IN CALIFORNIA
-Insurance Commissioner Poizner Reacts to Industry’s Rescission Lawsuit
-State Approves Individual Rate Hikes
-California Health Reform Update
-Kaiser Permanente Joins Forces with HealthCompare in California
ANNUITIES
-Indexed and Income Annuities Surge Ahead
-Variable Annuities Get More Affordable
FINANCIAL PLANNING
-Life Insurance Gender Gap Remains With Working Moms
-Women Are Looking For Better Financial Advice
-Business Owners Are Delaying Retirement
VOLUNTARY BENEFITS
-Voluntary Critical Illness Sales Catching Up to Cancer Coverage
HEALTHCARE
-Health Reform Is Expected to Increase Utilization
-Health Insurance Employees Can Expect Bigger Raises
-COBRA Enrollment Rates Remain High
NEW PRODUCTS
-2010 LTCI Worksite and Combo Products Tour
-Retirement Readiness Workbook
IN CALIFORNIA
Insurance Commissioner Poizner Reacts to Industry’s Rescission Lawsuit
Insurance Commissioner Steve Poizner issued a statement condemning an insurance industry lawsuit to block regulations that prevent rescissions in individual health insurance. Commissioner Poizner said, “I find it unconscionable that insurers would sue to keep the Department from stopping the horrific practice of illegal rescissions. Sometimes, I think representatives in this industry have their heads permanently stuck in the sand. Illegal rescissions are a repugnant industry practice. In this environment, this lawsuit is simply short-sighted and morally wrong.”
Earlier this year, Poizner introduced regulations to prevent unfair rescissions in the individual health insurance industry. Rescissions are retroactive cancellations of coverage after a patient becomes sick with an often expensive-to-treat illness. These regulations, effective August 18, 2010, mark California’s first regulatory steps to clarify rescission laws.
The regulations require insurance companies to perform all underwriting before accepting a policyholder and receiving premiums. They also prohibit insurers from conducting certain rescission-focused investigations after the policyholder becomes sick or injured. The rescission regulations don’t prohibit insurers from addressing fraud by health insurance applicants so long as the insurer has done its work in reviewing the application before issuing the policy.
State Approves Individual Rate Hikes
The California Department of Insurance approved individual plan rate increases of 14% on individual Anthem Blue Cross health insurance policies. The Dept. also approved a nearly 19% increase on Blue Shield of California policies. Previously, the Dept. of Insurance blocked Anthem’s propose rate increase of 39% for some customers, with average increases of about 25%.
A blog by Consumer Watchdog notes that the rate hikes are still in double digits, while average wages are still falling. “The only permanent fix is to require regulators to review rates before they go into effect, and to bar increases that are excessive. The reason it hasn’t happened already is the insurance industry’s lobbying might in the state Legislature.”
California Health Reform Update
The following is an update of state healthcare legislation:
- Failed – Approval Required for rate increases (AB 2578): Assembly Bill 2578 (Jones/Feuer). Health insurers would have had to get approval from regulators before health insurance rate increases took effect. The measure fell four votes short of the 21 needed for passage on the senate floor. Democratic senators Lou Correa, Ronald Calderon, and Rod Wright – top recipients of health insurance company contributions – joined Republicans to oppose the bill, according to an analysis by Consumer Watchdog. Consumer Watchdog president Jamie Court said, “It’s outrageous that all Californians will be required, by law, to have health insurance by 2014, but the state senate has refused to require health insurers to sell affordable insurance by giving regulators the power to stop excessive premium increases. Too many state senators have refused to buck the industry that has lined their campaign chests. It’s clear now that if health insurance premium regulation is to become a reality in California, voters will have to take matters into their hands at the ballot box and enact the law themselves via ballot measure.”
- Passed –Mammograms for low income women (AB 1640): The California legislature passed AB 1640, which would reverse major cuts to a program that provides free mammograms for low-income women. In December 2009 the Schwarzenegger Administration raised the minimum eligibility age for the program from 40 years old to 50 and froze new admissions altogether. The freeze was supposed to last through July 1, the start of the new fiscal year, but has been extended because the state does not have a new budget. The Every Woman Counts Cancer Detection Program (EWC) provides mammograms and cervical exams to more than 350,000 uninsured or underinsured low-income women every year. But the program has been under pressure because most of its funding comes from state tobacco taxes, which have been declining as fewer people smoke, reports HealthyCal.org. The Governor still has to sign the bill. Despite AB 1640 passing through the Senate and the Assembly unanimously, it’s expected to face opposition from the Schwarzenegger administration. The governor’s Department of Finance registered the only formal opposition to the bill in the Legislature.
- Passed – Bill to Set up State’s Health Insurance Exchange (AB 1602) and (SB 900).
Kaiser Permanente Joins Forces with HealthCompare in California
Kaiser Permanente is now available to Californians through www.healthcompare.com.
HealthCompare presents easy-to-understand information on all health plans including PPO and indemnity health plans. Users enter their information to get instant quotes online based on Kaiser Permanente’s local offerings. HealthCompare’s corporate parent is The Word & Brown Companies.
Annuities
Indexed and Income Annuities Surge Ahead
Second quarter sales of fixed annuities were up 18% from the first quarter of 2010, according to the Beacon Research Fixed Annuity Premium Study. However, results fell 30% compared to an unusually strong second quarter of 2009. Estimated year-to-date sales were 43% below those of first half 2009, which were the largest since the study began in 2003.
The spread between fixed annuity and Treasury rates has widened since second quarter and the flight to safety has intensified. Jeremy Alexander, CEO of Beacon Research said, “These conditions suggest a potential quarter-to-quarter sales increase of about 10%. Actual results will depend on the capacity and willingness of issuers to write new business, of course. Longer term, we also expect rising demand to support growth in fixed annuity sales. The public will be more risk-averse for some time to come; there is wide recognition of the need to save for retirement, and the value of tax deferral seems likely to increase.”
Second quarter 2010 sales of indexed and income annuities were the highest in the study’s eight-year history. The increases were 31% for income annuities, 29% for MVAs, 25% for indexed annuities, and 6% for book value annuities. Income annuities were 10% ahead of sales for the second quarter of 2009 while indexed annuities were ahead 0.4%. But MVA sales fell 57% and book value results fell 48%.
Income annuity sales increased 2% compared to the first half of 2009 while sales of other product types declined. Declines were 73% for MVAs, 57% for book-value annuities, and 3% for indexed annuities.
Credited rates fell during second quarter, with top rates on multi-year guarantee annuities dropping from more than 4% to 3.75%. However, the fixed annuity advantage increased over Treasury rates. Although the yield curve flattened, fixed annuity sales by guarantee period changed surprisingly little. For more information, visit beaconresearch.net.
Variable Annuities Get More Affordable
The cost of variable annuities has come down, with the average fee on a VA chassis dropping four basis points in the second quarter. Every share class showed a reduction except for A-shares, according to a report by Insured Retirement Institute (IRI).
The decrease in cost of variable annuities has spurred substantial growth in the industry, with year-to-year sales advancing at the greatest pace since 2007, according to Cathy Weatherford, president and CEO of IRI. Second quarter data also underscores how living benefit guarantees make variable annuities a more attractive part of a comprehensive retirement plan. More than 83% of variable annuity purchasers chose a lifetime guarantee of income, which is a slight increase over the previous quarter (81%). Coupled with enhanced withdrawal percentages for investors, annuities are distinctively poised to provide even greater role in providing a trusted source of retirement income, according to IRI. For more information, visit www.irionline.org.
Financial Planning
Life Insurance Gender Gap Remains With Working Moms
There is a gender gap in life insurance coverage between married working moms and dads, according to a MetLife study. Married men with minor children have five times their annual household income in life insurance coverage – if they have coverage at all. However, married women with minor children have only three times their annual household income in coverage.
Steven Weisbart, Ph.D., CLU of the Insurance Information Institute said that many people overlook some important expenses that life insurance can help cover. For example, the death of a working parent can eliminate a family’s health insurance, tuition assistance, and other financial benefits.
Only 26% percent of the working moms say they get effective benefit education at the workplace compared to 48% of working dads. The study reveals a strong correlation among effective benefit communications, improved benefit satisfaction, and improved job satisfaction. The study also found that only 38% of married women with dependent children are very satisfied with their workplace benefit compared to 56% of their male counterparts. For more information, visit www.metlife.com/straightstory.
Women Are Looking for Better Financial Advice
The Annual Transamerica Retirement Survey reveals that there are untapped opportunities for advisors to help brighten the retirement forecast for American women. Fifty-seven percent of women surveyed want more retirement information and advice from their employers. Forty-four percent want educational materials that are easier to understand.
Thirty-four percent of women trust the advice they get from friends and family; 24% trust financial websites, and 20% depend on print newspapers and magazines.
Fifty-six percent of women want advice, but they still want to make their own decisions. Half of women are not confident in their ability to retire comfortably.
The following statistics reveal that women lack knowledge of savings and investing fundamentals as well as key provisions and plan elements that could help them make educated decisions about their retirement:
- Three-quarters of women don’t know as much as they should about retirement investing. Only 3% of women know a great deal about asset allocation.
- 82% are unsure or don’t know of any fees that may be charged to their employer-sponsored retirement plan
- 84% are completely unaware of the saver’s credit that is available to low-to-middle income workers who are saving for retirement
- 57% are not aware that people 50 and older may be allowed to make catch-up contributions to their retirement plan.
Catherine Collinson, president of the Transamerica Center for Retirement Studies said, “Just 8% of women feel they are already educated enough to reach their retirement savings goals. It’s up to everyone to help educate and motivate the other 92%. By listening to and embracing what American women want and need to achieve a secure retirement, we can start effecting positive change. It is critical for the retirement industry, media and policy makers to respond by providing information, tools and resources tailored to women to help them thrive in their golden years.”
Seventy percent of women believe they could work until age 65 and still not have enough saved for their retirement while nearly 60% say they are not building a large enough nest egg. In fact, women estimate needing a median amount of $500,000 to achieve a secure retirement, yet almost 40% of women have only $50,000 or less saved in all of their household retirement accounts combined.
Forty-one percent of women cited 401(k) plans and IRAs as their expected primary source of income to cover living expenses at retirement and 29% still expect Social Security to be their primary source of income.
Only 67% of are offered a 401(k) or similar plan by their employers, compared to 74% of men. The picture is worse for women who work part-time, with only half offered a plan.
Collinson said, “Women already face a number of unique circumstances, such as typically lower salaries, time out of the workforce, and longer life expectancy…Many women are still missing opportunities to improve their outlook by adopting more proactive savings habits.”
At a median age of 30, women typically start saving for retirement two years later than men. Women are also generally less involved in managing their retirement savings. Fifty-four percent have no strategy for reaching their retirement goals. When asked how they arrived at their estimated needs in retirement, almost 60% of women said they had guessed. For more information, visit www.transamericacenter.org.
Business Owners Are Delaying Retirement
Sixty-nine percent of business owners don’t plan to retire or cut back on work until they reach 65 or older, according to the latest Wells Fargo/Gallup Small Business Index survey. Twenty-one percent of business owners plan to retire from ages 60 to 64 compared to 27% in 2007. Eleven percent expect to retire before age 60 decreased to 11% compared to 21% in 2007.
Sixty-two percent of business owners surveyed have changed their retirement strategy as a result of the economic downturn. Sixty-eight percent are worried about not being able to build back retirement savings lost during the recent economic downturn. For more information, visit https://www.wellsfargo.com/press/2009/20091105_Retirement.
Voluntary Benefits
Voluntary Critical Illness Sales Catching up to Cancer Coverage
Voluntary critical illness sales were up in 2009 while cancer insurance sales lagged. Critical illness sales increased almost 88% from 2008 to 2009 compared to cancer sales, which went down almost 8%, according to the latest Eastbridge annual U.S. Worksite Sales Report.
Many in the industry have been wondering when critical illness sales would replace cancer sales. Bonnie Brazzell of Eastbridge said, “Historically, cancer sales have outpaced critical illness sales by a margin of four to one. In 2009 critical illness made significant inroads in shrinking that margin. Cancer sales in 2009 still exceeded critical illness, but the margin was down to two to one.”
In 2009, cancer sales accounted for about 8% of total voluntary sales (down from 9% in 2008). Critical illness sales increased the share of total sales from just over 2% to 4%. This is the second year in a row with significant gains in critical illness. There was a 19% increase in 2008 compared to 2007).
Gil Lowerre, president of Eastbridge said, “Many have been wondering when critical illness sales would replace cancer sales. I’m not sure we will ever see cancer sales disappear completely, but if cancer sales continue decreasing and critical illness increasing, we will see a shift to more critical illness than cancer.” Total voluntary sales for 2009 were $5.397, up 3.3% over 2008. For more information, visit www.eastbridge.com.
Healthcare
Health Reform Is Expected to Increase Utilization
Beginning in 201, the Patient Protection and Affordable Care Act will remove patient out-of-pocket costs for preventive care services under many plans, which will drive an increase in the use of these services, according to a report by Towers Watson. Randall Abbott, a senior healthcare consultant with Towers Watson said, “Covered people and their families will not face even nominal financial barriers to preventive care services.” Many employer-provided health plans have promoted low-cost or no-cost preventive care for years, but the new law broadens the range of services covered and establishes a uniform standard for services grounded in the recommendations of the United States Preventive Services Task Force and other similar bodies. Under the provision, insurers and self-funded health plans must cover regular wellness visits based on the patient’s age and gender and a range of recommended screenings.
New additions to coverage for most employees and their families will include depression, supplemental pregnancy, and HIV and other sexually transmitted diseases screenings and HPV tests for females. It also includes recommendations to take aspirin to prevent heart disease and fluorides for children.
Harlan Levine, a physician and senior healthcare consultant with Towers Watson said, “Historically, America’s healthcare system has been focused on the treatment of illness and this provision is an essential first step to reframe the industry, proactively focusing on the preservation of health. The legislation promotes free preventive care and emphasizes the importance of early detection and regular doctor visits in helping adults and children stay healthy.”
Plans that are not considered grandfathered under the law must provide these benefits at 100% beginning in plan years starting September 23, 2010. For employer plans, this is commonly January 1. Towers Watson anticipates that fewer than half of large employer health plans will retain grandfathered status since most will be making plan design and contribution changes that will exceed the limits permitted by the grandfathered plan rules.
Implementing the new preventive care benefit will not be painless. Insurers and employers will face cost increases of 1% to 2%. With an annual 2010 average per covered employee health cost of just over $10,000, employers will see an increase of $100 to $200, which will be in addition to expected average annual cost increases of 8% to 10%. Many employers will be scrambling to communicate these new benefits to employees in time for open enrollment in early fall.
Insurers and administrators will face the additional challenge of modifying their claims payment systems by January 1 or establishing processing guidelines for their examiners. “Many employers have taken it upon themselves to define these benefits because there has not been a single standard for the administration of preventive benefit. This adds to the complexity of implementation for many regional and national claim payers and employers should really take the time not only to understand the affect on their plans, but also to test their administrator’s capabilities before January 1,” said Greg Mansur, senior healthcare consultant with Towers Watson. For more information, visit www.towerswatson.com.
Health Insurance Employees Can Expect Bigger Raises
Hay Group’s 2010 Health Insurance Survey has some positive news for health insurance employee compensation in 2011. Median salary budget increases for 2011 are expected to reach 2.9% for executives and 3% for all other employee levels. This is a slight increase from last year’s survey, which reported median salary budget increases of 2% for executives and 2.5% for all other employee levels. Merit increases, which are one piece of the total salary budget, are also expected to climb in 2011 by up to 0.5% depending on the employee level.
While the added merit budget increase is relatively small, it will allow organizations to provide raises for employees who exhibit added value, which is especially important as companies plan for major changes in the wake of healthcare reform. “However the industry may transform, these organizations are clearly stating they will invest to keep their best people,” said CJ Bolster, National Director for Hay Group’s Healthcare Practice.
Forty eight percent of organizations have not reviewed their performance-based employee incentive plans in five to 10 years, compared to the cross-industry standard of three to five years.
“With so many questions around the new payment structure resulting from healthcare reform and the economic recovery, health insurance organizations are working to define what ‘performance’ will mean in the future. As the industry becomes more aware of the affect of these variables on their business performance, reviewing incentive plan design and metrics will be an important initiative. Companies will clearly want to ensure employees focus on driving the performance of the organization by developing metrics that are aligned with the business strategy and providing payout opportunities that are meaningful to the employees,” said Cheryl Mikuls, vice president with Hay Group.
Looking at salary structure adjustments (the framework in which salaries are based), Hay Group’s study found a noticeable drop from previous years. In fact, median salary structure adjustments are at their lowest point in 10 years. In 2010, respondents are planning an average salary structure increase of 2%, compared to a high of 3.1% in 2001 and a previous low of 2.7% in 2008. Salary structure increases are expected to remain at 2% through 2011 as well. “This is a significant relevant reduction, and the indication is that employers are continuing to be cautious in moving salary structures and providing salary increases until they have a clear understanding of industry direction,” said Mikuls.
For more information, visit www.haygroup.com.
COBRA Enrollment Rates Remain High
Many people are continuing to enroll in COBRA for healthcare insurance, despite the high price tag and the end of the government COBRA subsidy, according to an analysis by Hewitt Associates. One out of five terminated employees in Hewitt’s analysis enrolled in COBRA coverage in June 2010 – the first month in which the subsidy was not available. It is almost twice as high as historical, pre-subsidy enrollment rates.
The average COBRA enrollment rate for these employees and their dependents was 21% in June 2010. This is significantly higher than the historical monthly average enrollment rate (12%), but slightly lower than enrollment rates while the COBRA subsidy was available to involuntarily terminated employees (25%).
Hewitt’s analysis showed the average monthly enrollment rate was 38% for workers who were involuntarily terminated and eligible for the COBRA subsidy, with enrollments peaking in June 2009 at 46%. For May 2010, the last month that the subsidy was available, the COBRA enrollment rate for involuntarily terminated workers was 31%.
Karen Frost, Hewitt’s Health and Welfare Outsourcing leader said that enrollment rates are likely to decline over time as workers can’t afford the high premiums associated with COBRA coverage or simply aren’t willing to pay the premiums. Additionally, workers who enrolled in June anticipating the subsidy would be extended may drop coverage now that it is clear they won’t be able to offset the high cost of COBRA.
Under the COBRA law, terminated workers may continue employer-sponsored health coverage by paying 100% of the healthcare premium plus an additional 2% to cover administrative costs. This translates to roughly $8,800 a year in COBRA healthcare costs for the average worker. Enacted in March 2009, the COBRA subsidy under the American Recovery and Reinvestment Act of 2009 (ARRA) required eligible employees to pay only 35% of the COBRA premium or about $3,000 a year for the average worker. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, healthcare, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, visit www.hewitt.com.
New Products
2010 LTCI Worksite and Combo Products Tour
Phyllis Shelton, President of LTC Consultant is offering training on LTC worksite and combo products November 9 in Los Angeles. For more information, visit www.ltcconsultants.com.
Retirement Readiness Workbook
MetLife’s Mature Market Institute is offering its free Retirement
Readiness Workbook. For more information, visit www.MatureMarketInstitute.com.
Free Tool To Shop For Coverage
The Dept. of Health and Human Services (HHS) released HealthCare.gov, which makes it easier to search for coverage options. Based on answers to a series of questions, the coverage finder tool produces a menu of potential coverage choices personalized for the user. For more information, visit http://www.healthcare.gov/stay_connected.html
