Senior Insurance Blog

Health care reform continues to be at the forefront of legislative agenda. No doubt you have heard or read many reports through various news outlets. With so much going on in recent days, it can get pretty confusing. The biggest news thus far is the advancement of a bill in the U.S. House of Representatives by two committees.

The 1,018-page bill maintains the employer-based health insurance system, and extends coverage to all uninsured with a public option. It also requires private insurers to offer policies to all willing buyers and bars them from charging higher premiums based on pre-existing conditions.

To pay for it all, the bill requires individuals who earn enough to file taxes to have insurance or pay a 2.5% penalty on the difference between one's adjusted gross income and the tax filing threshold. It also requires that businesses provide insurance, and that a tax be imposed on such employer-provided benefits. Businesses that don't will pay a payroll tax ranging from 2-8%. The bill also implements a 1% to 5.4% surtax on individuals who make $280,000 or more annually. This is all in addition to the Medicare and Medicaid cuts discussed here previously.

Though the bill was pushed through by House democrats, it was met with criticism by two unlikely, but influential individuals - Douglas Elmendorf, chief of the Congressional Budget Office and President Obama. President Obama opposes taxing employer-provided benefits, and Mr. Elmendorf says the overall bill doesn't reduce the cost of health care to the federal budget over the long-term. Politicians drafting the bill are now re-working the bill to appease President Obama and other influential critics. According to the Chairman of the Senate Finance Committee, Sen. Max Baucus (D-Montana) "Basically, the president is not helping us."

On another subject, Precision Senior Marketing is sponsoring the "Nature University Contest." To enter, submit a short essay of 250 or more words demonstrating leadership. Winners will have their essay featured on the globally marketed site, as well as win either a $150, $100, or $50 Amazon.com gift certificate. For more information: http://natureuniversity.info/

Blog entry sources: Wall Street Journal, CNN, Associated Press

According to the Associated Press, the Treasury department has decided to provide roughly $22 billion in Troubled Asset Relief Program (TARP) funds to six life insurers that include: The Hartford Financial Services Group Inc., Lincoln National Corp., Allstate Corp., Ameriprise Financial Inc., Principle Financial Group Inc., and Prudential Financial Inc.

Thus far, the only specified amounts made public are that The Hartford can receive up to $3.4 billion, and Lincoln National has been approved for $2.5 billion. These funds will be used to purchase illiquid assets that have wreaked havoc with the aforementioned insurers' investment portfolios, as well as provide the necessary capital levels to avoid expensive downgrades from ratings agencies. Though the TARP wasn't originally intended to include life insurers, TARP officials believe that since life insurers own 18% of all corporate bonds, providing them with assistance is consistent with the program's goal of correcting credit markets.

The news that such insurers were eligible to receive TARP funds rallied insurance stocks from their low point on March 6. Now that the funds have been officially approved, stock prices of the aforementioned insurers have begun to increase and will most likely continue to do so going forward. Currently, the TARP fund in general has about $110 billion left (out of $700 billion) according to Treasury Secretary Timothy Geithner.

It will be interesting to see how the aforementioned companies perform compared to other insurers who either rejected or were denied TARP funds, such as MetLife and Genworth Financial respectively. This begs the question: Do companies receiving TARP funds have an unfair competitive advantage? Granted, TARP funds are like any other type of loan that has to be paid back, but considering that such loans couldn't have been obtained in the free market, it could be perceived as disrupting the natural competitive environment. Regardless, receiving TARP funds isn't a free get-out-of-financial-jail pass, so the most important factor will be what these companies do with the money and how they manage their financial recoveries. It looks like only time will tell if this is a justified expenditure of our tax dollars.

2010 continues to shape up as the year of change, as this week saw both Coventry Health Care Inc. and WellCare Health Plans, Inc. announce the end to their Medicare Advantage private fee-for-service (PFFS) contracts as of January 1, 2010. Both companies cited the Obama administration's policy to cut payments to Medicare Advantage insurers as the primary reason, as well as a government mandate that such insurers will need to develop networks starting in 2011.

428,000 customers now need to find new coverage. Currently, Coventry has 318,000 customers under its PFFS Medicare Advantage plan, while WellCare has 110,000 under its plan. It will be interesting to see if other PFFS Medicare Advantage providers will attempt to pick up these customers, or drop their own PFFS plans due to the significant increase in costs caused by new government polices.

If you are, or were, an agent of one of these customers, what do or would you recommend as the best course of action? Should they stay with a similar plan, but with a different provider, change to another plan with the same provider, or change to another plan with a different provider?

If you're an agent contracted with PSM to offer Coventry's Medicare Advantage products and need advice on what to recommend, call us at 1-800-998-7715.

One of the most controversial topics in these financially challenging times is executive compensation, especially for those companies that are receiving TARP funds, otherwise known as a "government bailout." In recent weeks, AIG has faced immense criticism, investigations, and lawsuits over $165 million in bonuses paid out to top executives despite receiving billions of dollars in TARP funds and continually worsening performance resulting in losses in the billions of dollars.

With life and health insurance companies financially suffering in 2008 and 2009, most are either lining up to receive TARP funds, reducing coverage, or laying off employees to adjust to the current economic climate. This peaked my interest in researching what corporate leadership of these companies are sacrificing. What did I find? Not much. Most CEO's compensation decreased across the board, but was mainly a result of losses in stocks they hold or bonuses not received. Salary remained the same, and most still did receive bonuses of some sort.

So where do you stand on the issue of CEO compensation? In 2007, the average CEO was paid 344 times more than the typical American worker. Are they worth it? Is it even ethical? Should limits be placed on it? Below you will find 5 examples from our own industry. Read and let us know what you think. Here is the data I gathered from Associated Press articles:

Genworth Financial: CEO Michael Fraizer received a compensation package worth $3.6 million in 2008. In 2008, Genworth lost $572 million and saw its stock price plummet 89%. For 2009, the stock has taken a nose dive to close at $2.26 as of April 13, 2009. This recent fall was a result of Genworth missing the TARP deadline, however the company is exploring alternative methods of acquiring the funds.

Prudential Financial: Chairman, President, and CEO John R. Stangfeld received compensation valued at $16.3 million in 2008. He received a salary of $970,769 and a bonus of $3.3 million with the rest coming from stocks and options. In 2008, Prudential's financial services businesses lost $1.10 billion and its shares sharply declined by 68% and have lost another 38% of their value as of April 2009.

Hartford Financial Services: Chairman and CEO Ramani Ayer received $7.3 million in 2008. Ayer's base salary was $1.15 million with the rest coming from stocks and options. Like other CEOs, he received perks such as a car allowance, financial planning services, and retirement contributions adding up to $133,943. In 2008, Hartford lost $2.75 billion. As of April 2009, Hartford stock continues to drop due to fears about the company's bonds.

Lincoln National: CEO Dennis Glass received $9.1 million. His salary was $1 million and received performance-related bonuses adding up to $800,000. The rest came on other financial compensation options and stocks. In 2008, Lincoln National's stock plummeted 68% and has lost a further 45% as of April 2009. Unlike others, Lincoln posted a 2008 profit of $56.8 million, however it pales in comparison to the $1.21 billion profit of 2007.

Aetna: The company isn't applying for TARP, but I'm including it because it is about to layoff 3% of its workforce, or about 1,000 jobs to "adjust to the slowing economy." Chairman and CEO Ronald Williams received $17.4 million in 2008, including a $1.1 million salary, a $1.9 million bonus, and use of a personal corporate aircraft. In 2008, Aetna's profit declined 24% and its stock price dropped from $57.73 to $28.50.

According to the Wall Street Journal, the United States Treasury Department is finally opening the Troubled Asset Relief Program (TARP) fund for life insurance companies.  At this point you may be asking yourself, “Isn’t the TARP only for banks?”  Well, according to former Treasury Secretary Henry Paulson, if insurance companies own a bank, then they can qualify for TARP.  So of course, several major insurance carriers went ahead and bought banks to get their piece of the pie. 

Among those insurance companies asking for TARP money are Genworth, The Hartford, MetLife, and Prudential.  Lincoln National alone has applied for $3 billion.  The primary reason why such major insurance carriers are applying for TARP is the mortgage-backed securities in their financial portfolios, a.k.a. “Toxic Assets.”  These toxic assets are severely affecting the liquidity of these companies (and others not mentioned) leading to ratings downgrades and warnings. 

The Wall Street Journal also pointed out that with insurance companies applying for TARP, customers of these companies are likely to see this as a major risk to their investment and cash in their policies to go to stronger companies.  If this were to happen on a large scale, then this would force the weak insurance companies to dump their investments, causing the general market to decline further.

One of the hottest debates in our country today is determining whether big businesses should be allowed to fail, or be subsidized until they become financially stable again.  We’ve been hearing the debate rage on in the banking and automotive sectors, and it now appears that the debate has reached our doorstep.  We want to know what you think, so let the entire community know where you stand on the issue.  Now that insurance companies are eligible for a government bailout, should they be given one?