State Insurance Regulators Levy $20 Million Fine Against Insurers

KANSAS CITY, Mo. (July 24, 2008) — State insurance regulators, working together through the National Association of Insurance Commissioners (NAIC), today announced the details of a $20 million regulatory settlement agreement between 29 jurisdictions and HealthMarkets, Inc., and its affiliated companies, MEGA Life and Health Insurance Company, Mid-West National Life Insurance Company and Chesapeake Life Insurance Company.

The regulatory settlement follows a three-year multi-state exam that found multiple problems involving consumer disclosure, oversight and training of agents, claims handling and complaint-handling practices. HealthMarkets faces up to $10 million in additional penalties if it fails to meet performance standards outlined in the settlement.

The multi-state examination was initiated by Washington State Insurance Commissioner Mike Kreidler and Alaska Insurance Director Linda Hall in 2005 and coordinated through the NAIC’s Market Analysis Working Group.

“This is a good multi-state settlement that addresses some serious violations of our consumer protection laws,” said Montana State Auditor John Morrison, who chairs the NAIC Market Regulation and Consumer Affairs Committee. “By coordinating our efforts through the NAIC, we are better able to expedite a collective regulatory response that protects consumers on a nationwide basis.”


According to the terms of the settlement, the companies must implement an outreach program that includes the following:

• Sending a notice to all policyholders with policies issued prior to Aug. 1, 2005that includes a toll-free number, mailing address and e-mail address where policyholders can ask questions about their coverage. The notice also must include a Web site address for each company.


• Ensuring each method of communication is staffed by someone able to provide detailed information about the policyholder’s specific plan.


• Establishing a Web site with a “frequently asked questions” section, general coverage descriptions, a listing of contact information and information on how to appeal a claim or file a grievance.

In addition, the companies must report progress twice a year through Dec. 31, 2009, on performance standards targeted for improvement. Led by Washington, the other states involved in overseeing the insurer’s ongoing activities are Alaska, California and Texas.
There are 13 areas in need of improvement, including:

• Agent training and oversight


• Claims handling


• Identification of company


• Transparency of the companies’ relationship with associations


• Complaints and grievances


• Cancellation, non-renewal and discontinuance notices


• Establishing and maintaining a compliance program

[Check NAIC website for more information or updates as they become available. NAIC stands for National Assn. of Insurance Commissioners. Above is from press release.]

Credit Card Companies, Decoupled from Banks, Explore New Worlds

Have you noticed that your credit cards have divorced themselves from banks?

MasterCard went public in 2006 and Visa followed suit in March of 2008. They benefit from access to more capital and flexibility in the marketplace. However, now they face pressure from shareholders to share the wealth.

Profit targets were much more modest when under the purview of the banks. Management tended to be complacent because they did not have stockholders pushing for more revenue and profits. The credit card companies were member-owned, meaning that if they were considering a buyout of a merchant processor to add value to the company -- it could still be vetoed by any member issuer. At least theoretically, that is. The banks also had a lot of input into matters like pricing, new technology, and more.

Now you are likely to see MC or Visa try to expand into global markets. Handling international payments had been left to co-ops, but now the prospect of real growth in revenue may be too tempting to pass up.

Changes have already come this business. Many of you may already possess an uncoupled debit card -- MasterCard has a decoupled debit card thru Capital One. Most banks really do not like this product because they get stuck with ACH fees while losing out on interchange. Meanwhile Visa has rolled out a MoneyCard for Wal-Mart. MC and Visa are also working thru businesses like Green Dot to build up networks of prepaid reload outlets.

The down side, as already indicated is that stockholders will be much more demanding than member banks ever were about profit and loss. And Wall Street, too, will demand that their marketing expenses be more transparent. The days of mass mailings of cards with few recipients actually qualified to keep it are long past. The card companies will have to work smarter to uncover qualified prospects.

One benefit to merchants in this new era is that they will have more power and influence with the credit companies in terms of bargaining for lower rates or breaks on volume. Merchants feel that they charged more than the actual cost of processing even allowing for a cushion to cover fraud, underwriting and other losses.
But Mastercard is assessing higher fees outside the United States. It has been raising acquiring and access fees about 2% a year and these increases look to continue for the foreseeable future.

Such tactics will be harder to pull off in the United States due to the different split in merchant fees here. Merchants will get hit harder by cost increases and can no longer absorb them. Shrinking profit margins may mean that some merchants will look for other options.

One such alternative is PalPal. You might be shocked to know that PayPal has expanded into digital payments -- no longer an online-only service, PayPal is now accepted by larger online vendors like Moosejaw Mountaineering and Grapevinehill.com.

MasterCard has moved to drop their fee for utility bill payments. It now charges a flat fee of 65 cents on most cards, down a dime. For their consumer debit cards the fee has dropped from 75 cents to 45 cents. This reflects the simple fact that their risk does not in fact rise with the size of the utility bill -- the customer and utility already have a contractual relationship.

One interesting scenario is if Wal-Mart were to buy stock in either company -- or even buy them outright. They are one of the few merchants who could swing such a deal financially. They already have a big influence on the credit card companies just because it is what it is -- the 800 pound gorilla of retailing.

Other specialized retail sectors might demand that fees better reflect actual costs. One such area is that of the pop song download. When you buy a download from iTune, iTune has to pay about 20 cents out of your 99 cents or a dollar to the credit card that you bought it with. Merchants like iTune are going to press for cheaper solutions and could drive down that fee.

Some speculate that the credit cards will have to lower fees as low a nickel a song for these kinds of transactions. This would increase acceptance of their cards for one of the fastest-growing segments of online business.

You will probably see more prepaid cards offered by non-banks such as supermarkets and pharmacies. One example already on the market is the Wal-Mart MoneyCard, a prepaid card handled by Visa and marketed to the under-banked. Visa also handles the prepaid cards offered by Springbok, used as employee incentives, rewards, and product promotions.

Coupled with the prepaid cards are reloading kiosks, part of the Visa Ready-Link program. You may have seen some of them already at merchant locations. Merchant clients share in the revenue from this program so it is likely to prove popular with both consumers and merchants.

Another area still in the pipedream phase is some kind of interface or competition with wiring services like MoneyGram or Western Union. Those two both have cushy markups, and Visa or MC could easily compete with them and still make a comfortable profit. Whether they decide to offer the same, competing services, try to get customers to switch to plastic prepaid cards, or simply buy them out is still unknown.

But think of the possibilities with that. Money transfer with money-card to mobile-phone or card-to-card, or some hybrid service are things that could soon be on customers menu.

It’s going to be a whole new world in the plastic card business.

(Interchange is the rate charged to acquirers and passed on to merchants.)

New Medicare Law Has Other Provisions, Will Affect Mental Health Care, Rxs

The new Medicare law passed this month as a result of massive lobbying from AARP and other interested consumers will do more than protect doctor payments. Physicians are breathing a bit easier that they will not be subjected to a cut of nearly 10% in their fees. But counselors and others in the mental health field are also relieved that their patients are no longer discouraged from seeking treatment.

Previously, mental health patients had to pay for half their health care. Now they get much needed relief, now that their out of pocket expenses are capped at 20%. [NOTE: this reduction phases in gradually thru 2014.] A few more popular drugs are added to the formulary too, drugs like anti-anxiety and sleep aids that were never covered before. That change will not go into effect till 2013, so till then you will just have to count sleep.

Even more important is a boost for preventive health care. It is now easier and cheaper for Medicare recipients to get a physical checkup. Preventive medicine and a drop of progressivism could go far to reduce the rates of diabetes, heart disease, and hypertension.

The alternative to traditional Medicare, called Medicare Advantage, is getting a few reductions. The main cutback is in the list of doctors who patients will be allowed to see.

One other change is intended to encourage physicians to embrace electronic prescriptions. At first they will get a carrot -- the plan initially boosts payments to doctors for writing electronic prescriptions. Later, it uses a stick -- docking their payments for still hand writing them. The higher reimbursement at first will help defray physicians’ expenses for installing digital prescription software and hardware.

Currently, about 70% of pharmacies are geared up and ready to process electronic prescriptions, yet only about 40,000 doctors are converted to that digital technology.

Americans Finding They Can No Longer Afford Insurance

QUOTE: ‘What we're seeing is a market that's gotten so mature and beyond its customer[s] that people can literally no longer afford to buy the product,’ said Sheryl Skolnick, an analyst with CRT Capital Group. ‘The number of uninsured is growing faster than any player in the game, and it's getting bigger.’

That was from a Wall Street Journal story about the insurance industry. --

When our country decided back in 1919 that it was not going to go the same route as several European nations and embrace national health care, we never imagined that the private health insurance industry could price itself out of the market.

Health care bills have been rising even though doctor bills have been pretty steady. The reason is that more services are ordered -- the X-ray or MRI, the technician to take the X-ray or MRI, the physician specialist to read the X-ray or MRI, the drugs needed for the MRI, the nurse assistant to administer the drugs so that they can take the MRI, etc. You get the idea.

Even managed care has been unable to keep the cost of medical care down. The insurer may arbitrarily decide on a fee for a mammogram, usually $100. The provider may actually bill $300 to cover costs, etc. A mastectomy really costs $5000, but the insurance may only pay $800 or so. Where is the difference going to be made up?
The patient cannot afford to pay both the insurance premiums AND the balance of his medical bill. All too often, he or she may decide, hey, I am not getting my money’s worth out of this deal so I am foregoing the insurance. And this is the decision being reached by employers, too.

Stop and digest this figure -- 6.4 million fewer workers had employer-sponsored health insurance in 2006 than in 2000, according to the Economic Policy Institute. By the way, there are a total of roughly 47 million Americans without health insurance at all, and about 9 million kids with no coverage. How did we come to this state of affairs, and what do we do about it?

Part of the problem is that a nice system, the HMO, was twisted around to serve as a profit-generating mechanism. In the process, premiums rose from 1993 to 2003 by over 7%, but administrative costs rose by 500%. No one can stay in business for long with those kinds of statistics.

I can attest that insurers are under big pressure to reduce their costs. I used to work behind the scenes and saw the cuts in staffing, the reliance on faster computers and software to process mountains of claims (about 4,000 to 6,000 claims a day were received by that company), and the many small cost-cutting measures that affected worker morale.
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PS --
I found a blog about health matters that was very interesting. Here is that writer’s take on “The Managed Health Care Roller Coaster” at http://www.healthbeatblog.org/2008/07/the-managed-car.html.

Congress Overturns President’s Veto of the Medicare Bill

The House and Senate both voted today to overturn the President’s veto of H.R. 6331, (Rah! - L.A.S.) the Medicare package that includes the bidding changes and the physicians’ pay adjustment. The key HME provisions are described on the American Association for Homecare website at www.aahomecare.org.

The House voted 383 to 41 to override the President’s veto in mid-afternoon. The Senate then took up the debate in the evening and voted to over turn the veto by a vote of 70 to 26. With the two chambers voting by two-thirds majorities to override the President’s veto, the bill becomes law.

Thank you to all of the providers, state and regional associations, manufacturers, buying groups, consumer groups, disability organizations, and other stakeholders who have worked hard to accomplish this success for homecare providers and patients.
The American Association for Homecare will be working in the weeks ahead to ensure that patients and providers have minimal disruptions. Just today, AAHomecare met with the Acting General Counsel of the Department of Health and Human Services and was advised that if the override were successful, CMS would issue an immediate fact sheet on the impact of the legislation on providers.

This is a press release from AAhomecare.org -- Check www.aahomecare.org for continued news and details when they become available.

Funeral Planning Goes Online

Say you want to tell your kids what kind of funeral you want, what kind of music played, who to invite or not invite -- but your kids don’t want to talk about it. “Oh, Mom/Dad, don’t even think about that stuff yet,” they might say.

Go online to MyWonderfulLife.com and plan out your funeral. You can fill in details about music and burial, flowers or charitable contributions. Up to 6 loved ones (ie family members) can have access to your record there, plus notes on where to find your will or other papers. A British counterpart is called YourDeathWish.com -- Brits have such macabre humor sometimes but we love it so.

CAUTION: You might be better off NOT prepaying funeral expenses. You are definitely better off NOT buying funeral insurance. There have been scandals where funeral insurance policies sold by one funeral home were not valid or not honored if the seller closed or was bought out by a competitor. Read the awful truth in the excellent book by Jessica Mitford, The American Way of Death Revisited.

Americans Shave Insurance Bills Just by Shopping Around.

Everyone’s looking to save money somewhere, anywhere now that food and gas prices have cut deep into disposable income. Do you at least compare auto insurance offers at renewal time every year?

Go to NAIC.org (National Organization of Insurance Commissioners) and click on NAIC states to find your state of residence. You can compare rates by matching yourself to a set of profiles; this is very imperfect but it’s a starting point. Other places you can start checking premiums are insweb.com and insurance.com.

I might add that if you belong to any organizations you may be eligible for special plans and rates. Members of AARP always get a competitive rate. Members of trade or fraternal groups almost always get some offers every year for their business. (This is true of life and health insurance also, and even IRA accounts.)

This is not a plug for AAA, but I just want to mention that as a member of AAA I get a discount on insurance, and by combining house and auto insurance I feel I am getting a nice package deal. You may belong to some other group or organization that gives you a similar benefit, and I say you’re very lucky to find deals like that. Go for it.