Overriding an NAIC "Veto" In Congress

It’s not often that the self-insurance/ART industry successfully pushes back against the National Association of Insurance Commissioners (NAIC) on an important legislative/regulatory matter, but I am pleased to report one initial small victory.

For the past few years, I have been involved in lobbying for federal legislation that would modernize the Liability Risk Retention Act (LRRA). This legislative initiative has included three basic objectives: 1) allow risk retention groups to write commercial property coverage; 2) establish standardized corporate governance standards, and 3) create a new federal arbitration mechanism that RRGs can utilize in cases of disputes with non-domiciliary regulators.

This last objective has attracted predictable opposition from the NAIC and individual regulators warning that such federal oversight would compromise state-based regulation of insurance. This is a canard, of course, because our approach actually strengthens state regulation by allowing for the validation of decisions made by an RRG’s domiciliary regulator.

In spite of the this common sense analysis, the NAIC has demonstrated de facto veto power in Congress on getting LRRA legislation passed with an arbitration provision, blocking bill introduction last year in the Senate. Apparently, however, this veto power now has some limits.
It was recently confirmed that Senator Jon Tester (D-MT) will introduce LRRA legislation this session including the arbitration provision. This is notable because Senator Tester had resisted supporting this initiative during the last Congress in deference to home state insurance regulator Monica Lindeen who had been pressing the NAIC party line.

We are not sure why Senator Tester has chosen to change course on this, but the heavy lobbying by many of his constituents, including the Montana Captive Insurance Association (MCIA), has certainly contributed to this positive momentum.

Of course, this is just one development in a lengthy and difficult process to get the legislation passed and signed into law. But the fact that the NAIC has not been able to successfully exercise a veto at this early stage confirms that it is possible for our industry to make good things happen despite state regulator angst.

We fully expect to bump up against NAIC opposition as the congressional session continues. Stay tuned to see how the balance of power tilts.

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A Fresh Look at Mandating Health Insurance Coverage

Requiring individuals to maintain health insurance coverage is a good idea. There, I said it despite my libertarian leanings.

Yes, an individual mandate may be unconstitutional. And the prospect for more government control is not appealing but there is a strong case to be made that this is perhaps the one redeemable provision (in concept) within the 3,000-page health care law.

The obvious advantage is that by creating a health care system where everyone has insurance you dramatically expand the risk pool, which is a proven way to drive down costs especially when more younger and healthier individuals are covered.

On this latter note, high deductible plans should certainly be an option to fulfill a coverage requirement.

Proponents of an individual mandate cite the auto insurance analogy to support their position that there is precedent for compelling individuals to take responsibility for financial risk but they get caught flat-footed with the counterpoint that driving a car is voluntary activity and therefore it is appropriate for government to establish conditions unlike health insurance where there is no such activity.

But let’s take a closer look at this comparison.

If someone gets in an automobile accident and does not have insurance, their car will not be towed into an automotive emergency room and fixed without consideration to ability to pay. Rather, The car will remain damaged, or totaled until such time the owner can pay to repair or replace it. The financial liability is not shifted to anyone else.

Now if the driver gets admitted to the hospital as a result of this accident they will get “repaired” regardless of their ability to pay. And if they aren’t able to pay the cost will be shifted to other health care payers, including self-insured employers.

This fact should give even libertarians pause in opposing an individual mandate because a person’s decision not to maintain insurance has an adverse impact on the larger population and compromises the principal of self-reliance. After all, when is the last time you heard of someone refusing essential treatment because they knew they could not pay?

Requiring health insurance coverage would also benefit the self-insurance industry because more individuals would chose to enroll in their employers’ group plans, thereby expanding the risk pools for employers while increasing revenue potential for service providers.

To be sure, the way the individual mandate provision as incorporated in the PPACA is flawed, largely because the specific penalties and incentives will not likely achieve the desired results. But that is not to say that this approach should be rejected outright. Properly structured, an individual mandate could help put our health care system on the right track.

It’s unfortunate that President Obama and the Democratic Congress wrapped so much bad stuff around this targeted health care reform approach that we will likely never know how it may have worked.

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Show Me The Money -- Politics and the Self-Insurance/ART Industry

The self-insurance/alternative industry is a major force in the U.S. economy, but it is largely invisible to most members of Congress. It is similarly cloaked at the state level.

So why the disconnect? Follow the money trail, or should I say the absence of such a trail.

While it’s rare these days that political contributions can explicitly “buy votes,” the reality is that financial support normally does get you access to politicians, which allows interest groups to deliver their messages in an unfiltered way.

Almost every major industry gets this concept. Sadly, our industry is one of the few notable exceptions.

This conclusion is easily quantified by looking at the political contributions made by the business community generally and the traditional insurance industry more specifically. They dwarf what has been contributed by those with an interest in protecting and promoting self-insurance.

As my role within our industry has evolved over the past few years, I have become what political operatives call a “money man,” which means I am responsible for passing the hat to collect contributions for politicians that we hope will support various legislative/regulatory priorities.

Obviously this role has provided me a unique perspective on our industry’s historic stinginess and naivety about how the political process really works.

Now of course there are exceptions. Many companies and individuals reach for their checkbooks immediately upon request and do this enthusiastically. But in my experience, soliciting political contributions is a tough sell in most cases.

Complicating matters is that political contributions at the federal level must be done through personal checks or credit cards. No corporate money is allowed.

Interestingly, there are countless individuals who have made a very nice living though their involvement in the self-insurance/ART industry, but hesitate when asked to financially support political initiatives that will help the industry. It’s difficult to square this reality.

Other individuals have the mindset that they are willing to write a check, but only when there’s a hot issue. That’s short sighted.

For those of us who clearly understand the concept of insurance, you know you can’t purchase property insurance when your house is burning down or health insurance when in an ambulance on the way to the hospital.

Making targeted political contributions is the equivalent of purchasing insurance to mitigate possible future legislative/regulatory risks.

One complication is that our industry is comprised of corporate buyers (employers) and service providers. These two segments have different motivations and capabilities for political involvement.

Service providers generally have a top-line interest in legislative/developments. In other words, they consider how such developments will affect revenue generation. In my experience this is the most powerful motivation to write a check.

Risk/benefit manager types, on the other hand, are focused on the expense line. They just want to be able to utilize self-insurance vehicles to control costs with minimal regulatory hassles. And while most view this as important, it’s uncommon that they will write a personal check in support of a corporate objective for which they do stand to directly benefit financially.

That’s not a criticism, it’s simply reality. And because of this reality, a large number of people in our industry will be confined to the sidelines of political involvement making it even more important that service providers pick up the slack.

Despite our industry’s historical underperformance in the money game, I am actually cautiously optimistic for the future. My sense is that the messaging just needs to be sharpened so that political contributions are viewed as both insurance and investments.

I will be directly involved in some targeted political fund-raising efforts over the next couple months and expect to have many one-on-one conversations as part of passing the hat. This will give me a new opportunity to test my assumptions.

Will people show me the money? I’ll circle back on this topic in the near future and let you know.

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ADA 2.0 Packs a Sharper Edge for Workers' Comp. Self-Insurers

The landmark Americans with Disabilities Act (ADA) of 1990 substantively changed workplace rules in ways that required employers to adapt a variety of hiring and return-to-work practices in order to maintain compliance.

Now 20 years later, the ADA has been amended and the implications for workers’ compensation self-insurers are significant. At issue is that ADA 2.0 will impose several new restrictions on how return-to-work programs can be structured.

The new final regulations are expected to be released this spring, but in anticipation of this expanded regulatory reach some self-insured employers have already felt the sting.

Over the past the year, the Equal Employment Opportunity Commission (EEOC) has been quietly adding nearly 300 investigators to enforce ADA requirements. Most recently, they have been targeting larger companies (generally self-insured) to determine if their return-to-work programs are ADA 2.0 compliant.

This is a fundamental change in EEOC’s historical approach of investigating claims made by specific employees. In other words, the EEOC is now essentially conducting on-site “audits” to determine possible ADA 2.0 violations.

Companies are already starting to pay big fines as part of negotiated settlements as the EEOC flexes its muscles in advance of the release of final regulations – proactive enforcement, indeed.

For example, late last year Sears settled an EEOC complaint for $6 million in connection with its employee absence policy that was deemed to improperty accommodate disabled workers. United Airlines recently paid more than $600,000 for a policy that refused the allow returning workers with disabilities to work reduced hour shifts.

With the EEOC investigative staffing ramp up, it’s clear that audit and enforcement efforts will pick up significantly this year and likely entangle many workers’ compensation self-insurers with carefully structured return-to-work programs.

The good news is that there are ways that employers can make sure they are ADA 2.0 compliant and we’ll report on that in the coming months.

In the meantime, the march of big government continues.

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How to Reamortize Your Mortgage

by Richard F. O’Boyle, LUTCF, MBA

Many people refinance their mortgage in the hopes of lowering their monthly payments, but there’s a little-known trick that can lower your monthly mortgage bill without a costly and hassle-prone re-fi. The last thing the banks want you to do is shorten your loan, reduce your interest rate, or lower the lifetime interest paid: that’s why they push refinancing. They want to sell you a new mortgage with all the attendant fees and lock you in for another lengthy term.

A reamortization, also known as a recast or a principal curtailment modification, will lower your monthly payment without a new mortgage loan. The bank will recalculate your current mortgage (using the same term and interest rate) and lower the required principal and interest payments going forward. Over the life of the loan, the total interest payments will also be lower. This strategy only works if you have been paying additional principal towards your mortgage over the years or you have a lump sum now that you want to pay.

Many loan officers don’t even know what a reamortization is! And banks don’t make it easy for you. They will charge a fee of about $200 and then drag things out for a few months. They may even require you to have your mortgage prepaid for a month in advance while they shuffle their paperwork. But if your monthly payment goes significantly lower, it may be worth the effort. After recasting your mortgage, you can still continue to make additional principal payments and then do the process again in a few years.

If you decide that recasting makes sense for you, be prepared:
- Have a lump sum (perhaps from a bonus from work or an income tax refund);
- Call your mortgage company and track down their recasting specialist and get a direct dial phone number and mailing address;
- Ask them to calculate your new recasted payment amount and to quote you the fee;
- Draft a letter of request for the recast (or whatever their bank calls it) and submit it along with the fee;
- Don’t send your lump sum payment until they tell you exactly when and where to send it;
- The bank will send you a letter that needs to be notarized and returned before your next payment is due; and finally,
- Keep copies of everything!


© 2011 Prism Innovations, Inc. All rights reserved.

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