Seeking Sierra-Sized Annuity Sales While Chained to Interest Rates Down in Death Valley?
Why You Should Focus on the Whole Package with Clients Thirsting for Security.
 What Lies Ahead: The 2012 Fixed Annuity Outlook
Rich Lane • Each new year brings many exciting predictions and events and 2012 is no different. In the Chinese calendar, 2012 is said to be the year of the dragon – a symbol of prosperity. And yet, the Mayan calendar predicts the end of the world in 2012.
Positioning Indexed Annuities as Part of a Balanced Portfolio
by Ryan Pinney • Annuities are not a magic bullet, nor are they intended to be. With ethical sales practices, product knowledge and a good understanding of your clients’ goals and needs, these products can endure in both down and up markets and will continue to do so long into the future.
Technology Can Be Your Time Saver in Placing Policies
by Troy Hartman • Placing a life insurance policy is a great opportunity to confirm your new client’s confidence in doing business with you and to gain referral sources to build up your book of business.  But it is increasingly important to narrow the time between getting an application filled and actually placing the policy with the client.
A Single Solution to Selling Life Insurance
by Todd Mason • Although it might be tempting to focus your sales efforts solely on traditional high-potential prospects: married couples and family breadwinners there are many reasons why singles are in a market that you shouldn’t ignore.
You Gotta Have Life
by Steve Polk  • More than 40% of adults lack this basic coverage. Make sure your clients aren’t among those without life insurance.
Finding the Perfect PPO Prescription –Welcome to Part II of Our Annual PPO Survey
Seven PPOs in California answered 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.
Offering Chiropractic & Acupuncture Benefits in Today’s Market
by Leila Morris • More employers are offering chiropractic and acupuncture benefits, especially in California. For this article, we interviewed George DeVries, who co-founded American Specialty Health (ASH).
Understanding the Disability Policy Changes in California
by Scott Horstman • During the past several years, a number of insurers have been working voluntarily with the California Department of Insurance (CDI) to ensure that their new short- and long-term disability policies meet the CDI’s expectations for disability policy language.
An Affordable and Innovative Solution to Your Client’s LTC Needs
by Eric Williams and James Paxton • The preconceived notions of plan design that served our industry in the past are unlikely to serve us well in the future. As our industry continues to evolve, advisors need to maintain an open mind to designing LTC insurance solutions that meet their clients’ budgets and tolerance for risk in today’s economy.
How to Unlock Savings for Your Clients with a Claims Key Analysis
by David Zanze • When your client calls asking for options, the claims key analysis is a useful resource to help answer the initial questions.
Going SOLAR for Brighter Executive Benefits
by Randy Kemnitz • SOLAR Insurance arrangements may be today’s answer to retaining and rewarding key employees while helping them with death benefit protection and wealth accumulation.

Seeking Sierra-Sized Annuity Sales While Chained to Interest Rates Down in Death Valley?
Why You Should Focus on the Whole Package with Clients Thirsting for Security.
What Lies Ahead: The 2012 Fixed Annuity Outlook

 by Rich Lane

Each new year brings many exciting predictions and events and 2012 has been no different so far. In the Chinese calendar, 2012 is the year of the dragon – a symbol of prosperity.  And yet, the Mayan calendar predicts the end of the world in 2012.

Similar predictions are being made for the fixed annuity market: both an optimistic outlook for annuity sales tempered by fears of what the interest rate environment has in store for 2012. Meanwhile, the stock market continues to fluctuate; corporate earnings remain volatile; and the Federal Reserve recently stated that they anticipate that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least though late 2014.

Regardless of what happens to interest rates in 2012, brokers need to remember why consumers purchase fixed annuities and understand what could lie ahead for the fixed annuity market. There are three key fundamentals brokers should consider and employ when determining how to sell fixed annuities in 2012:

• Sell the total package.

• Compare fixed annuities to other safe money alternatives.

• Do right by the client, always.

Sell the Total Package

Most people do not purchase fixed annuities for the interest rate alone; it is the compilation of all features and benefits that makes purchasing a fixed annuity so attractive to a conservative-minded client. These features and benefits include the following:

• Minimum guarantee – Fixed annuities provide a minimum guarantee that ensures that the policy holder gets a minimum rate of return. This provides great appeal for a purchaser who needs to have part of their portfolio protected from negative market returns.

• Lifetime income stream – All fixed, deferred annuities have the potential to be converted into a series of periodic income payments and pay a lifetime income stream, meaning the client will not outlive this income stream. Only an insurance company can guarantee and provide an income that their clients will not outlive.

• Tax deferral – Monies that go into fixed annuities are tax-deferred, meaning that taxes will be due only when withdrawals or distributions are made from the annuity. This will generally be during retirement, when most people find themselves in a lower tax bracket. As a result, interest accumulates on principal, earnings and on money that would have otherwise been paid in income taxes.

• Ability to bypass probate – Probate is a judicial process to establish the validity of a will. Assets in an estate typically cannot be passed on to heirs until the probate court has established the validity of the will and authorized the executor to distribute them. This judicial process can be long and potentially expensive due to legal expenses. Annuity proceeds can be passed to a beneficiary directly, bypassing probate, as long as the beneficiary designation remains valid. Investments that have not been properly set up as transfer-on-death mutual funds or payable-on-death certificates of deposit (CDs) can potentially be part of a contested will, and the money is then locked in probate until the courts come to a decision.

• Access to partial withdrawals — When faced with certain opportunities or expenses, some annuity owners may be prompted to terminate an annuity contract that is building toward the future to pay for a cost in the present. Doing this, though, may have significant cost implications; however, some carriers permit partial withdrawals that will not cause the annuity contract to terminate.

Compare fixed annuities to other safe money alternatives 

Even with the robust features and benefits of fixed annuities, brokers are destined to encounter clients who are hesitant about purchasing an annuity because of the prevailing low interest rate environment. However, it is important for brokers to remind clients that interest rates for fixed annuities still compare favorably to other safe money alternatives, such as money market accounts and CDs. But brokers should always be careful to make these comparisons complete and accurate and to remind clients that annuities are insurance products.

Do right by the client, always

Doing right by the client has always been an essential practice for brokers to keep top of mind as they go about their daily interaction with clients. This has never been more important given the current volatile market. For example, a good practice for doing right by the client is to offer fair and competitive renewal rates after the initial rate guarantee period is up and for the life of the annuity. Brokers can look to the provider’s renewal history on its annuity products to help gauge whether an annuity provider’s rates decrease dramatically once the initial rate guarantee period expires.

Brokers are dealing with selling a fixed rate product in an environment where interest rates are at an all-time low. Many brokers have clients who have policies with a guaranteed minimum interest rate that is higher than the prevailing market interest rate. This can become a problem when an annuity’s initial rate guarantee and surrender-charge periods expire and the client and broker agree that it is essential to replace it with another product. While it is certainly not ideal to replace a client’s annuity at a lower guaranteed rate, it may be necessary due to the existing interest rate environment. The broker needs to ensure that the client is in agreement and fully aware of the change in rate before moving forward.

Forging ahead

Predicting interest rates for 2012 can be difficult. However, we can glean some insight about the near-term interest rate environment by analyzing the investment portfolios of insurance companies. Compared to prior periods, the average yields for many insurance companies’ investment portfolios are decreasing. Their investment portfolio rates form the basis for determining their annuity interest rates. Crediting rates for annuity products are likely to stay depressed in the short term because insurance companies’ investments are generating a declining yield compared to prior periods.

Additionally, based on the recent statements from the Federal Reserve on federal fund interest rates, the Fed is likely to manage interest rates to keep rates at record lows.

Considering the insurance companies’ investment portfolios and the Federal Reserve statements, it would be reasonable to project that the 2012 fixed annuity interest rate environment will be very comparable to 2011.

Navigating these annuities waters alone, especially during this somewhat unpredictable time, can feel like a massive undertaking. Partnering with the right annuity carrier can mitigate that burden. Brokers should look for a carrier that encompasses three key traits:

• A customer-driven approach.

• A history of financial strength.

• A commitment to building a solid, long-term relationship with their broker partners.

For brokers to provide a secure future for their clients and stand apart from the competition, they need to be very aware of the current conservative savings and investment environment and be well-equipped with the right annuity carrier to address today’s investment trends.


Rich Lane is the national sales director for the fixed annuity business for Standard Insurance Company. He has been in the fixed annuities industry for more than 17 years with an emphasis on product and distribution development for brokerages, banks and broker/dealers. He can be reached via email at

Positioning Indexed Annuities as Part of a Balanced Portfolio

by Ryan Pinney

Indexed annuities are the fastest growing and most popular annuity choice for many financial advisors. Those who are rooted firmly in the indexed annuity camp extol the virtues of these products and repeat the mantra of “Flexibility, Safety and Performance” to their clients and prospects. Unfortunately, the product does have its disbelievers. Pundits have cited high commissions for this rapid growth. Some have even charged that indexed annuities’ long surrender charges are just a watered down version of the classic variable annuity in sheep’s clothing. The question becomes: Do indexed annuities fill a legitimate role in a balanced portfolio? There are pros and cons associated with some of the most sold features of this product category.


Indexed annuities offer three main options associated with the flexibility claim:

• Specialty riders, like minimum guaranteed income or long-term-care provisions.

• Liquidity options, like penalty-free withdrawals, bail-out, and return-of-premium benefits.

• Ability to guarantee a specified income amount during a future year through either income riders or the often forgotten annuitization options.

Of these, what stands out is the availability of riders that are designed to meet or protect a client from a specific risk, like long-term care or those that provide a guaranteed future income stream. To be fair, surrender charges can limit the flexibility and access to funds, but this can be – and often is – a non-issue through proper planning and knowledge about your client and their goals. In addition, liquidity options can be used to access funds without the risks associated with other common investments, like CDs and bonds – namely the forfeiture of interest or gains.


This is a broad term and likely has a slightly different meaning for each of us. In my mind and the minds of many of my clients, it can be summed up into three core areas:

• Risk mitigation

• Protection from market turbulence

• Minimum guarantees

The simple fact that indexed annuities offer minimum performance guarantees can place them squarely in the conservative, fixed investment category. The elimination of downside risk or loss of account values associated with market performance is another safety plus. Finally, these products are offered by highly-rated companies (A or better according, to A.M. Best), making them investment-grade as well.

An argument could be made that the inherent safety factors that are built into these products limits their growth potential, but I’ve never received a call from a client complaining about a zero return in a year when the market was down 20%.


Performance is the area many advisors incorrectly emphasize when talking about indexed annuities. The performance is there, but similar to bonds, CDs, and even multi-year guaranteed annuities, these products are not designed or intended to have double-digit returns. Even so, there are several factors that make indexed annuities very attractive, such as:

• Tax deferred growth of principal and interest gains.

• Higher earning potential to alternative investment products like CDs, money markets, savings accounts, and bonds

• Innovative crediting strategies and indices to determine growth, like Global or Multi-index designs, S&P 400 and 500, Russell, Dow Jones Industrial Average, Euro STOXX, FTSE, LIBOR Linked and even put-style options like negative indexing

• Premium bonuses to recover previous or existing surrender charges or market losses

Can these products have double-digit returns? Sure. In recent years, I have had clients earn as much as 17%  in just one year. Is that normal or something that is reliable? No, I typically tell my clients that these products should be used in lieu of other investment options, like CDs or bonds, because of the tax-deferred growth and the upside potential of the index strategies. In fact, even when the rate of return is equal between products, the advantage goes to the tax-deferred one.

In closing, the answer is yes – indexed annuities can and should be used as part of a balanced portfolio. There are many merits to claims that these products provide unique planning options, and when used correctly, can fill a major and important role in a balanced portfolio of investment and savings products. They are not a magic bullet, nor are they intended to be. With ethical sales practices, product knowledge, and a good understanding of your clients’ goals and needs, these products can endure in both down and up markets and will continue to do so long into the future.


Ryan Pinney is the vice president of brokerage sales for Pinney Insurance Center,  a national brokerage general agency that provides insurance, investment, and financial planning advice combined with proprietary tools to assist agents and financial advisors. Ryan is a three-time Million Dollar Round Table (MDRT) Top of the Table qualifier. He serves as the local president of NAIFA Northern California, as a member of the MDRT Member Communications Committee and NAIFA California’s Social Media Task Force. For more information, visit To learn more about becoming a member of MDRT visit

Paramedical–Technology Can Be Your Time Saver in Placing Policies

by Troy Hartman

Placing a life insurance policy is a great opportunity to confirm your new client’s confidence in doing business with you and to gain referral sources to build up your book of business.  But it is increasingly important to narrow the time between getting an application filled and actually placing the policy with the client.

Delays can exert demands on your time and serve as distractions, particularly when you get calls from the underwriting department to tie up loose ends required to finish the underwriting process. This is lost time slowing policy placement, detracting from client satisfaction, and limiting your new prospects – the lifeblood of the insurance business.

Ideally, the back-office operations of getting a policy underwritten and placed remain where they belong, in the background, and the underwriting process moves quickly and without incident.

Technology has an expanding role in this complicated process. There have been changes in underwriting with migration toward less paperwork, as more work is done electronically.  This has led to a remarkable transformation during the past 20 years.  This electronic-based underwriting has led many applications to be 90% complete in five days, rather than weeks.

Technology has sped how the results are collected and improved the quality of specimen collection.  Samples are processed within 24 hours and information is sent to underwriters electronically.  The data can be managed through different risk matrices that give insurers the capability to assign personalized risk scores to applicants.

Insurers attempt to have a degree of consistency in their underwriting, but it is never a uniform process.  Doctors have varying notions of responsiveness regarding attending physician statements.   Applicants get busy and sometimes have to reschedule appointments to meet paramedical examiners.

Industry averages show that blind preset appointments for paramedical exams are cancelled more than a quarter of the time and examiner scheduled appointments are cancelled nearly 11% of the time. Applicants’ ability to schedule exams and receive e-mail, phone, or text message reminders has reduced the process time of getting an exam from 14 days to just six.

ExamOne found that applicants who control their own scheduling online are more likely to follow through with their appointments.  Also, applicants are less likely to cancel appointments with paramedical examiners that were scheduled at a national testing service center.

Testing service centers provide a setting for rapid collection of test results that can give underwriters the data they need within days after blood and/or urine, are acquired, vital signs are taken and other information is collected.  Test results can add or subtract from the applicant’s total underwriting picture, with better profiles earning better premium offers. Some tests can lead to understandable ratings for certain health concerns, such as high blood pressure, diabetes, or poor liver function.  Indeed, some applicants may be deemed uninsurable due to substance abuse, HIV, hepatitis, or other factors.

Insurance applicants are now able to get their results online.  This can be an enlightening experience, especially when applicants learn, for the first time, about latent chronic illnesses, such as high cholesterol, diabetes, and chronic kidney disease.  About 30% of adults do not get annual checkups and among men 25 to 44, that figure is as high as 38%, CDC said, citing a 2006 study.  So some insurance applicants are getting laboratory test results for the first time in years after applying for insurance.  Insurance applicants can get these results online and can even print them for that doctor visit they have been putting off.

The underwriting side of the equation is important when it comes to protecting the insurance company’s interests. New tools are being introduced to measure risk accurately.  The need to be thorough is always balanced with the need to satisfy clients.  Technology can play an important part in both.

However, technology can never replace understanding your clients, learning what they need and providing products that ensure their financial security through life’s many paths.


Troy Hartman is president of ExamOne.

Life Insurance–A Single Solution to Selling

by Todd Mason

With the number of American adults who own a life insurance policy at an all-time low – just 41% according to LIMRA – it might be tempting to focus your sales efforts solely on traditional high-potential prospects: married couples and family breadwinners. However, there are many reasons why singles are in a market that you shouldn’t ignore.

In the face of rising unemployment and an uncertain economy, family dynamics have changed, making single working adults important contributors to a household’s finances. A Pew Research Center analysis of Census Bureau data recently concluded that the number of young adults ages 25 to 34 living in multi-generational households increased by 16.8% in 2009, and that the median share of household income contributed by those singles was almost 25%.

The idea that children or a spouse are the only dependents who need the protection of life insurance isn’t necessarily true today. Dependents who rely on a single adult’s financial support can include aging parents, grandparents, and siblings. Losing that financial support as a result of a death could be devastating for those left behind.

Americans Are Unprepared for More Financial Strain

The challenging economic conditions of the past several years have taken a toll on many Americans. The 2011 Aflac WorkForces Report found that U.S. workers worry about their ability to meet their current and future financial obligations:

Only 49% of U.S. workers are somewhat confident about their financial future and 25% are not at all confident; 34% said that having enough money to meet their current expenses is their biggest financial challenge; 28% said they are not earning enough money at their current job; almost one-third have no confidence in their ability to cope with the financial impact of disability, injury, death or another unexpected event; and 59% don’t have a financial plan for dealing with unexpected life challenges.

In the face of these kinds of financial concerns, having to pay off an education, car loan, or a mortgage  that has been co-signed with a relative could present significant financial difficulties and even bankruptcy for a surviving co-signer.

Even paying for funeral arrangements can be a financial burden for many families today with costs averaging $7,755, according to the National Funeral Directors Association. Ensuring that family members have sufficient funds to cover those expenses is essential for singles to protect themselves against the unexpected.

Insurance as Part of a Lifetime Financial Plan

Whole life insurance can be a key element of anyone’s lifetime financial plan. Because premiums typically remain fixed, purchasing this type of policy at a young age can help the policyholder lock in a low rate. And the longer the policy is held, the greater its cash value. Any increase in the cash value of a whole life policy isn’t subject to income tax while the cash remains in the policy. Loans on a whole life policy’s cash value can be used to help meet retirement needs; contribute to a down payment on a first home; pay college tuition; or address any other bills the policy owner may face.

Whole life coverage is guaranteed for as long as the premiums are paid, so it makes sense to buy a policy while the coverage is less expensive. The coverage is there in case health issues that occur later in life, make the policyholder uninsurable or cause the premiums to be so high they’re unaffordable. Life is unpredictable and nothing says that someone will stay single forever. If a policyholder gets married, has a family, and wants to increase the amount of coverage, it’s smarter to build on a current policy than buy a first policy later in life when it’s likely to be more expensive.

Voluntary Insurance Bridges the Gap

LIMRA’s 2011 consumer studies show that many adults who do have life insurance are dependent solely on group coverage. In fact, for the first time, the percentage of adults owning group life insurance has surpassed adults with individual life insurance and people insured only through group life insurance have the lowest average amount of coverage.

As employers respond to health reform mandates and tough economic times, many are decreasing life insurance policies or eliminating them entirely. These changes can leave workers with gaps in coverage, often unbeknownst to them. It isn’t uncommon for workers to believe their employer has provided them with life insurance coverage when they have not.

There’s no time like the present for brokers to communicate to HR managers and benefit decision-makers that life insurance policies should not be eliminated and to remind them that voluntary life insurance plans are a smart benefit solutions with no direct cost to employers. By offering additional insurance options, employers can help employees feel more secure and in doing so, they can increase productivity and their organizations’ bottom line.

Over the past several years, voluntary life insurance plans have become much more attractive.

Leaving a Legacy

Without the need to look to the financial security of a spouse and children, singles may have the freedom to consider life insurance to help them leave a lasting legacy. Using a life insurance policy to make a tax-free contribution to a favorite charity or nonprofit foundation is a tangible way to make a difference in the world and have an impact on a cause that’s close to one’s heart.

Singles = Opportunity

Developing fresh revenue streams is always good business and going beyond the tried-and-true prospect profile can yield significant benefits for brokers and agents. Taking that kind of action to grow your client base is particularly important now as brokers face challenges brought on by healthcare reform legislation and increasing pressure on commissions. With a little effort, selling the advantages of voluntary life insurance to the often overlooked singles market can become a lucrative part of your business.


Todd Mason is the California-Los Angeles Northeast state sales coordinator for Aflac. He is responsible for creating and implementing the state’s strategic market development plan as well as the acquisition and training of new talent for the sales force. For more information about Aflac, visit or send an e-mail at

 You Gotta Have Life

More than 40% of adults lack this most basic coverage. Make sure your clients aren’t among those without life insurance

by Steve Polk

You probably know that life insurance ownership is at an all-time low. LIMRA reports that 41% of Americans – 95 million people – have no life insurance. And 43% of people who have life insurance say they don’t have enough.

Are these people your clients? You bet they are! So how can you help close this gap and keep your clients’ workers from falling through the financial safety net that life insurance provides? Let’s first take a closer look at the reasons behind this lack of coverage.

The Uninsured and the Underinsured Employee

The uninsured are not necessarily workers who have lost their jobs or are employed by companies that don’t offer benefits. Even in businesses that offer coverage, not all workers are eligible to enroll as a result of waiting periods or minimum work-hour rules. And some employees simply choose not to enroll, often because they feel their share of premiums is unaffordable. Without life insurance, employees jeopardize their families by placing them at tremendous financial risk. For instance, 34% of households admit they would immediately have trouble meeting everyday living expenses if a primary wage earner died today. And 61% of American workers live paycheck to paycheck, according to the LIMRA survey.

Not having enough insurance is also risky. Being underinsured could have dire consequences, not only for employees and their families, but also for employers and taxpayers. And employees who lack sufficient coverage to shield themselves from financial hardship carry a heavy mental burden. In fact, nearly 20% of full-time employed adults with insurance from their employers express concern about having adequate coverage to protect them should a primary wage earner die, according to the survey.

Why Don’t Workers Have Coverage?

The reasons consumers give for not having life insurance (or enough life insurance) vary. Generally, they have access to this type of coverage from many different channels, but they don’t purchase it for several reasons. Many won’t seek out insurance until they need it and when it’s too late. For example, 54% of those who are likely to buy life insurance in the next year say they just haven’t gotten around to it. More than one-third of these customers say they haven’t bought life insurance because no one has approached them, according to the LIMRA survey.

A lot of people put off making life insurance purchases because the transactions are not always simple. Many don’t know what kind of policy they need or how much coverage they should have and they’re worried about making the wrong decision. Consumers won’t buy when they don’t understand their choices, especially the type of coverage they need for their own circumstances. In fact, 44% of people who say they need life insurance haven’t bought because they don’t know how much to buy.

They have other financial priorities. Consumers are postponing the purchase of additional insurance because they have other financial priorities or feel they can’t afford it. The economy has taken its toll on household finances with fewer job opportunities as well as rising food and gas prices. Squeezing additional insurance premiums into their budgets just seems too difficult for many people.

Help your clients provide a financial safety net for employees with voluntary life coverage. Your clients want to offer competitive benefit packages. And they know that their employees are counting on them to provide the majority of their benefits. By integrating voluntary life coverage into your clients’ core group offerings, you can help them protect their workers against increased financial pressure without hurting the bottom line.

Most people in the United States get their health insurance through their employers. And a significant number get other types of coverage at work also. Here are some reasons that employees prefer to buy life insurance at the workplace:

• They feel it’s an easy and convenient way to buy.

• They believe it will cost less or be a better value.

• They trust their employers.

• They like having the premiums deducted from their paychecks.

There are a number of different types of life coverage. Your clients may want to offer multiple options so employees can choose what’s best for their situations. For instance, group term life insurance is typically a lower-cost option that’s simple to explain and understand. Guaranteed issue coverage is usually available, even for smaller groups, and most policies can be converted to permanent coverage later on. Some policies even include riders for additional coverage for travel, catastrophic events and other special situations.

How Communication Can Help Overcome Objections

LIMRA’s research reveals that many underinsured consumers like face-to-face interaction when buying life insurance. It allows them to establish trust with their advisor; ask questions; and get additional information, advice, and recommendations.

Choosing a voluntary carrier that offers one-to-one benefit counseling as part of its enrollment services can help employees make smart choices when purchasing life insurance. Surveys by Colonial Life prove the effectiveness of this method. Virtually all employees (97%) surveyed say personal benefit counseling improved their understanding of their benefits and that this type of communication is important (98%). They also said that personal benefit counseling can help employees overcome many of the objections they have about purchasing life insurance.

Offer Life-Changing Coverage 

Life insurance provides a strong financial safety net that can protect your clients in the event of a tragedy. Help your clients provide this safety net with voluntary benefits that include life insurance coverage.


Steve Polk is a territory sales manager for the San Diego/Riverside/Hawaii territory of Colonial Life & Accident Insurance Company. Colonial Life & Accident Insurance Company is a market leader in providing insurance benefits for employees and their families through the workplace, along with individual benefit education, advanced yet simple-to-use enrollment technology and quality personal service. Colonial Life offers disability, life and supplemental accident and health insurance policies. For more information, call 803-798-7000 or visit

Finding the Perfect PPO Prescription –Welcome to Part II of Our Annual PPO 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 among 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. Factors that might influence the decision would be the season, 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 most frequently denied.

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.

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: Blue Shield does not capitate PPO providers. PPO contracted providers (physicians and 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.

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 his or her 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 member is billed inappropriately for services, Blue Shield customer service representatives can usually resolve the issue 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.

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 1-800-788-0710. 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 over 1,000 or more total enrolled employees. The minimum group size can be a mix of active employees and retirees (e.g., 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 and is available as a buy-up for self-insured groups. It provides a nurseline, 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 can take advantage of this service at no extra charge.

Cigna: Yes, Cigna’s customer service line is open 24/7 365 days a year.

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 and aid in symptom management. 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

Members may talk to the same Health Coach every time they call. Conversations are not time-limited or scripted, so our Health Coaches have the flexibility to help with the member’s primary concern while exploring and addressing the range of issues that may be related to, and complicated by, it. Health Coaches suggest and schedule follow-up calls to make ongoing contact easy for the member. Additionally, Health Coaches provide techniques to help patients feel comfortable with their doctor, express their values and preferences, and provide pointers on setting achievable goals and evaluating treatment options. Another key aspect is the ongoing guidance and support Health Coaches provide to people living with a chronic illness such as diabetes, asthma, heart disease and depression, as well as education about preference-sensitive conditions (conditions where there are multiple treatment approaches) such as chronic back pain, breast cancer, and arthritis of the hip and knee.

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. (Services under the Healthy Solutions program are value-added services provided by Kaiser Permanente Healthy Solutions, an affiliate of Kaiser

Foundation Health Plan, Inc. (KFHP). These services are not in lieu of any services covered under the PPO Group Policy. Likewise utilization of these services does not constitute receipt of benefits under the PPO Group Policy. The Kaiser Permanente PPO Plan is underwritten by Kaiser.)

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 member health plan account information. Members can 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, request new member ID cards, download claim forms, and request a new personal physician. Blue Shield can offer online enrollment to all our employer groups through our partnership with leading online vendors. This partnership gives benefit administrators direct access to the eligibility system as set up by the vendor allowing for functions such as employee eligibility tracking, plan enrollment, open enrollment, and life event enrollment transactions. Additionally, the use of an outside vendor allows for incorporation of benefit design from more than one carrier, providing employer groups with a single online enrollment service.

Cigna: The CIGNA for Health Care Professionals website ( offers secure and easy access to real-time transactions such as pre-certification, claim status, eligibility, and benefits. Information on CIGNA policies and procedures is also available.

In addition, CIGNA has enhanced the 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.

Health Net: Health Net’s website,, 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 member’s 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—

UnitedHealthcare: Members, physician, and employers have access
to their data and the capability to communicate directly with us online. Our consumer Internet solution – – 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 57,000 members.

Blue Shield: Blue Shield’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 value-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.
Blue Shield’s PPO network has 65,000 physicians (defined by access points) and 350 hospitals, and our HMO network has 32,000 physicians (defined by access points) and 300 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. 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.

Health Net: Health Net of California has taken a multi-product approach in contracting with providers, with approximately 66% of Health Net’s PPO network practitioners also participating in the HMO network. While HMO providers are not required to participate in Health Net’s PPO network,  approximately 88% of them do so. Health Net of California’s HMO network includes more than 49,000 Primary Care Physicians and specialists in the California 30-county HMO service area and more than 65,500 Primary Care Physicians and specialists in the PPO network.

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 658,000 providers and 4,200 acute care facilities nationally and more than 68,000 providers in California. Our HMO offers more than 9,100 providers and more than 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.

Acupuncture & Chiropractic

Offering Chiropractic & Acupuncture Benefits in Today’s Market

More and more employers are offering chiropractic and acupuncture benefits, especially in California. The latest research has shown, not only that these alternative medicine treatments are effective, but they also reduce overall healthcare costs.

For this article, we interviewed George DeVries, founder of American Specialty Health (ASH) to get his take on the market for these benefits.

For what specific conditions are chiropractic and acupuncture treatments used?

DeVries: Chiropractic is typically used for neuromusculoskeletal conditions, including neck and back pain. Acupuncture is also used for neuromusculoskeletal conditions and pain conditions, but many acupuncturists address a broader range of other conditions.

Has there been any recent research to determine the effectiveness of acupuncture and chiropractic treatments?

DeVries: More and more, practitioners and advocates of chiropractic care have come to understand the necessity for scientific research and evidence-based practices to underpin their methodologies. So, new research is taking place every year.  Most recently, a clinical study published in the January 3rd issue of The Annals of Internal Medicine demonstrated that spinal manipulation and exercise can be more effective for neck pain than medications. Spinal manipulations by a chiropractor, simple exercises and pain medicine have long been popular treatment options for neck pain, which affects nearly 75% of the American population. However, previous scientific evidence did not provide a clear answer on which was more effective.

The new research indicates that spinal manipulation is more effective at relieving neck pain in the long-term than medications. Also, the study showed that a few instructional sessions in home exercise yield similar outcomes as spinal manipulation.

We believe it’s important that patients have multiple evidence-based options to care for their conditions, and new research like this makes it possible for people to feel comfortable that they are choosing therapies with research behind them.

Do you see growing interest in chiropractic and acupuncture benefits? If so, what is fueling the growth?

DeVries: Interest from health plans and employer groups has remained stable through the years. Employers continue to show interest in these benefits to help address chronic pain in the work place. Pain has been cited as the most common reason Americans access the healthcare system. It is a leading cause of disability and a major contributor to healthcare costs. Back pain, headache, arthritis, and musculoskeletal disorders cost employers more than $60 billion per year in lost productive time alone, according to a 2003 study published in The Journal of the American Medical Association (JAMA). Chiropractic and acupuncture benefits are a cost-effective benefit that can help address this issue.

With so many ancillary benefit options, what makes chiropractic and acupuncture benefits stand out?

DeVries: It’s the popularity among consumers. A 1993 study published in the New England Journal of Medicine analyzed the use of unconventional therapies, such as acupuncture and chiropractic; 345 of those surveyed reported using at least one unconventional therapy in the past year. Extrapolating that to the U.S. population, the researchers suggested that, in 1990, Americans made an estimated 425 million visits to providers of unconventional therapy. This number exceeded the number of visits to all U.S. primary care physicians (388 million) at that time.

Are there certain industries or employer groups in which they sell particularly well?

DeVries: ASH has sold benefit plans for chiropractic and/or acupuncture across all industries.

Are they generally more accepted in California or have they gained national acceptance?

DeVries: We find they are more accepted in California.

Is there any research to show that these benefits reduce healthcare costs?

DeVries: ASH sponsored a study conducted by an independent health services research organization called “Health Benchmarks Inc.” It was the largest ever done comparing back treatment costs for individuals with and without chiropractic health plan coverage.  Covering four years of retrospective claims data, the study compared over 700,000 health plan members with chiropractic coverage to 1 million members of the same health plan who had no chiropractic coverage.

The study, which was published in the Archives of Internal Medicine in 2004, demonstrated that employers who offer chiropractic health plan benefits to their employees can realize significant reductions in employee utilization and overall treatment costs for back pain, as compared to employers who do not offer the coverage.  The study concluded that employees with chiropractic health plan coverage, compared to those without it, incurred a 41% reduction in hospitalizations for back pain and a 32% reduction in back surgeries. In addition, the study showed that those with chiropractic health plan coverage incurred a 37% reduction in the use of highly-expensive CT and MRI scans for back problems and a 23% reduction in the use of X-rays.

Overall, the cost per episode of treating back pain was 28% less for employees with chiropractic health plan coverage than for those without coverage. A key reason for the reduction in overall healthcare expenses is that most chiropractic care is a direct substitution for more expensive medical care.

Before this, no study had ever linked chiropractic benefits to lower utilization levels in a real-world employee setting. Our study showed that systematic access to managed chiropractic care may prove to be not only clinically beneficial, but can also reduce key cost factors that drive up employer health costs in traditional care settings.

Do these benefits generally involve discounts with providers or are visits covered in full?

DeVries: Both, but ASH Plans and ASH Insurance cover over 4 million members for full benefits.

Are benefits usually provided on a voluntary or employee-paid basis?

DeVries: Benefits for acupuncture and chiropractic in California health plans are generally provided as a supplemental group rider to a basic medical plan.  We don’t offer them as voluntary benefits.

How should a broker determine whether a plan is right for their clients?

DeVries: Brokers should look at the provider network to determine how extensive it is and should analyze the copayment levels and annual limits.

Should brokers look for certain services, experience and offerings in an ancillary benefits company?

DeVries: A broad provider network is important. Additionally, they should make sure the plan offers a strong quality assurance program.

Is it better to present these benefits along with general open enrollment or on their own?

DeVries: Either approach is fine.


Leila Morris the editor of California Broker Magazine.


George DeVries co-founded American Specialty Health (ASH) in 1987. ASH provides a broad range of specialty provider network programs, fitness programs and total population health management programs, including prevention and wellness, and condition management programs. 

ASH received the first national accreditations for a specialty complementary/alternative health insurer, network, and health plan organization. ASH was named one of the Inc. 5,000 Fastest-Growing Privately Held Companies. In 2000, President Clinton appointed Devries to serve on the White House Commission on Complementary and Alternative Medicine Policy. He received America’s Health Insurance Plans’ Innovators Award in 2004, the Ernst & Young National Entrepreneur of the Year for Health Sciences (2000), San Diego Entrepreneur of the Year for Health Sciences (1997), and the 21st Century National Leadership Award from Impact Urban America.

Understanding the Disability Policy Changes in California

by Scott Horstman

During the past several years, a number of insurers have been working voluntarily with the California Department of Insurance (CDI) to ensure that their new short- and long-term disability policies meet the CDI’s expectations for disability policy language.

Beginning with a settlement agreement reached with UnumProvident Corp. in 2005, the CDI has taken steps to ensure that all disability income policies comply with California insurance laws and its interpretations of applicable California case law. This has resulted in a settlement agreement with various insurance trade associations that developed a process for making changes and eliminating some long-standing features commonly included in disability contracts. A few of these changes include the following:

• Removing the discretionary clause that allowed the insurer sole authority to determine disability.

• Adopting a more consistent approach to defining common terms, such as disability and pre-existing conditions.

• Clarifying when an insurer could offset for benefits that were not actually received.

Brokers can now expect greater uniformity among disability contracts offered in California because all insurers working with the CDI are using common guidelines. While fewer distinctions will remain among various contracts, they will not be identical. To make proper comparisons among plans, producers must understand the policy changes, new language, new terms, and new concepts. By doing so, brokers can help ensure that policies provide the desired level of income protection for policyholders when disability occurs.

One of the key differences in the updated contracts is a change in the definition of disability. The “total disability test” replaces what was commonly the “occupation test.” The “partial disability test” replaces what was commonly the “earnings test.” In some new contracts, the total disability test also adds the limitation that a claimant cannot qualify for benefits, even if the claimant is unable to perform one of the substantial and material acts of their usual occupation if they continue to work in their usual occupation.

To qualify for benefits, claimants who are performing limited work in their own occupation must satisfy the partial disability test by proving an inability to earn more than 80% of their pre-disability salary. Previously, some contracts allowed claimants that satisfied the occupation test to qualify for benefits regardless of the amount or source of their earnings. The earnings threshold in the partial disability test will be increased by a percentage amount equal to the Consumer Price Index for urban wage earners and clerical workers (CPI-W) on each anniversary of the day that the disability started.

Another difference that brokers are likely to encounter is the introduction of new or different terms into the policy to define familiar concepts. For example, the definition of total disability for any occupation might explicitly reference “station in life” rather than “gainful occupation.” Additionally, some contracts may use the phrase, “substantial and material acts” rather than the phrase “material duties.” Contracts will typically define the substantial and material acts of a claimant’s usual occupation. Those acts are determined by reviewing the acts that a claimant is required to perform as part of their particular job, as well as whether those acts are required of other employees in the same occupation. In some policies, a claimant must only be limited from one of the substantial and material acts of their usual occupation to meet the total disability test while others may require loss of multiple acts.

Now brokers can also expect all disability contracts to define “occupation” and “usual occupation.” The former contracts sometimes did not define usual occupation, previously regular or own occupation.

Producers also can expect that disability income policies will pay a full benefit during the first 12 months of a period when a claimant returns to work while still disabled, unless the claimant’s earnings exceed 100% of their pre-disability salary, indexed to adjust for inflation. Under previous contracts, indexing typically did not affect the benefit payable during the first 12 months of a return to work period.

Additionally, insurers may have added new language to estimate and offset only certain types of benefits, such as Social Security Disability Benefits (including dependent benefits, if applicable), temporary disability benefits under a Workers’ Compensation law, or disability benefits from government sponsored plans (including California State Disability Insurance) in post-agreement contracts. Previously, any type of other income or benefit was generally subject to estimation.

The pre-existing conditions definition should retain the essential characteristics of the former language, possibly including a treatment-free period, yet to be considered pre-existing; it now requires a condition to be diagnosed during the look-back period or before. Prior contracts may not have required diagnosis.

One outcome of these changes to policy language in disability income contracts may be greater frequency of value-added benefits included within the disability contract if elected by the policyholder. Though they may vary depending on the insurer, a few of these value-added benefits include the following:

• Critical illness, which pays a one-time lump sum to claimants with a qualifying condition such as a heart attack, stroke or cancer.

• Medical premium payment supplement, which pays an employee’s monthly contribution to medical insurance premiums up to the selected maximum amount directly to the employer.

• A retirement savings benefit, which pays directly to a disabled insured’s established retirement savings account.

Overall, though some of the policy or contract language may be different, it generally should not have a material impact on how insurers administer or adjudicate the contract. There may be a slight transition period as insurers upgrade existing employer groups to new policies and roll out updated policies to new groups. Some disability insurance insurers may still be working with the CDI to gain contract approval, but insurers should continue providing the same quality and customer service their clients have come to expect, so brokers can continue to sell short- and long-term disability products with confidence.


Scott Horstman is a product manager with Assurant Employee Benefits, a national provider of quality employer and employee-paid benefits, including disability, life, dental and vision insurance, as well as worksite products.

Long-Term Care–An Affordable and Innovative Solution to Your Client’s LTC Needs

by Eric M. Williams and James Paxton

One of the most important roles for advisors in today’s LTC insurance market is to provide affordable insurance solutions that balance their clients’ planning priorities with their budgets. This role is more critical today than it has ever been because rates for LTC insurance have increased in recent years due to evolving claims experience and the low interest rate environment.

In addition, today’s challenging economy affects many people’s ability to purchase LTC insurance. Fortunately, there are still a variety of ways to design an affordable insurance solution for your clients. With an open mind and a little creativity, it isn’t that difficult to strike a balance between responsible risk management and affordability.

The Changing Definition of Ideal Coverage

In the past, many advisors would recommend what they considered to be the  ideal plan design, insisting that it was the perfect LTC insurance policy for the client’s needs. However, given the current environment, the ideal solution for many clients is the one they can comfortably afford, even though it may not match the advisor’s preconceived notions about plan design. As a result, the advisor must first assess the client’s premium tolerance. The advisor can get a good feel for what the client is willing to pay for LTC insurance by asking about their financial situation, budget, and goals in managing this risk through insurance. The advisor can then show the client how to leverage premium dollars to purchase an effective insurance solution that fits their budget. There are a variety of alternatives the advisor can consider to accomplish this.

Reconsidering the Traditional Approach to Inflation

The first place that open-minded advisors can look to build an affordable LTC insurance solution is in alternative inflation protection. The cost of 5% compound inflation protection has risen sharply over the past few years because of the risks associated with a guaranteed benefit in a low interest rate environment. It is also worth noting that 5% is an arbitrary number that doesn’t necessarily track the rate of growth in long-term care costs. Over the past decade, home care and assisted living costs have increased much less than 5%. In fact, the cost of a home health aide has grown an average of 1.3% per year over the past nine years and the cost of an assisted living facility has grown 3.4% per year, according to John Hancock’s 2011 Cost of Care Survey.

When reviewing inflation alternatives, CPI-indexed inflation protection is one option that advisors can consider for a more affordable price point. It provides compounded benefit growth on an annual basis that is tied to changes in the CPI for All Urban Consumers (CPI-U). Carriers that offer this option can hedge a significant portion of their investment risk, which allows them to provide this option to the consumer at a much more affordable price. It  can be a responsible alternative for many people considering that home care and assisted living costs have been growing at less than 5% and that the CPI-U has averaged 4.1% annual growth over the last 50 years.

Additionally, advisors can consider using other inflation alternatives like 5% simple or 3% compound.  They could even write a policy with no inflation protection coupled with a larger daily benefit at the time of purchase. While these options may not qualify as part of the California Partnership for Long-Term Care, advisors need to recognize that an affordable solution is better than no solution. Because of the cost associated with 5% compound inflation protection, these alternatives may bring the cost of LTC insurance within the reach of many of your clients who might not otherwise be able to afford the coverage.

Managing Costs by Sharing Risk

Another approach is having the client co-insure a portion of their LTC expenses. In this scenario, the client purchases a policy that doesn’t necessarily cover the full cost of care in their area. The client assumes liability for any expenses in excess of their insurance benefits. For example, in an area where costs average $230 a day, the client might consider buying $150 a day of coverage and agree to pay the remaining expenses out-of-pocket. When coupled with one of the inflation protection alternatives mentioned above, the client transfers the risk for roughly two-thirds of the average cost of care to an insurance company while taking responsibility for the remaining one-third. This approach may even provide enough benefit to fully cover the cost of many home care situations depending on the client’s circumstances at the time of the claim. This alternative is one that some advisors have employed consistently throughout the years with good outcomes for their clients. However, in their quest to design the perfect policy, many have overlooked this simple approach to creating an affordable premium. Going forward, this may be all it takes to match your clients with an affordable LTC insurance solution.

Affordable Coverage for the Self-Insurer

Advisors often encounter clients who plan to self-insure their LTC expenses, particularly in the high net worth market. They may not want to pay what they perceive as an expensive and unnecessary insurance premium. So, many buy no coverage at all, leaving themselves exposed if they experience a long-term care event that lasts many years. This group represents an opportunity for advisors who can offer a valuable stop-loss mechanism for a very long-term claim situation.

For example, some LTC carriers in California offer traditional LTC products with elimination periods as long as three years. While often overlooked by advisors, if used correctly, these longer elimination periods can significantly enhance a client’s plan to self-insure. Purchasing a policy with a two-year or three-year elimination period can dramatically reduce the cost of insurance for a person who can comfortably self-fund $200,000 of long-term care expenses on the front end. It still provides the client a valuable stop-loss benefit once they have depleted their self-insurance fund.

In this situation, the value of LTC insurance is further enhanced by the fact that many insurance carriers offer access to care coordination benefits and contract with organizations that negotiate discounts with home care agencies and care facilities. In many cases, these benefits are available during the elimination period, which allows the client to stretch the self-insurance fund they have earmarked to pay for care on the front end. While some have viewed longer elimination periods, we challenge advisors to consider this alternative for clients who aren’t otherwise buying coverage and have the means to comfortably self-fund the first two to three years of long-term care expenses. This alternative can provide a valuable stop-loss mechanism and give clients access to care coordination and discounts before they collect their first dollar in benefits.

Looking Ahead 

The preconceived notions of plan design that served our industry in the past are unlikely to serve us well in the future. As our industry continues to evolve, advisors need to have an open mind when designing LTC insurance solutions that meet their clients’ budgets and tolerance for risk in today’s economy. By using the strategies discussed in this article, advisors can keep the cost of LTC insurance affordable for their clients who need it most while delivering creative LTC insurance solutions to clients who might not otherwise consider purchasing it.


Eric Williams is a regional vice president for John Hancock LTC. He is a 17-year veteran of the long-term care insurance industry and has experienced success as a producer, sales trainer, brokerage manager, and home office sales executive. He can be reached at


James Paxton is a Regional Vice President for John Hancock LTC and has been with the company for 26 years. He built a very successful individual practice, and later managed a prominent agency that specialized in long-term care insurance. He currently leads the efforts of John Hancock’s Western Regional wholesaling team.  He can be reached at

For financial professional use only. Not for use with the public.

Long-term care insurance is underwritten by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02117 (not licensed in New York) and in New York as John Hancock Life & Health Insurance Company, Boston, MA 02117.

Self-Funding–How to Unlock Savings for Your Clients with a Claims Key Analysis

by David Zanze

Your phone rings. It’s your client calling. You pick up, go about the usual pleasantries and then they lay it on you, “What am I saving by staying with our current medical network? My claims costs are out of control. My employees are complaining that they can’t find enough in-network providers. They are using out-of-network providers and it’s costing me.”

What your client needs is a claims key analysis, which is the key to unlocking savings. If you’re savvy, you will have the third-party administrator prepare a claims key analysis as soon as you hang up the phone.  A claims key analysis is a comprehensive evaluation of your client’s medical network. It analyzes the client’s claims savings at all levels: the provider, procedure, and place of service. This kind of detail can help determine how much a client can save with their current network. It’s based on how employees utilize the network. This detailed picture will quantify savings from an in-network versus out-of-network perspective. It will also allow you to determine the actual penetration and whether there really is a lack of in-network providers. Making a few simple plan or benefit design changes could encourage in-network utilization resulting in direct and immediate savings for your client.

A claims key analysis will help determine whether a network change is in order by comparing your client’s actual claims costs with a competing medical network. Each network typically generates its own claims key file for your review. You or the third-party administrator just need to provide the claims data. The claims key analysis will include a disruption analysis of claims that fall in and out of the medical network based on the client’s utilization. This will help to gauge whether the network is an appropriate fit for the client’s employee population. This provides a global perspective of not only cost savings, but also of the impact to your client’s employee population. Until this analysis is complete, you cannot truly assess whether the current network is appropriate or whether your client would be better served by changing networks for steeper discounts. Not sure where to start?  Here are five easy steps to get going:

1. Contact your TPA 

Your third-party administrator will understand what you’re trying to accomplish, the length of the time it will take to put together the data files, and whether any fees will be charged. To perform network comparisons, ask the third-party administrator to send the files directly to the other networks. This will ensure that the same files are released to the medical networks in a format that is Health Insurance Portability and Accountability Act-secure. It will protect you from any liability in case health or proprietary information is released inadvertently.

When performing a network comparison, you also need to check with the current medical network about any data restrictions that it has about claims information before sending the file to a competing network. For example, the current medical network will not allow you to release its allowed amounts or discounts. This information is proprietary and unique to the vendor. It may also require a specific file format to be used when the data is released to a competing medical network. To ensure that you are following protocol, discuss the objective and project specifics with the third-party administrator and the current network. If you think you need additional expertise, there are companies out there that focus on performing medical network evaluations. Your third-party administrator should also be able to provide an independent analysis.

2. Extract Only Recent Claims Data

The third-party administrator should only prepare a file with the last six months of medical claims data. If there aren’t enough medical claims, the third-party administrator can run the data for the last 12 months, but be advised that a claims key analysis should only be performed on current claims data. Anything older than six months may not account for contract or rate changes that occurred during or just before that timeframe. Also, there may have been utilization shifts as a result of changes to the benefit or plan design, all of which can distort the bottom line. For your client to make a smart decision about changing medical networks, a claims key analysis should always be based on current claims and utilization information.

3. Ensure Consistency with the Claims File Formats

In order to get a true comparison, the claims files should be in a consistent format. Beware of varying terminology that could make the analysis difficult to interpret. All data fields should be provided with the same parameters and definitions in order to identify accurate network discounts and savings based on the client’s utilization (for example, dates of service, paid or incurred, place of service, and billed amount). -Certain claims such as, duplicate, denied, drug card, and coordination of benefit claims should be excluded from the files because these claims will overstate the medical network savings. You should get the medical claims data using the same file formats and definitions with the appropriate fields. This will provide a clean analysis of network discounts for the current medical network compared to a prospective network.

4. Request the Claims Key Analysis Reports from the Medical Networks 

Two types of reports must be generated in order to produce a claims key analysis: a primary report provided by each medical network and a comparative report that you will put together for your client. The primary report requires the current and prospective medical networks to provide pricing on institutional and professional claims. This report will illustrate how each medical network performs and the savings achieved based on the client’s actual claims data. Again, there should be a clear distinction among the file layouts to ensure that the proprietary network data, such as discounts, are not released to the competing network. The comparative report that you put together will illustrate how your client’s current network compares to other medical networks in terms of contracted network savings. This report should also be broken out by institutional and professional claims. Together, the two reports make up the essential components of a claims key analysis and provide a side-by-side comparison of claim savings.

5. Evaluate and Present the Claims Key Analysis to your Client 

Once the claims key analysis is prepared, review the data for accuracy. Make sure that primary and comparative savings reports are presented in a consistent manner. Were data fields and definitions consistent across the board? Check for discrepancies and disallowances within the data. It should be summarized in the overall analysis. Ask each network to prepare a summary of contracted rate changes for the client’s demographic over the past 12 months and share any significant contract renegotiations scheduled for the near future. If the network is veritable, it should be willing to demonstrate that its savings are based on actual rates and current in-force contracts. The network should also be willing to provide performance guarantees on its proposed savings. You will have a clear comparison of network data once the claims key analysis is reviewed thoroughly.

To sum it up, when your client calls asking for options, the claims key analysis is a useful resource to help answer your client’s initial questions. Is the current network the best option client or is there another medical network option to consider? Which network has the best discounts? Should your client consider making plan changes? Now is the time to call your clients with solutions to their problems and savings to their bottom line.


David Zanze has nearly 30 years of experience serving as a leader and innovator in the health care industry. He joined Pinnacle Claims Management Inc. as president in 1996. Pinnacle Claims Management, Inc. (Pinnacle) is an all-inclusive health benefits third-party administrator (TPA) that offers competitive, cost efficient claims management in tandem with the latest technology. Pinnacle administers benefits for a diverse range of small to large sized employer groups from all business sectors of the marketplace. For more information call 866-930-7264 or visit

Life Insurance – Going SOLAR for Brighter Executive Benefits

by Randy Kemnitz

An intriguing model for key employee retention is emerging: self-owned life insurance. This model is different from non-qualified plans that use corporate owned life Insurance (COLI) because the employee, rather than the employer, owns the policy. The company can pay for all or some of the annual premiums, which can be tax-deductible for the employer.  The self-owned model may benefit a business and employee in a variety of ways.

Specialized benefit plans for key employees have attempted to solve for two important questions for employers by providing a single answer to the following questions:

• How can businesses keep and reward their best and brightest employees?

• How can businesses provide mutually beneficial financial solutions to employees and employers?

A self owned life and retirement (SOLAR) insurance arrangement can be a simple and effective tool to help accomplish these goals. These insurance arrangements provide important tax advantages to businesses and key employees including immediate tax deduction to the employer, in many cases. And these arrangements may provide income tax deferred wealth accumulation, income tax free retirement income, and the death benefit to the employee’s family. In times of tax uncertainly, an arrangement that provides these tax benefits is the right solution at the right time.

The Old Target

Traditional solutions focus on an employer paying an incentive to the employee for their service. These incentives include qualified plans, such as 401(k)s, which may be supplemented by a non-qualified option for key employees. Qualified and non-qualified plans commonly provide deferral of current income as well as current income taxation. While these traditional solutions may help with key employees’ wealth accumulation, they are based on an outdated paradigm. The old assumptions are that employer-paid funding or matching that’s tied to a vesting schedule is an effective retention tool and that tax deferral is important to the key employee. Paradigms change over time.  Perhaps now is the time to challenge the old paradigm for employee retention.

Taking Aim

Perhaps the biggest obstacle to using a qualified plan, such as a 401(k), as a retention or performance incentive is that the plan cannot be selective. Generally, these qualified plans must be offered to all eligible employees. While providing a 401k may give all eligible employees some incentives to stay with their employer, it may not provide the most compelling incentive to the best and brightest. If the employer is interested in keeping and rewarding key employees, a plan offered to all employees simply may not hit the mark.

Offering non-qualified deferred compensation (NQDC) plans is an attempt to use selective, supplemental plans to provide incentives to key employees. Unfortunately, these plans may miss the mark due to their risks and complexities. NQDC plans rely on the employer being able to pay those promised benefits. Will the employer still be around when the key employee retires? Unfortunately, that’s an important question in these difficult economic times.

In addition, NQDC plans are subject to complex regulations in IRC 409A while corporate owned life insurance (COLI) is subject to The Pension Protection Act. Are the benefits of tax deferral worth the risks and complexities?

A Moving Target 

With the introduction of 401(k)s more than 30 years ago, we have heard the drumbeat that tax deferral is one of the most important retirement income planning tools. After all, we are likely to have lower income needs and enjoy a lower tax bracket in retirement, so it’s better to pay the taxes later.

When I present to financial professionals across the country, I often ask the audience, “Who believes that tax brackets are going down or even staying the same?”  Of the thousand or so financial professionals I’ve asked this question, the vast majority believe tax brackets will increase.

Further, there is evidence that our income needs in retirement may not decrease as assumed. A 2008 study by AON Consulting reveals that retirement income needs actually increased as current income increased. The study found that someone who is making $250,000 annually may need 10 percentage points more of their income replaced in retirement than someone making $90,000 per year. That is a difference of $25,000 per year. Highly compensated key employees may not spend less in retirement.

The old paradigm was formed based on assumptions that NQDC offering tax deferral was the right solution. It’s time to look at a new paradigm.

Right On the Mark

In a SOLAR insurance arrangement, the employer and key employee agree that important components of the overall compensation package are personally owned life insurance protection and the related potential cash value accumulation.

Generally, premium payments that the employer makes into self-owned life insurance products are taxed as additional compensation to the key employee. Also, they may provide a current tax deduction for the employer. A loan feature allows the key employee to borrow money from the life insurance policy to pay income taxes. If an employer chooses this option, the key employee may reduce out-of-pocket costs.

Finally, the policy’s cash value may be available as a source of retirement income to the key employee through policy withdrawals and loans. However, policy loans and partial withdrawals may do the following:

• Vary by state.

• Reduce or eliminate index credits.

• Generate an income tax liability.

• Reduce the available surrender value and death benefit.

• Cause the policy to lapse.

Generally, policy loans or partial withdrawals are not income taxable if there is a withdrawal to the cost basis (usually premiums paid), followed by policy loans. But that is only if the policy qualifies as life insurance; it is not a modified endowment contract; and it is not lapsed or surrendered. And the policy death benefit will generally be paid income tax-free to the key employee’s beneficiaries.

The following are potential advantages of SOLAR insurance arrangements:

• Many employers will enjoy a current tax deduction, although this depends on compensation level.

• Generally, there is no future funding obligation to the employer. The employer funding is flexible and can change.

• The arrangement may not be subject to 409A or 101(j) regulations, which may lead to a simpler, easier plan to administer.

• The arrangement does not affect the employer’s balance sheet and is not subject to the employer’s creditors. The opposite is true of traditional NQDC plans.

• The key employee pays taxes at today’s rates. These arrangements remove the uncertainty of future tax brackets.

The following are potential disadvantages of SOLAR insurance arrangements:

• The employer’s premium payments are taxable income to the key employee.

• There is no cost recovery for the employer.

• There may be no “golden handcuffs” or service incentives.

A Direct Hit

In conclusion, SOLAR Insurance arrangements may be today’s answer to retaining and rewarding key employees while helping them with death benefit protection and wealth accumulation.


Randy Kemnitz, MS, CFP, CLU, is director of Business Planning and Executive Benefits for ING U.S. Insurance Life Sales Support.  Kemnitz has more than 25 years of financial services experience.  Kemnitz leads the ING Life Companies’ executive benefit life insurance sales strategy. He guided the launch of the ING IUL- Global Plus, and the current rollout of the ING Global Life Concierge program, which offers a team dedicated to provide clients with tools and resources. For more information on ING executive benefits, contact 866-464-7355, option 1.