Archive for February, 2009

Why Insurance Brokers Fear Insurance Companies

Tuesday, February 24th, 2009

Brokers are beholden to the insurance companies they represent and know that moving business from them can bring them severe economic disaster. Every agent contract we have reviewed allow the carrier to terminate the agent/broker appointment at any time without cause. Overrides and bonuses (often not disclosed to the customer) based on production have the intended effect of “capturing” the agents self-interests controlled by the insurance company he represents. The broker/agent is thus held hostage by the insurance company at the expense of the interests of his client. This conflict of interest is not clearly understood by most employers who purchase insurance through independent brokers.

Insurance brokers fear insurance companies because they know the carriers  can, and have, terminated agent contracts at will.

We know of many instances wherein a carrier has terminated an agent’s contract without cause, leaving the agent without commission income earned through his efforts on behalf of the carrier he represented.  We have also had a carrier group representative boast to us that he was about to have his company terminate a local broker’s contract because “he moved a major account from us last month and we dont think he gave us a fair shot at renewing it.”

Employers should demand full disclosure of all compensation earned by their agent/broker. This should include bonuses, overrides, servicing fees, commissions, vacations, vouchers and anything else of value. And, it should be contained within a  written contract between the employer and the agent/broker.

Why Would You Pay $3,000 for Something That Costs $100?

Sunday, February 22nd, 2009
Health care is a commodity. Would you pay almost $3,000 for something that you could get for about $100? See redacted email sent last week to one of our clients:
Ive read the letter from Mrs.XXXXXXXX and have reviewed the bills you sent us. This is a perfect illustration of what is wrong with our health care delivery system and with consumer perceptions / expectations.
For the first time, it appears that the consumer is questioning her medical care bills. This is a good thing. Before, consumers were used to simply paying their co-pay/deductible/co-insurance and the insurance company would take care of the rest. And therein lies the problem. What the consumer did not know, or even care about, was what the provider was charging for services. Employers and employees were content to assume that the PPO networks had successfully negotiated significant “discounts” on their behalf. But, what we have found through two years of study and investigation, PPO networks have become nothing more than a smokescreen that allow providers to inflate their fees. PPO networks directly contribute to continued escalating medical costs.
One example of price gouging by a provider can be found on one of the claims you sent to us. A tissue exam by a pathologist was billed at $2,827.31. Yet, Medicare would have paid this provider only $97.69. That is a 3000% markup from what the Federal Government would have paid under the Medicare program. We have agreements in place with physicians who would have accepted $112.35 as payment in full.
In looking at the other bills, I find markups of anywhere from 250% to over 800% of Medicare.  Yet, locally in XXXXXXXX County, we have negotiated rates on your behalf of 115%-125% of Medicare with hundreds of physicians. They are quite happy with the arrangement with some even going as far as applauding what your company is trying to accomplish.
In our quest to learn about PPO methodolgies, we found that every PPO network we investigated negotiated dissimilar contracts with providers. For example, Dr. Smith may have negotiated a better contract than Dr. Jones down the street in the same specialty. Consumers did not care or even know about this – all they knew is that both physicians were “in-network” and all they had to pay to visit the more expensive Dr. Smith was $20 where they could have gone to see Dr. Jones who was less expensive, for the same $20 copayment. None of this makes any economic sense, yet we have continued to perpetrate this inefficient and costly system we call health insurance.
A good example of this can be found on two claims for the same procedure code (36415). One vendor billed $12 and your plan paid $3. The other vendor billed $21 and your plan paid $3. This shows that vendors bill different amounts for the same exact procedure. Under a PPO Plan, the consumer does not know this. And, they dont care because “insurance will take care of this for me.” Providers can markup their charges to any level they choose.
Your employees have a choice of which providers they can see. Employees will need to become more engaged in their health care costs and make prudent business decisions that are best for them. My suggestion to Mrs. XXXXXX is to engage her physician in a dialog relating to costs. This is a cash plan not an insurance plan – we are not employing an insurance company – we are marshalling money from (Employer)and from the employees to fund a medical care plan that will pay providers a fair and reasonable fee for services.  
In the past the only time the consumer complained about their insurance was when the rates went up every year.  And they mostly blamed insurance companies for this. They were right, but they do not know why they were right.
On Monday I am going to set aside time to call the providers to see if we can get them to agree to reduce their fees on these particular claims. Of course they do not have to agree to anything and can charge any amount they choose to charge.  

PPO Networks Can Be Smoke Screens for Inflated Fees

Sunday, February 22nd, 2009

Yesterday we received the following email from a third party administrator which illustrates how a PPO network can actually increase claim costs:

“Bill, here’s one for you. We had a non-network dialysis clinic treating on of our patients. Rather than taking the wrap discount , we audited the dialysis charges and paid the clinic on a cost-plus basis. After six months of accepting payments. the dialysis clinic sought out the network and got themselves in-network. The end result? Charges went up $200,000. Since we continued paying on a cost-plus basis the network contacted us and told us that we could no longer do that but had to accept the % off billed charges since they had a contract with the clinic. Our response to the network was that if they could convince the employer and the stop loss carrier that this is in their best interest then they would qualify as the best sales organization in the world. “

Mexican Insurance Brokerage

Friday, February 20th, 2009 represents five Mexican insurance companies to provide cover for your Mexican risk exposure.      



Rick Santelli’s Tea Party

Friday, February 20th, 2009

Also, Putin Warns Against Socialism –

Glenn Beck –

Auto Insurance By the Mile

Thursday, February 19th, 2009

In 2001, the Texas House passed Texas HB 45, the cents-per-mile choice law, authorizing insurance companies to offer a cents-per-mile alternative to their dollars-per-year prices. Texas was the first state to change its insurance laws; others are now considering similar changes.

TRS ActiveCare Health Plan Continues to be Competitive

Monday, February 16th, 2009

The TRS ActiveCare plan for Texas educators has announced their new rates for Plan Year 2009-2010. Currently over 330,000 Texas educators participate in the program, comprising over 85% of Texas public school districts.

The TRS ActiveCare program is self-insured. There is no stop loss cover in place and the plan is not marketed through independent agents and brokers. The funding rates are competitive. Many Texas school districts that are not participating are paying substantially more.

CDL Protector Plan for Transportation Companies

Saturday, February 14th, 2009

U.S. Legal Services providers numerous legal protection plans, including their CDL Protector Plan.  The CDL Protector Plan helps transportation companies to improve their bottom line, improve or maintain their SafeStats rating and provide the company’s safety director with timely violation data to supervise drivers and their fleet.  For more information go to .

Online Wholesale Insurance Marketplace

Saturday, February 14th, 2009

CoverageFirst is an independent, online wholesale insurance marketplace, serving more than 7,000 independent agencies and brokerages. CoverageFirst helps these agencies find and access the P&C insurance products they need for their clients.

Small independent producers who qualify can access competitive markets in seconds. Quotes can be generated in hours instead of days.  For more information go to Another source can be found at and

Liquor Liability Coverage in a Five Minute Phone Call

Saturday, February 14th, 2009

Using a national wholesale broker, independent insurance brokers can quote, bind and deliver to your email inbox liquor liability coverage through an “A” rated non-admitted carrier. More than 1,000 clases of P&C business written under immediate binding authority. Visa, MasterCard and HCH payments accepted. For more information go to .

Disability Income Insurance

Saturday, February 14th, 2009

Many employers do not offer group or individual disability insurance for their employees. Yet, statistics show that the need is higher than group term life insurance, which most employers offer.

Group disability insurance cost averages 1% of payroll while individual payroll deducted disability insurance averages 1-5% of one’s gross monthly salary (rates based on each individual’s age).

Life Settlements – Policy Put Option

Saturday, February 14th, 2009

Viatical and Life Settlements is the purchase of existing life insurance policies for cash. Most states regulate the business of Viatical and Life Settlements. Texas, for example, requires licensure with detailed annual filings of all business activities.

A Policy Put Option can be established whereby the owner of a life insurance policy has the option, but not the obligation to sell the policy at a predetermined price at a future point in time. The owner has total optionality. This gives the owner of the policy the best of both worlds. If they choose to keep the policy and not exercise the option, the option will simply expire.

A Policy Put Option offers comfort and reassurance to the owner that in the event circumstances change and they no longer require the policy then can exercise the option and receive a sum greater than premiums paid. Estimated cost of the option is 1% of the face amount of the policy.

National Health Insurance Is Almost Here

Wednesday, February 11th, 2009

The stimulus bill approved by the House and Senate include provisions that lay the groundwork to put a National Health Insurance Plan on a fast track.  Tucked in the bill are “sleeper cells” ready to attack the U.S. health care industry with government “attack dogs” aka bureaucrats, with the power to dictate medical care access to the provider community. A debate on this may have produced a different outcome. It was political genius to hide provisions in the 1,500 page plus bill while stressing an immediate need to pass the bill or “face an economic meltdown and Great Depression” if not passed TODAY.  Even Arlene Spector admitted he did not have time to read the entire bill, and did not know all of the provisions of the bill, yet he was one of three Republicans that voted in favor of the bill. In other words, he voted for abill not knowing what was in it. Go figure. Are all politicians brain dead?

Insurance Agent to be Sentenced for Corruption

Monday, February 9th, 2009
Arnie Olivarez

Arnulfo “Half Guilty” Olivarez, admitted felon, will be sentenced in McAllen, Texas on March 10, 2009 at 9:30 am. See August archives for details.







Hospital Stimulus Bill

Monday, February 9th, 2009

Seems everyone is screaming for their fair share of the Stimulus Bill now before Congress. Banks, Loan Companies, Insurance Companies and others are clamoring for a portion of the Golden Goat. But, we hear nothing from the hospitals. Why are they silent? After all, hospitals have been complaining for years that they “give away” millions in “free” care to those who can’t afford to pay. You would think that hospitals would need help too, especially in this economy.

Maybe a review of hospital finances will provide a clue – hospital-net-income 

Individual Investors Back New Sidecare Syndicates at Lloyd’s

Saturday, February 7th, 2009

Wealthy individuals (names) are set to back other new sidecar syndicates at Lloyd’s of London. The number of names slid to 907 in 2008 from 1,124 in 2007. Attractive tax breaks and the ability to effectively use their capital twice always have made Lloyd’s a magnet for the rich, but the risk of losing their entire fortunes if hit by big claims has deterred many. However, recent changes that allow individuals to invest on a limited liability basis means names will not have to endure the financial nightmare experienced by previous investors. Lloyd’s, with expected increased capacity, may be looking for risk exposure in the U.S. medical stop loss market.

Pay-Check Fairness Act

Saturday, February 7th, 2009


The Lilly Ledbetter Fair Pay Act of 2009, approved by the Senate, will ease time limits on wage discrimination claims which could lead to increased litigation and administrative headaches for many employers.

If it becomes law, Richard Gisonny, a principal with Towers Perrin in Valhalla, New York, said “it will lead to an increase in costly litigation and that would come in the midst of a difficult economic climate” where companies are laying off employees “and trying to stay in business.”

Editor’s Note: This country (USA) is turning towards socialisim faster than a speeding bullet.

COBRA Expansion Worries Employers

Saturday, February 7th, 2009

Business Insurance, January 26, 2009

Employers would be required to offer COBRA health care coverage for at least a decade to many former employees and retirees under legislation likely headed for a vote by the full House this week.

The COBRA provisions embedded in the $825 billion economic stimulus package that cleared by the Ways and Means Committee last week, would be a huge expansion of the COBRA law and saddle employers with health care costs few could have imagined when Congress enacted the health care continuation law in 1986.

Under HR 598, employees who stop working as young as age 55 could retain COBRA coverage until becoming eligible for Medicare at 65, regardless of how long they worked for the employer. In addition, any employee who worked at least 10 years for a company could keep COBRA until eligible for Medicare, an entitlement that could stretch for decades in the case of younger workers.

Editor’s Note: We have one employer who called us about HR 598. If the COBRA extension is passed, they say they will terminate their group health insurance program altogether and advise employees to seek medical insurance in the individual market. This is just another sign that employers are becoming increasingly fed up with government meddling in their corporate affairs.

Texas Department of Insurance Posts Medical Fee Schedule

Friday, February 6th, 2009      aoasc0808

Pooling Design Aims to Cut Stop-Loss Costs

Friday, February 6th, 2009

Setup helps groups leverage buying clout, eliminate fronts
by Dave Lenckus
Published March 26, 2007

TUCSON, Ariz.—Health plan sponsors that are having problems finding affordable medical stop-loss insurance should pool their plan funding and reinsurance risks through a newly designed arrangement that promises a plethora of cost-saving and plan flexibility advantages, a consultant says.

The arrangement would allow groups of plan sponsors or an association—on behalf of its members—to set up a risk retention group that would cover a portion of the sponsors’ assets that are dedicated to paying health claims and then purchase commercial excess-of-loss reinsurance for the remainder, said Stace C. Bondar, managing member of Exlman Re L.L.C. of Baltimore.

Among other things, the pooling design would allow plan sponsors to leverage their large group buying power, eliminate fronting insurers, legally avoid state-mandated benefits and avoid having to obtain U.S. Department of Labor approval, Mr. Bondar said during a session at the Captive Insurance Cos. Assn.’s International Conference in Tucson, Ariz.

Mr. Bondar is seeking approval for the first two arrangements of this kind in Montana and the District of Columbia and is in the process of developing it for nine others in six domiciles. Montana regulators said the facility has been tentatively approved. The facility, AD-COMP MED RRG Inc., is owned by 271 automobile dealership franchises in California, Mr. Bondar said. He declined to identify the District of Columbia facility’s owners.

Need for the arrangement has intensified significantly in the past five years, he said, during which U.S.-based medical reinsurance sources have dwindled from about 300 to fewer than 50.

Among remaining reinsurance markets, many have long “ineligible industry” lists, and others charge certain industries “significantly higher rates” than they charge others, he said. Industries having the most trouble finding coverage are hospitals, law firms and trucking companies, he said.

Under the arrangement that Mr. Bondar is seeking approval for in the District of Columbia, a group of self-funded health plan sponsors with core businesses in the same industry banded together to form a risk retention group without any involvement from an association.

Each sponsor designed its own plan, including its own benefit design and its own deductible or retention level. Under the Employee Retirement Income Security Act, each self-funded plan is exempt from state laws relating to benefits, including mandated health benefits.

Still, in that kind of arrangement, each plan sponsor has a contractual obligation to participants to fund the plan with the sponsor’s assets.

That is where the RRG comes in. The facility’s members/owners determine how much of the aggregate retention the facility will accept.

The RRG then quotes, underwrites and issues to each of its members/owners a contractual liability policy that promises to cover or reinsure their contractual obligation to their health plan participants to fund the plan with their own assets.

The RRG then goes to the commercial market to buy reinsurance for the portion of the risk its members/owners decide to cede. The commercial policy responds when losses exceed a plan sponsor’s per claim and aggregate retention levels.

So, for example, a group of plan sponsors with $1 million of total health plan risks decides to retain $250,000 of that risk in the aggregate, with each plan sponsor selecting a different retention level. The total risk is ceded to the plan sponsors’ RRG, which retains $250,000 and cedes the remaining $750,000.

The key to this arrangement is that the policy does not cover a medical claim but instead covers a plan sponsor’s assets against losses resulting from a large medical claim, Mr. Bondar said. “The key to success here is to pool at the reinsurance level, not the health plan level.”

In Montana, the process for establishing a reinsurance mechanism for a group of health plan sponsors was more complex but demonstrates how an association can become the driving force behind one, Mr. Bondar said.

In that case, service vendors for a self-insured workers comp pool wanted to help pool members with their self-funded health plans.

The group of accountants, lawyers, bankers and other service providers formed an association and then sold shares in it. With that capital, the association formed a captive that issued a surplus note to the RRG that the workers comp pool members formed for their health plans. Since the RRG was not designed to insure the association and its members are not in the same industry as the plan sponsors, federal law precluded the association itself from forming the RRG.

The RRG also could cede part of its members/owners’ retained risk to the association captive. Like the District of Columbia-domiciled RRG, the Montana facility would purchase excess-of-loss reinsurance for the part of the risk it and the association captive does not retain.

The surplus note, which the RRG has to pay back over time, was accepted by Montana regulators as appropriate capitalization as long as each RRG member/owner demonstrates it made a capital contribution to the facility, Mr. Bondar said.

To that end, Mr. Bondar negotiated an agreement under which each member/owner would have to make only a small capital contribution up front but would have to surrender all of its equity in the facility if the member/owner pulled out of RRG in less than three years.

After three years, the portion of the surplus note that would be repaid out of the facility’s surplus would be considered an adequate capital contribution, he said.

A major advantage of either the District of Columbia- or Montana-domiciled RRG is that a fronting insurer is not necessary, since an RRG can issue its own policy, Mr. Bondar said. “Fronting carriers can charge as much as 10% of premiums paid in order for a program to use their paper,” he said.

In addition, because a plan sponsor would not be in a single-parent captive, the sponsor would not have to obtain a prohibited transaction exemption from the Department of Labor.

The exemption would be necessary if a pure captive were used, because the DOL wants to ensure that the captive owner has not devised a system that provides it advantages to the detriment of plan participants, Mr. Bondar said. The exemption is not required when a plan sponsor participates in an RRG because the odds of pulling many plan sponsors into a scheme that could hurt their plan participants are considered very low, he said.

By pooling risks in an RRG, reinsurance availability increases and costs decrease because reinsurers see little risk of having to pay a claim above a retention that far exceeds those that an individual cedent would maintain, Mr. Bondar said.

Over time, RRG members/owners should be able to build surplus to gradually raise the retention level so the facility can reduce or even eliminate its reinsurance needs, he said.

He said the only similar arrangement in use today involves the interplay of voluntary employee beneficiary associations set up by seven highway contractors and the RRG the contractors have set up (BI, Sept. 11, 2006).

But Mr. Bondar said plan sponsors cannot pull their capital out of VEBAs unless they convert to a fully insured plan and that VEBA recertification costs are expensive. He asserted that his mechanism would be 25% to 30% less expensive.


Self-Insured Employers Are Prepared for War with Washington

Thursday, February 5th, 2009 

Coca-Cola Seeks Ok For Retiree Captive Plan

Thursday, February 5th, 2009

Excerpt from Business Insurance, January 19, 2009

If Coca-Cola Co. wins regulatory approval to fund retiree health care benefits through a special trust and its captive insurance company, it could blaze a trail for other employers looking to do the same.

Under it plan, the company would use assets now held in a voluntary employees beneficiary association to purchase medical stop loss policies from Prudential Insurance Company of America to pay claims. The medical stop loss would pay claims that fall between an attachment point and an upper limit.