Life and Health Insurance Forum

PUBLIC HEARING
JUNE 26, 2001
CAPITOL PLAZA HOTEL
CARNEIGE'S ROOM

BEFORE: Scott Lakin, Director, Department of Insurance, A.W. McPherson, Deputy Director, Brad Connor, Director of Market Conduct, James Casey, Manager, Life and Health Section, Molly White, Manager, Managed Care Section

I N D E X

Bryan Cox, American Council of Life Insurers
Mike Winter, Missouri Association of Health Plans
Clark Slipher, Milliman & Robertson
Brent Butler, Missouri Insurance Coalition
Matthew McCauley, General American Life Insurance Company
Joy Ryan, Health Insurance Association of America
William Hobbs, Fidelity Mutual Life

P R O C E E D I N G S

MR. LAKIN: We'll go ahead and get started if everyone will have their seats. First of all, I want to welcome you-all to the second stakeholders' meeting. This is a meeting regarding life and health -- stakeholders' meeting on life and health, and I want to welcome all of you.

And we understand we also have people not only from out of town, but out of state that have come here to participate. And I want to say how much I appreciate that.

I am Scott Lakin, the new Director of the Department of Insurance. I don't know how much longer I'll be able to say the new Director, but I'm gonna take advantage of it while I can.

First of all, on a personal note, I want to give most of you an update. And this will save me about 40 conversations during the break time.

But on a personal note, as many of you know, my wife and daughter were in a pretty serious automobile accident about three weeks ago. And I want to say that I appreciate very much those of you that have contacted me and my family.

Carolyn is still in the hospital. She is, though, on the road to recovery. We anticipate about a four- or five-month recovery process. And as you know, it was a pretty bad accident, but it could have been a lot worse.

So I want to thank all of you, and then also give you that update, because I've gotten a lot of inquiries as I've come in the room here today.

I want to introduce our panel, and I'll start on my far left. Molly White, who is manager of our Managed Care Section. Next to her is A.W. McPherson. He is my Deputy Director and is here today.

On my right, my far right is Brad Connor, who is the Director of Consumer -- I'm sorry -- Director of Market Conduct for the Department, and then also on my right is Jim Casey, who is Manager of our Life and Health Section.

And per the format that we're following is that -- and I'm trying not to conduct this like a legislative hearing, even though I'm an ex legislator.

Really, we're here to listen, not to interrogate, not to debate, but really to listen to the industry and listen to the people that are scheduled to testify.

I started the idea of this in early -- actually the first week I was named Director. And the reason I did was I really felt like there was a lot of issues that were not getting done, simply because traditionally, we had divided up sides and then sort of butt heads with the industry. I think we can be much more productive and if -- if we work together. We've shown that this past legislative session, I think, on many issues.

Also as I mentioned when I was nominated by Governor Holden for this position, the Department's main responsibility is consumer protection, but also the Department's responsibility is promoting Missouri as a place to do business in the insurance business, promote the market, and our customers are not just individual policyholders, but those companies that do business in this state.

So we are here to listen, to hear views not only as far as how we can make Missouri a better place to do business, but also we're here to listen as far as the Department is concerned and how we might do things differently to help streamline processes and things like that.

So with that, if there are no questions or no one on the panel has any initial comments, we'll get started.

And our first scheduled person to testify is Bryan Cox with American Council of Life Insurers.

Bryan, welcome back to Missouri.

MR. COX: Thank you. Now, when you say no debate, that means Brad and I can't --

MR. LAKIN: After we're done, if you want to step out in the hall and debate, that's fine.

MR. COX: No, nothing like that. Mr. Director, thank you for inviting us to give you some thoughts this morning. My name is Bryan Cox. I'm with the American Council of Life Insurers. We have 426 members who represent about 80 percent of life insurance in force in the United States.

What I'd like to do this morning is tell you a little bit about an initiative that we call our REM initiative. REM is the Regulatory and Efficiency Modernization Project. This started three years ago.

Our board of directors felt that it was important to look at the state of insurance regulation and to make recommendations as to how to improve that. That study took about nine months to complete, and the principal conclusion --

MR. McPHERSON: Bryan, is your mike on? They said they can't hear you in the back.

MR. LAKIN: That wasn't planned.

MR. COX: That's all right. The principal conclusion from that study was -- I'll read this very short statement. While laws and regulations governing life insurers are generally viewed as necessary and appropriate, they are seldom uniform from state to state. And even where generally uniformed, they are frequently subject to divergent applications from one state to the other.

These factors lead directly to concerns over unnecessary regulatory costs, and even more importantly, concerns over matters of timing. For example, product approvals or licensing of agents and companies.

Life insurers believe that competitors in computers and banking industries are increasingly able to act in a more timely and efficient manner as they serve the needs of consumers of financial products and services.

Even the short-term implications of this situation are viewed as extremely serious. We have been given the actual example of a CEO who has -- a CEO of a financial conglomerate that includes an insurance company, a securities firm and a banking firm, and if that CEO has a certain amount of money that he wants to put into one of those businesses for a new product launch or new service, if he looks at the regulatory hurtles he has to go through, the insurance side is probably the least likely to receive those funds.

So our CEOs, after this study was finished, they asked us then to start to identify areas of the most importance and then to make recommendations as to how to improve those areas.

Two things -- or one thing that they did is the study -- and all throughout this process, we have reiterated that we are in no way trying to lessen the regulatory burden of insurance companies. We're just trying to make it more efficient.

The board did vote for a new policy, and that policy has two components. One is to pursue a comprehensive plan to make a state base system of life insurance regulation more efficient, and the other was to develop an optional federal charter.

And as you know, there's been a great deal of discussion about that. I'm not gonna address that issue since it's really a federal issue. But even if the ACLI decides not to pursue that option, which we have not made a final determination, the American Bankers Association has their own draft on the table. So the issue is going to be before congress whether we're part of that or not.

We -- we asked our CEOs to identify the three areas of insurance regulation that they thought were the most important to reform and to make recommendations about how to do that. Those three areas identified were product regulation, which we call the speed to market area, producer licensing and market conduct.

MR. LAKIN: Bryan, talk directly into the mike. We do have the person coming to help solve that problem. But my understanding in the back is that they're having trouble hearing.

MR. COX: We sent some documents earlier, and one of those documents is an index of comments and recommendations that we have made to the NAIC and to state regulators about those three areas.

And as -- if you look at that index, you can see that a great deal of time and effort has been spent in developing those recommendations.

I'd like to very briefly tell you about those three areas and what we're trying to do and what we're recommending to NAIC. And I would mention that in addition, that index includes two other sections. One on privacy and one on national treatment, which is extremely important to our members as well. But of the three areas, product regulation was the first area that we tackled.

Our CEOs identified it as the most important, and it's an area, again, where if you compare the insurance approval process with that used by banks and securities companies, you'll find that banks or securities firms can often get products to market in a matter of days or weeks, and insurance companies often have to spend months, or I'm told in some cases, even more than a year to get a product to market.

Our people -- when I say our people, our members --

(DISCUSSION HELD OFF THE RECORD.)

MR. COX: If you look at, as I was saying --

MR. LAKIN: Product regulations.

MR. COX: Yeah. The banks and securities firms often get their products very quick to market. And since we now directly compete with them in many areas, our members feel that this is the area of most need of reform.

As you know, the NAIC has embarked on a project called CARFRA. CARFRA is exactly what -- or is the first step in exactly what we have been discussing and recommending.

There are ten states that are part of the pilot project. I understand from our staff who has worked very closely with this, that they're very pleased that the process has started.

There's a little bit of concern. I understand some of the states in the pilot project have so many deviations from the standards that they're using that they feel that it is not really establishing a uniform product approval process.

I hope that as that project gets further down the line and gets debugged, that Missouri will consider becoming part of that.

I think Missouri is one of the states where product approval has not been a huge concern, and many of the things that we're recommending, Missouri is not in the top tier of problem states, but I wanted you-all to get a sense of what we're working on and what's of concern to our members.

The second area after product regulation was producer licensing. And our recommendations that were made last year called for a centralized system for administration, a single producer license, a centralized system for producer appointment and a centralized database containing information relevant to background and qualifications in the license status of producers.

With the passage of the new producer licensing model in Missouri -- and I believe it's 34 other states by my current count with the NIPR initiative -- we think that this one is well on

its way to becoming one of those areas where reform is happening and is happening in a very good way.

The ACLI was very involved with the creation of NIPR, which was known as IROB in its original days. And, in fact, our members and our staff raised the $3 million to get that project started in '95, I believe. So that's one really important concern to us that we do think is being handled correctly.

I would adhere, in my notes, someone on our staff said don't forgot to mention NAROB. With the 35 states having passed the reciprocity sections of the producer licensing model, the threat from GLB of NAROB has gone away temporarily.

But we're already hearing from the people who backed NAROB originally and are already saying that there are so many big states who are not part of that, that it's not good enough, and their intention is to go back to congress and ask for some change in that original requirement so that more states would have to be included.

I mentioned that just because I think that it will become an important consideration for the NAIC and states to think about in the future.

Federal preemption in that area could lead to, you know, the thought that that's the appropriate way to handle other areas as well.

The last area that I'd like to mention is market conduct. This was identified as the third most important area of concern to our members. We are still in the process of thinking through and talking through our recommendations. They are only in a preliminary form.

At the NAIC meeting in New Orleans a couple of weeks ago, we made those recommendations, and I have forwarded a copy of that to your staff.

We look at the market conduct area as an area where reform can do a lot to make insurance regulation more uniform and efficient. Our initial recommendations are in two areas. In uniformity and in a zone examination concept.

Some of the things in the uniformity area, as I mentioned, like in product approval, Missouri already does. And Brad and I have talked about this many times before.

I think that in concept, there's a lot of agreement about uniformity and how that can best be done, so I won't really go into much detail there. But I will mention that the areas that our CEOs identified as critically important to them in this reform is -- are the areas of document handling and confidentiality.

They think we need to have a national standard that is applied across the board in market conduct exams.

In the administrative action and penalty area, they think we also need to have some national standards and that those standards should have emphasis on penalties or actions being taken based on general patterns and practices of errors, not on random errors.

And a third area that they think is real important is that somehow we need to begin to allow states to use other states' information that they have gathered in market conduct exams.

We feel like that will cut down greatly on the duplication that takes place. We often hear stories from our members of market conduct exams being done on top of each other.

Sometimes they cover the same areas, sometimes they cover different areas, sometimes they cover the same areas in different ways and ask different questions. And our recommendations include how some basic concepts of how we think bringing some uniformity there will improve that.

The zone examination idea is really an idea that is -- we want to get out on the table to talk about how to reduce the duplication, and we see that as a way to do that.

It is used very successfully in the financial area, and there are a lot of problems that need to be discussed and worked out with doing a zone examination, but we think that the merits of having a system like that are enough that the NAIC and regulators along with the industry should discuss them.

Those are what's going on with our REM initiative right now. I'll be glad to answer any questions about any of those parts or any other parts that you-all might like to talk about.

MR. LAKIN: Bryan, you had mentioned that it's not your intent to weaken any of the market -- market conduct or anything like that as far as the exams; is that right?

MR. COX: That's correct. In fact, at the public hearing they had in New Orleans, some of the consumer groups even said that they like some of our ideas. So that's not at all the intention.

The idea is -- and this was discussed separately by some other regulators. If regulators can focus their limited resources on areas that most affect the consumers, that's what doing a market conduct exam should be all about. And we agree with that. We don't have any problem with that.

MR. LAKIN: The thing I've noticed as the new Director and was interesting to me when I started seeing other states and how they regulated, and it was interesting because there are -- Missouri is pretty sophisticated compared to states --

MR. COX: Yes.

MR. LAKIN: -- all across the country. And it seemed to me like there were other states that weren't as near sophisticated or near able to do the type of job that Missouri does in a lot of these market conduct exams.

So my only concern at NAIC is that we don't lessen the standards as far as what the market conduct exams entail, but that we actually increase them and -- with the other -- the states that are doing the weak job.

I don't think we need -- I mean, I think in Missouri we do a pretty fair job in that and have pretty fair standards, but some of these other states -- and I know with discussion of NAIC that by adopting the NAIC model, we were actually possibly weakening Missouri's position in that.

So that was the concern I had, and I assume that you don't want to deal with weakening of examining or anything like that.

MR. COX: No.

MR. LAKIN: It's just simply better coordination.

MR. COX: And I think Brad might know this figure better than I do. I think there's maybe 20 states that do almost nothing in the market conduct area, and that's a pretty big number.

MR. CONNOR: Right.

MR. LAKIN: And the other thing that I've noticed is that it seems to me we get along better with our midwest zone than the state does in our Department than we do with a lot of other states in other zones. And I think that the reason behind that is that we're much -- we have a lot more in common, let's say, with Illinois or Iowa or Kansas than we do with New Jersey or California or that kind of thing.

And I guess my question to you is, do you see possibly with this debate going on right now at the federal level that it might eventually shake out more to zone levels instead of going one place to get all your licensing, possibly you go to five or six? But that's still better than 50.

MR. COX: I don't know that that's something we've considered, because our focus is to make it one. If there is -- you know, if the zones become a more -- coordinated maybe is a word I could use -- entity, that might be something to consider. But right now we're hoping for, you know, producer licensing and product approval, that it's one place.

That might be something of interest to companies that only do business, you know, in a handful of states. That might be something that they would be very, very interested in.

And we have a lot of members who are like that. Of our 426 members, they're not all the size of Prudential and those companies. We have a lot of smaller -- in fact, we have a lot of one state only and they have no interest in an optional federal charter, because that means nothing to them.

They're only dealing with one place right now.

MR. LAKIN: I just think there's a better chance for cooperation among states that have something in common versus what I've seen so far at the national level. We get proposals worked out, and then at the next NAIC meeting, it comes unraveled or there's real concerns from a lot of different entities.

Any other questions from panel members?

(NO RESPONSE.)

MR. LAKIN: Okay.

MR. COX: Thank you.

MR. LAKIN: Thank you, Bryan. Appreciate it.

Mike Winter with Missouri Association of Health Plans. Hi, Mike.

MR. WINTER: I'm sorry, Mr. Director. I'd like to bring a following witness since he's gonna cover some things.

For the record, my name is Mike Winter. I'm a registered lobbyist on behalf of the

Missouri Association of Health Plans. Joining me today is Clark Slipher with the actuarial accounting firm of Milliman & Robertson.

To begin, Mr. Director, just for purely an informational basis, the Association represents 15 health plans which insure about a million -- over 1.2 million Missourians. So we insure many lives, or arrange for health care services to be provided to their employers who, in turn, give them to their employees.

The Association is devoted to providing quality health care to those individuals as well as trying to make sure that it's affordable and it's appropriate in certain settings.

We've been active as an association in both legislative and regulatory arenas in the past, as you're aware of from your tenure in the legislature.

Part of our association -- when we got your letter indicating you're having a hearing today, we've asked them to comment specifically on a number of items which you mentioned in your letter.

So if it's all right with you and the panel, we would like to provide some additional documentation following the hearing, because I think some of that needs to be fairly specific since it will entail, I think, detailed comments on reporting as well as comments on the supplemental reports which we're required to follow quarterly.

MR. LAKIN: Let me stop you right there and just make sure that everyone is aware that even if you're not scheduled to testify, we are open to, you know, written comments and things.

And if you'll get that to the Department, we'll make sure that it's reviewed.

MR. WINTER: Yeah. I just wanted to make sure that we gave all the companies adequate time to get detailed comments back so we'll provide real good -- this was to the Department.

Some of the comments we have gotten back, at least at this point, have been specific to the supplemental filings or in regard to network adequacy and if those -- if that information is really required to be filed on a quarterly basis or if it's merely to be filed on an annual basis.

I think a review of House Bill 335, an existing statute, would probably tell us that.

As you're aware, when House Bill 335 passed in 1997, that was probably the most significant rewrite, or one of the most significant rewrites in the company in the managed care law at that time.

Since we've had the opportunity to be operating under this statute for a number of years now, the Association decided that it would be wise to look at specific issues that we found troublesome and burdensome to the industry and try to have a study done of certain items and provide information not only to us but other individuals such as the Department and elected officials on what we saw as issues in existing statute and/or regulation.

To that end, the Association retained Milliman & Robertson to look at three specific areas late last year and early this year. Those are the network adequacy provisions contained in House Bill 335, the Department of Health Consumer Guide, which admittedly you have no jurisdiction over here today, and then thirdly, the pharmacy provisions which were passed in House Bill 335.

As a lead-in, I'd like to turn it over to Clark, since he is the lead researcher and analyst that looked at the report for the association and did the analysis and final study compilation.

MR. SLIPHER: Again, my name is Clark Slipher. I'm an actuary for Milliman and Robertson. And if you're not aware, Milliman & Robertson is an actuarial scouting firm in scope. I hale from a Milwaukee office.

As Mike indicated, we were engaged by the Missouri Association of Health Plans to look at three specific areas regarding impact of House Bill 335. And those areas, again, were provider or network adequacy, reporting standards, which for the most part are Department of Health reporting standards, and also pharmacy provisions.

There were a lot of other things in House Bill 335. As you're aware we did not look at those. Although, I'm sure there's other comments out there that we didn't solicit.

Our primary tool for studying the impact of House Bill 335 is we did a brief survey in the first quarter of this year of the health plan -- association plans that would have to comply with House Bill 335.

Now, there's 15 health plans in the association, and to our survey we received a very good response. Ten health plans representing about 900,000 Missouri residents responded to our survey, and we surveyed them on these three provisions about provider access, reporting and pharmacy.

The results that we got out of this survey and through our research that we did were very interesting and very bright line.

First off, regarding provider access, network adequacy standards, which I believe are part of the Department of Insurance's purview, House Bill 335 requires there to be access standards that would not create long travel distances or experience unreasonable delays in medical care for Missouri residents.

And there's a filing that goes along with that. When we surveyed the health plans, again, ten health plans responded. What we found was that access to health care or health plans actually decreased from many counties since the introduction of House Bill 335, and it was related to these access standards.

What we found was that 56 counties of the total of 115 counties in Missouri actually were removed from at least one health plan service area due to House Bill 335's access standards. Again, 56 counties actually were withdrawn from service by at least one health plan due to the access standards.

We found within the respondents that only three counties actually experienced expansion of provider networks related to the access standards. So we had a cutback in care, and only three counties actually experienced expansion of providers.

The last finding that we found related to this specific standard was that the ten survey respondents, that 90 exceptions were requested to the standards of which at least 77 were approved.

Now, I'm not sure what happened to the other 13. We didn't get that. But they may have been approved. We just don't know. So we know at least 77 of the 90 exceptions reported to us were approved. So most of the exceptions were approved.

We found that relating to the access standards is that provider location may limit the health plans' ability to satisfy House Bill 335.

For example, many of the counties were rural counties. You're probably aware. I think it's widely publicized that Missouri has a shortage of primary care physicians.

The health plans really have very little control over where hospitals and physicians of primary care or specialists are located. So it creates a problem with complying with the access standards.

We found that in other states or in other standards, that the same standard may not be applied in urban as in rural areas, which may be possibly one solution, or maybe more flexible standards on the access standards could possibly work, or possibly relaxing the standard on specialists which were a particular problem for a lot of our health plans.

But the provider location, seeing how you don't in Missouri have a wealth of providers of primary care physicians and specialists in every rural county, created quite a problem in complying with the standards.

We looked at what the cost to the health plans of complying with House Bill 335, the reporting requirements, and acknowledging that many of these reporting requirements are not Department of Insurance reporting requirements, we found that in terms of total staff cost, that the health plans on average reported to us spending 710 hours of staff time which we equated to about $25,000 per health plan responding to the data access -- or responding to the reporting requirements of House Bill 335.

Of that $25,000, the Department of Insurance provider access standards was $13,000 or 380 hours. So it was a little over half of that cost that was related to the Department of Insurance network adequacy and provider filings.

In addition to those staff costs, the health plans experienced about $49,000 in external costs.

Now, many of those external costs related to HETUS compliance audits and other types of surveys that related to the Department of Health, so I don't think it's reasonable to blame that on the Department of Insurance.

MR. LAKIN: Thank you. How about increased lobbying costs? Has that been --

MR. SLIPHER: It was a minuscule piece.

MR. LAKIN: Let me see your report, Clark.

MR. SLIPHER: I won't dwell on the issue of Department of Health findings, but there were significant findings particularly about the consumer that the health plans found somewhat burdensome, and we've found that it didn't have all the value that we'd hoped to find in it.

MR. LAKIN: Clark, I'm glad you pointed this out, because it's something that's concerned me for a while. Because we can work hard at the Department of Insurance and provide better access to insurance products, but if there's no providers or if the network's not adequate and that person that has the insurance policy cannot get in to see a doctor, it's not really money well spent in their opinion.

It's a problem. And so I think that's something -- you know, when I say we, I mean we as Missourians need to start having at least a dialogue on that. So I'm glad you brought that up.

MR. SLIPHER: I know from antidotes from the health plans' individually responsive surveys, that they have comments and suggestions, I think constructive suggestions, on how to improve the situation.

As you probably know, House Bill 335 costs the State of Missouri money to administer as well. We don't -- we couldn't find our way through the Missouri budget not -- you probably can. Also we know that in the fiscal notes related to House Bill 335, if we tracked those for fiscal year 2000 to 2001, that the Department of Insurance costs related to House Bill 335 were about 179,000, and the Department of Health was about 172,000.

And I'm sure you have much more up-to-date and better statistics than that currently.

Last item that I wanted to touch on was the pharmacy requirements. And the pharmacy requirements of House Bill 335, paraphrasing, require that the same copayment apply to all prescriptions filled by a network pharmacy and that there could not be a limit on the quantity of prescriptions that a member may obtain at any one time.

So it was a provision that was somehow -- somewhat related to mail order providers who provide maintenance drugs. And what we found in our survey and other research was that two things: That it wasn't particularly effective at increasing the access to maintenance drugs.

What happened was most of the health plans went to the retail pharmacies, and the retail pharmacies would not accept the reimbursement that the mail order drug companies would provide, at which point the only way to replicate the cost was to increase the copays on those provisions.

So we had, again, somewhat of a perverse effect of increasing the copays for maintenance drugs at retail pharmacies, which I don't think was the intention. But it was related to the retail pharmacies would not accept the reimbursement.

We found evidence as we looked at the average copays between 1999 and 2000, it increased by 24 percent. I think that would be a far stretch to blame it all on House Bill 335, because, as we know, prescription copays are going up in general.

But there was reports from the health plan that that was a specific response, they did increase copays in order to make the maintenance drugs that retail pharmacies have cost-effective.

So that's pretty much it. I would reiterate that during my work at the Health Plan Association, there was always a concern about provider adequacy and quality.

I think what was being questioned was the means to get there, and they -- I think the health plans do have constructive suggestions for you.

MR. LAKIN: Mike, do you have anything else?

MR. WINTER: I would just mention that obviously our companies don't like to leave market areas where they think they can provide good service. So part of the reason for those companies' departure in 56 counties is network adequacy. We'd urge you to look at that in particular.

The association does have committees internally for our medical directors and data folks who are very good in their areas of expertise, and we continue to look at regulatory issues and legislative issues. And as those come up, we'll be sure to pass constructive comments and any issues that may cause them concern along to the Department.

MR. LAKIN: You know, we as a Department recently met on network adequacy. And, you know, the good news is the trend seems to be that most of the companies are improving and getting up to a standard that needs to be met.

My concern is they're doing it not by going out and finding more providers, but just increasing where they serve, in the counties that they serve. And there's a balance that we need to look at.

Any questions from panel members? A.W.?

MR. McPHERSON: From the Milliman & Robertson survey, will any recommendations be coming out of that?

MR. SLIPHER: We didn't have specific recommendations. We had some general recommendations, specifically about network adequacy, really revolving around increasing the flexibility of the standard and the reporting of it.

And the health plans would have more specific -- but it really revolved around increasing the flexibility of the standard.

MR. LAKIN: Molly White?

MS. WHITE: Hi. Thanks. On those counties that were dropped, how many of them were duplicate counties, like the same plants dropping the same counties?

MR. SLIPHER: Yeah. We only counted one county once. That's an actuarial thing. 56 counties.

MR. LAKIN: All that schooling came in handy.

MR. SLIPHER: At least one health plan dropped. So some of those counties, more than one county dropped, and we have a listing in our report of how many in each county.

MS. WHITE: Okay. And you had mentioned that you did a brief survey -- and maybe this all plays together. But would it be possible to get a copy of the survey that you conducted, or would that be included in whatever written comments you're making available to us?

MR. SLIPHER: The survey document itself and all the methodology that we used is part of our report.

MS. WHITE: Okay.

MR. LAKIN: Any other questions? Jim?

MR. CASEY: I'm not sure I understand the pharmacy issue. From what I understand, you had to go to the retail pharmacists to see if they would match the copay of the mail order --

MR. SLIPHER: Yes.

MR. CASEY: -- and they didn't do that? Was there any communication that they had done that before, or was there an increase in --

MR. SLIPHER: I think even as I look through the legislative history about House Bill 335, there was discussion of how much more the mail order pharmacy discounts were than the retail discounts.

And the retail discounts to some extent -- these are -- as you know, some of them are small operators or large chains that may be operating on small margins, and so the mail order houses don't necessarily have the high overhead. And so it wasn't, I don't think, unexpected that the retail pharmacies would -- they would -- necessarily they would not accept the lower reimbursement on the ingredient costs.

MR. CASEY: How did House Bill 335 impact that, though?

MR. SLIPHER: What happened is that the health plans had to offer maintenance drugs through the retail pharmacy. And so if the retail pharmacies would not accept the same reimbursement level for those maintenance drugs, the only way to make it cost neutral was to increase the copay.

MR. CASEY: Did that have a negative or positive effect either way on the consumer, though, or the pharmacy or the health plan? I'm not sure who got hurt.

MR. SLIPHER: I would have thought that most consumers would have wanted to pay a lower copay than a higher copay. Who it would have affected -- I don't think it necessarily hurt the pharmacies, because they were receiving the same reimbursement as they did on the retail.

The consumer would have presumably been at the brunt of that change, because they would have had to pay a higher copay out of pocket.

MR. CASEY: To go to a retail pharmacy?

MR. SLIPHER: For maintenance drugs, yes.

MR. LAKIN: Thank you, fellas. Appreciate it.

Before I call the next person, I want -- we will probably be done by lunchtime. And I did this last week, and it seemed to work fairly well.

But if any of you have individual problems that you'd like to talk to someone over at the Department, they will be making themselves available this afternoon.

So you can go to lunch and then come over to the Department or call and ask to speak to a specific person. So I want to make that available this afternoon if any of you -- a lot of you are in from out of town and things like that, and if you haven't already made appointments over there this afternoon, this afternoon would be a good time to meet with somebody individually.

Next person is Brent Butler with Missouri Insurance Coalition. Brent?

MR. BUTLER: Good morning. My name is Brent Butler with the Missouri Insurance Coalition, and my comments will be pretty brief because I was, you know, gonna clean up in case anybody left something out.

Basically, though, there's one point that was made last Thursday. Most of the audience wasn't here last Thursday for the PNC section, but many of the issues that were covered last week in the PNC section, particularly with respect to the regulations and market conduct exams and the cost and the sufficiency of regulating the companies apply equally to the life and health companies.

And I just, you know, wanted to make that point. I think Bryan Cox made a lot of that apparent to you when he discussed the market conduct exams, and we concur in those comments.

Really, I don't have any specific issues to discuss at this time because I think most of the speakers today that have come before me and after me will cover those adequately, but I wanted to, you know, just make that clear point, that a lot of it does apply equally across the lines.

And if you'll indulge me one minute, I had a comment come in on the PNC side late last Thursday after the meeting with respect to insurance -- the insurance fraud investigation part of the Consumer Services Section.

They made -- their focus has been, you know, of course, in investigating insurance fraud. But we've got the comments from several companies that some aspects of insurance fraud aren't relating to the companies but are relating to the consumers and others out there that are charging -- overcharging companies, and, of course, they're getting passed on to the consumers.

One specific area that was brought to mind was on the towing charges, particularly in the Kansas City area. We've had reports that some towing charges -- they're not very uniform and they're almost -- you might even call them, you know, extortionary.

I don't want to use that word.

MR. LAKIN: Is that a word?

MR. BUTLER: Whatever. Something like that. They've run from anywhere -- they seem to be running about $200 a tow, which you can double bill it to the insurance company, and as you know, they'll tow your car for 30 bucks to the nearest repair shop.

And we've heard reports of even a thousand dollars for towing charges and storing. And also if you have a car that's wrecked, sometimes they'll tow them and you won't be able to -- an adjuster won't be able to get in there to start processing on the claim of the car without being charged a fee to come in and take pictures, which is just, you know, a flat-out cost -- you know, it adds to the cost of the insurance product. And, of course, that cost goes to the consumer.

And I think those are the kinds of things -- I know you don't have any regulatory authority over towers or anything, but it's the kind of thing like that that could be looked at also by the insurance fraud.

I'll close with that.

MR. LAKIN: Thanks. I know when I was in the legislature, I had some legislation on insurance fraud, and I probably need to go and pull those files and look at it again.

Mostly dealt with arson, the Insurance Fraud Task Force that was set up between the prosecutor's office and Jackson County and the insurers and the consumer groups. So it might be something that we can include in an overall look at some kind of insurance fraud.

Any questions? A.W.?

MR. McPHERSON: Could you be a little more specific what you want the Consumer Affairs Section to do?

MR. BUTLER: Well, I'm not exactly sure

how they deal with that now, but when you cover the area of insurance fraud, sometimes it is a case like -- you know, I don't have -- I'm not gonna name any particular towers, but towers as an example are running up these bills, and they're -- there's not much, you know, we can do about them.

If policy says they'll pay them, they're gonna bill you. But those costs are reflected in the rates. And when you start just saying, you know, we're gonna charge you $250 because it's a covered claim, I mean, something is wrong there.

MR. McPHERSON: Because who would the initial complaint to the Department come from?

MR. BUTLER: Well, basically I guess we could just start talking to you about our problems with that as insurance companies.

MR. LAKIN: I would imagine whether -- I mean, depending on the time of night and the location of the tow, it might be worth $200 to me to get out -- to get out of that part of town.

MR. BUTLER: It could well be, but I think in general, some of these are going a little bit higher than what you would expect to pay under most circumstances.

MR. LAKIN: I know that we're limited in the sense of doing a fraud investigation as to who files the complaints. So you might want to think through that process as far as who's filing the complaint.

I'm not sure we have the authority over the towing services.

MR. BUTLER: You don't have direct authority over towers, but this was just a comment that was brought to me by a company, and I wanted to bring it to your attention.

MR. LAKIN: Any other questions? Brent, can you tell me who the Missouri Insurance Coalition is and who your members are?

MR. BUTLER: Certainly. We represent about 100 insurance companies doing business in the state. A lot of the property casualty companies and a lot of the life and health companies.

We have some small life companies. We have some larger health insurers. We basically represent the insurance market.

MR. LAKIN: All right. Thank you very much. We appreciate it.

Matthew McCauley with General American Life Insurance Company.

MR. McCAULEY: Thank you, Mr. Director. My name is Matthew McCauley, and I'm general counsel of General American Life. I'm slightly abashed to be representing just one company when everybody else represents a coalition or council or something more important, but I did want to take the opportunity that you offered, although we have many opportunities to communicate with the Department, but this was an opportunity to talk about two things that I think are of some more general interest than just General American alone.

One of them is just to make an on-the-record statement that we are working to produce for the Department to examine a new investment law for the life insurance industry.

My colleague, Jim Sherman, is putting together a group of life company executives to consider what ought to be in such a law.

And people in this room who are interested and who haven't been aware of this might get in touch with me at General American or Jim at our affiliate Reinsurance Group of America and get on board with this.

The effort is to harmonize Missouri's investment laws which I've worked with for 30 years and I'm really fond of. But they're sort of like an old mattress. And people who haven't had that long experience find them a little bumpy, I think.

And so we did get the Department -- the Department did make a stab at new rules last year in an effort to harmonize the investment law with the new accounting procedures which are referred to as codification.

It all kind of came up as a surprise to us a little bit, and so we're now working to come together as an industry to put together a proposal, take it to the Department, and then if everybody's on board, we'll hope to have legislation proposed and adopted.

The objectives from our perspectives are to make a smooth transition from the old law to the new so that there is no class of investments that was okay on Monday and that's out of bounds on Wednesday and you have a huge adjustment problem to accommodate.

And we are considering, just because it's easier than starting from scratch, to use one of the NAIC models. So this is an ongoing thing and basically wanted to acknowledge it here.

MR. LAKIN: What's your time line of bringing it to the Department? Is it February or --

MR. McCAULEY: Yeah, right. March or something. No. I think we'll -- we're hoping to have all the insurance companies and our thoughts on this topic lined up by Labor Day, and then come to the Department as the leaves are turning and it's so beautiful driving down here and then hope to have a bill ready by Thanksgiving or something.

MR. LAKIN: Okay. Thank you.

MR. McCAULEY: My other item that I'd like to mention -- and this is something that we at GA have thought about off and on but not very systematically, and so this is really in the nature of brainstorming, and I wouldn't do this if you hadn't offered me this opportunity.

But it is an invitation to the Department and to other involved companies to think a little bit about Section 382.195, which is the prohibited transaction statute in the holding company law.

In a large organization such as General American, which was a complex organization before it became part of Metropolitan Life and is now even more complex, if that's possible, and then you add in the fact that the reinsurance group which is part of our organization does business internationally where it's deemed appropriate to form a subsidiary or a company in the country you're operating in so you wind up with quite a network of corporate entities, we find that we are bumping into Section 382.195 frequently.

And one of the stumbling blocks for us is an issue that the Department has kind of -- it is a Department-made rule, I think, which isn't in the statute which specifies -- well, I might say that the pieces of the statute that are of concern to us are in Section 4, which relates to management agreement, service contracts and cost sharing arrangements.

These arrangements, the Department has been taking the position, cannot contain a profit element. We don't find it in the statute, and it's put us in some sort of complex situations. We had a transaction with an affiliate in Argentina where under Argentine law, the company had to make a profit to demonstrate it was a real entity, and under this ruling -- or this way of approaching the Missouri Holding Company Act, if the company made a profit, it was over the line.

And so we have had a struggle there. And even in a contract where we are based on using our conventional cost accounting rules, it's safe to say that cost accounting people have developed these approaches to accounting without an eye on whether there's a profit or not, and demonstrating to the people in the Department that the cost accounting rules are neutral is a project.

It produces, I think, a level of interaction, not to say friction with the Department, that might be something you might want to think about.

In addition, I don't know what is happening with the other companies, but we just have a bushel basket full of these contracts that we're sending them down here all the time, and so it's a lot of burden on the Department, which I don't think was staffed up just to handle --

MR. LAKIN: What was the date on the bulletin or the --

MR. McCAULEY: There is no bulletin. There's no rule. It's an approach.

MR. LAKIN: Okay.

MR. McCAULEY: It's -- you know, it's a way of -- one of the problems that the staff has is they're given this management agreement and they're asked to bless it or not bless it, and there is no standard. And so that's the basic issue.

MR. LAKIN: Okay.

MR. McCAULEY: So some suggestions that I have -- I mean, I don't want to leave you with a bleak picture. One suggestion is maybe a pass-through for contracts with a profit level at some moderate amount, 10 percent of revenues or something like that.

Another approach which is in the statute and other parts is to allow smaller contracts to pass without review.

For example, reinsurance transactions involving 5 percent of surplus or less are not required to be reviewed, or sales and purchases that involve lesser -- 3 percent of admitted assets or 25 percent of surpluses, those things don't need to be reviewed.

There's another approach which is maybe to carve out some contracts. We have a lot of variable products. All the variable products are required to be sold by an underwriter.

The underwriting contract is sort of a routine thing that is supervised to some degree by the market. If you're paying the underwriter too much, your product is gonna be too expensive. It's also supervised at one level by the National Association of Securities Dealers. And so it may be that some of these contracts aren't necessary.

And then the final approach, which comes from the dealings I've had with the Securities and Exchange Commission, is to use selective review.

If the contracts are similar to previous contracts that have been approved, just let the dealer work and not go back to square one and have people prove up the cost accounting system for the second or third time.

So it's an issue. I don't think it's the biggest issue. I think the investment statute is a bigger issue. But since you gave me this opportunity, I thought I'd get it off my chest.

MR. LAKIN: Glad to provide you an opportunity for therapy. Any questions?

(NO RESPONSE.)

MR. LAKIN: Thank you, Matt. I appreciate it.

Joy Ryan with the Health Insurance Association of America. Hi, Joy. She got up early for this.

MS. RYAN: Good morning. I'm Joy Ryan, and I represent the Health Insurance Association of America. HIA is the national trade association representing 300-plus companies in the major medical long-term care, dental, disability and other supplemental coverage markets.

Collectively our members represent approximately 123 million Americans. HIA members provide a variety of coverage to Missouri residents, including indemnity, PPO and HMO products. HIA covers legislative and regulatory issues in all 50 states and at the federal level.

I cover five states on behalf of the Association, plus NCOIL and NAIC. Jim Russell and Stephanie Schafer represent HIA locally in Missouri. And in Missouri our members include both domestic Missouri companies and national companies such as Aetna, Signa, Mutual of Omaha.

I really appreciate being here today and thank you for inviting me. I'd like to take the opportunity to make the Department aware of some of the issues that HIA has tracked in the past and some of the issues that we anticipate will be active in the future.

The first issue I'd like to talk about is HIPAA enforcement. Missouri has the honor to be the only state where HCFA is actively enforcing what you would call the federal fall-back or federal default provisions of HIPAA. There were several other states that failed to pass a bill in the first few years after HIPAA passed.

The last two are California and Rhode Island, but they in the past year complied and HCFA has announced that they are withdrawing enforcement from those states. They also are going to centralize enforcement of HIPAA in the Kansas City office. We recently released -- a GAO report was done on HIPAA enforcement. You might have seen a copy of it. If not, I have a full packet of materials I'm gonna leave behind for you today, and a copy of the GAO report is included in that.

One significant fact, there's a couple of sentences of double-speak in the report. The GAO says that HCFA has reviewed 95 percent of policy forms related to HIPAA. This would be in the individual and small group markets.

Now, they don't say that they've approved forms for 95 percent of the policy forms. And I had one company tell me in the past week that they have a form out there that's been out there with HCFA in Kansas City since 1998 that's never been approved. So on behalf of HIA --

MR. LAKIN: We can beat that.

MS. RYAN: And you wouldn't be the only state. But on behalf of HIA, we would really like to work with the Department and the legislature to pass a HIPAA compliance piece and get HCFA out of Missouri.

MR. LAKIN: Can I ask a question on that?

MS. RYAN: Sure.

MR. LAKIN: Has Missouri's consumers been hurt because we've had federal oversight rather than a state law?

MS. RYAN: I can't say that they've been hurt directly, but I'm not sure that they're getting the same kinds of scrutiny. Now, past administrations didn't seem to mind at all to have the feds come in here and do the work that the Department normally does. And I'm not sure if that's gonna continue to be the philosophy or not.

But in addition to form compliance, HCFA is doing market conduct, as I'm sure Brad is aware, and maybe he's working with HCFA. I'm not sure. But it seems to me a traditional Insurance Department enforcement issue.

In addition, HCFA is dealing with insurer complaints directly. One of the things the GAO report says is that many consumers are not familiar with their rights under HIPAA, so they can't even -- you know, if HCFA is responding to complaints, there's a lot of people throughout that are not even aware enough to trigger a complaint. You know, I myself have had --

MR. LAKIN: My impression is that consumers really haven't been hurt. It has been a problem and started to be a bigger problem in the last few years with the industry dealing with HCFA.

But I remember quite clearly when we were looking at HIPAA compliance, I think it was in '97 that we were trying to get the industry to provide some guarantee for individual insurance products as well as group, and they said no, we'd rather have federal regulation than have any kind of guarantee on the --

MS. RYAN: You mean guaranteed issue?

MR. LAKIN: Guaranteed issue.

MS. RYAN: I don't think that's exactly the position. I know that HIA has always supported high risk pools as a solution for HIPAA alternative mechanisms. More than half the states have used their either existing pool for HIPAA or created a new pool for HIPAA eligibles.

We would support enactment of HIPAA eligibles. We would love to use the existing pool. We just think it's a more rational way to spread the risk of guaranteed issue.

MR. LAKIN: Would you be willing to decrease your premium tax credit to help pay for that rather than have the taxpayers pay for that?

MS. RYAN: I think that I wouldn't comment on that at this time.

MR. LAKIN: All right. Go ahead.

MS. RYAN: But, you know, we are willing to look at alternatives. Our official position which is in our board policy since HIPAA passed is that we support broad-base funding sources for risk pools. And that broad base is sort of a loose term, and we would --

MR. LAKIN: As long as the risk is being spread rather than being avoided, I think there's some kind of --

MS. RYAN: Right. We would prefer to spread the risk. I think you'll find one of the reasons that we don't like a guaranteed issue approach is that the rates are not affordable. Just because they're guaranteed doesn't mean they're cheap, and that that's not a meaningful access point for the consumer.

Risk pool coverage is cheaper for the consumer and the rates are limited, but the market subsidizes, right, so we feel that that's a more meaningful approach.

MR. LAKIN: Now, if -- you're meaning the company subsidizes it?

MS. RYAN: No, I mean the market.

MR. LAKIN: The market.

MS. RYAN: The market as a whole subsidizes the unhealthy individuals so that they're not paying the full freight for their actual health conditions. You know, healthier people are subsidized, which when you have a pool, that is what's going on.

MR. LAKIN: Okay. Go ahead. I'm sorry.

MS. RYAN: We know it's a big issue. It's been an issue every year since '97, and we would like to come in and sit down and explore a way to do this. We had a bill last year and had a very big fiscal note, and it sort of went out of committee and went into a black hole, and we'd like to explore ways of funding that pool.

One of the things in the leave-behind packet that I brought for you is the most recent edition of the Agriculture Risk Pool Book, which is a very informative publication that lists for every state that has a pool what their funding source is, and there's a variety of funding mechanisms, including taxes, general revenue, premium taxes.

So it runs the gamut, and we'd like to look at how we can maybe make that work. So --

MR. LAKIN: By the way, I've been a little harder on you than some of the others, and I probably shouldn't. But I know during my confirmation hearings, those questions came up about HCFA compliance, and I'm on record as willing to work with the industry on this issue.

So we might have some meetings here fairly quickly to start looking at some consensus on how to deal with the HIPAA issue.

MS. RYAN: And just to get back to your point about consumers being hurt directly, I think it would be a fair statement to say that the consumers could be hurt by lack of choice in the market. And if we can't get policy forms for new products which are, you know, more responsive to security consumer demand, if we can't get those forms approved, then they are suffering from lack of choice.

So -- okay. Moving on. I wanted to talk a little bit about the issues that are very important to our small group and individual carriers. On the small group front, our carriers have identified preserving rating flexibility as being very important to them.

Missouri has an older version of the NAIC small group law on its books. Again, if we could do something about HIPAA compliance, I think we could take a look at what's in that law. But we are opposed to any attempts to tighten rate bans and eliminate rating factors.

We'd like to keep, you know, rating factors in the law as much as we possibly can within the limits of HIPAA. For example, you can't discriminate on health status within a group, you know, so we understand.

We also oppose any elimination or erosion of the underwriting that we're currently allowed to do. And we would like to explore opportunities to eliminate mandatory plan design for the basic and standard plans that are on the books in most states.

And I think, again, all of that goes along with looking at HIPAA compliance. The group size in Missouri is still on the books at three to 25, again, because we never passed a bill. And it should be 2 to 50. So we would like to look at getting that changed on the books.

And then something that we have been very strongly opposed to at both state and federal levels for many years is pool purchasing arrangements that look like MEWAs or accountable health plans, and we're actively opposing it in congress. Right now we're concerned that such a provision could end up in the patient's bill of rights.

There are state level MEWA proposals from time to time. We've seen MEWA fraud at the national level over the years that have caused Department of Insurance a lot of headaches and in trying to investigate MEWA fraud, there's been MEWA administrators.

And I was listening to some ARISA experts explain this the other night, and I like the way they put it. They said that the MEWA administrators were either inexpert at managing risk or expert at taking all the funds and going to South America. So we would like to, you know -- we oppose any further expansion of MEWA.

The other thing that the federal bills do is eliminate state regulation, which under ARISA, currently that framework is still granted to the states to do MEWA enforcement. And we're looking at trying to put that back at the federal level.

MR. LAKIN: Is Brad Jones here? Okay. I don't see him.

MS. RYAN: In the individual market we have very similar issues about rating restrictions and price controls. We think that those price controls tend to actually drive rates up in the long run and are not beneficial to consumers, which is why our carriers support spreading mechanisms.

And a couple of things on the underwriting front. We're concerned about any further initiatives on genetic testing. Missouri passed a law in 1998 that's comprehensive, and we're opposed to further threats of that law. We're monitoring privacy and confidentiality issues that could interfere with the ability to do underwriting, and there have been a couple of proposals being kicked around the legislature the past few years to do community rating in the individual market, and we're strongly opposed to such an effort.

Another issue that we've tried to work on as an association nationally to get behind something to -- is really on the uninsured issue.

We would like to work on filling in the groups where people don't have coverage. We have a program called Insure USA that seeks to put together tax credits, bills on the CHIP Program that states have enacted, and, in general, try to build around -- we support the employer-based market. What we're looking to do is support the programs around that market that can help people get coverage that don't currently have access to it.

MR. LAKIN: Joy, there's a real gap in about ages early 50s to age 62 for coverage. Do you-all have any proposals as far as how to deal with it?

MS. RYAN: Well, we're not in favor of lowering the Medicare age, but I think this is the group that really -- I think a lot of the HIPAA eligibles are in this what I call early retiree category, 55 to 64.

I also cover Florida. It's a big problem down there, and these are the people that are gonna be buying individual policies when they take early retirement or downsize from their jobs.

MR. LAKIN: If they can get them.

MS. RYAN: Right. And that's the place maybe a tax credit with the purchase of an individual policy can help people like that.

We're exploring MSAs, and that's something that can be looked at at the federal level. But a lot of time the people in that age group do have some income, but they still need a mechanism to be able to purchase the policy if they've got a health condition or are not HIPAA eligible.

So some of the other things -- and, again, I'll leave you the brochure so you can look at that.

MR. LAKIN: I'd be interested in, you know, maybe doing some brainstorming on that age group.

MS. RYAN: Right. It's definitely an age group that's in need. A place to go, I guess.

MR. LAKIN: We'll all be there some day.

MS. RYAN: Getting there. A couple of other issues just at the national level that's affected all our carriers. We have been tracking privacy in congress, the federal rules with NAIC and with NCOIL. The biggest factor with privacy is that we have a uniform and consistent standard that we can live with.

Many of my carriers are national carriers. They don't want to be doing it differently in Missouri than in Florida. It's a big problem for them, so we very much appreciate the law that was just enacted in Missouri that will enable our carriers to deal with the HIPAA regs and everything else that they need to do to comply with privacy.

And I think you did an emergency rule, too, so you've done --

MR. LAKIN: It's on our website.

MS. RYAN: Right. And we appreciate it very much in Missouri. There's so few states that I think are gonna go off the map. Like California, we don't know what they're gonna do, you know. As many states as we can get that are consistent, that's the one thing for us that is the big thing.

And just a couple more issues. Prompt pay has been an issue for us in practically every state, and you've got a new bill that's pending on the Governor's desk, and it's going to be complex to administer. There's a provision in there that allows the Department to write rules. We'd like to work with the Department on that, particularly the part about allowing insurers to suspend claims, either to pay, deny or suspend.

I think that one part about suspending a claim is going to be an expensive administrative programming effort for carriers that don't currently process their claims that way, and we'd be curious to see how the rule deals with that issue.

MR. LAKIN: Joy, are you going to move to Jefferson City?

MS. RYAN: Stephanie was saying I could get residency and a voting card pretty soon.

Another big issue for us is mandated benefits. HIA is opposed to mandated benefits. Not one by one individually. You know, they're hard to oppose individually. You know, each one has a group behind them that is sympathetic, has some sympathetic reasons why they think it should be covered.

The problem is, as a whole, some states have 30 to 50 mandates on the books, and we oppose them because they raise the cost of coverage and they interfere with people's ability to choose what they want to buy, whether it's an individual consumer purchasing a policy or it's an employer group.

And so as a whole, we just think that we reduce access. We have a couple of studies that we've done on mandates and on access to market products in the individual small group markets and the effect of regulation, and both those studies are also in the leave-behind packet.

MR. LAKIN: Can you lump all mandates in one and just say philosophically we oppose all mandates? I mean, it seems to me it sort of depends on the mandate. I know as a legislator, I used to look at them individually.

MS. RYAN: It's hard to get into them individually. And I don't think most legislators like to vote against any of them. You know, it's hard to say no.

MR. LAKIN: And I understand what you're saying, but it seems to me that depending on what the mandate is and depending on how the companies spread the risk, if they spread the risk correctly, then the cost of that mandate overall per individual policyholder shouldn't be all that great.

There are other mandates that are not like that.

MS. RYAN: But our concern is that insurance policies operate on a medical-necessity basis, and I think that mandates are an attempt to second guess medical necessity and card code certain benefits and coverages into law. I've even seen mandates for certain treatments that you have to use a laser machine to do this and that, and what if the laser machine is obsolete in two

years, or what if it's not the best, most effective treatment?

You've got the laser machine manufacturers pushing those kinds of mandates, so it can border on the ridiculous.

And our thing is let us work the medical necessity approach.

MR. LAKIN: How are you on mandate offers? In other words, it has to be offered and then the individual can buy that option?

MS. RYAN: Right. Our concern with that is that there's a lot of anti-selection risk problems with letting people buy mandate that they know they're gonna need. I think we'd rather -- you know, we don't really support mandates, but I think the least attractive option in some cases is a mandated offer.

MR. LAKIN: Okay. All right.

MS. RYAN: And then just in conclusion, one thing that we really have a problem with is dual regulatory systems. And as much as we can work, you know, HIA has traditionally supported the state system of insurance regulation, you know. As Bryan Cox, my colleague at the ACLI, has alluded to, it's getting more complex and more burdensome, less streamlined.

The NAIC has some efforts going on with that. We'd like to make state regulation as streamlined as we can so that we can continue to stay under the state based system. Having HCFA here in Missouri is adding that level of dual regulation.

So anything we can do to work on that, it's a real priority issue for us.

MR. LAKIN: Thank you, Joy.

MS. RYAN: Thank you very much. Any questions?

MR. LAKIN: Thank you. You did a good job. Thank you.

Let's see. Bill Hobbs with Fidelity Security Life. Bill, welcome.

MR. HOBBS: Thank you. Good morning, Honorable Director Lakin, members of the Department of Missouri Insurance.

First of all, let me comment that like Pat (sic), I believe, McCauley -- Pat (sic) commented he was just representing one company. While first of all, I heard him say something, I wanted to second that motion. So we find a similarity in many of the issues that Pat presented (sic), and he certainly represents more than one opinion.

I want to thank you for hosting this endeavor today and for your commitment to expanding communication throughout the entire insurance industry. I believe communication is the key to understanding what it is that the Department would seek the companies to be doing and to be obtaining and as change evolves within the industry.

We believe that it will, of course, be necessary for the Department to implement certain guidelines, rules, procedures, whatever you want to call them, and certainly as change evolves, there are times when the Department has to make a change where it is appropriate in procedures.

As an example, I would point to the recent codification of accounting guidelines and financial reporting that was prepared by the NAIC and has been adopted by the State of Missouri as well as I believe all other states.

This -- as we get into this codification, we are finding many issues that are going to need to be addressed, to be discussed, I believe get input from both sides and will ultimately result in some form of interpretation and rulemaking, whether it be official or not, by the Department.

Just, for example, on how to calculate the new statutory asset we've called deferred federal income taxes. So I believe that it is important that we continue to keep the communication going.

And in that regard, I would urge the Department to look at ways to inform the companies and the public as to what is going on, and I would offer two suggestions.

One is an increased use of official publications. I recognize that you have bulletins now, and you've got an excellent website, and I'm not sure who designed it, but my comments to whoever put the website together, it's very user-friendly, it's very informative, and it's worth visiting, if for no other reason, just to see that great picture of the Capitol building.

MR. LAKIN: I thought you were gonna say the Director.

MR. HOBBS: Wait a minute. Let me check my notes.

Additionally, I believe it is very helpful to have forums such as this. I would encourage that you expand this and continue this type of an approach to discussing issues, whether it be formally or informally, and might also offer the suggestion that the Department may choose to take these sessions on the road, so to speak.

You may want to have one in Springfield or St. Louis or Kansas City. And in the event that you opt to move one to the west, Fidelity Security Life would be more than happy to assist with coordinating or hosting such an event in the Kansas City area.

Those are my thoughts for today. And again, I thank you for your time and for this event.

MR. LAKIN: Thank you, Bill. A.W.?

A.W. McPherson has a question.

MR. McPHERSON: What type of additional publications would you like to see from the Department?

MR. HOBBS: The most recent that I've seen, which was -- which I thought was very good was a quarterly periodical that's put out by the State of Illinois where, among other things, they have a particular section in there where they address procedural issues, changes.

And I'm really not referring to the big, global issues. Goodness, they get enough press. They get enough interpretation. I'm referring a little bit more toward the less global, the more mundane, the discussions on, as I said, how will we calculate the deferred tax asset, when is it appropriate, as, again, an item that Pat (sic) referred to in the submission of intercompany cost sharing arrangement decisions to be made in that regard as to what is allowable, what is not allowable.

So my suggestion is just something in the form of an official publication. And, again, I appreciate the website. It's great. And I think of the website as a passive communication. In other words, it's out there if we want to go -- and most of us do -- and get the information.

But I would think that sometimes there's a need for a more positive communication where you've specifically put something in writing and directed to the financial officer or the president of each company. Does that help? I'm sorry to be so long-winded.

MR. McPHERSON: Yes, it did. Thanks.

MR. LAKIN: Any other questions?

(NO RESPONSE.)

MR. LAKIN: Bill, thank you. I appreciate it. We have no one else scheduled to testify, but I was wondering if there's anyone in the audience that would like to come forward and testify?

(NO RESPONSE.)

MR. LAKIN: Doesn't seem to be. Must be lunchtime.

Well, again, thank you very much. I will close it down. And take advantage, if you feel, if needed, to come over to the Department this afternoon and meet with somebody if you have a specific issue you want to talk about. Thank you very much.

(HEARING CONCLUDED.)