LIFE INSURANCE & FINANCIAL PLANNING
• Life Insurers Rethink Their Strategies for 2013
• Individual Life Insurance Sales Improve
• LGBT Market Offers Promising Opportunities for Advisors
LONG TERM CARE
• LTC Riders May be the Future of the Industry
• A Warning Against Medicaid Planning
• Health Care Economies: San Francisco and Fresno
• Health Insurance Tax to Raise Costs for California Consumers
• Have the MLR Rules Failed to Achieve Their Original Purpose?
• The Top Five Issues to Affect Physicians and Patients in 2013
• The Top Performing Health Plans
• Customer Satisfaction Is Less for Smaller Carriers
• Webinar on Fixed Annuities
• Women’s Leadership CE Webinar
• Quoting Tool
• Mutual of America Mobile Website
Life Insurers Rethink Their Strategies for 2013
Life insurers are transforming their strategies in response to demographic, economic, and regulatory pressures, according to Ernst & Young. New players are entering the market, the largest carriers are gaining market share, and distributors are consolidating. Carriers are evaluating books of business for the ability to generate profits and diversify risks. Meanwhile, regulators are evaluating suitability standards, which could alter sales practices among distributors and insurers. For many companies, the goal is to have a balanced product portfolio, in which no single line dominates the business.
The average household expenditure for life insurance has declined 50% in the past decade. So insurers need to consider offering new simpler products geared to younger consumers, such as term and whole life insurance and use digital marketing and mobile distribution, according to researchers.
Insurers need to pay more attention to the risk transfer and savings needs of young people while continuing to build a case for retirees and pre-retirees. These areas offer significant growth opportunities in 2013.
Business strategies need to change in the face of unrelenting interest-rate pressure. According to the study, “Many life insurers have responded by de-risking [sic] and redesigning products, writing down certain lines of business, and increasing reserves on a fair-value basis.” Insurers are likely to renew their focus on asset management and wealth management, rather than on costly and risky guarantees. Improving capital and risk management remains a priority.
Insurers will need to hire talent to invest in sophisticated modeling techniques. Insurers need to stay attentive to tax changes as the government seeks new sources of revenue. The Federal Reserve may issue new regulations to improve risk management. Also, the Consumer Financial Protection Bureau may expand its scope reviewing insurance products.
Proposed U.S. and international accounting standards will have a significant effect on life insurance business models. Insurers have to make sure that they can implement these new requirements. For a copy of the U.S. Life Insurance Industry 2012 Outlook report, visit www.ey.com/insurance.
Individual Life Insurance Sales Improve
Total individual life insurance premium grew 3% in the third quarter and for the first nine months of 2012, according to a LIMRA survey. Total individual life policy count fell 1% for the third quarter, but remained up 2% year-to- date.
Ashley Durham of LIMRA said, “Whole life and indexed universal life were the sales leaders in the third quarter. Both product lines have consistently performed well under challenging economic conditions because they offer consumers the opportunity for steady growth while protecting their principle from the prolonged market volatility.”
Whole life had the strongest performance in the third quarter, improving 5%. It also had the largest growth over the first nine months of 2012, rising 8%. Nearly three-quarters of whole-life writers experienced positive growth, including nine of the top 10 writers. Whole life policy count grew 2% in quarter, resulting in an increase of 4% during the first three quarters of 2012.
New annualized premium for universal life (UL) rose 4% in the third quarter compared to the same period in 2011 and is 3% higher year-to-date. Sales were driven primarily by indexed UL (IUL), which jumped 39% for the quarter and 32% in the first nine months of 2012. For the first time, IUL quarterly sales surpassed lifetime guarantee UL sales in the third quarter. IUL reached a record-level of the UL market share, representing 28% of the UL market.
Low interest rates and higher capital requirements have continued to dampen lifetime guarantee UL (GUL) premium. Overall, GUL premium dropped 10% for the quarter and 9% year-to-date. UL policy count fell 9% in the quarter and 1% during the first three quarters of 2012.
Term life premium dropped 1% in the third quarter and in first nine months of 2012. Just over half of the participating term writers increased their sales in the first nine months. LIMRA predicts that term sales will increase slowly, returning to 2009 levels in about three or four years as unemployment rates recover.
Variable universal life (VUL) fell 4% in the third quarter and dropping 6% year-to-date. VUL policy count fell 12% in the third quarter and 10% for the first nine months of 2012. For more information, visit www.limra.com.
LGBT Market Offers Promising Opportunities for Advisors
Almost nine out of 10 lesbian, gay, bisexual, and transgender (LGBT) Americans say they have never had a financial professional contact them about their financial planning needs. Although the LGBT community does not need financial professionals to be part of the community, 75% say it is important for a financial professional to understand their needs, according to a survey by Prudential. Sixty-one percent of LGBT individuals see their financial planning needs to be different from the general population.
The LGBT Financial Experience study highlightes one of the key drivers of concern about retirement — the legal status of LGBT relationships, which can have a significant affect on financial planning. LGBT respondents are very concerned about the lack of Social Security or pension survivor benefits for same-sex couples and legislation that negatively affects LGBT rights. Tax treatment, benefit inequality and inheritance rules for same-sex couples closely follow as major issues.
“While we found the LGBT community to be largely optimistic about the future, like most Americans, the community was affected by the recession and is very concerned about being able to retire,” said Charles Lowrey, chief operating officer, U.S. Businesses for Prudential.
The LGBT community is in relatively good financial health with a median household income of $61,500, which is higher than the median U.S. household income of $50,000. Gay men report earning more than lesbians individually ($49,000 versus $43,500 median personal income).
But when it comes to household income, lesbians, who are more likely to live in dual-income households, have higher household income ($63,700 versus $62,300). While the combined household income of gay male couples is the highest at $103,000, these couples constitute a minority (19%) of the LGBT community.
With an LGBT Financial Confidence Index score of 48 out of 100, the LGBT community is reasonably confident about their finances and the economy. Gay men are more confident than lesbians, and Gen Ys are more confident than Baby Boomers.
LGBT Americans tend to own three core financial products — life insurance, an employer-sponsored retirement account, and a savings account. They add to these products as they age, become parents, or establish long-term partnerships.
More than half own a life insurance policy, with almost two-thirds of legally recognized couples having a policy. In contrast to the general population, lesbians are as likely to own life insurance as their male counterparts. Close to a quarter of Baby Boomers own individual stocks and 10% of legally recognized couples own annuities.
Nearly 40% of LGBT individuals and nearly 50% of LGBT couples in a legally recognized relationship work with a financial professional. Those figures are similar to the general population. While most LGBT Baby Boomers describe themselves as financially secure, approximately one-third say they are falling behind or are on the edge financially, and almost half are not confident that they will not outlive their savings or be able to maintain their standard of living in retirement.
The LGBT Financial Experience 2012-2013 Prudential Research Study was conducted by Community Marketing Inc. of San Francisco, Calif., which surveyed a diverse group of 1,401 Lesbian, Gay, Bisexual, and Transgender (LGBT) Americans aged 25 to 68 from urban, suburban and rural communities throughout the 50 states in August 2012. No income or other criteria were required to participate. For more information, visit www.prudential.com.
LTC Riders May Be the Future of the Industry
Standalone long-term care insurance products have seen disappointing sales in recent years while combination products, or riders, have seen significant growth. These combination products may be the future of the industry, according to a study by Conning.
Conning analyst, Terence Martin said, “The need for long-term care Insurance is growing as the population ages, life spans lengthen, and the cost of skilled nursing and assisted living accelerates. However, standalone long-term care insurance products have not found acceptance with the consumer due to ongoing premium rate increases on new and existing policies and the uncertainty of ever receiving a benefit.” The low interest rate environment has hurt insurers’ investment returns and has accelerated exits from the market in recent years.
In contrast, long-term care riders on life insurance or annuity policies, have seen increased sales and may represent a more acceptable risk profile for insurers.
Stephan Christiansen, director of research at Conning said, “Insurers saw an opportunity in the long-term care market to meet a significant consumer need, but have largely been unable to sustain a viable business model in standalone products. Even though combination products have a higher premium than standalone products, the greater certainty of receiving a long-term care or life insurance benefit is resonating with consumers, and the product is beginning to break through in terms of sales success…They do represent a…more acceptable risk profile to insurers. The question remains…whether the many structural issues…that have plagued insurer’s standalone products will also affect growth and profitability of combination products.” For more information, visit www.conningresearch.com.
A Warning Against Medicaid Planning
Half of financial advisors have clients who ask about giving all their money to their children in order to qualify for government assistance in paying for long-term care, according to a survey sponsored by Nationwide. Forty-two percent say their clients think of Medicaid planning as a way to preserve their children’s inheritance, according to the Harris Interactive survey of 501 financial advisors.
John Carter, president of distribution and sales for Nationwide Financial said, “Medicaid should not be a plan, but used in instances where an unexpected and financially devastating illness of one person threatens to impoverish their still healthy spouse. Medicaid was never intended to supplement the middle or affluent classes. Medicaid was meant to help care for the poor.”
Forty-nine percent of Americans who need long-term care services depend on Medicaid to pay for their long-term care expenses.
While the Deficit Reduction Act of 2005 helped make transferring assets to children much less practical by implementing a five-year, look-back provision, instead of a three-year look back, Medicaid planning is becoming a more often used tactic. However, seniors should be concerned about the following issues when thinking about impoverishing themselves:
* While Medicaid may pay the bill for nursing home care, you may not get to live where you wish. Nursing homes are not required to accept new patients who are on Medicaid.
* Medicaid often uses nursing home care as the only choice. Community based service, such as assisted living, home health care, or adult day care are not typical options for those relying on Medicaid.
* Medicaid patients do not get private rooms and if they are unhappy with the facility, they may have limited ability to change situations.
* Your spouse may not have the income needed to maintain their lifestyle.
Carter said, “Many of our advisors tell us the most important aspect to their clients when planning for long- term care is maintaining control. People who resort to repositioning or giving away their money often find they sacrifice control when having to ask for money that used to be theirs. They also give up control when protecting an inheritance for their children outweighs comfort in their final days.”
The most commonly known long term planning choice is the traditional stand-alone long-term care policy. While it is very customizable, some clients don’t like the use it or lose it nature of these products.
Hybrid products are also available. A long-term care rider can be added to the life insurance coverage being purchased. This plan will provide funds for the insured should they need long-term care. However, in the event no long-term care is ever needed, the insured has a death benefit to leave to heirs.
Carter said, “As financial professionals, it is our job to help protect our clients’ financial health without sacrificing their dignity. In many cases proper long-term care planning that includes some type of long-term care insurance protection will not only better suit clients financially, but it will also allow them to keep control of their assets, their life, and most importantly their dignity.” To learn more, visit www.nationwidefinancial.com/healthcare.
Health Care Economies: San Francisco and Fresno
California’s large and diverse population is spread across a vast area, occupying health care regions that vary greatly in affordability, access, and quality of care. In a continuing effort to capture these differences, the California HealthCare Foundation (CHCF) published reports on the San Francisco Bay Area and Fresno regions as part of six market analyses that examine how health care is delivered and financed across the state.
CHFC reports that Bay Area providers and health plans are aligning aggressively. Health plans and providers formed narrow-network accountable care organizations (ACOs) in 2011. Safety-net providers are coordinating care through the medical home model while a surge of physicians and hospitals have collaborated to expand geographic reach.
HMOs have a weak presence in Fresno, with PPOs as the dominant model. Most Fresno hospitals survived the poor economy, but face mounting financial pressures from rising Medi-Cal enrollment and high rates of the uninsured, which have strained provider capacity. Fresno hospitals face strong competition for physicians with federally qualified health centers and hospital-operated rural health clinics, which remain rooted in independent practices and show little interest in alignment.
CHCF recently released regional analyses on Riverside/San Bernardino and Sacramento. In the coming months, the organization will report on Los Angeles and San Diego. For more information, visit www.chcf.org.
Health Insurance Tax to Raise Costs for California Consumers
California consumers and employers will face $22 billion in higher health care costs as a result of a new health insurance tax included in the Affordable Care Act (ACA), according to a state-by-state analysis conducted by Oliver Wyman for America’s Health Insurance Plans (AHIP).
The ACA imposes a new sales tax on health insurance that starts at $8 billion in 2014, increases to $14.3 billion in 2018, and will increase based on premium trend thereafter. The Joint Committee on Taxation estimates that the health insurance tax will exceed $100 billion over the next 10 years.
“This tax will add a financial burden on California families and small businesses at a time when they can least afford it,” said AHIP President and CEO Karen Ignagni. Ignagni noted that the health insurance tax will increase costs for individuals and families purchasing coverage on their own, small businesses, Medicare Advantage beneficiaries, and Medicaid managed care programs. AHIP supports legislation (H.R. 1370,S.1880) that would repeal the tax.
A previous report found that the health insurance tax wold increase premiums in the insured market by 1.9% to 2.3% in 2014 and would increase premiums 2.8% to 3.7% by 2023.
California consumers and employers will pay $22.2 billion to $22.4 billion more over the next 10 years as a result of this tax. The tax will raise costs in specific insurance market segments and public programs in California as follows:
• Individual market consumers: Increase premiums over a 10-year period for single coverage by an average $1,954 and for family coverage an average $4,909.
• Small employers: Increase premiums for single coverage by an average $2,792, and for family coverage an average $6,916.
• Large employers: Increase premiums for single coverage by an average $2,566, and for family coverage an average $7,141.
• Medicare Advantage beneficiaries: Increase costs for beneficiaries by an average $3,847.
• Medicaid managed care beneficiaries: Increase the average costs of Medicaid coverage by about $971 per enrollee.
According to the Joint Committee on Taxation, “For those insurance premiums that are subject to the fee, we estimate that the premiums, including the tax liability, would be between 2.0% and 2.5% greater than they otherwise would be.” In a November 30, 2009 letter, the Congressional Budget Office stated that, “New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices. Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.” To learn more, visit www.AHIP.org/Affordability.
Have the MLR Rules Failed to Achieve Their Original Purpose?
Medical loss ratio laws were supposed to address the phenomenon of carriers raising health insurance rates while increasing their profits. The health care overhaul requires insurers to spend at least 80% or 85% of their premium dollars on medical care, limiting what they can spend on overhead and for profits. Companies must rebate their subscribers if they don’t make the mark.
Citing a study by the Commonwealth Fund, California Insurance Commissioner, Dave Jones said, “Some families and businesses received health insurance premium rebates this past summer because insurers failed to meet the medical loss ratio, but …at the same time some insurers increased their profits.” Among small-group and large-group insurers, the most common response to the MLR has been to shift administrative cost savings into profits and use those increased profits to pay rebates, according to the Commonwealth Fund. “Potentially, and we didn’t measure this, we’re speculating, that maybe they were doing this to subsidize those plans that offered an individual product,” said Michael McCue, report author and professor at the Department of Health Administration School of Allied Health Professions at Virginia Commonwealth University. “Maybe they were trying to offset those losses of the individual insurer.”
Individual-market insurers reduced administrative costs and profits despite increasing enrollment by almost a quarter of a million people in 2011, making consumers. Insurers in the individual market reduced overhead expenses by $560 million in 2011, which was more than those in the small- and large-group sectors. Plans that did not meet the medical loss ratio (MLR) paid customers about $394 million in rebates.
Large-group market insurers that did not meet the minimum medical loss ratio paid about $386 million in rebates and devoted more premium revenue to overhead costs. This group was able to boost its profits by $959 million.
Small-group market consumers received about $321 million in rebates. While administrative costs in this market did drop significantly, insurers chose to use the savings to increase their profits rather than passing them on to consumers in the form of lower premiums, according to the report.
Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU) has said, “There isn’t clear evidence that the MLR requirements have lowered health insurance premiums. In the states that tried loss-ratio caps prior to the passage of national health reform, premiums and healthcare costs are not lower and healthcare quality is not better. Instead, these requirements have actually discouraged health plan investments in programs that generate long-term medical care cost savings and improve healthcare quality.”
“Less than 10% of Americans received a MLR rebate this year, but virtually all health insurance consumers, group and individual, use a licensed health insurance agent or broker every year to help obtain or service their coverage. H.R. 1206 will help protect consumers, who need experienced and knowledgeable insurance agents more than ever.”
“For American healthcare consumers, the choice should be simple. Removing agent and broker compensation from the MLR calculation saves an industry whose sole function and legal obligation is to protect health insurance consumers. American health insurance agents and brokers want to remain in business – for their clients, families and employees. America should want the same for them.”
Commissioner Jones said, “I have long pushed for the authority to reject excessive health insurance rate increases and this study provides further evidence of why this change in the law is long overdue in California. Health insurers and HMOs continue to impose double-digit premium increases each year and are making larger profits when selling to individuals and families even during these tough economic times.”
The Top Five Issues to Affect Physicians and Patients in 2013
As the New Year approaches, The Physicians Foundation has identified five issues that are likely to have a significant effect on patients and physicians in 2013:
1. Ongoing uncertainty over PPACA– Despite the Supreme Court decision upholding most of the provisions in the Patient Protection and Affordable Care Act (PPACA) and the re-election of President Obama, there is still considerable uncertainty among patients and physicians about implementation. A number of key areas within PPACA have yet to be fully worked out including accountable care organizations (ACOs), health insurance exchanges, the Medicare physician fee schedule, and the independent payment advisory board. The Foundation’s 2012 Biennial Physician Survey found that uncertainty surrounding health reform was among the key factors contributing to 77% of physicians being pessimistic about the future of medicine.
2. Consolidation – Large hospital systems and medical groups continue to acquire smaller and solo private practices at a steady rate. Many solo physicians are seeking employment with hospital systems. However, consolidation could lead to monopolistic concerns, raise the cost of care, and reduce the viability and competitiveness of solo and private practice.
3. New Patients Entering the System – In 2014, PPACA will introduce more than 30 million new patients to the U.S. healthcare system. If physician practice patterns continue, Americans are likely to experience significant challenges getting care. If physicians continue to work fewer hours, more than 47,000 full-time-equivalent physicians will be lost from the workforce in the next four years. Also, 52% of physicians have limited the access of Medicare patients to their practices or are planning to do so.
4. Erosion of physician autonomy – Physician autonomy is deteriorating markedly, particularly related with non-clinical personnel interfering in medical decisions. Many of the factors contributing to a loss of physician autonomy include problematic and decreasing reimbursements, defensive medicine, and an increasingly burdensome regulatory environment.
5. Growing administrative burdens – Increasing administrative and government regulations were cited as one of the chief factors contributing to pervasive physician discontent, according to the Foundation’s 2012 Biennial Physician Survey. Excessive red tape regulations are forcing many physicians to spend less time with patients in order to deal with non-clinical paper work and other administrative burdens. The Foundation suggests creating a Federal Commission for Administrative Simplification in Medicine to evaluate cumbersome physician reporting requirements that do not save money or reduce patient risk. For more information, visit www.PhysiciansFoundation.org.
The Top Performing Health Plans
Three plans garnered the top overall performing spots this year, according to the National Business Coalition on Health (NBCH): Kaiser Permanente Southern California and Kaiser Permanente Northwest for HMO; and Cigna Pennsylvania for PPO. Plans the achieved the highest scores (benchmark) for specific modules include: Cigna in California, Colorado, New Jersey, Tennessee and Washington; and Tufts Health Plan Massachusetts for PPO; Kaiser Permanente in Southern and Northern California, Colorado, and Northwest; Group Health Cooperative in Washington; and Cigna Colorado for HMO.
Health plans are asked to document their activities in support of purchasers, members, and providers including: how they works with employers to promote safe and effective care; tools available for consumer engagement; physician performance measurement and payment reform; pharmaceutical management; prevention and health promotion; and behavioral health and chronic disease management. The information is then verified, and scores are tabulated so that purchasers can compare their health plans against previous year’s activities as well as against regional and national benchmarks.
There is wide variation among plans reporting C-section rates with a high of just over 40% to a low of 19%. With an overall mean C-section rate of 30%, much can be done to educate consumers and reduce the rate of unnecessary C-sections in the market.
Plans are working to identify gaps in diabetes care using a variety of methods. Most plans track patient adherence to diabetes medications (87%) and recommended diabetes services, such as retinal exams (97%) and foot exams (62%).
Just over half of plans provide publicly available comparative reports on physician performance related to diabetes care; 37% of plans provide comparative performance on perioperative care; and 47% provide comparative performance reports on patient experience.
Over 80% of plans are able to report data on hospital readmissions, but only 34% report that readmissions measures are used to determine financial incentives.
Eighty-one percent of plans use financial incentivessteer to steer users to better-performing physicians. However, plan have been slow to offer incentives for consumer engagement activities, with only 16% providing consumer financial incentives for web consultation and 34% rewarding the use of a personal health records. For additional information visit: www.nbch.org.
Customer Satisfaction Is Less for Smaller Carriers
Customer satisfaction with health insurance remains constant with an American Customer Satisfaction Index (ACSI) score of 72. The Blue Cross and Blue Shield Association, the umbrella organization for dozens of insurers, rebounds 7% to an ACSI score of 73.
Customer satisfaction for the rest of the industry is flat or dropping. The aggregate of smaller health insurers, including Cigna and Humana, falls 5% to an ACSI score of 71. This is the third straight year of waning customer satisfaction for small insurance companies. Difficulty in competing on price may be a reason. Following a hike in premiums, the customer satisfaction picture is also problematic for WellPoint, down 5% to 70. UnitedHealth drops 3% to tie WellPoint while Aetna trails the field at 67, as it did a year ago.
Premium rate stability helps push the ACSI score for the life insurance category back to its all-time high of 81 (+1.3%). Smaller life insurers hold onto first place despite a 1% drop to 81. Among the larger companies, New York Life posts the best ACSI score (80). Like Prudential, its score is unchanged. Prudential ties Northwestern Mutual, down 2%, at 79. The largest life insurer, MetLife, has a small gain of 1% to 78, but remains at the bottom of the industry for customer satisfaction.
Webinar on Fixed Annuities
The National Assn. for fixed annuities is sponsoring the Webinar, “Fixed Annuities and What’s In Store In The Years Ahead.” It will be held Thursday, December 20, 8:30 a.m. PT Register Here
Women’s Leadership CE Webinar
The site, professionaltrain.com is sponsoring a webinar titled, “Women’s Leadership: Keys to Success in Both Work and Life.” It will be held Wednesday, January 16, 2013 11:00 PT. It will cover how to exceed expectations of clients and employers while managing the home front. This program has been approved for 1 recertification credit hour toward PHR, SPHR and GPHR recertification through the Human Resource Certification Institute. To register for this event, click this link or call 1-800-830-0799.
BenefitMall is offering an enhanced broker quoting and rating tool called “CRQS 2.0.” It’s offered through www.benefitmall.com and has health plans from more than 125 carriers. Top brokers provided extensive feedback and were involved in usability testing. CRQS2 offers the following:
• Real-time, single step search and rating.
• The ability to compare up to four plans side-by-side.
• A preference center for users to choose pagination, sort plans, and define proposal settings and distribution.
• A favorites library to manage plans.
• The ability to view Employee Rates by Coverage type instantly after the plan is rated.
• The ability to quote multiple carriers in one step for medical, dental, vision, life and disability.
For more information, visit www.benefitmall.com.
Mutual of America Mobile Website
Mutual of America has introduced a mobile website that offers instant access to account information via a smartphone. Participants in employer-sponsored retirement plans and individual customers can review their account summary; check individual plan and account balance details; track personal rate of return information; view recent financial transactions; and more. Future enhancements will enable users to make account-related changes and transactions directly through their smartphone. Read more here.