April 2010 California Broker

Table of Contents

Editor Column: Kate Kinkade

Selling Individual Disability Insurance With The Proper Contractual Wording And Options
by Art Fries
Comparing with what you now about disability selling to what you thought you knew in past years can be a wake-up call.

Identifying the Mysteries of PPOs: Part II of Our Annual Survey
A Fearless Look Inside the Workings of the State’s Best Plans

The second of two parts of the annual PPO survey gives vital information to brokers.

Don’t Let the New Regulations Snake Bite Your Clients
The COBRA Subsidy: Big Changes, Big Dollars

by Michael Close
You can strengthen your relationship with your clients and solidify your position as a trusted advisor by helping your clients understand the changes to COBRA and find a solution that allows them to reduce their costs while concentrating on what they do best.

COBRA News
Read how recent changes in the COBRA law will affect the way employers manage payroll and COBRA benefits as well as the latest trends in the COBRA market

Conference Highlights: Why Vision Plans are More Relevant Than Ever
by Leila Morris
For the second year the Annual Transitions Academy featured a full-day managed care vision care track. The event, sponsored by Transitions Optical, drew more than 100 vision plan providers and brokers in January to the Disney resort in Orlando.

Survive & Thrive: Opportunities for Brokers in a Challenging Healthcare Market
by Paul Markovich
Revise your thinking and your business plan, update your training in emerging products, and embrace the challenges and opportunities presented by this brave new world of evolving health products and services.

Financial Planning
401(k)s: The Retirement Income Opportunity

by John L. Carter
As life expectancies continue to rise, many people are likely to spend as many years in retirement as they did in the workplace. So now investment professionals are faced with the difficult challenge of helping workers ensure that their retirement savings will last for 20 or even 30 years.

View From the Top
The Life Settlement Mar
ket Begins to Pick Up

by Leila Morris
The pulse of the life settlement industry and its future from executives on the font lines.

Will Agents Still Be Needed?

By Kate Kinkade, CLU, ChFC

At this writing, one of the largest and most respected life insuranance companies, Hartford Life, is in relatively public discussions to be acquired by Sun Life. We are all well aware of the parent company’s financial struggles, and the obvious (partial) solution of selling off their life company. This sale may not come through, and other players may be involved by the time this is published, but at this point it is likely there will be a major change with the carrier.

Hartford has one of the most mature and successful sales forces in the industry. It has been built and developed over 20 years and has a significant presence in the brokerage and financial services industries.

These professionals are real competition to many brokers and carriers. Yet, those of us who have competed with them over this time can take no joy in what our fellow insurance professionals are experiencing. Many have been with the company for years; it is their home, where they have placed their faith and their careers.

For the past few months they have probably been very challenged to sell their products due to the focus on the troubles of the parent company, but most have stayed the course. Now their company is up for sale. The obvious question is whether any buyer retains the sales force. One would hope that any buyer understands the value of a developed, professional field force; there are almost none left. Let’s hope that these career professionals will find as good a home with their new company as they have had for the past decade or more.

Several other carriers have decided that their distribution system is an expendable cost in this market. If Hartford is added to those rolls it will change our industry in some way. When Mutual Benefit went into receivership 20 years ago, it had a dedicated sales force that was taken by surprise by the crisis. They felt betrayed by the company and many became independent brokers as a result. I would argue that event was the beginning of the real demise of the career agency system. The snowball started there; carriers started to price products that couldn’t be sustained along with the cost of a career sales force and then started to compete for new business through increased brokerage compensation.

While the Hartford force is not a retail career sales force, it is one of the last large carrier distribution systems. If that changes, the industry will feel it somehow. That transition may be good for us overall, or it may not, but it will be yet another change at a time when we are facing quite a few of them. Our news column this month includes an article about A.M. Best’s evaluation that we have just experienced one of the worst years in memory for life insurance operating performance. This will pass; a year from now, the outlook for life insurance will be positive again as the financial products underlying the problem begin to recover. It’s only a year in a long history of a stable industry. The one constant is that the purchase of insurance requires professional advice. So, no matter how distribution changes due to the current “crisis” at the end of it, insurance agents will be needed to get the industry growing and healthy again.

Selling Individual Disability With the Proper Contractual Wording And Options

by Art Fries

It can be a wake-up call to compare what you know about disability selling to what you thought you knew in past years. I sold individual disability insurance (non-can) successfully to attorneys for many years. I thought I understood policy provisions better than most. It wasn’t until I began giving advice to disability claimants, some 13 years ago and during the ensuing years, that I really could say I got it.
I have given advice on more than 600 disability claims; I’ve done thousands of policy audits; and I’ve secured more than $1 billion current and future benefits on behalf of disability claimants. I see which policy benefits are truly important. I also see which options are cost effective for your client to include in their policies. This article will discuss various policy wording scenarios and worthwhile options that broaden the coverage in disability contracts when available:

1) “Non-Can” – It provides guaranteed cost until 65 in addition to guaranteed wording and renewability. You can never be criticized for providing too many guarantees. Existing clients with non-can contracts can really appreciate what they thought were higher premiums, at the time, since value can never be underestimated. These higher premiums didn’t look so high as claim experience worsened in the industry.
2) Benefit Period – Offer the longest benefit period available. Lifetime payout is just about gone from the marketplace. But it should still be a priority in selecting a carrier. The additional premium will be insignificant considering the additional number of years that benefits will be paid. The next consideration is a benefit period to age 65 or age 67.
3) Definition of Disability – This is the most important priority. The ideal is being unable to perform the substantial and material duties of your occupation for the entire payout period. California court precedent includes additional wording “in the usual and customary way with the same degree of continuity.” A change in wording after two years is very restrictive and allows the insurance company to re-visit the claim with the opportunity to terminate.

For many professionals and others, a “to age 65” payout with a two-year “your occupation” definition is simply a two-year payout. Additional wording, such as “and not working in another occupation,” at least gives the client a choice to work or not. But it can also be quite limiting, especially for a person who cannot work at their occupation but can work and earn significant income in another occupation. An example is a dentist or surgeon with the “essential tremor” whose hands shake and whose condition is worsened by stress. This professional can often still work in any number of occupations, but not in their specialty. If you have an agency relationship with your company, but you also broker business with other companies, I suggest that you provide the broadest contract in terms of wording and provisions/options.

Don’t offer an inferior contract when broader contracts are available in the marketplace. Doing so can be the basis for a malpractice claim against you for improper advice. The risk can be higher if you hold yourself out as a financial planner. Any work in another occupation will be the basis of the claim being terminated if additional wording that states “and not working in another occupation” and you do not have residual (partial) coverage. If you have this coverage, it will probably become a partial claim if you have a typical 20% loss of earnings in the new occupation compared to the prior occupation. But that’s not a 100% certainty. You will have to check with the insurance carrier to get an opinion on how they would handle that scenario.
4) It seems that all carriers now have a fraud clause. The two-year incontestability clause becomes worthless since the insurance company can deny benefits or rescind the contract even if the claim occurs 25 years after the contract was written. Some states might put a waiver on a condition that still concerns them and consider the claim if it is not related to that condition. Other states will not put on a waiver and deny/rescind even if the claim has nothing to do with the pre-existing condition. This means that you have to ask all the questions on the application with a key emphasis on medical questions (Part II). Even if your client is to be examined, ask all the medical questions and carefully record the answers with complete facts. Don’t be afraid to dig deep here since a less-than-complete application can come back to bite you.
5) Guaranteed Insurability Option (FIO/GPIO) – Always add this option if it is available to the client. It enables them to purchase more insurance regardless of their future health. The larger the monthly benefit, the better it is. Only earnings will determine how much the client can buy. Define earnings when you ask about salary or draw, bonus, pension/profit sharing/SEP IRA, etc. For salespeople such as you, it would be commissions, but could also include fees.
6) Waiting Period (Deductible) – Most companies now write a 90-day wait or longer. Ninety days is cost effective in today’s premium environment. Anything longer is a bad buy. I’ve seen some contracts with a one-year waiting period. Even if you have salary continuation for one year, there is no justification because you give up too much in the way of benefits for little in premium savings.
7) Automatic Increases – If these are available, always include them. No evidence of future medical or financial evidence is required during the increase period. Some contracts require you to re-qualify (medical and financial) every five years.
8) Residual (Partial) Disability – Include it in most cases when you have a choice. Don’t include it if the client’s occupation or profession can’t be handled on a part-time basis. Partial disability would be a necessity for a dentist. Make sure the contract does not have a limitation that states that you must be totally disabled to collect on a partial claim. Some companies call this a “qualification period.” Always request that this period be zero even if you have to pay an additional premium, which is very low. You will be a target for a malpractice claim if you don’t understand the importance of this clause in the contract.
9) COLA – Always include it if it’s available. There is a one-year waiting period before benefits are paid. The monthly increase can be as low as the consumer price index (CPI ) without any maximum or minimum. It could have a minimum of 3% or 4% with a maximum of 4%, 5%, 6%, or 8%. The increase could be simple interest or compound interest. It could also take into account the CPI or not be tied to the CPI. If various COLAs are available, check out the costs to see which is the most cost effective. Some of the older contracts with an 8% minimum compound interest (not related to the CPI) and a payout for life with a “your occupation” definition provide absolutely outstanding future potential payout figures. The carriers often priced them too low. It appears that those days are gone and rightfully so. The COLA benefit levels off at age 65 in almost all contracts if benefits are payable for life. But I’ve seen an exception with COLA increasing beyond age 65 on rare occasions.
10) Social Security (State Disability or Workers’ Compensation) option – It provides an additional benefit if none of the above benefits is paid in the event that you don’t have these benefits or do not qualify for them. This is an excellent way to secure additional monthly benefits if income prevents your client from purchasing as much disability as they need. But don’t buy $9,000 month base coverage plus $1,000 month Social Security option just to save a few bucks. Purchasing a $10,000 a month base plan is a better way to go based on issue and participation limits if it’s available.
Always give your client a proposal that includes all of the options available for which an additional premium is required. Provide a “your occupation” definition for the longest period. If you can provide a lifetime benefit, consider the fact that one company provides a lifetime benefit in certain classes and in certain states if the insured is sick or before age 45. There is a sliding scale downward from age 65 and thereafter depending on when the disability started (between age 46 and 64). The next choice is a benefit paid to age 65 or age 67. Don’t eliminate any benefit unless your client demands it and then cover yourself in writing with a letter to the client or have them sign a statement related to the options they are not accepting.

Art Fries is a disability claim consultant who provides advice on a national basis. He is located in Newport Beach, Calif. and can be reached at 800-567-1911 or friesart@hotmail.com. His Website address is www.afries.com.
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Identifying the Mysteries Of Our Annual Survey: Part II
A Fearless Look Inside the Workings of the State’s Best Plans

Welcome to Part II of our ninth annual PPO survey. For this survey, eight PPOs in California diligently answered direct questions about their plans. Our readers, who are savvy health brokers, suggested many of the questions. We hope this information will help the professional agent or broker better serve sophisticated healthcare clients. We offer a special thanks to the insurance carriers that took the time to answer our lengthy questionnaire. We interpret their careful responses as a sure sign of their high level of commitment to the professional agent. Go to www.calbrokermag.com to see both parts of the survey.

8. Which Requested Procedures are Denied Most Frequently on the Basis of “Experimental/Investigative” or “Not Medically Necessary” Exclusions?

Aetna: We seek to minimize the number of claims denied based on medical necessity through our extensive patient management program, which includes features such as pre-certification, concurrent review and close communication between our staff and attending physicians.
Blue Cross: It varies greatly. Each request is reviewed on a case-by-case basis to determine medical necessity based on the latest medical standards. Things that might influence it would be the season, numbers of requests for certain treatment, say during flu season, or the age of the member for a certain procedure.
Blue Shield: Each request is reviewed on an individual basis to determine medical necessity. We do not have statistics on which procedures are denied most frequently.
Cigna: CIGNA has a comprehensive policy for ensuring the efficacy of the latest medical treatments. We have an extensive process that includes review of outside, professional literature and input from physicians to determine the safety and efficacy of procedures and interventions. We work closely with members and physicians to help determine treatment protocols that ensure appropriate and quality care while reducing the number of denials.
Guardian: This information is unavailable at this time.
Health Net: N/A.
Kaiser Permanente: Requests are received on a case-by-case basis.
UnitedHealthcare: UnitedHealthcare does not deny procedures on the basis of medical necessity and our benefit plans do not contain medical necessity exclusions. We believe that healthcare consumers and their doctors are best qualified to make decisions about healthcare. Denials on the basis of “experimental or investigative” are very rare. If an individual has a life-threatening sickness or condition (one that is likely to cause death within one year of the request for treatment), we may determine that an experimental, investigational, or unproven service meets the definition of a covered health service for the sickness or condition. This determination is based on whether we find the procedure or treatment to be promising and that we find that the service uses research protocol that meets standards equivalent to those defined by the National Institutes of Health.

9. Do you Capitate PPO Providers? If Not, How are they compensated?

Aetna: No, physicians are paid based on a negotiated fee schedule, which compensates physicians at the lesser of their usual charge or the negotiated fee. Each of our networks has a unique fee structure. We incorporate the federal government’s RBRVS methodology for procedure-related services while allowing for local differences for office and hospital visit services.
Blue Cross: No, Payment is determined by applying available member benefits to a pre-determined fee schedule.
Blue Shield: No, PPO contracted providers (physicians including ancillary providers) have agreed to accept Blue Shield’s allowances as payment in full, which are valued-based and reviewed annually.
Cigna: No, we reimburse physicians on a maximum allowable fee schedule or a discounted fee-for-service arrangement.
Guardian: We do not capitate PPO Providers. Compensation is based on fee-for-service.
Health Net: PPO physicians are typically reimbursed at a discounted-contract-fee schedule.
Kaiser Permanente: No, our PPO providers are part of the Private Healthcare Systems (PHCS) Network. PHCS Network contracts with the providers to negotiate a lower rate for services rendered. Providers are paid based on claims submitted for covered services.
UnitedHealthcare: The majority of physicians in our networks are reimbursed according to a Maximum Allowable Fee Schedule based on the Resource Based Relative Value Scale Fee Schedule (RBRVS). Our fee schedule is established by applying a conversion factor to RBRVS values. The conversion factor is based on competitive market conditions, medical expense expectations, and physician acceptance. The advantage of this funding arrangement is that we reimburse physicians only for services rendered based on time and intensity with adjustments for geographical differences. For some high-cost specialists, we employ prepayment (capitation). This ensures that we are able to manage expenses for high-cost services to a planned target.

10. What Happens When a Member Provider Bills a Participant Inappropriately for Services?

Aetna: Balance billing of the patient is not permitted. The provider-relations staff monitors compliance and educates providers. A provider who is found to have inappropriate balance billing may have their contract terminated in some cases.
Blue Cross: Customer service works with the member and provider to resolve billing issues. Dispute-resolution procedures are available to members and providers.
Blue Shield: Network providers are prohibited from balance billing patients. When a participant is billed inappropriately for services, Blue Shield customer service representatives can usually resolve it by contacting the provider’s office to clarify the member’s benefit and the Blue Shield reimbursement schedule.
Cigna: Our contracts prohibit balance billing by physicians. The member should contact the health plan about the issue. The plan will investigate.
Guardian: The member is not responsible for the charges. The network is notified so that they may educate the provider.
Health Net: Health Net will intervene on the member’s behalf by working directly with the provider’s office.
Kaiser Permanente: In the unfortunate event that a provider bills an insured inappropriately, the insured should contact the KPIC customer service line at 800-788-0710. If the issue requires any type of special handling, KPIC operations staff will intervene and assist in reconciling the claim.
UnitedHealthcare: Our physician and other healthcare professional contracts preclude physicians and other healthcare professionals from balance billing enrollees. The contracts also address how physicians and other healthcare professionals must submit claims. We take appropriate action if network physicians or other healthcare professionals attempt to balance bill enrollees or to bill enrollees for covered services in breach of their contract requirements. We protect our customers from claims liability by fulfilling all state mandates concerning participation in guaranty associations, maintaining state contingency reserve requirements or obtaining reinsurance agreements. Our standard hospital contracts also contain provisions to protect individuals receiving health services from balance billing when an insurer becomes insolvent. If a network physician or other healthcare professional becomes insolvent or otherwise unable to continue to render healthcare services to individuals, we help reassign individuals enrolled in our plans to other physicians.

11. Do You Have a Registered Nurse on Call 24 Hours a Day for Questions at the Plan Level and the PPO Level?

Aetna: Yes, nurses provide information on a broad spectrum of health issues virtually 24 hours a day, seven days a week. They also provide ongoing follow-up information as needed and perform customized research when appropriate. Standard service is included in the full-risk, prospectively rated PPO plan. The informed Health Line may be purchased as an additional service for self-funded or retrospectively rated PPO plans with 1,000 or more total enrolled employees. The minimum group size can be a mix of active employees and retirees (for example, 800 active and 200 retirees).
Blue Cross: Yes, most PPO members have access to professional, reliable healthcare information toll-free, 24 hours a day, seven days a week. Registered nurses answer questions and help with decisions. Members also have access to educational audiotapes on more than 200 health topics.
Blue Shield: Yes, Blue Shield’s NurseHelp 24/7 is a service for all of our fully insured groups in California and available as a buy-up for self-insured groups. It provides a nurse-line, which is staffed 24 hours a day, seven days a week with registered nurses and master’s-level counselors. Any member of a fully insured Blue Shield health plan in California can take advantage of this service at no extra charge.
Cigna: Yes.
Guardian: Yes, this is provided through our 24/7 Nurse Advise line.
Health Net: Yes, health coaches, provided through Decision Power, are specially trained health professionals, such as nurses, respiratory therapists, pharmacists and dietitians with an average of 15 years of experience in their field. They are available 24 hours a day, 7 days a week to answer questions and address any members’ concerns. A Health Coach gives support and guidance when a member is facing important health decisions and will provide members with the most recent evidence-based information. All Health Net’s members receive Decision Power as part of their benefit offering. The Health Coaches are easily accessible through a toll-free telephone number or at www.healthnet.com.
Kaiser Permanente: The insured have access to Kaiser Permanente Healthy Solutions, which will give them access to a personal health coach, online health and wellness programs and information, and the Kaiser Permanente Healthwise® Handbook online.
UnitedHealthcare: Optum, the UnitedHealth Group care management company, provides toll-free, 24-hour, 365-day access to the “NurseLine.” Experienced registered nurses discuss treatment options and help individuals get the appropriate level of care. NurseLine gives individuals information that helps them make educated decisions about their personal health and use of medical resources. Some services must be purchased as a buy-up based on the funding arrangement of the plan.

12. What is the Plan or PPO Doing to Have Online Systems for Eligibility, Administrative Changes, Referrals, Etc.?

Aetna: EZLink streamlines several benefits and HR functions. It links to our enrollment and billing systems and provides real-time eligibility; online enrollment, account maintenance, on-line billing, and electronic-funds transfer for payment.
Blue Cross: Our Website offers online services to providers and members for eligibility, claim status, and benefit inquiries. Other features include a provider finder and a wide variety of Web and organizational resources.
Blue Shield: Our website has a password-protected section with personalized health plan account information. Members view detailed benefit information and find customer service phone numbers and addresses. Via e-mail, they can reach customer service, submit changes to account information, and request a new personal physician. Blue Shield can offer online enrollment to all our employer groups through our partnership with leading on-line vendors. This partnership gives benefit administrators direct access to the eligibility system as set up by the vendor. They can conduct eligibility tasks, such as employee eligibility tracking; plan enrollment, open enrollment and life event enrollment transactions. Additionally, as an outside vendor, they can incorporate benefit design from more than one carrier, providing employer groups with a single online enrollment service.
Cigna: The CIGNA for Health Care Professionals website (www.cignaforhcp.com) offers secure and easy access to real-time transactions such as pre-certification, claim status and eligibility and benefits. Information on CIGNA policies and procedures is also available.
In addition, CIGNA has enhanced the myCIGNA.com portal, which enables members to personalize their site for their individual use. Information includes the ability to review hospital and provider quality data, gather specific disease information, track claims and explore drug alternatives that might be a cost savings.
Guardian: Guardian has an online Web tool available for plan members, benefit administrators, providers, and brokers that is available 24 hours a day to assist in benefits look-ups, administration, and eligibility. Guardian also has an online provider search tool available 24 hours a day that allows members to do the following:
• Customize their search by specialty, languages spoken, gender and more.
• Get side-by-side comparisons of provider information (ie. office status, distance).
• Create a short-list of “favorite” providers — for quick reference online.
• Search for a healthcare provider based on a medical condition.
• Get maps and directions to a provider’s office location.
• View their results online or have them faxed or emailed to them.
• Save their search criteria for easy access when revisiting the Provider Online Search.
• Create a customized provider directory.
• Nominate a provider to be included in a network.
Health Net: Health Net’s website, www.healthnet.com, is a secure website, which requires a personalized identification number (PIN). Members, employers, providers, and brokers can perform a wide range of online administrative functions. Members in an active or COBRA program can view or modify their enrollment information. Providers can verify eligibility, find specialists for referrals, and submit and check claims status. Health Net eServices for members, brokers, and employers offers 24-hour online account access to process enrollment and maintain members’ eligibility; users can also view, print and pay billing. Enhancements for both sites are ongoing.
Kaiser Permanente: Kaiser Permanente offers online billing and administration functions to its employer groups through a system called Online Account Services—
kp.org/accountservicestour.
UnitedHealthcare: Members, physician, and employers have access to their data and the capability to communicate directly with us online.
Our consumer Internet solution – myuhc.com – allows people to do the following:
• Choose a plan.
• Locate network professionals.
• Access claims history and explanations of benefits (EOBs).
• Complete a health assessment and develop an action plan.
• Order ID cards and print temporary ones.
• Communicate with a nurse.
• Compare hospitals.
Healthcare professionals can do the following:
• Verify patient eligibility, applicable co-payment amounts, and YTD and out-of-pocket accumulators.
• Search the notification database and complete multiple notifications in one session
• Submit claims.
• Receive payment statements and reimbursement.
• Perform online reconciliation and electronic funds transfer.
• Submit credentialing data online.
Complete online CE programs. The following features are available through Employer eServices:
• Receive Web-based eligibility management.
• Get simplified invoices, real-time calculations, and downloadable data.
• Do Customer reporting
• Get Claim status information.

13. What is the Relationship of your HMO Provider Network (if you have one) to Your PPO Provider Network? Do HMO Providers Have to Participate in the PPO Network? How big is your PPO Network compared to your HMO Network?

Aetna: Standard provider contract provisions generally apply to all of our plans and products that the provider participates in. However, it is not mandatory for a provider to participate in all products.
Blue Cross: All of our California networks are proprietary, whether they are PPO/HMO/EPO etc. A provider may participate in one or more of our plan products, but it is not mandatory for a provider to participate in all products. Our physician network has more than 50,000 members.
Blue Shield: Blue Shield of California’s HMO and PPO networks are separate. The HMO network is capitated based on medical group and IPA contracts throughout the state with some directly contracted networks in specific geographies. With the PPO, there are valued-based allowances and contracts with individual physicians and medical groups. HMO providers do not have to participate in our PPO network, though many of them do. According to our most recent totals, Blue Shield of California’s PPO network has 65,698 physicians (defined by access points) and 355 hospitals. Our HMO network has 33,729 physicians (defined by access points) and 291 hospitals.
Cigna: Cigna does not require PPO network physicians to participate in the HMO (or vice versa). The HMO network is contracted with CIGNA HealthCare of California, Inc. Whereas the PPO network is contracted with Connecticut General Life Insurance Company, a CIGNA company. While there is considerable overlap, we have many physicians just in one network (e.g. PPO only). In California, our HMO network is 80% of the size of our PPO Network
Guardian: Guardian does not offer HMO Medical insurance.
Health Net: Health Net of California has taken a multiproduct approach in contracting with providers, with 65% of Health Net’s PPO network practitioners also participating in the HMO network. While HMO providers do not have to participate in Health Net’s PPO network, 88% of them do so. Health Net of California’s HMO network includes 41,000 practitioners in the 30-county HMO service area and the PPO network includes 56,000 practitioners statewide.
Kaiser Permanente: Our PPO and HMO networks are not affiliated. For our PPO, KPIC contracts with PHCS Network to provide access to providers and facilities nationwide. They currently have more than 450,000 providers and 4,200 acute care facilities nationally and more than 65,000 providers in California. Our HMO offers more than 8,000 providers and 160 facilities in California.
UnitedHealthcare: UnitedHealthcare’s network includes 570,000 physicians and healthcare professionals and 4,800 hospitals nationwide. In general, UnitedHealthcare’s contracts apply to all of our commercial products ensuring that employees have a consistent experience throughout the country. Providers are not required to participate in all our products, but the majority of them do. The UnitedHealthcare Select or Choice HMO networks apply locally and are subject to state laws.

Don’t Let the New Regul ations Snake Bite Your Clients
The COBRA Subsidy: Big Changes, Big Dollars

By Michael Close

The American Recovery and Reinvestment Act was signed into law by President Barack Obama on February 17, 2009. While the Act is generally an economic stimulus bill designed to address the current economic crisis, the bill includes significant changes to COBRA. Employers must comply with these new requirements immediately and they will most likely look to you, their broker, for guidance.

COBRA in General
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) amends sections of the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act (PHSA). COBRA requires group health plans to offer certain individuals (known as “qualified beneficiaries”), who would otherwise lose their group health plan coverage as a result of a specific qualifying event, the opportunity to continue their group health plan coverage for a specified period of time at applicable group rates. In a typical -COBRA continuation coverage scenario, the individual receiving COBRA coverage is responsible for paying the full amount for the coverage.

The Biggest Change
The Act provides for a federal subsidy of 65% of the COBRA continuation coverage premiums for assistance eligible individuals (AEI). Under the Act, an AEI is any qualified beneficiary who elects COBRA continuation coverage and is eligible for that coverage by virtue of the covered employee’s involuntary termination of employment (for reasons other than gross misconduct) occurring between September 1, 2008 and December 31, 2009.

Assistance eligible individuals are entitled to receive the subsidy for up to nine months. However, if AEIs become eligible for other group health coverage or Medicare, or reach the end of their maximum COBRA coverage period, their entitlement to the subsidy ends.

AEIs who become eligible for other group health coverage or Medicare must provide written notice that they no longer qualify for the COBRA subsidy. Failure to do so is punishable by a penalty equal to 110% of the subsidy received after becoming eligible for other coverage.

The subsidy available under the Act applies to all COBRA-eligible group health plans (medical, dental, vision, etc.) sponsored by an employer with the exception of health flexible spending accounts offered under a cafeteria plan.

Another Significant Change
Under the Act, qualified beneficiaries who experienced an involuntary termination of employment between September 1, 2008 and February 16, 2009 and did not elect COBRA coverage during their initial 60-day election period must be provided another opportunity to elect COBRA coverage. This special election period also applies to those individuals who experienced an involuntary termination of employment between September 1, 2008 and February 16, 2009 and elected COBRA coverage but subsequently lost that coverage prior to the enactment date (for example, because of non-payment of premiums). This special election period provides these individuals with a 60-day election period that begins on the date the notification is provided (in other words, the date the employer or administrator mails the notice).

If qualified beneficiaries, as described in the preceding paragraph, elect COBRA continuation coverage, their coverage commences with the first period of coverage following February 17, 2009 (the enactment date). The Act defines a period of coverage as a “monthly or shorter period of coverage with respect to which premiums are charged.” For plans that charge for COBRA coverage on a calendar month basis, this date is March 1, 2009. For plans that bill for partial month premiums, this date is February 17, 2009.

Under the Act, coverage elected under the special election period does not extend back to the date of the qualifying event or the date when previous coverage was lost. This means there will be a gap in coverage for these individuals. However, this gap in coverage is not considered a break in coverage for purposes of HIPAA’s creditable coverage rules.

How the Subsidy Works
The COBRA subsidy is 65% of the amount owed by the AEI. While the participant is responsible for paying the remaining 35%, the 65% subsidy must first be paid by the employer, plan, or insurer and will then be subsequently reimbursed by the government through a reduction in payroll taxes.

The person to whom premiums for continuation coverage are paid will be reimbursed by the federal government for the amount of eligible premiums not paid by AEIs. (The Act uses “person” instead of “entity” or some other term.)
Under the Act, the “person entitled to reimbursement” is the “person to whom premiums are payable under COBRA continuation coverage.” It breaks down like this:
• For any group health plan that is a multiemployer plan, it is the plan.
• For any group health plan that is not a multiemployer plan and is subject to federal continuation coverage requirements or is either wholly or partially self-insured, it is the employer.
• For any group health plan not described above, it is the insurer.
Any reimbursements owed by the government will be paid to the eligible person via a reduction in the payroll taxes owed to the federal government by the eligible person. If this payment is greater than the person’s liability for such taxes, the government shall credit or refund the excess.

New Notice Requirements
The Act requires employers to modify their COBRA election notices or provide separate, supplemental notices to all individuals who become entitled to elect COBRA continuation coverage during the period beginning on September 1, 2008 and ending on December 31, 2009. These notices must include all of the following:
• The forms necessary for establishing eligibility for the subsidy.
• The name, address, and phone number of the plan administrator and any other person maintaining relevant information in connection with the subsidy.
• A description of the extended election period (the second 60-day election period).
• A description of the qualified beneficiary’s obligation to notify the plan if he or she becomes eligible for coverage under another group health plan or Medicare and the penalty for failure to notify the plan.
• A description, displayed in a “prominent manner,” of the qualified beneficiary’s right to a reduced premium and any conditions on entitlement to the reduced premium.
• A description of the election of different coverage option described above (if the employer chooses to offer this option to AEIs).

Those COBRA qualified beneficiaries who were terminated involuntarily between September 1, 2008 and February 16, 2009, must be issued a revised notice including the information outlined above within 60 days of the enactment date. These notices must also describe the second 60-day COBRA election period and explicitly state that the maximum COBRA coverage period is still measured from the date of the original qualifying event. Failure to provide this notice could result in significant fines and penalties.

State Continuation Programs
For purposes of the Act, COBRA continuation coverage includes continuation coverage provided under federal guidelines “or under a state program that provides comparable continuation coverage.” The Department of Labor clarified that, while the subsidy provisions of the Act apply to state continuation programs, the second election period is not mandatory for state continuation programs. However, states may choose to allow the second election period. As a broker, it is critical that you determine the status of this provision for each state in which you do business so you can advise your clients accordingly.

Big Dollars
While it is estimated that the Act will cost the federal government nearly $25 billion, there is no accurate way to predict the cost to employers. A 2007 survey, conducted by Charles D. Spencer and Associates, showed that increased claims costs associated with COBRA participants can result in an increase in costs as high as 45% when compared to the cost for active employees.

With election rates expected to rise significantly under the Act, COBRA claims liability has the potential to increase significantly. Often referred to as the “hidden cost” of COBRA administration, this unexpected increase in claims experience can have a significant impact on an employer’s efforts to control costs.

In addition to increased claims costs, employers also incur administrative costs attributable directly to COBRA administration. These costs derive from the employer’s requirements under COBRA, including preparing and distributing notices, collecting premiums, and maintaining compliance with COBRA’s complex rules and regulations. With more individuals than ever expected to elect to continue coverage under COBRA, it is easy to envision these administrative expenses adding up to a significant expense for employers.

The Advantages of Outsourcing
Even under normal circumstances, many employers simply do not have the resources to dedicate to administering their COBRA obligations accurately, efficiently, and effectively. With the significant changes introduced by the Act and the limited time in which to implement the changes, many employers will struggle to meet their obligations.

By partnering with the right COBRA administration vendor, an employer can shift much of the administrative burden and expense associated with COBRA administration, freeing the employer to concentrate on more pressing matters.

Although there are costs associated with outsourcing COBRA administration duties, the right COBRA administration partner can actually save the employer money. For many employers, the difference in cost between outsourcing these duties and performing these duties internally represents an immediate cost savings. When the administrative savings are coupled with the claims cost savings, outsourcing COBRA administration can prove to be a significant cost savings measure for any employer.
The key to outsourcing COBRA administration is to find the right outsourcing partner. When evaluating an outsourcing partner, an employer should consider several key issues, including the following:
• The experience of the administrator.
• The administrator’s ability to comply with the requirements of the Act.
• Contractual indemnification provided by the administrator, protecting the employer from financial penalties for errors committed by the administrator.
• Participation by the administrator in regular audits of the administrator’s systems, controls, and procedures by an independent auditing firm.
• A proven record of adhering to all applicable rules and providing compassionate service to the employer’s COBRA participants.
• Performance standards and guarantees, providing assurance and financial guarantees that the administrator will meet established service standards.

The Role of a Broker
Although COBRA is an employer law, employers look to their broker for guidance regarding their benefits offerings, including COBRA administration. Undoubtedly, your employer clients will look to you for assistance in complying with the new COBRA requirements introduced by the Act. It is critical that you are familiar with all aspects of the Act, including those items not covered in this article (for example, income limitations, different coverage options, pre-existing employer subsidies of COBRA premiums, etc.).

By assisting your clients in understanding the changes to COBRA and helping them find a solution that allows them to reduce their costs while concentrating on what they do best, you can strengthen your relationship with your clients and solidify your position as a trusted advisor.

Michael Close is president of CONEXIS, one of the nation’s largest administrators of employee benefits administration outsourcing for COBRA, FSA, and Direct Bill Services. Under Close’s leadership, CONEXIS, a division of The Word & Brown Companies, became the first and only company to offer extensive performance standards and guarantees to all clients in 2004. Close has a bachelor’s degree in marketing from Ohio State University and more than 20 years of executive experience in managed health care and employee benefits administration. He is also an active member of the National Association of Health Underwriters (NAHU).
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COBRA Changes Are Still in the Making

Recent changes in the COBRA law will affect the way employers manage payroll and COBRA benefits,” said Keith Strodtman, senior vice president and general manager, Ceridian HRO and Product Management. In the coming days IRS and related agencies will be spending considerable time drafting, finalizing, and publishing the regulations and related documentation and forms required to support these changes.
President Obama signed the legislation on Tuesday, February 17, 2009. While the American Recovery and Reinvestment Act of 2009 will take affect on March 1, 2009, federal agencies required to write the new rules and regulations will have a reasonable time to implement the significant new changes.
Some of the Act’s changes include the following:
• Making Work Pay tax credit — The maximum annual Making Work Pay tax credit is $400 for single filers, $800 for married couples filing jointly. This table assumes that the employee claims Single, with 1 allowance, on Form W-4 and the credit is implemented effective May 1, 2009.

The following chart lists the estimated increase per weekly paycheck at the following annual salaries or weekly wages:
$20,000 $384 $11.60
$50,000 $961 $11.60
$85,000 $1,634 $8.40
$100,000 $1,923 No change
The calculations are fairly straightforward for single employees with only one employer. But the IRS needs to provide further clarification about applying the credit when an employee works for more than one employer or for married couples filing jointly with only one household income.

A key change to COBRA includes a maximum nine-month, 65% subsidy for eligible individual COBRA premiums. The subsidy is available to those terminated involuntarily from their jobs from September 1, 2008 through December 31, 2009. Guidance on all COBRA changes is expected within 30 days of enactment from the Department of Labor and the IRS. For more information, visit www.ceridian.com.
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COBRA Subsidy Calculator
EHealthInsurance is offering a COBRA subsidy calculator at COBRALearning.com. Consumers input the total cost of their COBRA premiums and calculate their out-of-pocket costs for COBRA after they receive their 65% subsidy. Consumers can input basic information (gender, date of birth, zip code) to view anonymous quotes on private health insurance alternatives to COBRA. The website provides scenarios of when COBRA or individual health insurance would be the best option for a consumer:
Customer A — COBRA is the best option. The single 45-year old to 55-year old diabetic man lives in New York: It’s extremely difficult to qualify for individual health insurance if you have a pre-existing health condition like diabetes. New York is a “guaranteed issue” state, which means you can’t be denied coverage due to a pre-existing health condition. However, any individual policy you purchase in a guaranteed issue state would have costs comparable to what you would get with COBRA and there are no subsidies available for individual market policies.
Customer B — Getting COBRA for herself and individual policies for her husband and children is the best option for this 35-year-old to 45-year-old married woman with three kids. The policyholder takes medication for mild anxiety and depression. Her spouse and children are healthy. They live in Texas. Getting a COBRA policy for her entire family may average $1,100 or more per month or $385 after the subsidy. If she insures herself with COBRA, she’s likely to pay closer to $140 a month after the subsidy. Assuming that the rest of her family is in good health, she could insure them all with a family plan for as little as $120 a month. This mix & match strategy can save her $125 or more per month on premiums.

Customer C — Getting an individual health policy is the best option for a single 25-year-old to 36-year-old California man with a few minor back problems, but nothing serious.

In California, the average adult will pay $380 on COBRA per month, which equates to $133 per month after the subsidy. Individual health insurance policies from name-brand carriers can start at around $65 per month for young, healthy adults. An individual health insurance policy can provide quality coverage and save him as much as $70 or more a month over subsidized COBRA premiums.

Chris Hakim, director, COBRA solutions at eHealthInsurance explains, “Even in this difficult economic environment, it is important that consumers research all of their health insurance options and get covered. Continuing your health insurance through COBRA is often the best health insurance option, but that’s not always the case. People living on unemployment benefits and struggling to make ends meet may find more cost-effective health insurance coverage in the private market.” For more information, visit www.ehealthinsurance.com.
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IRS Information Helps Employers Claim COBRA Medical Coverage Credit
The Internal Revenue Service released new detailed information to help employers claim credit for the COBRA medical premiums they pay for their former employees.
The new information, at www.IRS.gov, includes an extensive set of questions and answers for employers. The Website contains a revised version of the quarterly payroll tax return that employers will use to claim credit for the COBRA medical premiums they pay for their former employees.

Form 941, Employer’s Quarterly Federal Tax Return, will also be sent to about 2 million employers in mid-March. The form is used to claim the new COBRA premium assistance payments credit, beginning with the first quarter of 2009.

“This is the first step in our effort to provide employers with information on this important health benefit for people who have lost their jobs. We will continue our work in the weeks ahead to help employers implement this crucial change for the nation’s unemployed,” said IRS Commissioner Doug Shulman.
Employers must maintain supporting documentation for the credit claimed including the following:
• Documentation of receipt of the employee’s 35% share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.
The new COBRA subsidy provisions also apply to insurers required to offer continuation coverage under state law similar to the federal COBRA. For more information about COBRA payments and the new law, visit www.dol.gov.
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COBRA Changes Under The American Recovery And Reinvestment Act
Employee Benefits Law Group sent out the following Benefits Law Alert. Government representatives have explained that, although the Act states that insurance companies providing insurance for group health plans will be entitled to reimbursement of the COBRA subsidy, the employer (and not the insurance company) generally will be entitled to the reimbursement. To comply with the COBRA subsidy provisions of the Act, employers will need to make significant changes immediately. A brief summary of some of the relevant provisions follows.

Amount of Subsidy: the amount of the subsidy is 65% of the COBRA continuation coverage premiums for eligible individuals for a maximum of 9 months. IRS/Treasury representatives have stated, on an informal basis, that their interpretation of the Act is that the subsidy will be calculated based on the premium the employee is actually charged by the employer instead of the maximum COBRA premium the employer could charge the employee.

Who is Eligible for COBRA Subsidy: If an employee is involuntarily terminated during September 1, 2008 to December 31, 2009, that individual (and dependents) may be eligible for the COBRA subsidy. However, the amount of the subsidy is reduced if the individual’s modified adjusted gross income exceeds $250,000 (for joint return filers) or $125,000 (for all other filers). The subsidy is completely eliminated if the person’s modified gross income exceeds $290,000 (for joint filers) and $145,000 (for all other filers).
A person who was terminated involuntarily before the date the Act was signed and who declined COBRA coverage will need to again be given the opportunity to elect COBRA coverage. If that person now decides to elect coverage, then the maximum COBRA period would be measured from the original date the person was eligible for COBRA coverage.

Notices: employers must modify their COBRA election notices or provide separate, supplemental notices to all people who become entitled to elect COBRA through December 31, 2009. The new notices must describe the new premium subsidy as well as any rights to change coverage options. On March 17, the government issued model notices. The employer must provide new notices within 60 days after February 17, 2009 for people who became entitled to elect COBRA before the Act’s enactment date. Failure to do so could result in monetary penalties under ERISA and the Internal Revenue Code.

How the Subsidy Works: although the text of the Act is not clear, government representatives said the following reimbursement rules will generally apply:
• The employer will be entitled to the COBRA subsidy reimbursement for a single employer plan that is subject to COBRA.
• The multi-employer plan will be entitled to the COBRA subsidy reimbursement.
• The insurance company providing the insurance will be entitled to the COBRA subsidy reimbursement for an insured plan not described above (where continuation coverage is provided pursuant to state law, e.g., a state law applicable to employers with fewer than 20 employees.)

The reimbursement will be accomplished through reducing payroll taxes that the entity receiving the reimbursement owes. If the reimbursement is greater than the payroll tax due for that period, the excess reimbursement will be treated in the same manner as a refund or a credit due for overpayment of payroll taxes. The IRS will have to provide additional guidance on how exactly this reimbursement process is to work. The IRS will have to provide guidance on how the reimbursement process will work with respect to reimbursement of multi-employer plans.
A person can appeal a denial of the subsidy request with the DOL. The DOL must rule on the request within 15 business days.

The COBRA provisions in the Act will require significant and immediate changes by sponsors of group health plans. As mentioned above, additional guidance will need to be issued by the various federal government agencies. However, sponsors do not have the luxury of waiting until that guidance is issued before implementing the new COBRA rules. For more information, call David Sawyer at 412-594-5642 (or dsawyer@tuckerlaw.com).
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Stimulus Package Could Create Multiple Payroll and Benefit Challenges for Small Businesses
The stimulus package will require employers to implement multiple changes to their tax withholding, reporting, and record-keeping procedures for employees, according to an analysis by Paychex. The following provisions may have a significant affect on businesses:
• Premium Assistance for COBRA recipients — COBRA beneficiaries pay only 35% of their premiums while their employers pay the remaining 65%. Employers are reimbursed for their portion of the premiums through a credit on payroll taxes.
• Making Work Pay — Gives workers a rebate/credit for the 2009 and 2010 tax years of the lesser of $400 for individuals and $800 for couples, or 6.2% of earned income. Workers will get the credit in their net paychecks through adjusted tax withholding tables.
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COBRA Administration Blog
Benaissance launched a blog dedicated to supporting COBRA, HIPAA, and direct billing administrators. Contributing authors are experts in customer service, custodial cash management, COBRA regulations, and sales and marketing. For more information, visit www.benaissance.com.

Conference Highlights:Why Vision Plans are More Relevant Than Ever

by Leila Morris

For the second year in a row, the Annual Transitions Academy featured a full-day managed care vision care track. The event, sponsored by Transitions Optical, drew more than 100 vision plan providers and brokers in January to the Disney resort in Orlando.

Alexander Domaszewicz of Mercer Health & Benefits Services explained to brokers and carrier reps how vision benefits have become even more important as the economy forces businesses to do more with fewer benefit dollars. Offering voluntary benefits, such as vision plans, may be the “sugar with the medicine” as plan sponsors cut costs in core programs, he said. Another important trend is the fact that older workers are putting off retirement. Vision care becomes even more crucial since older workers face increased risk of Macular degeneration, Cataracts, and Glaucoma
Vision coverage is on the rise with larger employers, but many smaller companies are still not offering it. HR managers still don’t give vision coverage as much importance as they do dental coverage. However, more than 80% of employees want vision coverage even though only 60% need vision correction, according to a Transitions survey. Nearly 40% of employees fear that they won’t be able to afford adequate vision treatment without a vision plan. Many postpone care or avoid it altogether because of costs. Two-thirds said that, if they had vision coverage, they would be more willing to get eye exams.

Eye exams rank a close second to physical exams when it comes to detecting health conditions that affect productivity. According to a Transitions Global survey, half of employees don’t get an eye exam at least once a year and 42% don’t wear sunglasses or photochromic lenses.

The importance of vision exams really hit home in a presentation by Dr. Vincent Young, M.D., chairman of the Division of Ophthalmology at Albert Einstein Medical Center in Philadelphia. He stressed that eye exams not only uncover eye diseases, but they also uncover some of the first signs of cancer, hypertension, and diabetes. He explained that performing an eye exam is actually a non-invasive way to look inside the body. In one sobering anecdote, Dr. Young said he discovered what looked like cancer during a routine vision exam on a seemingly healthy woman in her forties. Tests with her oncologist confirmed it. Tragically, she died not long after. He explained that vision care also comes into play when cancer treatment causes visual problems.

Young said that diabetes is often first diagnosed through an eye exam. Practically all diabetics experience some vision problems. More children than ever have diabetes, which make them more sensitive to light. So, eye protection is particularly important for children since they spend much more time outside than do adults. Since Diabetes medications can further increase sensitivity to UV light, it is essential to have glare protection through fixed tint and photochromic lenses.

Ethnicity also comes into play. A great number of Hispanics are not aware that their ethnicity is a risk factor for vision loss and blindness. Hispanics also have the least access to eye health information and the least understanding of the need to protect eyes from UV light, said Young.

Vision Plans Are Sold, Not Bought
Domaszewicz said that it’s vital to communicate the value of investing in a vision plan. Vision coverage can help employees lower their healthcare costs, enhance their overall health, increase their productivity, allow them to see and feel their best on and off the job, and make them feel good about their employer. Employers can gain up to $7 for every $1 invested in vision coverage, according to the Vision Council. What’s more, vision coverage typically costs employees only one tenth of the cost of medical benefits. This is all accomplished at a low cost to employer and employee.
In addition to increased healthcare costs, vision disorders account for more than $8 billion in lost productivity each year. Even slightly miscorrected vision can decrease productivity by up to 20%. Vision testing for adults and children is one of the top 25 most beneficial preventive health services, according to the Vision Council.
The following are some major points presented by a panel of brokers who are on the front lines of managed vision care sales:

Employee Benefit Trends

• With the threat of layoffs, people are rushing to use their benefits. There has been a big increase in utilization.
• There is so much fear in the media that it is hard for businesses to spend money.
• Vision plans are very popular among blue-collar workers.

Why it’s a Good Time to Sell Vision Benefits

• Even in this economy, a vision plan is a strong selling benefit. When presenting vision plans, demonstrate how the plans can save employees money.
• Clients are looking harder for solutions, which makes this a great time to explain that employee-paid vision benefits cost employers nothing.
• Providing vision benefits shows employees that the employer cares about their wellbeing.

Why Education is Essential in Selling Vision Plans

• You need to rise above the noise from all the other benefits when you go on a sales call. You do this by educating clients on the importance of vision care.
• If a member of your family has a devastating vision problem, discuss it with clients. Help them understand how vision impairment can affect a person’s quality of life and even their ability to work,
• Getting vision care is not a panacea, but it can reduce human suffering and costs when diseases are caught in time to make a difference.

Your Sales Approach

• If you think vision benefits are ancillary, so will the client.
• It’s helpful to have seminars with clients. Reach out to an eyecare doctor who can explain eye diseases to your clients.
• Have your own Website with vision benefits information. Younger people are used to doing practically everything online.
• Having one-on-one meeting with employees is vital to selling vision plans
Pat Huot director, Managed Vision Care for Transitions Optical, said his company is kicking off an awareness campaign highlighting advantages of vision benefits. The company’s website, www.HealthySightWorkingforYou.org includes several kinds of educational materials to present to clients.

Leila Morris is editor of California Broker Magazine.
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Healthcare

Survive & Thrive: Opportunities for Brokers in a Challenging Market

by Paul Markovich

As the economy sputters, California’s health insurance brokers have begun to worry. A sinking economy has claimed 3.6 million jobs nationwide since December 2007, bringing the unemployment rate to 7.6% as of January 2009. In California the situation is even worse – our unemployment rate is over 9% and climbing fast. Between May 2007 and May 2008, a jaw-dropping 46,000 companies including giants, such as IndyMac Bank and Mervyn’s Department Stores – filed for bankruptcy, giving California the dubious distinction of leading the nation in business bankruptcy filings.
As if that weren’t bad enough, many of the companies that have managed to survive in these hard times are doing so by cutting costs, often downsizing or even eliminating their group health plans.

These events have hit health insurance carriers hard. Following last year’s boom, the stock prices of most publically traded health insurance companies have plummeted and many carriers have been forced to quickly cut staff, increase premiums, and reformulate their products to meet new marketplace realities. All this places an even heavier burden on brokers to keep up.

If brokers ever needed to seize on new opportunities and reinvent themselves, now is the time. Business as usual is just not an option.
So where are these new opportunities? How can brokers survive and thrive in an eroding market? Consider some of the following important survival techniques:

Revise Your Business Plan
If you haven’t done so already, now is probably a very good time to revisit your business plan. Outreach and budgeting strategies that worked well just 12 months ago may no longer deliver the appropriate results for your efforts.

Use your business plan to help you visualize the big picture and develop a concrete strategy for making the most out of current trends. Take the time to reconsider who your customers will be this year following the waves of layoffs. What kind of health insurance products will people want in this new environment? How will future customers weigh cost and value when making purchasing decisions? Where should you spend your time and marketing dollars? Plan for two or three different scenarios, and keep close tabs on how your customer mix begins to change so that you can continually adjust your business plan. Be sure to use your business plan as roadmap to help you understand where you are, and how to get to where you want to be.

Embrace Individual Market Solutions
With the decline in employer-sponsored insurance and increasing government efforts to reduce the number of uninsured Americans, the individual market is generating unusually high interest from carriers and brokers.

By the latest U.S. Census Bureau estimate, 26.7 million people were covered by individual insurance in 2007. This could grow considerably in the next few years as the unemployment rate continues to rise. According to the Kaiser Family Foundation, for every 1% increase in the unemployment rate, an estimated 1.1 million additional citizens become uninsured. Over the past 12 months, the number of unemployed persons has increased by 4.1 million, to a whopping 11.6 million individuals. For brokers who haven’t yet begun to sell individual products, now may be the time to make the leap. Almost every major insurance carrier has introduced individual insurance products and several offer assistance in transitioning to the individual market.

For brokers in the small group market, transitioning to individual sales is often a natural next step. Employers who -previously trusted their broker to handle only small group health plans are now going to turn to that same trusted broker to help their staff to obtain individual coverage. Flexible brokers who are well versed in a wide range of individual products will be in a strong position to convert old group business into new individual product business, particularly in an environment where unemployment is increasing.

For brokers who are already experiencing a sizeable number of small group conversions but are not quite ready to handle the transition, one can always team up with a small group carrier that cross-sells individual coverage and offers on-the-spot training.

Carriers also are easing the broker transition to individual sales by partnering with innovative online companies to develop new distribution channels and marketing tools that reach consumers at their shopping sites of choice — from strip malls to virtual online malls. Internet-savvy brokers can connect to interested prospects in real time, provide customized quotes in minutes, and reach a far broader customer base.
Finally, don’t forget about the senior and Healthy Families markets. As Baby Boomers reach retirement age, Medicare Advantage plans are expected to continue growing, despite the potential for cutbacks in reimbursement rates to carriers in President Obama’s new budget. With the recent enactment of an expanded federal Children’s Health Insurance Program, there are also huge opportunities to sell in the Healthy Families market, providing health, dental and vision coverage to children who do not have insurance and do not qualify for free Medi-Cal.

Get plugged in
For brokers who are still selling plans with flip charts and paper files, consider this: an automated drip marketing campaign that automatically sends e-mail messages to subscribers can reduce direct marketing costs by up to 35%. If that doesn’t get your attention, then perhaps instant quoting technology will — according to health insurance technology company Norvax, studies have shown this technique can increase individual product sales up to 300%.

Technology is critical to optimizing broker sales today. Employers are looking for online tools to simplify enrollment, track utilization, and manage a range of benefits — from health coverage to dental to vision plans. Employees want online tools that help them find a provider, check their Explanation of Benefits and track their wellness goals. What’s more, as a growing number of individuals shop for health insurance online, they’ll be turning to brokers who have an Internet presence. Some carriers and insurance technology providers even offer co-op website development to assist brokers. Now may finally be the time to get that web site up and running.

Larger agencies are finding that investments in agency management programs improve efficiency and increase sales by tracking commissions, renewals, sub-lines of coverage that aren’t being serviced, and potential opportunities to sell complementary and specialty products.

Be a Strategic Partner
In difficult times, customers need a true partner in planning, not an order taker. Smart brokers can bring a strategic view to the table that can help avoid knee-jerk benefits decisions that may look good in the short term, but could be problematic in the long run. To become that strategic partner, brokers may need to expand on their knowledge of available products and services. In today’s world, customers expect their broker to help them consider a wide range of innovative solutions and choices, including wellness programs, narrow network products, HSA-compatible plans, FSAs, HRAs, multi-plan programs and compelling individual products. Take a hard look at contrasting options and rate trends at various carriers –- if you don’t, your clients (and your competition) will. Brokers who do not broaden their menu of solutions may be just one phone call or email away from losing a client to a competitor who thinks strategically and is willing to address specific client problems with customized coverage options and an open mind toward new solutions.

Demonstrate Value for the Premium
Whether your clients are retaining their current health coverage or looking to introduce leaner benefit plans, it is more critical now than ever before to demonstrate value for the premium. How a client perceives value has a lot to do with how a broker positions the product and their own services. Rates and comprehensive benefits are obviously important, but successful brokers demonstrate additional value for the premium by emphasizing the breadth and quality of the provider network, the ease of doing business with the carrier, the technological systems and tools that may differentiate the member experience, and the insight and support they bring to the customer.

Read the Tea Leaves
Finally, agents need to understand and predict what health plans in the private marketplace will look like in the future. Review the analysis and projections published by consulting groups, think tanks, and other organizations that conduct annual business outlook studies. Look at enrollment and marketplace shifts, and then consider how these trends might change your business plan. For instance, how might the changing economic environment in your area impact the way you sell high-deductible health plans? Or if your sales have predominantly been PPO plans for small and mid-sized groups, what do the latest enrollment projections indicate about how you want to approach those customers? Think about where the market is going.

Read the tea leaves. Then revise your thinking and your business plan, update your training in emerging products, and embrace the challenges and opportunities presented by this brave new world of evolving health products and services.
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Paul Markovich is executive vice president and Chief Operating Officer of Blue Shield of California, a not-for-profit health plan dedicated to providing Californians with access to high quality care at a reasonable price. Celebrating 70 years since its founding in 1939, Blue Shield of California has 3.4 million members, 4,700 employees, one of the largest provider networks and more than 20 office locations, providing a wide range of commercial and government products throughout the state. For more information, visit www.blueshieldca.com.


Financial Planning
401(k)s: The Retirement Income Opportunity

by John L. Carter

As life expectancies continue to rise, many people are likely to spend as many years in retirement as they did in the workplace. In fact, the Society of Actuaries reports that a 65-year-old married couple has a 45% chance that one spouse will live to 90. When you factor the rising cost of healthcare and the murky future of Social Security into the equation, investment professionals are faced with the difficult challenge of helping workers ensure that their retirement savings will last for 20 or even 30 years.

Retirees may be underutilizing their retirement savings and need help managing their retirement income, according to a 2008 survey by Nationwide, in conjunction with Yankelovich. Investment professionals have an opportunity to strengthen their client relationships by helping them develop an income stream that will last throughout their retirement years.

The survey was conducted to help uncover the attitudes and beliefs guiding the investment behavior of people who are approaching retirement and those in retirement. The study examined how confident workers feel about their retirement income, how retirees are managing their retirement income, and what kind of help they’re most eager to receive from their investment professionals. The findings can help investment professionals understand their clients’ concerns and develop financial strategies to address them.

Survey Findings

Many retirees are reluctant to tap into their retirement investments for income. The study found that 57% of retirees are living only on income from Social Security and/or a company pension. When asked to explain why they aren’t using money from their retirement account, 26% said they are afraid of spending down their retirement investments.

Another interesting insight is that many pre-retirees are not confident that the income they will receive from their retirement investments will be enough to support them when they retire. Only 37% of those nearing retirement expect the income they’ll receive from their retirement investments to be very predictable. Women are less confident than men are of having enough retirement income to live comfortably.
The results of the survey indicate that retirees are generally more interested in protecting their retirement investments than they are in generating large returns. Sixty-eight percent of retirement-age people say their most important investment goal is to make sure their money is safe.

Both retirees and pre-retirees are very satisfied with the support they receive from their investment professionals. Ninety-one percent of retirees say their investment professionals are doing an excellent or good job. Ninety-percent of pre-retirees expect their investment professionals to do an excellent job helping them manage their investments in retirement.

An Opportunity for Investment Professionals

While most workers say they are satisfied with the job their investment professional is doing, they want more guidance on how to maximize income that can be safely withdrawn in retirement. In fact, 67% of survey participants said they would be interested in having their investment professional show them how to grow, protect, and increase their retirement income.

These findings indicate an opportunity for investment professionals to reach out and help retirees and pre-retirees develop a plan for managing their retirement income that fits their investing style and their goals.

With more than a quarter of retirees afraid to touch their retirement investments, it’s clear that more education is needed. Here are some important topics that investment professionals should consider discussing with their clients:

How Can They Manage Volatility In The Stock Market? Talk to clients about the importance of diversifying their investments into multiple asset classes to help them ride out any downturns in the market.

How Can They Have A Guaranteed Stream Of Lifetime Income? Because of uncertainty about how to handle their retirement income, some workers may under-utilize their retirement investments. Investment professionals should consider whether some clients could benefit from an annuity or another product that can provide guaranteed income in retirement.

Will Their Income Keep Pace With Inflation? Forty-seven percent of retirees and pre-retirees have never calculated how much they can safely spend in retirement without running out of money. As an investment professi onal, you can grow your relationships with clients by showing them how to manage their retirement income in order to help them have the lifestyle they want.

What Products Make Sense? A majority of retirees are more interested in protecting their assets than chasing large gains. Have you talked with your clients about products that offer principal protection guarantees and lifetime income?
Can They Leave A Legacy To Their Family? To develop a sound financial strategy for the future, it’s essential to understand the client’s ultimate goal. Some clients are more concerned about taking care of future generations than they are about their own level of comfort during retirement. Have you discussed what kind of legacy your clients want to leave their families?

A New Era in Planning

We’re entering an age in which retirement income management will play a larger role in determining every worker’s ability to afford the retirement lifestyle they desire. As an investment professional, it’s important to find product providers that will do the following:
• Offer tools and resources to help your clients make the most of their retirement investments.
• Help you develop income management strate

The View from The Top – Part I: The Life Settlement Market
Begins to Pick Up

by Leila Morris

What once was a frenzied buyers market for life settlements has cooled off as capital sources froze and increased life expectancies made policies less valuable. But, experts in the life settlement industry say that tough financial conditions make life settlements more useful than ever – for clients who need fast cash to meet financial obligations to investors looking for a safer place to put their dollars. Capital markets have picked up significantly since the fourth quarter of 2008 and the consensus among our experts is that capital flowing into the market should really pick up this summer. But, we are not likely to see a return to the frenzied buying environment that drove discount rates down to the high single digits.

Expect to see increased regulatory focus from the states. Many settlement entities created during the frenzied sellers market, serving as a non-value added intermediary, will fold or retool. Experts note that new programs offering alternatives to settlements, such as period certain premium finance lending for in-force polices are beginning to appear. Direct fractional ownership of life settlement policies by individual investors will become more mainstream and demand for policies and offers for policies could rise. Large investors will seek portfolios of policies, non-value added life settlement intermediaries will fold, and there will be a new push for life settlements for term policy, which do not have to be convertible term, say the experts.

1. How do insurance brokers manage their clients’ expectations when clients are getting fewer and smaller offers for their policies?

Rob Haynie, managing director of Life Insurance Settlements: Be completely honest in how you manage anyone’s expectations, which should be very easy to do, given all the other bad news out there with respect to the economy.
Craig Seitel CEO Abacus: A grim reality check is in order here. The best approach is to go through a brief lesson of supply and demand in the life settlement marketplace. It was a seller’s market last year at this time with many active institutional buyers throughout the globe. An investor could expect a given policy to yield11% to 13%. But, as a result of the financial crisis the number of buyers has dwindled to less than a handful. The market quickly changed to a buyer’s market with many policies chasing fewer buyers. Because of this supply/demand variance buyers can now expect to pay a price that equates to rates of return in the range of 15% to 19%, which obviously translates into much lower prices.
Brian Smith, CEO of Life Equity LLC: Since the majority of clients are doing their first life settlement, they do not know what offers may have been in the past. The key is whether the offer that is made satisfies their client. The most successful brokers are focusing on the current offers to their clients and their needs.
Robert Taurosa, managing member of Ideal Life Settlements, LLC: The more professional brokers have already been managing their client’s expectations. So when they do approach their clients with the news, clients are not shocked at the smaller number of offers they are getting or for the smaller amount of the offers for their policies. The reasons to suggest a life settlement to a client have not really changed and may actually have become stronger. For example, people might choose a life settlement when they have some kind of financial constraint or they are unable to pay premiums due to a major decline in their cash flow. I believe this will be more and more common as this recession continues. Brokers should be keenly aware of their client’s financial status so they can offer this source of funds for them. The life settlement option will always yield more than surrendering the policy for its cash value or letting a policy lapse. On the other side of the coin, there will always be clients who have unreasonable expectations. If the client refuses any offers and thinks are all too low, simply explain there will be no offers at or near their expected price. The broker should not keep trying to sell the client on a deal. Eventually, most will come back to the broker to sell their policies. It’s akin to the home seller who thinks their home is still worth what it was a year or two ago.
Curtis M. Cole President of New Asset Alternatives, LLC: The economic crisis, over the past year, has reduced the number of institutional buyers and the amount of capital available to purchase life settlement policies. Demand will increase and policy sellers can expect to see higher offers as more insurance agents and brokers become aware of the opportunity for clients to buy these policies. As in other capital markets, demand increases and prices rise when individual investor dollars become available. That’s good news for policy sellers and their brokers.
David J. Wright, J.D. Vice President – Marketing for Rumson Capital LP: The agent should give the client as much information as possible to make the client a part of the process. This means not only explaining the mechanics of the transaction, but also educating the client on the pricing schedule within their policy. Most clients are certainly aware of the economic challenges we face worldwide. Like all other areas of the economy, life settlements are not immune to the credit crisis. Clients who purchased their insurance for the right reasons will be quite satisfied with the sale price. But clients who purchased the insurance with an eye towards settling it in two years (most of the time at the agent’s behest) will not be so understanding.
Greg Albers CEO of Life Insurance Buyers Inc.: Managing expectations is our foremost job on every submission. It is not necessary to have a large number of offers. We only need one legitimate offer for the insured/owner. An offer is supposed to be a net present value calculation. All of the funders work off of the same death benefit, the same premiums, and the same life expectancies. Many consumers do not have the luxury of time right now, so they may have to accept less. As always, they are much better off than they would be surrendering the policy.
Nate Evans, president of Maple Life Financial: It’s worth mentioning that, while prices on average may be lower, in many cases, they are still quite attractive relative to CSV. Successful brokers are focusing on what works and are quickly managing away what doesn’t work.
Cynthia Poveda, executive vice president of Life Settlement Insights LLC: The most difficult period has passed for estimating market value of a policy and managing client expectations. This is not to say that estimating a policy’s value is as simple as plugging a few numbers into a packaged model. Discount rates are quite predictable for policies that meet certain desirable criteria. When you move outside this narrow range, the policy owner depends on the broker’s expertise. The marketplace varies widely from state to state, by carrier, policy type, age and health of the insured. An experienced broker who understands today’s capital market environment can guide each client based their individual case.
Alex Sirotkin, JD, CEO and Erez Rotem, LUTCF, president of Integrity Life Settlements, LLC: We always make the client aware of the process, the timeline, the current market environment, and even the possibility that there will be no offers. Expectations must be set at the very first meeting. To mimic a motto from the clothing business, “our best clients are educated sellers.” An educated policy seller knows that offers will be affected their longer life expectancy is and the current capital markets as they relate to investors’ expected rates of return.
Stephen Terrell, executive vice president of The Lifeline Program: Pricing fluctuations are nothing new to the insurance industry, so we believe that our client base and agent force are accustomed to situations like the one we are experiencing. We see it as a temporary setback. Brokers, agents, and customers have begun to understand this as well. We are instructing agents and brokers to use the current market as a situation to lengthen their pipeline and market to other policy sources.

2. With the new mortality tables, are there certain clients or situations in which a life settlement no longer makes sense?

Scott Kirby Co-President of Advanced Settlements Inc.: Regardless of the new mortality tables, any client over 65 should consider a life settlement if they are considering surrendering their policy. There’s never a guarantee that the policy can be sold, but the evaluation process should still occur.
David J. Wright, J.D. Vice President – Marketing fir Rumson Capital LP: Insureds with life expectancies in excess of 15 years will find the market very unreceptive. Under the new mortality tables, this will exclude healthy men under 70 and healthy women under 75. The game changer is the client’s medical history. A good candidate for a life settlement should have some type of declining health.
Stephen Terrell, executive vice president of The Lifeline Program: People should still consider life settlements as part of their ongoing financial planning because the intrinsic value of the policies will remain the same. Also, the prospects for selling a policy in the future haven’t changed dramatically. We advocate that seniors and Baby Boomers keep their policies as long as they can so that they will have the option to sell the policies in the future. That means continuing to pay the premiums.
Robert Taurosa, managing member of Ideal Life Settlements, LLC: A life settlement will always make sense for the client who is facing the choice of trying to make premium payments on a policy versus using those money for a necessary household, medical, or family expense. In these situations, it just makes sense to get something rather than letting the policy lapse for non-payment of the premiums and getting nothing. So, I think life settlements still make a heck of a lot of sense in situations in which there is an absolute financial necessity. Based on the double whammy of the recession and of the new mortality tables, brokers need to review the policies carefully with their clients to look at the current cash value inside the policy, the client’s total asset picture, which has presumably also declined, and the amount of premiums the client needs to carry the policy, which will also increase in line with the new mortality tables. A life settlement may not make the most sense if the cost to carry the policy is extremely low and the client has the cash reserves to carry the policy while meeting all of their other financial obligations in a timely manner for an extended period. However, in this current economic time, I think that, for most clients, this may not be the case and brokers need to be looking at the client’s total financial health, with a special emphasis on their cash reserves. Even with the problems that may be facing the life settlement market, I do believe that this market does have a great opportunity to thrive.
Cynthia Poveda, executive vice president of Life Settlement Insights LLC: Fewer policies are being brought to market simply to facilitate the sale of a new, replacement policy. Rather, settlements have become an important planning option for clients seeking to restructure estate plans or manage financial challenges brought about by financial market conditions. Life insurance policies are more readily seen as a portfolio asset that can be monetized to meet changing needs.
Rob Haynie managing director of Life Insurance Settlements:The only way it does not make sense is if you don’t get an offer. People need to get whatever the best price is today and the only person who can decide that is the consumer with the help of a professional advisor.

2. When do you see new capital coming into the life settlement market?

Scott Kirby Co-President of Advanced Settlements Inc.: It already has; we have noticed a more competitive bidding process since the market lows of 2008. We are also being told by many of our capital sources will be entering the market as soon as this summer.
Rob Haynie managing director of Life Insurance Settlements: It’s coming in right now. There has never been a better time for people who have been considering getting into this business. If I am a buyer and I can purchase a policy for a lower dollar amount, it’s a great time to be in the marketplace.
Robert Taurosa, managing member of Ideal Life Settlements, LLC: That’s a very tough question to answer as our industry has seen the type of financial tumult that is being experienced around the globe. Over the past year, we have seen housing prices tumble, billions upon billions of dollars lost by financial institutions around the world from bad mortgages, a stock market that has declined to levels not seen in decades, and unprecedented liquidations of monies held by hedge funds and private equity firms. All of this has really worked to deter any major movements of funds into any one type of asset class. I do believe that this will only result in an eventual increase of new capital coming into the life settlement market in the longer term and perhaps even the shorter term. Funds and managers will look for ways to put the money that is available to work by using non-correlated assets, such as life settlements, where there is little possibility that their portfolio of policies will become worthless as has happened in the credit default arena. Many start-up and mid-sized hedge funds are already starting to work with life settlements or in areas connected to life settlements, so I think it is only a matter of time before we see new capital coming into the market. To put a timeline to it, I am hopeful that the process that is happening now will continue on into the spring and perhaps by summer we should see some new developments in our marketplace.
Greg Albers CEO of Life Insurance Buyers Inc.: Very soon, if it is not already here. Funders are getting funds positioned to buy as we speak. The next wave we see will be large pension fund managers.
Brian Smith, CEO of Life Equity LLC: We currently have capital for purchases in the life settlement market. We expect more new sources of capital will enter during the second quarter of this year and through out the balance of the year.
Nate Evans, president of Maple Life Financial: It’s already here. There is terrific interest in the asset class — maybe more than ever. We are seeing significant interest from a large number and variety of financial institutions based on the uncorrelated nature of the asset’s cash flows and a new level of confidence in mortality assumptions.
Cynthia Poveda, executive vice president of Life Settlement Insights LLC: New capital is coming online today, but it is unlikely that the market will return to the frenzied buying environment of past years.
Craig Seitel CEO Abacus: As liquidity loosens, the major international banks will start buying again. Domestic retirement funds and pension funds will start buying as they realize that if this investment is managed correctly, it can provide very solid principal protection and relatively attractive yields compared to the traditional bond, equity, and derivative investments that have been rocked in this marketplace.
Alex Sirotkin, JD, CEO and Erez Rotem, LUTCF, president of Integrity Life Settlements, LLC: New capital has already come into the market. Lately, more new capital is coming into the market, on a net basis, than there is capital is exiting. Many providers/funders have returned to the market since mid-January from their unwelcomed hiatus. This is reflected by an increase in the number of offers.
Curtis M. Cole president of New Asset Alternatives, LLC: It’s coming in now! As more life insurance agents and registered reps get involved in helping individual clients invest in life settlement transactions, more capital will become available to the life settlement market. We don’t have to wait for the credit markets to thaw; that could take months or even years. Trillions of private investor dollars are sitting on the sidelines looking for a solid place to be invested. It’s time that we stop relying solely on the traditional financial markets to drive the life settlement business. Our individual clients are the key to the future growth and stability of this great industry.
David J. Wright, J.D. Vice President – Marketing for Rumson Capital LP: Capital is coming back into the market on a daily basis through new or existing capital sources. However, new sources are entering the market in a much slower and measured way than in the past. The asset class, being non-correlated to debt or equity, is a highly desirable one. “Non-correlated” should not be confused with “low risk.” Each new source has several layers of due diligence to complete in order to be competitive in the market yet also competitive for their investors seeking returns. We have found that all sources are seeking a higher return-on-investment than in the past to remain consistent with other capital markets.
Stephen Terrell, executive vice president of The Lifeline Program: New capital and what we are calling “smarter capital” are already in the market. The long-term strength and solid returns of the life settlement industry are catching the attention of many traditional institutions and we expect to see this continuing for at least the next two to three years.

3. What is your company doing to adjust to the changing market?

Stephen Terrell, executive vice president of The Lifeline Program: We are stepping up our education activities with our agents and policy sources so they understand that life settlements should be used as a long-term part of a client’s financial plan. Sales are not happening as readily in the short term, but we believe that our proactive approach, which is nothing dramatically new for our company, will pay off in the not-to-distant future.
Robert Taurosa, managing member of Ideal Life Settlements, LLC: The biggest thing we are doing now is to increase our efforts to educate our brokers by showing them that now is the perfect time to develop or to expand their life settlement business. Education is our main goal right now. We cannot do enough to show them that, although it seems that everything around them is falling apart in most areas of the economy, the life settlement market provides an excellent opportunity to make money for themselves and their clients. We recognize that they need support at this crucial time, so our focus is on giving them the support and materials they need to get the job done. On other fronts, we are educating investors and fund managers about the benefits of the life settlement market. More and more traditional investors and funds are beginning to look at new asset classes to supplement or enhance their portfolios. We are showing them the benefits of life settlements and we have really seen a large interest among fund managers. As the life settlement market matures further, I really believe that this period will be looked upon as a turning point for life settlements. The market will grow and become accepted as part of the major asset classes that all investors and fund managers will want in their portfolios

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Rob Haynie managing director of Life Insurance Settlements: We are working harder than ever. It is the same business, but you have to be more aggressive in keeping track of market positions and changes. You have to know your industry from top to bottom and you have to put yourself out there in terms of new marketing concepts.
Curtis M. Cole president of New Asset Alternatives, LLC: New Asset Alternatives continues to make the life settlement investment available to individual investors through its licensed advisors or life insurance agents. This is the biggest story of the year for this industry since it offers new opportunities to brokers and their clients. It offers strong, stable investment returns for clients and recurring commissions for agents and brokers.
Scott Kirby Co-President of Advanced Settlements Inc.: Advanced Settlements implemented a capital markets department to explore and develop new capital sources for our clients. In addition, our full time trading desk negotiates all of our offers to ensure that we get the best offers for our clients. This is why many agents trust Advanced Settlements with their cases.
David J. Wright, J.D. Vice President – Marketing for Rumson Capital LP: With margins compressed at every level, a good life settlement broker needs to add significant value to the transaction while charging a fair fee. We have never felt that employing cold-callers would help us add value. We don’t want to be great at marketing; we want to be great at helping agents settle polices. To that end, we are expanding regionally so that our sales staff can interact with agents in person on a daily basis.
Brian Smith, CEO of Life Equity LLC: Life Equity has completed analysis of the recent underwriting changes and is pleased to see less differences between underwriters. We have continued to invest in new systems to speed the time necessary to close a life settlement transaction.
Greg Albers CEO of Life Insurance Buyers Inc.: We are anticipating an increase in submissions for the rest of 2009 and well into the next five years. The volume of business will double and triple over the coming year.
Nate Evans, president of Maple Life Financial: We are doing what we have always done, which is to help institutional investors achieve their objectives in mortality-based products. Our model, which aligns our objectives with capital, is proving very attractive in a competitive market where vertically integrated providers are perceived by some institutions to be in conflict with their interests.
Cynthia Poveda, executive vice president of Life Settlement Insights LLC: Life Settlement Insights now offers back-office services for small and medium sized brokers who find the fixed cost associated with staffing and regulatory compliance to be burdensome in this capital market environment. Brokers can focus on incremental sales and marketing rather than staffing and compliance issues.
Craig Seitel CEO Abacus: We have focused on becoming much more efficient as a delivery system. We have also taken a much more proactive role in identifying different types of investors and working with them. In certain cases, we help investment groups design and manage their investment programs.
Alex Sirotkin, JD, CEO and Erez Rotem, LUTCF, president of Integrity Life Settlements, LLC: First, we are working harder. Like most enterprises, this is a detail-oriented business. We are paying very close attention to all the details not only in processing cases, but also in prospecting for business. Education is a high priority. We believe we are more likely to partner with agents and other professionals by sharing our diverse knowledge of insurance, law and business. This unusually bad market requires us to follow that overused adage to “think outside the box.” We are also entering into franchise type arrangements with qualified agents. It’s a big world out there and we need partners to help us spread the word about our special expertise.

4. After roaring onto the scene, the life settlement market has slowed down considerably. When do you expect things to pick up?

Curtis M. Cole president of New Asset Alternatives, LLC: Things will pick up as quickly as word gets out that agents and brokers have this new opportunity to help their clients invest directly in life settlement policies. Individual investors are the key to future growth and agent/broker success.
Greg Albers CEO of Life Insurance Buyers Inc.: Our submissions have not slowed at all. We see significant growth continuing well into the next decade.
Nate Evans, president of Maple Life Financial: I actually think that life settlements have not slowed down to the degree people believe. This perception is at least partially driven by the slowing of premium financed policies and STOLI programs. In terms of traditional life settlements I think we will see growth that accelerates into 2010 and beyond.
Cynthia Poveda, executive vice president of Life Settlement Insights LLC: The capital markets have picked up significantly since the fourth quarter of 2008, but we don’t expect to see a return to the frenzied buying environment that drove discount rates down to the high single digits. In addition to more conservative pricing, the lengthening of life expectancy underwriting opinions, changes in carrier ratings, and more active portfolio management has narrowed the pool of policies eligible for settlements.
Craig Seitel CEO Abacus: I expect that activity will exceed where it was in 2007 and early 2008 when liquidity loosens. Activity will further accelerate as seniors begin to realize that this is a great potential source of cash to help augment the diminished value of their 401(K)s and real estate. This could all happen as early as the end of this year and beginning of 2010.
Brian Smith, CEO of Life Equity LLC: As 2009 begins, applications are strong, with good prospects for growth in life settlements over 2008.
Alex Sirotkin, JD, CEO and Erez Rotem, LUTCF, president of Integrity Life Settlements, LLC: We are beginning to see evidence of change already. As is true for the entire financial sector, there is still a lot of money on the sidelines, waiting for greater clarity. The return of this money will be surely incremental, but we expect exponential changes to occur by mid-year. But who knows for sure?
Scott Kirby Co-President of Advanced Settlements Inc.: For Advanced Settlements, it really has never slowed down. Our origination of policies has remained consistent over the past 12 months. The reduction of liquidity in our market has caused a slowdown in the numbers of offers we are receiving, but we do expect improvements this summer. Even with this reduction of offers, we still managed to sell more than $50 million in policy death benefit in January alone.
Stephen Terrell, executive vice president of The Lifeline Program: Once the overall markets reach some level of confidence and stabilization, the financial markets will look for safe havens, such as life settlements. No one can predict when the markets will regain confidence, but we believe our industry will be one of the first benefactors.
Robert Taurosa, managing member of Ideal Life Settlements, LLC: Most markets are always affected by fluctuations and economic factors, which can cause a lack of stability and volatility. No one knows exactly when a trend is going to change. I do believe we will see things start to pick up in the life settlement market by the summer. Hopefully, the federal government’s attempt to free up the credit markets will have positive results in all markets. However, this may take a significantly longer for the housing and financial markets; it may be years before they are healthy again. I do believe the life settlement market will show signs of increasing in the shorter term as investors and fund managers seek a stable asset class with a fixed amount of payment, a clear expectation of a maturity date, and a healthy profit. The life settlement market offers a way to reduce a portfolio’s volatility while maintaining a healthy rate of return. It provides an asset that is completely uncorrelated to interest rates or the stock market. Let’s hope my reflections on our market come true!
Bob Haynie managing director of Life Insurance Settlements: The life settlement market only slowed down because everything slowed down. People do not have as much money in this economy, which creates another opportunity for life settlements. Broker should mine their own database to seek opportunities for life settlements. Even if no opportunities are found, it’s good to stay on top of it because they may find that clients have additional insurance needs.
David J. Wright, J.D. Vice President – Marketing fir Rumson Capital LP: The market has already begun to pick up from the fourth quarter of 2008. We are running at about a 75% placement level from this time last year. We expect the market to regain equilibrium and solidity by the second quarter

5. What trends in the life settlement industry can we expect over the next year?

Greg Albers CEO of Life Insurance Buyers Inc.: We see fewer new entrants. The larger funders, with better access to capital, will have larger portfolios.
Nate Evans, president of Maple Life Financial: In the short term, I think you will see fewer players in all aspects of the business. Many market participants depended on revenue generated from premium finance and STOLI programs. The programs are struggling since the life expectancy adjustments have drastically reduced the volume of cases that make economic sense. I think the mid- to long-term prospects for the industry remain very strong given the renewed capital interest in the asset class.
Cynthia Poveda, executive vice president of Life Settlement Insights LLC: Through the year, we will see continued regulatory focus by states, both those with existing regulation and states considering settlement regulation. While additional capital is moving in, buyers will continue to be selective and a brokers’ knowledge of the market will be valuable to sellers. Many settlement entities that were created during the frenzied sellers market to serve as a non-value added intermediary will fold or retool. New programs offering alternatives to settlements, such as period certain premium finance lending for in-force polices are beginning to appear. The perspective that a life insurance policy is a financial asset to the owner has been established. A settlement is simply one option for that asset when needs change, and this fact will remain.
David J. Wright, J.D. Vice President – Marketing fir Rumson Capital LP: I think we will see increased due diligence for policies that have just come out of contestability. Capital sources want to be sure that the policy was not subject to some type of premium-finance arrangement, whatever that deal might have been. This due diligence could include requesting copies of premium payment checks as well as affidavits from the client’s trustee or attorney.
Stephen Terrell, executive vice president of The Lifeline Program: We are seeing increasing interest from large institutions seeking portfolio aggregation with the intent to sell these portfolios at a later date. This trend to sell accompanies a trend to purchase complete portfolios of policies. We believe this is the most significant trend that is affecting our industry this year. Many companies entered the life settlement industry with the idea of competing against providers. Today, more institutions are seeing the value of providers and are instead looking to purchase complete portfolios as performing assets. We are creating transparent portfolios that only contain policies that meet the qualifications and specifications of individual institutions. The aggregation of policies to build custom portfolios is a commanding trend in today’ market.
Craig Seitel CEO Abacus: Financial planners and wealth managers will become directly involved in this industry as they become increasingly aware of this product’s great potential to provide liquidity to aging Baby Boomers.
Alex Sirotkin, JD, CEO and Erez Rotem, LUTCF, presidentof Integrity Life Settlements, LLC: State’s adoption of viatical settlement laws will continue with increased requirements for disclosure. This is necessary to preserve the market and to allow for further growth. It is inevitable with the publics’ demand for greater vigilance on the part of government. The law will also become clearer in this area and that of premium finance as certain issues are adjudicated in the courts. We may even see class action suits against carriers that are alleged to have inhibited the life settlement market by refusing certain types of illustrations or stalling the change of ownership process.
Scott Kirby, Co-President of Advanced Settlements Inc.: I would like to see more consolidation of settlement brokers.
Curtis M. Cole president of New Asset Alternatives, LLC: Due to the economic downturn, more policies should become available, which could drive down the offers on policies. Direct fractional ownership of life settlement policies by individual investors will become more mainstream and offers for policies could rise. Life settlements sold in a fund and made available to individual investors, will become widely available through registered reps. A life settlement fund is currently available for private investors.
Rob Haynie managing director of Life Insurance Settlements: Different players will enter the market with a different focus on what they want to purchase. There will be a new push for term policy and it doesn’t have to be convertible term. We are one of the first companies that have been active in this market segment. People will start to specialize in different things, such as a jumbo policies. I am also interested in dealing with policies with a death benefit of $10 million or greater. Not a lot of investors down what to buy over $10 million.
Brian Smith, CEO of Life Equity LLC: More states will pass regulation of life settlements. More due diligence will be completed on all policies during the life settlement process. Less variance in underwriting for life expectancies should yield more consistent pricing.

Look for Part II of View From The Top in our June issue.