Employee Benefits Specialist, Inc. | Houston TX

A Jefferson Pilot Financial newsletter highlighting insurance industry events and trends - FEBRUARY 2003

EMPLOYERS LOOKING TO OFFER VOLUNTARY DENTAL IN 2003.
Although the high cost of medical insurance was one of the dominant headlines of 2002, dental stayed below the radar. As we move into 2003, dental plan providers are optimistic that the spotlight on medical insurance premium hikes could actually keep contributions for dental coverage level. As reported by the National Association of Dental Plans (NADP) 2002 Dental Benefits Reports: Premium Trends, 2002 premium rate changes by product ranged from 3.9% to 6.6%. The Premiums Report estimated 2003 premium rate changes will be just slightly higher from 5% to 7.4%. Even though the increase is slight, dental premiums are still increasing. Indemnity plans are likely to remain popular among both employers and employees, however, analysts foresee a stronger emphasis on introducing voluntary dental plans. Analysts project that many employers will begin to incorporate dental programs into their voluntary benefit offerings in 2003. Employee contributions to a dental plan are Section 125-eligible - they can be made on a pre-tax basis. It is well advised to remember that utilization of dental services is rising thanks to technological advances and heavy advertising by the dental industry. (Employee Benefit News, January 2003)

BUILDING A CASE FOR GROUP LIFE FEDERAL TERRORISM INSURANCE BACKSTOP.
The entire life insurance industry faces a real threat of insolvency given the potential for terrorist events that would cause frequent, widespread mortality losses, according to the American Council of Life Insurers. In a formal letter to the Treasury Department on the issue of whether group life insurance should be covered by the federal Terrorism Risk Insurance Program, ACLI says that terrorist risks (including nuclear, biological, chemical or radiological) pose enormous challenges for group life insurers. Pricing for this risk, according to the ACLI, is not possible because neither the likelihood nor severity of a terrorist attack can be actuarially predicted. Moreover, as a matter of public policy, state insurance regulators do not allow insurance companies to exclude these risks. According to the ACLI, a government terrorism risk insurance backstop is the only option to protect the long-term viability of the life insurance industry. Consumer Federation of America (CFA) urges the Treasury to demand extensive documentation from the life insurance industry on the need for taxpayer support for group life insurance. According to CFA, life insurers have provided no evidence that they can't prevent overexposure to terrorism risk by using a variety of risk-spreading measures. ACLI cites that September 11 profoundly changed traditional risk assessment, increasing the perceived value of catastrophe reinsurance at the same time that insurers have become unable to obtain at any price the levels of protection they previously enjoyed. Without backstop measures, the ACLI explains two scenarios of losses that could ruin the life insurance industry. 1) One or more calamities so widespread as to directly impact a significant number of insurers simultaneously; and 2) Calamities so intense as to ruin one or more major insurers, driving them into insolvencies that cannot be borne by state guaranty funds. (National Underwriter, January 27, 2003)

INSURERS CONTINUE TO FACE CHANGES & CHALLENGES HEAD-ON.
Changes to the insurance industry are growing - on many fronts. Changes will result from the Gramm-Leach-Bliley Act, which eliminates regulations that separated banks, securities firms and insurers. Pressure is on from the full gamut of financial services providers who will soon offer a full array of products and services to insurance customers. Market conduct is another big regulatory issue. Investigations into alleged deceptive sales practices have netted penalties totaling $26.5 million against Prudential, John Hancock and American General. Another challenge U.S. life insurers face is changing customer expectations. During the last 10 years, the insurance industry has been transformed by the way customers want to purchase products and receive service. Customer expectations are escalating rapidly since they have been shaped by FedEx, L.L. Bean, Disney and other companies delivering stellar service. Customers have also been primed by the 24/7 automated service standard in the banking industry. Almost half of all banking transactions today are being done via ATMs and IVR. In response, forward-thinking insurers are moving away from using technology to reduce expenses, to leveraging a wide array of I.T. tools to transform not only internal operations, but also their relationships with customers. Finally, in another twist, non-traditional competitors - such as retailer Nordstrom and virtual banker Telebank - are making inroads into the American insurance marketplace. Distribution is also a very hot topic. According to a recent Tillinghast-Towers Perrin study, 75% of life insurance CEOs ranked distribution effectiveness and productivity as their #1 or #2 challenge. (LOMA Resource, January 2003)

IRS ISSUES POSITIVE PRIVATE RULING ON DISABILITY COVERAGE IN 401k PLANS.
The Internal Revenue Service (IRS) has issued a positive private ruling for a group disability product inside a 401k plan. The ruling gives more details than a similar one posed over two years ago which allowed the company to market a benefit designed to replace 401k contributions for disabled employees. Commentators lauded the earlier ruling as an ingenious idea. The new ruling helps by filling in additional information on how the design avoids various pitfalls. The positive outcome of this ruling should hold new opportunities to protect the 401k contributions of participants who become disabled, thus helping assure a retirement nest egg. It may also help plan sponsors increase participation in the plans. The number of this ruling is Let. Rul. 200235043. (National Underwriter, January 13, 2003)

THE HIPPA PRIVACY RULE....THE FEDERAL GOVERNMENT'S ANSWER FOR PROTECTING CONFIDENTIAL INFORMATION

Taken from a CNA periodical sent to insurance agents, the following summary indicates the activities in which employer organizations will be involved to comply with the HIPPA Privacy Rule. Time consuming is an understatement, but necessary as we now see it. Of course, like anything else the government touches, regulations being finalized will be an ongoing process. You are welcome to obtain more information about compliance through the government website.
Log on to: http://www.hhs.gov/ocr/hipaa/

HEALTH PLAN

PLAN SPONSOR

The group health plan must:

The plan sponsor must provide certification to the group health plan stating that the plan sponsor agrees to:

modify the plan document to describe permitted disclosures to the plan sponsor, specify that disclosures are permitted only upon receipt of certification that the plan sponsor has agreed to certain conditions, and specify that the plan has firewalls to identify employees who will have acess to the information;
develop policies and procedures to protect information;
develop policies and procedures for obtaining consent to disclose information for routine purposes;
name a privacy officer and train employees who have access to protected information;
establish a grievance procedure;
issue a notice to employees about their practices and about employee's rights to restrict information, and access information, etc.

not use or disclose protected health information other than as permitted by the plan document;
ensure that any subcontractors agree to the same restrictions;
not use or disclose the protected health information for employment- related actions;
report to the group health plan any use or disclosure that is inconsistent with the plan documents or the Privacy Rule;
make the protected health information accessible to individuals and allow individuals to amend their information;
provide an accounting of disclosures;
make practices available to the Secretary (of HHS) for determining compliance;
return and destroy all protected health information when no longer needed, if feasible; and
ensure that firewalls have been established.