HEALTHCARE l NEW PRODUCTS l FINANCIAL PLANNING l LIFE INSURANCE& ANNUITIES
EMPLOYEE BENEFITS l IN CALIFORNIA

 

HEALTHCARE
The Hidden Costs of Healthcare
Whether they have health insurance or not, Americans are paying more and getting less, according to a report by HHS Secretary Kathleen Sebelius. The report includes the following statistics:

• A person with employer-based coverage paid an average of $1,522 on healthcare in 2006 (not including premiums) compared to $1,260 in 2001. Out-of-pocket costs rose even more sharply when you include higher premiums. There was a 30% increase from an average of $2,827 in 2001 to $3,744 in 2006.
• Employer-sponsored healthcare insurance premiums have nearly doubled since 2000 at a rate three times faster than wages. The average premium for an employer sponsored family plan was $12,680 in 2008, which is nearly the annual earnings of a full-time minimum wage job.
• The average family deductible increased 30% in just two years for an employer-sponsored PPO -- from $1,034 to $1,344. This effect is more pronounced for small firms, where PPO deductibles increased 64% from $1,439 to $2,367.
• In 2004, only one in five people with healthcare insurance through an employer had a co-payment of more than $25. By 2008, that number jumped to one in three

To get the report, visit www.healthcarereform.gov/reports/index.html.

Legislators Say Federal healthcare Reforms Trample States’ Rights
Establishing a Medicare-modeled public plan and a national healthcare insurance exchange would trample states’ rights and lead Americans down the road to single-payer healthcare care, said the American Legislative Exchange Council (ALEC), which represents 1,800 state legislators nationwide.

ALEC approved a resolution that deems the public plan anti-competitive. Georgia Republican Senator Judson Hill said, "The public plan and national healthcare insurance exchange will squeeze out private insurance and put us on the road to single-payer healthcare care. Political pressure to keep premiums low and benefits high will result in millions dropping their private coverage and getting on the federal healthcare care dole. Having the public plan now will mean socialized medicine later.”

“The government will never compete unless it can change the rules to win,” says Iowa Republican Rep. Linda Upmeyer, a family nurse practitioner. Wisconsin Republican Rep. Leah Vukmir (a pediatric nurse practitioner) said, "Legislators don’t want a bloated federal healthcare insurance bureaucracy that duplicates the regulatory functions performed by states. And our constituents don’t want the feds to run healthcare care like a public utility." To contact Iowa Representative Linda Upmeyer, Wisconsin Representative Leah Vukmir, or Georgia Senator Judson Hill, call Jorge Amselle at 202-742-8536.

Grants Will Support Community Clinics
The administration released $851 million in grants to community healthcare centers. The money, which is made available by the American Recovery and Reinvestment Act, comes as more Americans join the ranks of the uninsured due to the economic downturn and skyrocketing healthcare costs.

The grants will support the construction, repair, and renovation of more than 1,500 healthcare center sites nationwide. More than 650 centers will use the funds to purchase new equipment or healthcare information technology (HIT) systems, and nearly 400 healthcare centers will adopt and expand the use of electronic healthcare records.

Community healthcare centers deliver preventive and primary care services at more than 7,500 service delivery sites around the country to patients regardless of their ability to pay. Charges for services are set according to income. Healthcare centers serve more than 17 million patients, about 40% of whom have no health insurance.
The Capitol Improvement grant awards are the third set of healthcare center grants through the Recovery Act. On March 2, President Obama announced grants worth $155 million to establish 126 new healthcare center sites. Those grants will provide access to essential preventive and primary healthcare care for more than 750,000 people in 39 states and two territories. On March 27, HHS also awarded $338 million in grants for healthcare centers. For more information, visit www.hhs.gov/recovery.

Health Insurers’ Medical Expense Trend Stabilized
Medical expenses among the health plans (on a per member per month basis) have escalated at nearly 8% a year for the past six years. Some may see a stable 7% to 8% growth rate as good, but it does not bode well for the overall cost of healthcare in the future, according to an analysis by Mark Farrah Associates.

Health insurance plans paid nearly $96 billion for fully insured (risk-based) medical expenses during the first quarter of 2009. During this period, 22 companies received a total of $74.6 billion in risk-based health insurance premiums. These plans incurred a total of $64.9 billion for medical expenses through the first quarter. The percentage of premiums spent on medical expenses ranged from 81% to 96%. In 2008, 88% percent of all fully insured health insurance premiums went toward medical expenses; as a percentage of revenue, that number is up 1% over 2007 and is a 3% increase over 2006. On a per member per month basis medical expenses have grown from $154.64 in 2002 to $238.67 in 2008. For more information, visit www.markfarrah.com.

NEW PRODUCTS
Portfolio Insight Tool
John Hancock is offering a Web-based tool called "Portfolio Insight." It allows financial advisers to create detailed analyses of client portfolios and prepare high-quality, customized reports quickly and efficiently. The result is a comprehensive, transparent view of a client's mutual fund holdings that can help build client confidence by advancing an understanding of their investments and asset allocation. "If there is one thing that we've learned from the events of the last 12 months, it's that portfolio transparency is more important than ever," said Keith F. Hartstein, President and CEO of John Hancock Funds. For more information, visit www.manulife.com.

Single Premium Annuity
Great American Life Insurance Company introduced “Safe Return,” a single premium fixed-indexed annuity product designed for those who want wealth protection and growth potential. It offers the security of a bailout cap and return of premium feature. For more information, visit www.GAFRI.com.

401(k) Proposal
John Hancock Retirement Plan Services introduced a streamlined 401(k) plan proposal. Financial advisors and plan consultants can highlight elements that are important to a plan sponsor while ensuring all important aspects of a 401(k) plan have been included in the solution. For more information, visit www.manulife.com.

FINANCIAL PLANNING
NAIFA Wants Insurance Products to Stay Out of Fed's Authority
Insurance products are heavily regulated at the state level and should not be placed under the authority of a federal Consumer Products Safety Commission, according to NAIFA president Cliff F. Wilson, CLU, ChFC, LUTCF, CLF who testified before the House Committee on Financial Services. The Obama Administration is calling for a new independent regulator to oversee financial products. The Committee considering whether insurance products should fall under the jurisdiction of such a regulator.
NAIFA says that insurance products should not fall under the proposed Consumer Product Safety Commission for the following reasons:
1. Insurance products are subject to comprehensive state regulatory oversight. Federal intervention is unnecessary and could lead to regulatory confusion.
2. It is dangerous to separate insurance product regulation from insurance solvency regulation.
3. Federal financial product oversight should be addressed only as part of a comprehensive review of insurance regulation.

Maryland Insurance Commissioner Ralph S. Tyler testified on behalf of the National Association of Insurance Commissioners (NAIC). He stressed that state insurance regulators have long been responsible for the safety and soundness of an insurer, how the insurer treats customers, and what protections are in place around complex products. "A new agency to regulate consumer protections in insurance is not necessary and would cause the kind of overlaps that lead to preemption of state laws and rules designed specifically to address the complexities of insurance," he said. Tyler noted that states have made numerous strides to enhance consumer protection, such as streamlining company and producer licensing, increasing consumer services and education, fighting fraud, and establishing the Interstate Insurance Product Regulation Compact for life and annuities products. He credited the high level of communication and coordination among the states in catching consumer abuses and minimizing redundancies. "Stripping this fundamental authority from the states, or bifurcating it with a federal entity that inevitably will cause conflicts, confusion, and down the road, preemption, will do nothing to solve the problems exposed by our financial crisis," Tyler said.

LIFE INSURANCE& ANNUITIES
Preconceived Notions Undermine Financial Goals
Preconceived notions about certain retirement income products or features can alter consumers’ choices, undermining their goals, according to a LIMRA study For example, 30% of consumers have a negative attitude towards annuities even through their most important goal is to have income payments last throughout their lifetime, which annuities are designed to provide.

Marie Rice, LIMRA’s director Retirement Research said, “Clearly, there is a need to continue to educate consumers on the retirement income products and features available. Many of the decisions that consumers are making about financial products do not align with their financial goals. What was most striking about the survey was that what consumers said was important in terms of their financial goals and how they behaved did not mesh. For example, at least three-quarters of consumers said that creating an income stream from their savings was important, yet only about 20% said they planned to use annuities as a source for retirement income.” CDs, stocks, money markets and mutual funds top the list of products owned by those surveyed. Almost 60% say their investment knowledge is sub par. More than 70% have consulted with an investment professional to help them make financial decisions. Only 28% of consumers have a formal written financial plan and 80% are not highly optimistic about their financial future.

By conducting a needs-based analysis to help their customers understand their options, financial professionals can show them how to choose the proper retirement income solutions that will meet their financial goals, she said. For more information, visit www.limra.com.

Carriers Raise Fees and Reduce Benefits on Variable Annuities
Symetra Life Insurance Companies reviewed industry variable annuities and found major changes to many of the most popular guaranteed living benefit riders offered within the products. The review included prospectuses active from May 1, 2008 to May 1, 2009 that include guaranteed living benefit riders for the 10 largest VA providers (as defined by 2008 total sales using non-qualified money).

There were widespread increases in the fees charged to customers, reductions in guarantees, and benefits offered under many riders. In some cases an entire guaranteed living benefit offering was eliminated. Nine of the 10 providers raised fees on multiple living benefit riders within their VA product suite over the 12-month period. Eight of the 10 carriers have discontinued at least one guaranteed living benefit rider from their VA lineup.
 
Pat McCormick, senior vice president for Sales and Distribution at Symetra said, "We are clearly witnessing a significant trend towards less flexibility and higher fees within some of the most common VA riders. VAs can and will continue to play a role in building retirement income as markets recover. That is why now, at such a critical juncture for our industry, it is so important to give customers a dependable selection of VA options and not surprise them with fees and features that change dramatically from one year to the next." For its part, Symetra has not reduced guaranteed benefits available from its Symetra Focus Variable Annuity income rider. The company also has made no changes to the way it charges fees on its rider, the Guaranteed Long Life Benefit. For more information, visit www.symetra.com.

Statutory Capital Declines for Most U.S. Life Insurers
U.S. life insurers experienced a significant deterioration in investment results in 2008, which hurt industry earnings and capital, according to a Fitch Ratings report. Statutory capital levels were volatile in 2008 for life insurers compared to expectations and prior years' experience. The average decline in reported statutory capital was 13% in 2008 for the 25 largest U.S. life insurance groups. Changes ranged from an increase of 11% to a decline of 52% for individual groups. This compares to an average annual increase of 6% over the previous five years and just a 1% decline during the last market and economic downturn of 2001 and 2002. For more information, visit www.fitchratings.com.

EMPLOYEE BENEFITS
Employees Value Benefits Over Cash
Even in this volatile economic environment, employees value their total benefit offering more than cash, according to an online survey by Sun Life Financial. Employees were asked to assume that they had all the medical insurance their family needed. They were asked to distribute 100 points across other benefits based on how much they value them. They could allocate from 0 to 100 points across seven benefits: 401(k)/retirement plans, dental insurance, vision insurance, long-term disability, short-term disability, long-term care insurance, and cash. They had to assign all 100 points.

"A majority of employees, regardless of their age, seemed to value benefits more than cash. The market environment may even be increasing employees’ appreciation of those benefits that help them protect their family’s financial security," said Michael E. Shunney of Sun Life Financial.

Only 33% of participants assigned a value greater than zero to cash. In fact, cash was the least utilized category. In contrast, over 70% allocated a value greater than 0 to each of the other six benefits. Nearly half said they valued a broad combination of benefits by allocating at least some of their points to six or more benefits. Employees ranked their dental insurance, 401(k)/retirement plans, vision insurance, and group life insurance as most valuable supplemental benefits. For more information, visit www.sunlife-usa.com.

IN CALIFORNIA
Insurance Commissioner Directs Insurers to Stop Investing in Iran
California Insurance Commissioner, Steve Poizner, is launching an effort to sever the investments ties that insurance companies have in Iran. He directed California-based insurance companies to divest any direct holdings in the Iranian government. Each insurer will have to report all investments they have with companies that do business with the defense, nuclear, petroleum, natural gas or banking sectors of the Iranian economy. The companies' reports will be due in approximately 90 days.
Insurance companies generally invest premium dollars until they are needed to pay claims. Insurance companies make up the largest investor group in the global economy, with an estimated $3 trillion to $4 trillion in investments. A preliminary CDI analysis reveals that insurance companies that conduct business in California have tens of billions of dollars of investments in companies with substantial business in Iran.

This action will join an existing array of global and local economic and trade sanctions already in place against Iran, including measures by Congress, the European Union, and the states of Missouri, Texas, and Florida. California has taken similar measures in the past by directing the state's two enormous public pension funds to divest Iranian investments. Los Angeles is home to the biggest Iranian community outside of Iran. With its increasing political clout, this community helped elect the first Iranian-born mayor of a U.S. city -- Jimmy Delshad -- Mayor of Beverly Hills. For more information, visit www.insurance.ca.gov.

California Budget Still in Limbo
At press time, the state has still not approved budget. The Senate passed a $23 billion package of tax increases, spending cuts and accounting maneuvers by a simple majority rather than the required two-thirds vote. The Assembly took a similar action. Democrats argued that the tax bills needed only a simple majority because they cut some taxes, while increasing others in equal amount and raised fees that don’t require the two-thirds approval requirement.

Governor Arnold Schwarzenegger vowed to veto the plan and Democrats don’t have enough votes to override. Healthcare workers and community activists gathered in front of the Governor Schwarzenegger San Francisco office yesterday to demand that he stop blocking a compromise budget package that meets his own test of "shared sacrifice." Several events took place simultaneously at the Governor's offices in Fresno, Sacramento, Riverside, Los Angeles and San Diego, building public pressure on Governor Schwarzenegger to support the budget plan passed in the Assembly Sunday and the Senate on Monday.

In a June 18 speech before citizens of the San Joaquin Valley, the Governor said
Californians overwhelmingly voted against ballot initiatives to raise taxes. “I think that they wanted to send to Sacramento a very clear message...don’t come to us with those complex issues, do the job yourself, live within your means, get rid of the waste and inefficiencies and don’t raise our taxes...So I have proposed the necessary cuts in three of the largest areas in the budget, which are education, prison and healthcare...I called for a special session in November, when we saw that the revenues were dropping very rapidly, that we needed to sit down again and talk about the budget. And again there was a delay of three months and because of that delay we lost another billion dollars. Now, you add that up, that is $1.5 billion… that was just wasted because the legislature didn’t act promptly and on time. And so this is $1.5 billion that could have been used for Healthy Family programs or for CalWORKs, Cal Grant, or any of the other programs that are so important...Rather than turning inward and looking at…what can we do to save money and to provide those programs more efficiently, they…looked at all of you and said, 'Let’s raise the taxes again.' Just four months ago, we had the biggest tax increase in the history of California of $12 billion, now they want to come back to you again and raise your taxes once again...I find it somewhat outrageous to go and to ask the people for a tax increase but at the same time to refuse a proposal…to cut the state employees’ pay by 5%...We have already put some proposals forward like…digital textbooks. By this fall we will have digital math and science textbooks that will save the schools money. Also, electronic court reporting is something that will save a lot of money to our state. Fraud in in-home supportive services -- there’s a tremendous amount of fraud there that if we weed that out that will save hundreds of millions of dollars to the state. Privatizing prisons will save billions of dollars. So there is money there where we can go if we reform the system we can deliver better service and also much cheaper, so we don’t have to go back and go and tax and increase the taxes. All of these reforms could save billions of dollars that could be invested, therefore, in health care, in Healthy Family and Cal Grants and so on. I’m also proposing once again, to eliminate and consolidate more than a dozen of the state departments, boards and commissions...I can guarantee you, I will not sign a budget, I will not go and take a dollar away from education or from healthcare or from public safety or state parks or anything like that, if we don’t first cut those boards and commissions...We have a bipartisan tax commission appointed that is going to study our tax system.

Enrollment Frozen for Healthy Families
Administrators voted to freeze enrollments in the state’s Healthy Families program, which provides subsidized health insurance for children. The Managed Risk Medical Insurance Board (MRMIB) explained that the 18-month budget enacted for January 2009 through June 2010 left a $14 million shortfall in the Healthy Families Program budget. The Governor and Legislature have proposed additional reduction in state Healthy Families funding. The executive director can rescind the implementation of the wait list if sufficient funding is found to cover the estimated costs of Health Families expenditures. For more information on future Board meetings and agendas, go to www.mrmib.ca.gov/MRMIB/Agenda.htm.