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by Leila Morris
HEALTHCARE
• Carriers Are Pressured to Adjust to a Changing Landscape in 2014
• CBO Lowers Estimate of Health Reform Costs
• An Alternative to the ACA
• Growth in Healthcare Costs Slows Slightly
• Small Employers and Self-Insured Health Benefits: Too Small to Succeed?
EMPLOYEE BENEFITS
• Get Nominated for a Vision Award
DISABILITY INSURANCE
• Carriers Saw Higher Losses
IN CALIFORNIA
• Three Plead Guilty to Life Settlement Fraud
• Wellness Plan Shown to Reduce Costs
LONG TERM CARE INSURANCE
• Many Claims Are for In-Home Services
NEW PRODUCTS
• Fun Sketches Help Start Serious Discussions About Life Settlements
• Tips for Multi-Generational Planning
EVENTS
• Life Insurance Conference in Palm Beach FL
• Webinar Helps Women Deliver Effective Presentations
• Free Webinar Helps Brokers With Social Networking
HEALTHCARE
Carriers Are Pressured to Adjust to a Changing Landscape in 2014
The Supreme Court’s ruling to uphold the Patient Protection and Affordable Care Act (PPACA) has not caught health insurers off guard. They have been preparing for a new health insurance environment since PPACA legislation was enacted in 2010. That new environment includes the individual mandate, guaranteed issue for coverage, and health insurance exchanges, among other provisions, according to an analysis by A.M. Best.
A.M. Best has a stable outlook on the majority of health insurers since their earnings have strengthened over the past few years, largely due to lower utilization and more diversified sources of income and revenue. Margins are expected to narrow as utilization returns to more normal levels and the effect of PPACA begins to be felt. A.M. Best expects the majority of health insurers to remain profitable.
Furthermore, health insurers have been in discussions with governors, state legislatures, insurance commissioners, departments and other parties on the importance of establishing a framework for state-based health insurance exchanges.
Much work needs to be done to make exchanges operational. Rules have yet to be defined, such as essential benefits and subsidy levels. There could be delays in implementing exchanges because there may not be enough lead time to get state-based exchanges fully operational for open enrollment for a Jan. 1, 2014 effective date.
The Supreme Court upheld the expansion of Medicaid (up to 133% of the federal poverty level). However, the Court stipulated that the federal government can not reduce or stop funding existing Medicaid programs in states that do not abide by the expansion. Some states may not implement the full expansion because of budgetary constraints and long-term cost concerns. Also, several Republican governors are opposed to implementing full expansion.
Many states are beginning to implement managed care programs for people who are dual eligible (for both Medicare and Medicaid). States have issued a flurry of requests for proposals (RFPs) for Medicaid managed care, dual-eligible programs, and long-term-care programs. Many new programs have already been implemented over the past few years and several were announced in 2012.
Best expects the Medicaid managed care sector to remain very competitive, with more carriers bidding on the contracts. Some insurers have increased their focus on the Medicaid managed care sector through acquisitions and aggressive pricing on RFPs. For example, WellPoint has entered into a definitive agreement to acquire Amerigroup Corp. in a transaction valued at approximately $4.9 billion. This should give WellPoint a larger geographic footprint in Medicaid managed care as well as an increase in the number of dual eligibles.
The health insurance sector will move toward operating with health insurance exchanges and transforming from an employer-focused market to an individual-focused market. The majority of health insurance carriers are implementing strategies to adapt to the new operating environment and maintain profitability. This may be at lower margins and under increased regulation with uncertainty about state exchanges in the near- to medium term.
Over the past few years, many carriers have begun to offer products to multiple segments including individual, employer groups, and government-sponsored (both Medicare and Medicaid managed care), which provides for more diversified membership, revenue, and earnings. Several of the larger carriers also have expanded with supplemental business, which is more service oriented and not as regulated. These complementary products bring in varied sources of earnings and cash flow to enhance operating results. As such, A.M. Best is maintaining a stable outlook on the majority of the health insurance sector.
However, A.M. Best has a negative view on smaller, more specialized companies in the ndividual and small-group health insurance markets. A.M. Best has concerns about profitability, given the minimum loss-ratio requirements, particularly over the near to medium term. Typically, individual products have a lower loss ratio (low 70% range) and a higher administrative expense ratio, especially in the first year.
These carriers have already reduced broker commissions significantly. It could be hard for them to cut administrative costs enough to offset a rising loss ratio. It’s easier for insurance carriers with larger blocks of business to cut prices to comply with the loss-ratio requirement while maintaining profitable margins. This could result in more competitive pricing and make it more difficult for the less diversified carriers to compete. Over the past year, PPACA has led some companies to exit or divest blocks of health business or entities.
Insureds and businesses in the individual and small-group segments are more likely to move toward the exchanges in 2014. Small, specialized carriers may lose members to the exchanges in 2014. Also, they may lack the scale to participate in the exchanges (on either the federal or state level). As such, A. M. Best believes these smaller specialty companies could experience more negative rating actions. For more information, visit http://www.ambest.com.
CBO Lowers Estimate of Health Reform Costs
The Supreme Court’s decision on health reform allows states to choose whether to expand eligibility under their Medicaid programs. The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that the Affordable Care Act’s (ACA) insurance coverage provisions will cost $1,168 billion from 2012 to 2022, which is $84 billion less than a previous projection in March. (Those figures do not include the budgetary impact of other provisions of the ACA.)
Before the Court’s ruling, the Medicaid expansion appeared mandatory for states that wanted federal matching funds. However, CBO and JCT now expect that some states will not expand their programs at all or will not expand coverage to the full extent authorized by the ACA. In addition, they expect that some states will eventually expand eligibility, but not by 2014 as specified in the ACA.
Lower Medicaid enrollment is expected to more than offset the increase in costs from greater participation in newly established exchanges. CBO and JCT now estimate that the Medicaid program will cover fewer people; more people will get health insurance through the newly established exchanges; and more people will be uninsured. The magnitude of those changes varies from year to year.
In 2022, for example, Medicaid and the Children’s Health Insurance Program (CHIP) are expected to cover about 6 million fewer people than previously estimated. About 3 million more will be enrolled in exchanges and about 3 million more will be uninsured. These estimates are dominated by the trend of people losing eligibility for Medicaid. Smaller shifts in coverage are also expected.
Medicaid will cover about 6 million fewer people, but only about 3 million more will get subsidies through the exchanges. About 3 million more will be uninsured. The average savings for each person who becomes uninsured are greater than the average additional costs for each person who receives exchange subsidies.
Benjamin Domenech, research fellow at he Heartland Institute, complains that “The CBO dramatically underestimates the ‘woodwork effect,’ assuming only a small portion of those already eligible for Medicaid will sign up under the expansion of the program. The Congressional Budget Office is telling us Obamacare will be a slightly smaller failure than we thought. This is hardly reason to celebrate even if we accept CBO numbers, which often are dubious. The government could have expanded health insurance coverage by giving poor households vouchers to buy insurance.” For more information, visit http://www.cbo.gov/publication/43472 or www.heartland.org.
An Alternative to the ACA
The Supreme Court has upheld the Affordable Care Act and the House of Representatives has moved to repeal it. Yet, no one has presented a plausible alternative until now, according to John C. Goodman, president of the National Center for Policy Analysis. His proposed “Healthcare Contract with America” includes the following themes to ensure that all individuals have access to affordable healthcare and have choices in obtaining coverage.
• Tax Fairness: Families at the same income level should get the same help from government when they get private health insurance, regardless of where they get it. The federal government encourages the purchase of private health insurance through the tax system. Yet the current approach is arbitrary, regressive, and unfair. Instead of paying taxable wages, employers would be able to purchase health insurance for their employees with untaxed dollars.
• Universality: Unclaimed tax relief should be available to local safety net institutions in case the uninsured cannot pay their medical bills. If an individual chooses to be uninsured, the unclaimed tax credit should be sent to a safety net agency in the community where the person lives. These funds would provide a source of finance in case the uninsured are unable to pay their medical bills.
• Portability: Employers would be able to purchase personal and portable insurance for their employees. The federal tax law is one reason we don’t have portable insurance. We subsidize employer-provided insurance generously, but we offer very little tax relief to those who must purchase insurance on their own.
* Patient Control: Patients should be able to manage more of their own health care dollars. Individuals would be able to save for medical expenses in a number of tax-favored accounts and in other types of accounts.
• Real Insurance: Insurance should not just pay for the cost of becoming ill; it should also pay the higher premium required if patients switch health plans. If insurance premiums are artificially low for people with health problems, insurers will run from them at the time of enrollment and have no incentive to treat them well after enrollment. If insurers are compensated fully for the above-average expected costs, they would compete to attract the sick as well as the healthy and would search for ways to better meet their needs.
Growth in Healthcare Costs Slows Slightly
The average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased 6.05% over the 12-months ending May 2012. This compares to the 6.11% rate posted for April 2012. But it’s still above what was experienced throughout 2011 and early 2012, according to the S&P Healthcare Economic Composite
Healthcare costs covered by commercial insurance plans increased 8.38% over the year ending May 2012, down from the 8.41% reported for April 2012. Growth rates in Medicare claim costs rose 2.52%, according to the S&P Healthcare Economic Medicare Index, down from April’s 2.60%.
While most types of health cost growth rates slowed in May, the most substantial was in the hospital commercial annual growth rate, which declined 40 basis points to 8.38%. However, the professional services commercial growth rate went in the opposite direction, jumping from 7.70% in April to 7.99% in May. Commercial insurance costs accelerated for those using professional services and decelerated for those being treated in hospitals. There could be several things contributing to this, including timing and services provided during the visit. But S&P does not expect this divergence to continue.
The annual growth rate for Professional Services Medicare was 2.89%, which is its lowest since October 2009. The Hospital Medicare rate remained unchanged from April, at 2.05%. The headline Medicare growth rate fell to 2.52% in May from 2.60% in April. S&P says that there is some monthly volatility in healthcare costs, but there has been an upward trend in most costs and an increasing gap between the growth in costs covered by commercial versus Medicare plans during the past 12 months or so. For more information, visit www.spdji.com.
Small Employers and Self-Insured Health Benefits: Too Small to Succeed?
Small firms are more interested in self-insured plans due to rising premiums, new regulations on fully insured products, and more competitive markets for stop-loss coverage. But does self-insurance work for small firms? This is a question posed by researchers at the Center for Studying Health System Change (HSC).
Self-insurance is becoming attractive to more employers due to competitive markets for stop-loss insurance and services available from third-party administrators (TPAs), particularly small firms with 100 or fewer workers. Some carriers even offer stop-loss coverage to firms with as few as 10 workers. Self-insured firms typically purchase stop-loss insurance to cover medical costs that exceed a predefined amount. A TPA processes medical claims and provides access to provider networks.
If more small firms self-insure, certain health reform goals may be undermined, such as strengthening consumer protections and making the small-group health insurance market more viable, according to HSC. A particular concern is adverse selection-attracting sicker-than-average people-in the state-based insurance exchanges created by reform and scheduled for implementation in 2014.
Self-insurance arrangements may offer advantages, such as lower costs, exemption from most state insurance regulation, and greater flexibility in benefit design-that are especially attractive to large firms with enough employees to spread risk adequately to avoid the financial fallout from potentially catastrophic medical costs of some employees, according to the study.
But, self-insured employers still face uncertainty about the costs of health benefits and the uncertainty of increases as firm size declines because smaller firms are much more vulnerable to the costs of a catastrophic illness of only one or two employees. Stop-loss insurance helps mitigate the risk of large medical costs and coverage kicks in depending on so-called attachment points, or specific-dollar thresholds that an employer must reach in health expenditures before a stop-loss carrier takes over payment of all or a percentage of medical claims.
According to the study, the market for stop-loss insurance is moving toward lower attachment points, with some carriers offering attachment points as low as $10,000. The availability of stop-loss coverage with extremely low attachment points raises questions about how much risk self-insured firms are bearing and whether self-insurance is merely a way to avoid state insurance regulation, according to the study. The study’s findings are detailed in a new HSC Issue Brief, “Small Employers and Self-Insured Health Benefits: Too Small to Succeed?” available online at www.hschange.org
EMPLOYEE BENEFITS
Get Nominated for a Vision Award
Nominations are being accepted for the third annual Transitions Vision Benefits Broker of the Year award, which is sponsored by Transitions Optical. The award recognizes brokers who are encouraging healthy sight through vision care benefit offerings and education. Brokers can self-nominate or be nominated by their vision plan provider. Submissions due November 2, 2012.
Three finalists will get a trip for two to the 2013 Transitions Academy managed vision care track at the 17th annual Transitions Academy, held January 27 to 30 in 2013 at the Rosen Shingle Creek in Orlando, Fla. They will be asked to share challenges and best practices as part of this annual program for brokers, vision plan provider representatives, and HR professionals. They will also get several prizes and office items for themselves and their staff members. The winner will get use of the official Transitions Vision Benefits Broker of the Year logo. Three finalists will be announced in December and the Transitions Vision Benefits Broker of the Year will be named during the Academy.
Nominees will be judged on several factors, including the following:
• Promotion of vision benefits – positioning vision benefits as an integral part of the overall health benefit package during sales calls with HR clients.
• Promotion of vision wear – highlighting the vision wear elements of vision coverage to HR customers, and recommending vision plans that include photochromic lenses, which automatically adapt to changing light to protect the eyes from damaging ultraviolet light and glare.
• Education – seeking education and educating others about the importance of quality eye care and eyewear.
Entrants or their nominators must submit a nomination form as well as any supporting materials to detail their accomplishments and results. More information and a downloadable nomination form are available at HealthySightWorkingForYou.org.
DISABILITY INSURANCE
Carriers Saw Higher Losses
In 2011, carriers faced increased loss ratios on their long-term disability income insurance business. This trend can be blamed on the Social Security Administration’s greater scrutiny of long-term disability claims. Most long-term disability insurance benefits are coordinated with the Social Security Administration and state disability programs. With increased denials through these programs, life insurers are seeing higher losses associated with long-term disability insurance. According to the analysis by SNL Financial, loss ratios have moved upward, but there have not been any major announcements of price increases for disability coverage. However, that may change if the Social Security Administration’s scrutiny of claims continues to increase.
The loss ratio for individual long-term disability insurance rose from 94.06% in 2009 to 98.09% in 2011 and the loss ratio for group long-term disability insurance increased from 80.36% in 2009 to 85.71% in 2011.
Unum Group, which is the largest insurer in both the individual and group long-term disability markets, saw increases in loss ratios in both markets between 2009 and 2011 that were in line with the industry.
Among the top 10 players in the group market, StanCorp Financial Group and The Hartford had the largest increases in loss ratios fro 2009 to 2011. StanCorp blames it primarily on higher claims while the Hartford cites unfavorable morbidity experience.
Northwestern Mutual Life Insurance Co. is the only top 10 company in the individual long-term market that saw a loss ratio decline from 2009 to 2011. However, according to its annual statement, the company is experiencing higher claim costs, which could affect its loss ratio over time.
The 10 insurers with the most premiums in the group long-term market represent 82.26% of the industry in 2011. The individual long-term disability market is even more concentrated, with the top 10 insurers representing 87.88% of the industry. For more information, visit http://www1.snl.com.
IN CALIFORNIA
Three Plead Guilty to Life Settlement Fraud
Barbara Eberle, 65, and Robert Eberle, 73, both formerly of Chico, and Mark Wolok, 47, of West Bloomfield, Mich. pleaded guilty in federal court to securities fraud. The defendants were indicted on August 22, 2007 for a scheme that involved life settlement insurance contracts. Donald Neuhaus and his daughter, Kimberly Snowden, operated a number of businesses for the purpose of acquiring viaticals and life settlements from insured people and marketing them to investors. Working on their behalf, Robert and Barbara Eberle sold fractionalized interests in the settlements.
The Eberles told investors that the investments were safe, secure, and risk-free and that investors were guaranteed high rates of return. But investors lost at least $18.4 million. In order to sell these life settlement contracts, Wolok sold bonds that supposedly guaranteed that investors would not lose their money. However, the bonds were not legitimate and none of the bonds were honored. As a result of his fraud, investors lost at least $17.8 million.
In February 2003, the California Department of Corporations issued a desist and refrain order prohibiting Robert and Barbara Eberle and Lexus Financial Group from selling viaticals and life settlements in California. The Eberles changed the name of their company to Eagle and relocated to Nevada.
Donald Neuhaus died in November 27, 2007. The remaining defendants in the case – Kimberly Snowden, 47, of Redding; Clifford Palm, 60, of Citrus Heights, and Robert Koppel, 83, of Roseville, have pleaded not guilty to the charges. Their next court date is August 3, 2012 for a trial confirmation hearing. The charges are only allegations, and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.
Wolok and the Eberles are scheduled to be sentenced by United States District Judge Garland E. Burrell Jr. on November 2, 2012. The maximum statutory penalty for a violation of securities fraud is five years in prison and a $250,000 fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.
Wellness Plan Shown to Reduce Costs
If you receive a breathy phone call from a rep. at Blue Shield of California, don’t be alarmed. Your rep may be running on a treadmill while working. Four out of five employees at the not-for-profit health plan engage in wellness programs that include working while on a treadmill, participating in social media-fueled group fitness challenges, and teaming up with colleagues, friends, and family to achieve well-being.
Blue Shield of California reports that its employees save $3 million and earn 2,500 days off a year by participating in a wellness program that mixes social networking with game dynamics to make it easy, social, and fun to be healthy.
The program yielded the following results from 2008 t0 2011:
• A 26% improvement in health status as employees transition from “at risk” to “healthy.”
• A 48% decrease in smoking prevalence.
• A 32% increase in regular physical activity and 48% decrease in employees reporting that they are totally inactive.
• 66% relative decrease in high blood pressure, from one in three employees in 2009 to one in 10 employees by 2011.
LONG TERM CARE INSURANCE
Many Claims Are for In-Home Services
Half of all new individual long term care insurance claims pay for home care services, according to a study by the American Association for Long-Term Care Insurance. New claims by women receiving care at home accounted for 32% of new claims with 18% of men receiving benefits for home care. Only 31% of new claims begin with the policyholder receiving care in a nursing home.
The survey also reports that the largest long-term care insurance claim paid totaled $3 million while the largest claim that’s still being paid has exceeded $1.7 million in paid benefits. The claimant is a woman who purchased coverage and began receiving care three years later. She has been receiving care for nearly 15 years.
Women accounted for 65% of new claims opened during 2011. Twenty four percent of new claims begin between ages 70 and 79 while 65.5% begin after the policyholder reached age 80. Alzheimer’s disease is the leading cause for claims in a nursing home or assisted living community while cancer is the leading cause for claims that begin at home. For more information, visit www.aaltci.org.
NEW PRODUCTS
Fun Sketches Help Start Serious Discussions About Life Settlements
Life settlement provider, The Lifeline Program, launched a free e-postcard service for financial planners and life insurance agents. Featuring playful artwork by acclaimed illustrator Rick Meyerowitz, whose work has been featured in National Lampoon and the New Yorker, the e-postcards serve as an easy marketing tool to introduce life settlements to prospective clients. Agents will be able to quickly and easily customize and send e-postcards to their clients.For more information, visit www.thelifeline.com.
Tips for Multi-Generational Planning
The MetLife Mature Market Institute has released a guide titled, “Preparing for Family Financial Responsibilities Across the Generations.” You can download a free copy at http://www.metlife.com/mmi/research/mulit-generational-views-family-obligations.html#related%20content.
EVENTS
Life Insurance Conference in Palm Beach, FL
The Life Insurance Direct Marketing Association (LIDMA) is sponsoring its Fall Meeting & Showcase September 30 through October 2, 2012 at the Four Seasons hotel in Palm Beach. The agenda includes detailed State of the Industry and State of the Channel reports Attendance is available only to LIDMA members. Annual membership in LIDMA is $999 for direct marketers, producers, BGAs, IMOs and financial institutions and also includes one conference registration for the Fall Meeting & Showcase. For an additional $299 members can register an unlimited number of attendees from their agency. For more information on LIDMA membership visit www.lidma.org.
Webinar Helps Women Deliver Effective Presentations
The website, http://www.professionaltrain.com, is sponsoring a 60-minute webinar Thursday, August 16, 2012, 1:00 pm. It is designed help viewers do the following:
• Deliver presentations with confidence and competence.
• Get others on board to support your position and ideas.
• Blend feminine and masculine traits into a dynamic speaking style.
• Overcome nerves and other hurdles to a powerful presentation.
The instructor is Lois Phillips, Ph.D., trains executives, managers, and politicians in organizational communication and presentation skills. She was the founding executive director of Antioch University Santa Barbara. Her doctoral degree from UCSB focused on gender differences in public speaking. To register, call 800-830-0799 or visit http://www.professionaltrain .com.
Free Webinar Helps Brokers with Social Networking
The Independent Insurance Agents & Brokers of America is hosting a free one-hour webinar, “Measuring your Social Networking Success” on Tuesday, July 31, 2012 at 11:00 p.m. PST. The webinar will address some of the most frequently asked questions that agents have about social networking. For more information, visit www.independentagent.com