and their riders re-sold to investors are being impacted not only by the resale but also by the commissions they are paying producers on annuities sold.
The Life and Financial Planning session this morning included a presentation from Larry Kosciulek, director of the Financial Industry Regulatory Authority (FINRA), in Baltimore, Md., discussed life settlement activity as it relates to variable life and annuities policies as well as how FINRA has treated life settlements since 2006.
Following Kosciulek’s presentation, state Rep. Brian Kennedy, D-Hopkinton, R.I., detailed the purchase of variable annuity products on terminally ill individuals so investors could profit once the individual died. It was agreed that more information is needed. Oklahoma Insurance Commissioner Kim Holland, secretary-treasurer of the National Association of Insurance Commissioners, Kansas City, Mo., detailed a planned hearing on the issue in New York on May 4 (see story on interview with Connecticut Insurance Commissioner Tom Sullivan below posted on March 4.)
Georgia state Senator Ralph Hudgens, R-Hull, Ga., discussed his concerns over insurance producers who are prevented by insurers from discussing the life settlement option. The issue will receive more discussion at NCOIL’s July meeting.
Friday, March 5, 2010
NCOIL Meeting Kicks Off Today
Annuities will be one of the key topics that state legislators are looking at as they convene today in Charleston, South Carolina.
The National Conference of Insurance Legislators, Troy, N.Y., will consider a resolution to protect the rights of consumers who purchase annuities with guarantees.
The resolution follows the announcement by the National Association of Insurance Commissioners, Kansas City, Mo., that it will hold a public hearing, probably in May, to examine the issue.
The resolution states that NCOIL believes that the rights of insurance consumers purchasing annuities should be protected.
It also states that the issue of the right to assign and sell in-force annuities should potentially be incorporated into the NCOIL Life Settlements Model Act or addressed in a separate model act “to protect the rights and interests of annuity consumers and prevent the illegal sale
of annuities prior to their issuance.”
The resolution also opposes “the Additional Standards for Guaranteed Living Benefits for Individual Deferred Non-Variable Annuities, Additional Standards for Guaranteed Living Benefits for Individual Deferred Variable Annuities and Additional Standards for Guaranteed Minimum Death Benefits for Individual Deferred Variable Annuities as adopted by the Interstate Insurance Product Regulation Commission (IIPRC) as being unjustified and anti-consumer because they take away the contractual rights of owners of annuities without justification.”
And it resolves that “NCOIL members of the Interstate Insurance Product Regulation Commission (IIPRC) should elect to opt out of these standards and include in such opt-out language, a statutory provision which states that these rider benefits are assignable and shall not be terminated if the contract is sold, transferred, or assigned;.”
The resolution would also be sent to “state legislative leaders, Governors, the Interstate Insurance Product Regulation Commission (IIPRC), the National Association of Insurance Commissioners (NAIC), and the state chief insurance regulatory officials.”
Other resolutions that will be considered oppose an Office of National Insurance and a resolution urging the Senate Banking, Housing and Urban Affairs Committee To exclude insurers from systemic risk regulation and assessments for the resolution of systemically risky companies.
The National Conference of Insurance Legislators, Troy, N.Y., will consider a resolution to protect the rights of consumers who purchase annuities with guarantees.
The resolution follows the announcement by the National Association of Insurance Commissioners, Kansas City, Mo., that it will hold a public hearing, probably in May, to examine the issue.
The resolution states that NCOIL believes that the rights of insurance consumers purchasing annuities should be protected.
It also states that the issue of the right to assign and sell in-force annuities should potentially be incorporated into the NCOIL Life Settlements Model Act or addressed in a separate model act “to protect the rights and interests of annuity consumers and prevent the illegal sale
of annuities prior to their issuance.”
The resolution also opposes “the Additional Standards for Guaranteed Living Benefits for Individual Deferred Non-Variable Annuities, Additional Standards for Guaranteed Living Benefits for Individual Deferred Variable Annuities and Additional Standards for Guaranteed Minimum Death Benefits for Individual Deferred Variable Annuities as adopted by the Interstate Insurance Product Regulation Commission (IIPRC) as being unjustified and anti-consumer because they take away the contractual rights of owners of annuities without justification.”
And it resolves that “NCOIL members of the Interstate Insurance Product Regulation Commission (IIPRC) should elect to opt out of these standards and include in such opt-out language, a statutory provision which states that these rider benefits are assignable and shall not be terminated if the contract is sold, transferred, or assigned;.”
The resolution would also be sent to “state legislative leaders, Governors, the Interstate Insurance Product Regulation Commission (IIPRC), the National Association of Insurance Commissioners (NAIC), and the state chief insurance regulatory officials.”
Other resolutions that will be considered oppose an Office of National Insurance and a resolution urging the Senate Banking, Housing and Urban Affairs Committee To exclude insurers from systemic risk regulation and assessments for the resolution of systemically risky companies.
Thursday, March 4, 2010
Connecticut’s Sullivan Discusses Concern Over Stranger-Originated Annuities
By Jim Connolly
The growing concern that annuities might now be subject to the same stranger-originated abuses that life insurance face led to a decision to hold a public hearing to air the issue, says Connecticut Insurance Commissioner Thomas Sullivan.
The National Association of Insurance Commissioners, Kansas City, Mo., made an announcement on March 3 that it intends to hold a public hearing on the emergence of stranger originated/owned annuities. Details of the hearing are still being worked out but it will not be held during the spring NAIC meeting in Colorado which runs from March 25-28. It could be held in New York in May, he added.
Sullivan says that the announcement was made after he received approval yesterday from NAIC commissioners to proceed with the effort. His primary concern, according to Sullivan, is to “preserve the tenet of insurable interest and to determine whether consumers are being ripped off.”
The decision was made to gather more information on the issue based on a number of factors including the recent debate over a termination provision in variable annuity guarantees as well as a Wall Street Journal article last month which reported on the case of a Rhode Island attorney who the article says solicited the elderly to buy annuities as a front for investors.
Sullivan says that holding a hearing was also prompted by the growing concern among regulators that there could be a stranger originated issue with annuities. When asked if there were any other investigations other than one in Rhode Island that were being undertaken, Sullivan said that as a regulator he wouldn’t comment on any potential investigations but that it was a more general awareness that the topic is one that needs to be investigated.
When asked whether concern was over the suitable sale of annuities in general or specifically related to STOLI, he responded that regulator concern was specifically related to STOLI. He added that the discussion would include both stranger originated and stranger owned annuities because “the purpose is to learn and not to limit the discussion.”
The growing concern that annuities might now be subject to the same stranger-originated abuses that life insurance face led to a decision to hold a public hearing to air the issue, says Connecticut Insurance Commissioner Thomas Sullivan.
The National Association of Insurance Commissioners, Kansas City, Mo., made an announcement on March 3 that it intends to hold a public hearing on the emergence of stranger originated/owned annuities. Details of the hearing are still being worked out but it will not be held during the spring NAIC meeting in Colorado which runs from March 25-28. It could be held in New York in May, he added.
Sullivan says that the announcement was made after he received approval yesterday from NAIC commissioners to proceed with the effort. His primary concern, according to Sullivan, is to “preserve the tenet of insurable interest and to determine whether consumers are being ripped off.”
The decision was made to gather more information on the issue based on a number of factors including the recent debate over a termination provision in variable annuity guarantees as well as a Wall Street Journal article last month which reported on the case of a Rhode Island attorney who the article says solicited the elderly to buy annuities as a front for investors.
Sullivan says that holding a hearing was also prompted by the growing concern among regulators that there could be a stranger originated issue with annuities. When asked if there were any other investigations other than one in Rhode Island that were being undertaken, Sullivan said that as a regulator he wouldn’t comment on any potential investigations but that it was a more general awareness that the topic is one that needs to be investigated.
When asked whether concern was over the suitable sale of annuities in general or specifically related to STOLI, he responded that regulator concern was specifically related to STOLI. He added that the discussion would include both stranger originated and stranger owned annuities because “the purpose is to learn and not to limit the discussion.”
Wednesday, March 3, 2010
NAIC Plans Public Hearing on Stranger Originated Annuities
The National Association of Insurance Commissioners (NAIC), Kansas City, Mo., announced that it will hold a public hearing on the emergence of Stranger Originated/Owned Annuities.
“The hearing will focus on the suspect practice of targeting seniors and terminally ill patients by inducing them to purchase an annuity largely for the benefit of investors or intermediaries,” the NAIC said in a press release.
“State regulators need to closely examine the conditions of this evolving marketplace,” said Thomas R. Sullivan, Chair of the NAIC Life Insurance and Annuities Committee and Connecticut Insurance Commissioner. “We are determined to address how individuals are being affected by these new transactions and whether new or modified current laws or regulations are necessary to protect consumers. We have an intense curiosity for which we intend to examine the existence and extent of these practices.”
The hearing will include industry representatives, state regulators and consumers. The date and location of the hearing will be announced as soon as details are confirmed.
“The hearing will focus on the suspect practice of targeting seniors and terminally ill patients by inducing them to purchase an annuity largely for the benefit of investors or intermediaries,” the NAIC said in a press release.
“State regulators need to closely examine the conditions of this evolving marketplace,” said Thomas R. Sullivan, Chair of the NAIC Life Insurance and Annuities Committee and Connecticut Insurance Commissioner. “We are determined to address how individuals are being affected by these new transactions and whether new or modified current laws or regulations are necessary to protect consumers. We have an intense curiosity for which we intend to examine the existence and extent of these practices.”
The hearing will include industry representatives, state regulators and consumers. The date and location of the hearing will be announced as soon as details are confirmed.
Tuesday, March 2, 2010
Where the Roads Meet
After two serious stabs at solving the health care puzzle in the last two decades, Americans are like weary travelers looking for a place where the roads meet and they can put down roots and stop wandering aimlessly.
The roads to that desired spot are labeled cost control, rate regulation, common sense and self-restraint.
In order to examine this issue, the National Association of Insurance Commissioners, Kansas City, Mo., held a press conference on February 26. During the conference, NAIC President and West Virginia Insurance Commissioner Jane Cline, NAIC Secretary-Treasurer and Oklahoma Insurance Commissioner Kim Holland, and NAIC Health Insurance and Managed Care Committee Chair and Kansas Insurance Commissioner Sandy Praeger discussed the federal health reform proposals.
Cline started the discussion by noting that compromise is not easy and state regulators want to find a middle ground. But in order to find that ground, according to the discussion, there are a number of points that need to be examined more carefully.
Oklahoma’s Holland said that the backlash over the Public Option proposal raised as part of the recent health care plan advocated by President Barack Obama highlights the vast differences of health care markets among states. “We are a very diverse country where a one-size fits all approach is very difficult to implement.”
Common Threads
But according to the dialogue, while each state has its own particular way of handling health care and very particular needs, there are some threads that are common to all states.
For instance, Kansas’ Praeger warned that if companies were able to operate regionally rather than file with the state of domicile, they would gravitate to the states with the least protections. There would also be cherry picking of healthy consumers and adverse selection where the sick would end up in state plans.
And, while states might be amenable to allowing certain standards to be established for rate setting, they must be able to retain that authority, she added. When it was noted that only 29 states have that oversight, Praeger responded that while file and use states such as Kansas don’t formally have oversight, they work with companies on rates and can deny or negotiate rates that they maintain are excessive.
Common Sense and Restraint
The comments of both reflected the need for common sense and restraint. Kansas’ Praeger said that while health insurers can be hammered and there is a lot of room for improvement, health care costs can also be hammered and more personal responsibility is needed.
And Holland explained that in Oklahoma any mandate must be analyzed from both a clinical and cost perspective to keep down political hyperbole and focus on the high rates of the uninsured.
Common sense and restraint can bring us so far, but it won’t get Americans to that point on the map where they need to be. Cost control will move us a little further along as they indicated.
Chicken or Egg
But the question then becomes which costs are we controlling: the rising cost of premiums or the rising cost of the actual care? An ancillary question is whether those costs are justified or can be pared to reasonable levels: something approximating the inflation rate plus a reasonable level of profit.
America’s Health Insurance Plans, Washington, recently addressed the issue in response to an uproar over California Anthem Blue Cross’ request for a 39% premium hike. The company was called out by Kathleen Sebelius, Health and Human Services Secretary and a former NAIC commissioner from Kansas. It was also challenged by California Insurance Commissioner Steve Poizner who got the carrier to delay the increase until an independent actuary can review the rates proposals.
Anthem responded that the request is actuarially sound and in full compliance with the law.
And, in responding to the issue, AHIP’s President and CEO Karen Ignagni, called for a stop to “the politics of vilification” and a focus on “real health care reform.” She says that the real culprit is the underlying costs and that carrier requests reflect the true problem.
Her statement refers to Fortune 500 which AHIP cites as saying puts the health plan industry profits at 2.2%, 35th on its list of profits by industry sector.
I think she is correct in saying that big progress can be made in tamping down the actual costs. But one also wonders what is the range of the average on that statistic and whether some companies are making large profits while others are sustaining big losses.
And one can’t help but wonder how Anthem Blue Cross would react if one of its employees said that the cost of living had risen and that employee wanted a 39% pay hike.
The Other Piece
Cost is just one part of the issue of health care coverage in the United States. The other piece of the discussion is keeping promises. A premium is paid and services can be reasonably expected to be rendered.
California’s Poizner is alleging over 700 violations of state law by Anthem Blue Cross including 277 violations of failure to pay claims in 30 days and 66 violations of misrepresenting facts or policy provisions to insureds.
The rate hike problem is not limited to California but is nationwide. In Maine, for instance, a hearing is scheduled Insurance Superintendent Mila Kofman to hear comment on proposed rate increases for MEGA Life and Health and Anthem Blue Cross Blue Shield products.
Whatever the reason for our injured health care system, cost, unreasonable utilization by insureds or rates from carriers, unless we find common ground, Americans will continue to wonder aimlessly looking for health care coverage that we can settle down with.
The Result of Inaction
In Pennsylvania, Insurance Commissioner Joel Ario sounded a warning when he said that states alone can’t solve the problem and federal intervention is needed. Citing his own state’s adultBasic insurance program, he said that “If we didn’t adjust the adultBasic premium and benefit package, a portion of individuals enrolled in the program would have lost coverage.
“People who come to adultBasic have been without coverage and so are generally in need of costly care. With our limited funding, we either had to increase costs or drastically cut benefits, as opposed to the modest changes we chose to make for enrollees. The cuts we’re instituting are only sufficient to allow the available funds to cover costs for the current enrollees.”
The roads to that desired spot are labeled cost control, rate regulation, common sense and self-restraint.
In order to examine this issue, the National Association of Insurance Commissioners, Kansas City, Mo., held a press conference on February 26. During the conference, NAIC President and West Virginia Insurance Commissioner Jane Cline, NAIC Secretary-Treasurer and Oklahoma Insurance Commissioner Kim Holland, and NAIC Health Insurance and Managed Care Committee Chair and Kansas Insurance Commissioner Sandy Praeger discussed the federal health reform proposals.
Cline started the discussion by noting that compromise is not easy and state regulators want to find a middle ground. But in order to find that ground, according to the discussion, there are a number of points that need to be examined more carefully.
Oklahoma’s Holland said that the backlash over the Public Option proposal raised as part of the recent health care plan advocated by President Barack Obama highlights the vast differences of health care markets among states. “We are a very diverse country where a one-size fits all approach is very difficult to implement.”
Common Threads
But according to the dialogue, while each state has its own particular way of handling health care and very particular needs, there are some threads that are common to all states.
For instance, Kansas’ Praeger warned that if companies were able to operate regionally rather than file with the state of domicile, they would gravitate to the states with the least protections. There would also be cherry picking of healthy consumers and adverse selection where the sick would end up in state plans.
And, while states might be amenable to allowing certain standards to be established for rate setting, they must be able to retain that authority, she added. When it was noted that only 29 states have that oversight, Praeger responded that while file and use states such as Kansas don’t formally have oversight, they work with companies on rates and can deny or negotiate rates that they maintain are excessive.
Common Sense and Restraint
The comments of both reflected the need for common sense and restraint. Kansas’ Praeger said that while health insurers can be hammered and there is a lot of room for improvement, health care costs can also be hammered and more personal responsibility is needed.
And Holland explained that in Oklahoma any mandate must be analyzed from both a clinical and cost perspective to keep down political hyperbole and focus on the high rates of the uninsured.
Common sense and restraint can bring us so far, but it won’t get Americans to that point on the map where they need to be. Cost control will move us a little further along as they indicated.
Chicken or Egg
But the question then becomes which costs are we controlling: the rising cost of premiums or the rising cost of the actual care? An ancillary question is whether those costs are justified or can be pared to reasonable levels: something approximating the inflation rate plus a reasonable level of profit.
America’s Health Insurance Plans, Washington, recently addressed the issue in response to an uproar over California Anthem Blue Cross’ request for a 39% premium hike. The company was called out by Kathleen Sebelius, Health and Human Services Secretary and a former NAIC commissioner from Kansas. It was also challenged by California Insurance Commissioner Steve Poizner who got the carrier to delay the increase until an independent actuary can review the rates proposals.
Anthem responded that the request is actuarially sound and in full compliance with the law.
And, in responding to the issue, AHIP’s President and CEO Karen Ignagni, called for a stop to “the politics of vilification” and a focus on “real health care reform.” She says that the real culprit is the underlying costs and that carrier requests reflect the true problem.
Her statement refers to Fortune 500 which AHIP cites as saying puts the health plan industry profits at 2.2%, 35th on its list of profits by industry sector.
I think she is correct in saying that big progress can be made in tamping down the actual costs. But one also wonders what is the range of the average on that statistic and whether some companies are making large profits while others are sustaining big losses.
And one can’t help but wonder how Anthem Blue Cross would react if one of its employees said that the cost of living had risen and that employee wanted a 39% pay hike.
The Other Piece
Cost is just one part of the issue of health care coverage in the United States. The other piece of the discussion is keeping promises. A premium is paid and services can be reasonably expected to be rendered.
California’s Poizner is alleging over 700 violations of state law by Anthem Blue Cross including 277 violations of failure to pay claims in 30 days and 66 violations of misrepresenting facts or policy provisions to insureds.
The rate hike problem is not limited to California but is nationwide. In Maine, for instance, a hearing is scheduled Insurance Superintendent Mila Kofman to hear comment on proposed rate increases for MEGA Life and Health and Anthem Blue Cross Blue Shield products.
Whatever the reason for our injured health care system, cost, unreasonable utilization by insureds or rates from carriers, unless we find common ground, Americans will continue to wonder aimlessly looking for health care coverage that we can settle down with.
The Result of Inaction
In Pennsylvania, Insurance Commissioner Joel Ario sounded a warning when he said that states alone can’t solve the problem and federal intervention is needed. Citing his own state’s adultBasic insurance program, he said that “If we didn’t adjust the adultBasic premium and benefit package, a portion of individuals enrolled in the program would have lost coverage.
“People who come to adultBasic have been without coverage and so are generally in need of costly care. With our limited funding, we either had to increase costs or drastically cut benefits, as opposed to the modest changes we chose to make for enrollees. The cuts we’re instituting are only sufficient to allow the available funds to cover costs for the current enrollees.”
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