Federal Insurance Office: Addressing Health Insurance Head On

[WhoWee]

The House wants to expand the size of Government again. I find it very interesting that the Federal Insurance Office would not oversee health insurance. I thought they were trying to reform health insurance?

http://www.insurancejournal.com/news.../02/104254.htm

"House Panel Releases Bill Creating Federal Insurance Office

October 2, 2009

Congress got a look yesterday at a draft of legislation to create a federal insurance office that would work on international insurance issues as well as monitor the insurance industry and insurers for anything that might be a threat to the overall financial system.

Its powers would extend to all lines of insurance except health. It would fall under the Treasury department and its director would be appointed by the Treasury secretary.

The draft of the Federal Insurance Office Act was released by its chief sponsor, Rep. Paul E. Kanjorski , D- Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, who also released two others aimed at reforming the regulatory structure of the U.S. financial services industry. The two other draft bills he released are the Investor Protection Act and the Private Fund Investment Advisers Registration Act.

To accomplish its function, the federal insurance office would work with existing state regulators and collect information from them and the industry as needed. Smaller insurers could be exempt from any data collection mandates, according to the bill.

According to Kanjorski, the federal office is needed to "fill a gap in the federal government's knowledge base on financial activities." He said the credit crisis highlighted the lack of expertise within the federal government regarding the insurance industry, especially during the collapse of American International Group (AIG) and turmoil in the bond insurance markets.

"A Federal Insurance Office will provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks, and help ensure a well functioning financial system," Kanjorski's statement accompanying the draft proposal said.

The act says the office shall have the authority to "monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system." It would refer any insurer or affiliates it found represented a systemic risk to the Federal Reserve System for action.

The office would be a coordinator of insurance policy but not a federal regulator, although the bill would authorize the Treasury secretary to preempt any state insurance regulations that violate international insurance agreements. Kanjorski's bill does not include any provision for a federal charter for insurers or any provision for them to be regulated at the federal level.

The state regulators' organization, the National Association of Insurance Commissioners (NAIC), has urged Congress to maintain their role in regulating insurance, arguing that state regulation is compatible with a sound approach to systemic risk regulation.

"Insurance companies are more often the conduits or receivers of risk rather than the creators since the assumption of risk, after all, is fundamental to the insurance business," Illinois Insurance Director Michael McRaith told members of Kanjorski's panel in June on behalf of NAIC. "With respect to systemic risk, insurers also do not originate risk, but most often receive risk -- a fact that provides ample motivation to close regulatory gaps and encourage greater financial stability."

McRaith noted that the insurance industry has fared better than its banking and securities counterparts in the current economic crisis and he cited the state guaranty fund system as a backstop to protect policyholders in the event an insurance company fails.

The latest draft of the federal office bill is a reworked version of bipartisan legislation Kanjorski introduced earlier this year. The idea was backed by the Obama Administration, which included it in its proposals for financial services regulatory reform. Rep. Judy Biggert, R-Ill., ranking member of the House Financial Services Subcommittee on Oversight and Investigations, was an original co-sponsor of the bill.

The federal office would also:


* assist in administering the Terrorism Insurance Program within the Treasury.
* coordinate federal policy on international insurance matters, including representing the U.S. in the International Association of Insurance Supervisors and assisting the Treasury secretary in negotiating international insurance agreements.
* consult with states regarding insurance matters of national and international importance and advise the Treasury on major domestic and international insurance policy issues.

It would be the job of the office to inform states if any of their regulations or laws conflict with or are preempted by international agreements. Regarding state preemption, the new law would not allow preemption of any state insurance measure that governs any insurer's rates, premiums, underwriting or sales practices, or state coverage requirements for insurance. It would also not apply to the application of the antitrust laws of any state to the business of insurance.

Before collecting any data or information, the office would be expected to coordinate with state insurance regulators to determine if the information is better obtained by them or another federal agency.

In stressing international insurance issues, Kanjorski's draft maintains the lack of a national voice hurts all insurers. It reads:

"It is the sense of the Congress that the insurance marketplace increasingly operates globally with many significant foreign participants. There is increasing tension in the current regulatory systems as the result of an absence of clear and settled means for governments to enter into agreements on prudential measures with respect to the business of insurance or reinsurance. This impairs the ability of domestic and foreign-based companies to participate fully in each others' markets.""

 

[WhoWee]

Try this link.
http://www.insurancejournal.com/news/

 

[Office_Shredder]

It should be noted that health insurance is not true insurance. Think about it. You get homeowners insurance so that if something bad happens to your house that makes it unsound, it gets paid for. You get auto insurance in case your car gets destroyed. You get health insurance to... pay for prescriptions? Checkups? Health insurance has left the real of 'mitigation of disastrous costs' and become some sort of health services broker. As such it makes sense that a federal insurance office would not actually be interested in health insurance.

 

[WhoWee]

I'm looking at it this way. Obama and Congress started out with a specific problem of what to do about the over-funded but looted Social Security Trust Fund, Medicare, and Medicaid. I've posted in several threads that these 3 programs are under-funded by over $100,000,000,000,000 in the future.
http://online.wsj.com/article/SB124458888993599879.html

Instead of focusing on the specific problems in the Government program, they decided to refocus the debate onto "health care reform" which brought doctors, hospitals, and insurance companies into the discussion.

Picking on doctors and hospitals is easy but apparently doesn't provide much political leverage - hence the insurance companies were demonized. Accordingly the debate has been re-focused onto "health insurance reform".

Given these twists and turns and the re-focusing onto insurance, I find it VERY odd that the proposed Federal Insurance Office would not oversee health insurance.

 

[Office_Shredder]

OK, but read the article

monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system.

This office is interested more in financial services and insurance, and looking at the type of companies that failed during the economic crash. As such, there's no real reason to look at health insurance companies, since they operate in a slightly different manner. Furthermore, it should be obvious that the mere act of including health insurance under the purview of this office would make it nearly impossible to set up for political reasons. The Federal Insurance Office is not intended to suggest a way to overhaul health costs in the country.

To conclude, the Federal Insurance Office regulating health insurance would be counterproductive because health insurance companies don't act in the same traditional manner as most insurance companies do, and because it would be politically impossible to include that under the function of the office. I think it makes perfect sense the government would want to set up an office with the express purpose of preventing financial doom without straddling it with a much messier and politically inexpedient job at the same time, which is fairly unrelated to the purpose of the office. I think you're looking for demons where there are none here

 

[WhoWee]

OK, but read the article



This office is interested more in financial services and insurance, and looking at the type of companies that failed during the economic crash. As such, there's no real reason to look at health insurance companies, since they operate in a slightly different manner. Furthermore, it should be obvious that the mere act of including health insurance under the purview of this office would make it nearly impossible to set up for political reasons. The Federal Insurance Office is not intended to suggest a way to overhaul health costs in the country.

To conclude, the Federal Insurance Office regulating health insurance would be counterproductive because health insurance companies don't act in the same traditional manner as most insurance companies do, and because it would be politically impossible to include that under the function of the office. I think it makes perfect sense the government would want to set up an office with the express purpose of preventing financial doom without straddling it with a much messier and politically inexpedient job at the same time, which is fairly unrelated to the purpose of the office. I think you're looking for demons where there are none here

Or perhaps they are just planning to create a separate Government entity to run health insurance and just let the cat out of the bag a little early?

 

[Office_Shredder]

Or perhaps they are just planning to create a separate Government entity to run health insurance and just let the cat out of the bag a little early?

What are you talking about? It's been well documented and advertised that they plan on passing a bill that regulates health insurance in some form. The Federal Insurance Office isn't even planned to 'run' insurance, so why would you assume a parallel health insurance version would? I don't see how better data collection on a corner of the economy that can obviously sink the entire nation in one blow is a bad thing.

Are you planning on just doing a Glen Beck 'well, it could be like this, if these coincidences line up perfectly' impersonation or are you going somewhere with this?

 

[WhoWee]

What are you talking about? It's been well documented and advertised that they plan on passing a bill that regulates health insurance in some form. The Federal Insurance Office isn't even planned to 'run' insurance, so why would you assume a parallel health insurance version would? I don't see how better data collection on a corner of the economy that can obviously sink the entire nation in one blow is a bad thing.

Are you planning on just doing a Glen Beck 'well, it could be like this, if these coincidences line up perfectly' impersonation or are you going somewhere with this?

A Glenn Beck? Please don't go off thread. The place I'm going is precisely where I started.

"The House wants to expand the size of Government again. I find it very interesting that the Federal Insurance Office would not oversee health insurance. I thought they were trying to reform health insurance?"

If the problem in the health care system is insurance companies - why would they not want to regulate them through the Federal Insurance Office?

Please support this comment.
"It should be noted that health insurance is not true insurance. Think about it. You get homeowners insurance so that if something bad happens to your house that makes it unsound, it gets paid for. You get auto insurance in case your car gets destroyed. You get health insurance to... pay for prescriptions? Checkups? Health insurance has left the real of 'mitigation of disastrous costs' and become some sort of health services broker. As such it makes sense that a federal insurance office would not actually be interested in health insurance."

I happen to be licensed with the departments of insurance in over 20 states to broker health insurance. The Government considers health to be "real" insurance.

As for this comment

"To conclude, the Federal Insurance Office regulating health insurance would be counterproductive because health insurance companies don't act in the same traditional manner as most insurance companies do, and because it would be politically impossible to include that under the function of the office. I think it makes perfect sense the government would want to set up an office with the express purpose of preventing financial doom without straddling it with a much messier and politically inexpedient job at the same time, which is fairly unrelated to the purpose of the office. I think you're looking for demons where there are none here"

I have no idea what where you are getting this information. Health insurance companies are licensed with each state, follow the guidelines issues by each state. Sell insurance policies that require a premium payment and in return, pay claims. These claims may be subject to deductibles, co-pays, co-insurance or other negotiated fees.

This legislation appears to be motivated by the AIG debacle where a single operating unit (selling derivatives/futures) put the entire organization at risk - that is the financial risk element. The industry is already highly regulated and subject to outside review.

http://www.naic.org/

http://www3.ambest.com/ratings/default.asp

 

[Office_Shredder]

A Glenn Beck? Please don't go off thread. The place I'm going is precisely where I started.

I mentioned that because you have a lot of "maybe they're doing this" comments without much support for why you think it may be. You made this comment:

Or perhaps they are just planning to create a separate Government entity to run health insurance and just let the cat out of the bag a little early?

Which is highly speculative, with little evidence to support it. They're creating an agency that specifically does not deal with health insurance, so you go on to conclude (or speculate) that they are creating an agency that will regulate health insurance. It's a non-sequitor and you gave no reason to think this may occur.

"The House wants to expand the size of Government again. I find it very interesting that the Federal Insurance Office would not oversee health insurance. I thought they were trying to reform health insurance?"

If the problem in the health care system is insurance companies - why would they not want to regulate them through the Federal Insurance Office?

Because they want the federal insurance office to exist first of all. It would be impossible to create it if it regulated (actually this mostly just monitors from what I can tell) health insurance companies, without lots of jumping around and deal making (exactly what is going on now). They ARE trying to reform health insurance, I'm not sure why you think it needs to be done through this office.

Please support this comment.

I happen to be licensed with the departments of insurance in over 20 states to broker health insurance. The Government considers health to be "real" insurance.

Yes, it's considered to be "real" insurance, but the manner in which it operates is fairly different from nearly every other insurance company. Studying how Blue Cross Blue Shield operates will garner very little information on how to prevent another AIG collapse

I have no idea what where you are getting this information. Health insurance companies are licensed with each state, follow the guidelines issues by each state. Sell insurance policies that require a premium payment and in return, pay claims. These claims may be subject to deductibles, co-pays, co-insurance or other negotiated fees.

I know that. What's your point? A standard insurance contract from a company like AIG:

If event X occurs, we'll pay you Y amount. In return, you pay us Z per month (or a lump sum or whatever, depending on the conditions).

Health insurance has details involving prescriptions, regular checkups, preventative care etc. This is not insurance for disastrous situations, it acts more as a way of expediting health care costs (for the consumer) by lumping them up into a monthly sum (plus some copays) and giving them a collective bargaining power they didn't have before. Note the large difference from other insurance policies.

When most insurance companies give out a policy, it's with the expectation that few people will cash in on it, and the goal is to collect enough per person to make money on the people who do collect (plus the float of course). Health insurance companies expect everyone to use their policy multiple times per year, and instead try to charge people enough so that most people pay more in premiums than they cost the company in doctor visits etc.

This legislation appears to be motivated by the AIG debacle where a single operating unit (selling derivatives/futures) put the entire organization at risk - that is the financial risk element. The industry is already highly regulated and subject to outside review.

The legislation appears to be motivated by gathering more information on how these entities operate and what effective regulations would look like. If these organizations were so highly regulated it wouldn't turn out that they overreached by billions of dollars out of the blue, the problem would have been noticed and fixed (or not, depending on whether the company wants to still exist) long before it sank a whole portion of the US economy.

Notice the article you posted does not say the office is being created for the purposes of regulating any insurance companies. Instead it's being instituted to gather information and monitor these insurance companies, since it turned out nobody was really doing that very well.

 

[WhoWee]

Since we're the only two posting, I'll respond without quoting you again.

I've actually posted this similarly in other threads. One of the problems with health insurance is that a few companies dominate the market. Most offer between 6 and 10 policy types. Each company must register to do business in each of the 50 states. Each are also rated by AM Best regarding their ability to pay claims.

Each of the (6 to 10) policy types of each carrier must also be registered and approved with each state - and the states all have different mandates/rules.

Nationwide, all 425,000 (approximate) agents must be licensed in at least one (resident) state and may apply to be licensed in additional states. Once licensed, agents are contracted and appointed with the companies and registered with the individual states.

It is a logistical nightmare.

The amount of legal and administrative waste is unbelievable. The health insurance industry would MOST BENEFIT of all types of insurance companies by establishing a Federal Insurance Office. Health insurance is the type of insurance that most needs a federal agency to eliminate waste through standardization and a level playing field.

In the Medicare and Medicaid arena, CMS oversees all insurance activities and has standardized all supplement plans A through J and is rolling out M and N very soon. The only difference between policies offered by competitors is the premium - everything else is standardized.

If this approach was applied to private and group health plans, there would be cost savings and increased competition - and I'll explain.

If the Federal Insurance Office were to approve 12 types of standard plans (for example). They could negotiate with all of the states and determine the coverage mandates that would satisfy every state. These standardized policies could then be given out to all of the insurance companies to price. Each company could then offer the same policies in all 50 states. This would be great for competition and would eliminate 49 state compliance offices at every insurance company (that's being dramatic as not everyone operates in all 50 states now, but they could with these changes).

For the public, purchasing insurance would be more user friendly and prices and coverages should be better everywhere.

As for your observation
"Which is highly speculative, with little evidence to support it. They're creating an agency that specifically does not deal with health insurance, so you go on to conclude (or speculate) that they are creating an agency that will regulate health insurance. It's a non-sequitor and you gave no reason to think this may occur."

The need to revise the system is well known. If they don't address health insurance in this office - they will need to do it somewhere else - it's unavoidable.

The formation of this Federal Insurance Office is an opportunity to fix health insurance - they should not exclude it.