THIS MONTH

From the ExecutiveVice President

Letters to the Editor3

Qualification Standards,Step-by-Step

~\ 4NAIC Adopts P/CRBC Model Law

6Public Relations Watch

6Academy Seeks

Health Care Assumptions7

Capitol Views

Academy, SOA FormHealth Care Task Force

ENCLOSURESIncluded with this month's

issue of The Actuarial Updateare the following:

In Search Of

ASB Boxscore

1994 Yearbook

Tab f Contents for Binders

AMERICANACADEMY OFACTUARIES

VOLUME 23NUMBER 1

JANUARY1994

Actuaries' Pricing Advice YieldsMental Health Benefit ChangesBy Jeffrey Speicher

E xpert advice from a groupthat included three Academymembers resulted in modifi-cations to the mental healthbenefits offered in the Clin-

ton administration's health carereform package. The final leg-islative proposal, introduced inthe House as the Health SecurityAct, proposes more limited cov-erage of mental health and sub-stance abuse treatments thanPresident Clinton had originallyannounced .

The cost and benefit designfor mental health coverage hasbeen a particularly controversialaspect of the Clinton plan . Informulating its health care pack-age, the administration estab-lished a mental health budget of$241 per person, per year tocover mental illness and sub-stance abuse benefits . This figureincludes coverage for the severelymentally ill and persons currentlyuninsured, as well as for individ-uals who now enjoy health insur-ance coverage .

However, the mental healthbenefits proposed by PresidentClinton in the legislationunveiled on October 28 did notmeet the administration's ownbudgetary goals. Governmentactuaries estimated the benefits'cost would exceed $350 per

American, per year. Ken Thorpe,deputy assistant secretary in theOffice of Health Policy of theDepartment of Health andHuman Services, requested helpin developing a mental healthbenefit package that would bewithin the administration's costlimits.

Responding to this need forexpert assessment, Guy King,chief actuary of the Health CareFinancing Administration, askedAcademy member Ron Bachmanto assemble an advisory group ofactuaries, benefit consultants,

and corporate benefit managers .The group, which also includedAcademy members Julia Philipsand Ken Porter, was asked tosuggest alternate plan designsthat would meet the $241 costtarget .

To meet the cost target, bene-fit reductions were of courseinevitable. However, the expertgroup generated ideas that per-mitted certain key benefits to beretained.

In addition to cost issues, thegroup also examined alternativesto provisions that limited theflexibility of separate segments ofthe proposed plan.

One of the group's mostimportant recommendations, aproposal to permit benefit substi-tution, was adopted by theadministration . This substitu-tion provision allows patients togive up days of inpatient care infavor of outpatient psychothera-py sessions or alternative hospitalcare. The substitution approachpermits the Clinton plan to offermore mental health benefits andgives it the same flexibility foundin managed care plans on themarket today.

Academy members Bachman,Philips, and Porter have contin-ued to provide actuarial advice to

Continued on page 6

1994 ACADEMY YEARBOOKThe 1994 Academy Yearbook isenclosed with this issue of TheActuarial Update. The yearbook is ahandy reference guide to the work ofthe Academy, featuring a completelisting of the Academy's leadership andstaff, practice council and committeemembers, a brief account of the historyof the Academy, its bylaws, anddescriptions of the work of the ActuarialStandards Board and the ActuarialBoard for Counseling and Discipline .We hope you will find it useful .

AMERICANACADEMY OFACTUARIES

PresidentDavid G . HartmanPresident-ElectCharles A. BryanVice Presidents

Howard J . BolnickHoward Fluhr

Paul F . KolkmanStephen P. Lowe

Jack M . TurnquistSecretary-TreasurerJames R . Swenson

Executive VicePresident

James J . Murphy

EXECUTIVE OFFICEThe American Academy

of Actuaries1720 I Street, NW

7th FloorWashington, DC 20006

(202) 223-8196Fax: (202) 872-1948

MEMBERSHIPADMINISTRATION

Woodfield Corporate Center475 N . Martingale Road

Schaumburg, IL 60173-2226(708) 706-3513

THE ACTUARIALUPDATE

Committee on PublicationsChairman

E. Tan! MulderEditor

Adam ReeseExecutive Editor

Erich ParkerAssociate Editors

William CarrollRonald Gebhardtsbauer

Patrick J . GrannanManaging EditorJeffrey Speicher

Contributing EditorKen Krehbiel

Production ManagerRenee Cox

Statements of fact and opinion in thispublication, including editorials andletters to the editor , are made on the

responsibility of the authors alone anddo not necessarily imply or representthe position of the American Academy

of Actuaries. the editors, or themembers of the Academy .

2

FROM THE

executive nice president1993: A Banner Yearfor Actuarial VisibilityBy James J. Murphy, MAAA

L ast January on this page Imade a modest prediction . Iwrote that the voice of theactuarial profession wouldbecome more influential in

Washington as the new adminis-tration focused our nation's poli-cy debate on domestic issues .While I claim no special powersof prognostication, it is satisfyingto report that this prediction hascome true beyond my wildestexpectations. In 1993, the actu-arial profession attained anunprecedented level of recogni-tion for its unbiased contribu-tions to the crafting of publicpolicy.

Of course the most visibleissue on the national agenda ishealth care reform, and it is herethat actuaries have made theirmost significant contribution .Some call President Clinton'sproposed Health Security Act themost far-reaching piece of sociallegislation since the New Deal.In Congress, both Republicanand Democratic members haveoffered numerous modificationsand counterproposals. In fact,Capitol Hill is virtually swampedwith competing plans, each withdiffering features often based oncontradictory data.

From the very beginning of theprocess, the Academy has beenthe active representative of theprofession and its expertise. TheAcademy was the only organiza-tion invited by the administra-tion's task force to discussions onthe best methods and tools to usein health care costs estimation .We have responded to requestsfor technical assistance from theCongressional Budget Office, theCongressional Research Service,as well as the administration. Wehave arranged meetings of actuar-ies and policy makers on such

The Actuarial Update ∎ January 1994

diverse issues as health riskadjustment and continuing carefor the elderly .

As the intense process of leg-islative review continues, theHealth Practice Council hasformed fourteen work groups toexamine the actuarial implica-tions of the complete range ofissues involved in the president'splan. Their reports will be com-pleted soon and will be distribut-ed widely-especially on CapitolHill to appropriate congressionalcommittees. Several subcommit-tee staffers-the men and womenwho will actually draft thedetailed final legislation-havealready approached the Academyseeking our advice on severaltechnical aspects of the proposal.

The profession can be proudof the very public recognitionthat actuaries are receiving forproviding objective analysis topolicy makers. And we memberscan be equally proud of the wayour Academy is fulfilling its mis-sion as the public policy voice ofthe profession. At least in Wash-ington, the initials MAAA nolonger make policy makers thinkof the automobile club! And itwould help if more of us woulduse those initials after our namesas prominently as we display ourother professional affiliations .

But what does this new publicvisibility mean to the professionas a whole and its future? Twothings, I think. One, we can besatisfied as actuaries and asAmericans that we have done ourutmost to ensure that soundactuarial thinking has gone intowhatever plan is ultimatelyadopted. Whether or not thepolitical process yields a goodplan, at least we as a professionhave aggressively pursued theopportunity to offer our valuable

expertise. Lawmakers will not beable to claim ignorance ofactuarial implications of t

opolicy choices.Second, and on a more

parochial level, I see our efforts inhealth care reform as a direct tie-in to the profession's "Ask anActuary" campaign . In recentmonths, actuaries have garneredrespectful attention in thenation's most influential mediaoutlets, not to mention theunprecedented (if somewhat mis-leading) acknowledgement of theprofession's role by PresidentClinton in his address toCongress last September . Thisfocus will help us ensure that asthe insurance, financial service,pension, and health care indus-tries evolve, actuaries and ourproblem-solving talents do not gounnoticed .

We have long promoted tobusiness and government leadersthe nontraditional applications ofour skills. Our valuable contribu-tions to the complex project ofcomprehensive health care refserve as a demonstration ofexpertise and will focus attentionon the adaptability of our skills toa broad array of policy and finan-cial questions . This can only helpindividual actuaries and the pro-fession as we move into anintensely competitive global econ-omy. (You can be certain that theAcademy's public relationsdepartment and the profession'sForecast 2000 campaign will makesure that the trade and popularpress make the connection!)

As the debate on health careheats up in 1994, other issuessuch as retirement security andinsurer solvency will still beimportant on the public stage.Of course the Academy has notneglected its work on those issuesof concern to our members, evenas we answered the politicalimperative to focus on the pushfor health care reform. Nineteenninety-four will see continuedAcademy efforts in the fields ofpensions, insurer solvency,workers' compensation. Thprominence we enjoy as a resultof our health care successes in1993 will help us enormously inour mission to represent all prac-tice areas as the public policyvoice of the profession. ∎

lettersTO THE EDITOR

Actuarial Unity NotBush League Matter

JunBrierley's call for a unified

voice for the profession in hisOctober Update editorial real-

ly hit home for me .In my home town with a popu-

lation of 30,000, we have no fewerthan four different Little League

baseball programs for our chil-dren. On three occasions a groupof parents who felt that the leaguehad been neglecting an importantaspect of the game for their chil-dren stormed off and formed anew league. Now, kids who livenext door to each other don't getto play together. In competitionswith out-of-town leagues we don'tstand a chance because our playersare divided . The township won'tbuild a baseball complex until theleagues stop arguing over fieldavailability.

The four leagues have discus-sions every year about joining

Qualification Standards, Step-by-StepA Reminder from the AcademyCommittee on Qualifications

is that time of year again! Ifyou intend to sign an insurer'sactuarial opinion letter thisear-end, whether for a life

and health, a fire and casualty,or a hospital/medical service cor-poration, it would be wise toreview the qualifications requiredof signatories.

All you need to know aboutthese requirements is already onyour bookshelf. Precept 3 of theCode of Professional Conduct,found on page forty of the 1994Academy Yearbook, states thatyou must satisfy the QualificationStandards. These are found inthe familiar, gray-green ASBbinders with the 5 x 8 pamphletsin them. In Binder Number 2,under the "AAA ProfessionalStandards" tab, you will find thepamphlet entitled "QualificationStandards for Public Statementsof Actuarial Opinion ." The mostrecent version of the standard isdated January 19, 1993, but therelevant information is essentiallyunchanged from the 1991 ver-sion. (These requirements tooke ct in 1990 .)

n page eight of the pam-p et, look at point 4 . Have youacquired the necessary 24 hoursof continuing education creditsover the past 2 years?

Not sure? Let's check therules. Point 5 states that at least

12 of the 24 hours must comefrom Organized Activities . Areyou uncertain as to what theyare? They are defined in point 2,which also describes Other Activ-ities ; you might need them aswell. Note also that no matterwhether Organized or Other,activities must be relevant .

Not sure what's relevant? Goforward to page ten and checkthe Topics column for whateverstatement of opinion you intendto render .

Who's responsible for check-ing whether you've met therequirements? You are (see point7 on page nine ) . Have youchecked yet to see whether you'rein compliance? If yes, you'redone. If you haven't, the helpfulscore sheet on page eleven mightprove useful .

Final question : Assume thatyou check it out and find thatyou don't have the credit hours .Now what? Who are you goingto get to sign that opinion?

To conclude, a few thoughts :

LJ The Qualification Standardsgovern three broad areas-basiceducation, continuing education,and experience . This note focus-es on continuing education, butdon't forget the other two . Youneed to meet all three require-ments .O The standards-and in partic-ular the continuing education

forces, but disagreements regard-ing such issues as the content ofthe rule and the makeup of theboard of directors have precludedany chance of merger .

The actuarial professionwould be greatly served by fol-lowing Jim Brierley's advice towork toward a single voice. It'stime we stopped behaving like abunch of fathers who forget thatthe whole idea is for the kids toplay the game .

Lawrence J . ZellerBound Brook, New jersey

requirements-apply not only toAnnual Statement opinions, butto any Public Statement of Actu-arial Opinion . (Public statementsare defined on page three .)O For statements of opinionother than the annual statementopinions discussed above, the testof relevance for continuing edu-cation is less specific, but stillimportant .

The Academy Committee onQualifications is chaired by BarryWatson .

The Update

welcomes

letters from itsreaders .

Letters forpublicationshould be

Submitted to

Editor," and"Letters to the

must includethe writer's

name, address,and telephone

number. _Letters maybe

edited for styleand spacee

requirements .

The Actuarial Update -January 1994 3

NAIC Adopts Property/CasualtyRisk-Based Capital Model LawBy David Bryant

I nsurance regulators capped along implementation processby voting final approval of theProperty/Casualty Risk-BasedCapital (RBC) for Insurers

Formula and Model Act at theDecember 5-8 meeting of theNational Association of Insur-ance Commissioners (NAIC) inHonolulu.

As part of the new model law,the commissioners decided tocombine plc, life, and eventuallyhealth insurers into a unifiedRisk-Based Capital for InsurersModel Act. Despite the modelact's adoption, the NAIC contin-ues to consider other alternativesto the risk-based capital formula.After much discussion, the com-missioners agreed on the need forconsistent NAIC support for therisk-based capital approach . Vir-ginia Insurance Commissioner

PRACTICE NOTESFOR APPOINTED ACTUARIESThe Standard Valuation . Law, as amended in 1990 , and the1991 NAIC Model Regulation detail the legal requirements ofcash -flow testing . Professional requirements are outlined inactuarial standards of practice . -However, actuaries may havequestions about. current practices in certain specific situationsnot dealt with by these documents. To meet the need for more-detailed background information, a-working group of Academymembers has developed practice notes for 1993 . These notesare not meant to have the force of a regulation or an actuarialstandard of practice . They are informal in tone, and most arewritten in a' question -and-answer format . Practice notes arenot meant to be prescriptive : Where more than one way to dothings is acceptable , these notes point out some options . Thenotes present possible ways of handling certain aspects ofcash - flow testing , and actuaries are free to deviate from themethods described . The 1993 practice notes are not identicalto the notes issued in 1992; many have been revised andamplified . To obtain copies of the 1993 practice notes forappointed actuaries , contact Cheryl Ayanian at the Academyoffice .

Steven Foster acknowledged thatrefinements to the model act andthe formula as solvency toolswould be evaluated by the NAIC,but that such efforts should notbe mistaken as a quest for alter-natives to the formula .

No Accreditation Change

In adopting the life risk-basedcapital formula, the NAIC amend-ed the existing life model. Thisamended version was referred tothe (EX) Committee on FinancialRegulation Standards and Accred-itation (FRSAC) for review . Theproperty/casualty RBC model lawwas also adopted without imme-diately being included in theaccreditation standards. Thus, therisk-based capital formulas arenot currently part of the accredi-tation standards .

A new Risk-Based CapitalTask Force will be created in1994 to oversee the continuingwork of the three RBC workinggroups .

Other Model Laws Adopted

While several other models alsowere adopted during the execu-tive committee/plenary session,none was added to the accredita-tion standards. It would seemthat the NAIC is responding tocertain legislative critics whoargue that its accreditation stan-dards are often developed toorapidly to allow newly accreditedstates to assess the standards andincorporate them into theaccreditation process. The modelacts the NAIC adopted are : arevised Consumer Credit Insur-ance Model Act ; the FrontingDisclosure and Regulation ModelAct (with minor amendments tobroaden the exemption for cap-tives) ; and the ReinsuranceAssumption Model Act (asamended to take effect over 25months, thus giving policyhold-ers at least two annual premiumperiods to take note of transfersbefore being deemed to haveconsented) .

Academy Leaders Meetwith NAIC

On December 5, the NAcademy/Actuarial Standa sBoard Joint Committee on Stan-dards and Related Matters met todiscuss the three organizations'increasing number of commonconcerns .

John Montgomery of the Cali-fornia Insurance Department,chairperson of the joint commit-tee, revived an issue first raised atthe August 1993 meeting ofNAIC and Academy leadership :the establishment of a separatehealth actuarial task force . Thejoint committee discussed theproposal in the context of thecurrent intense focus on healthcare issues at all levels-local,state and federal . The committeereached a general agreement thatcreation of a separate task forceis warranted. While no officialaction was taken, Montgomerystated that such a recommenda-tion would be made to the Exec-utive (EX) Committee.

Jack Turnquist, representinthe Actuarial Standards B(ASB), discussed the develment of the Opinion ReviewProject, which would establish aprofessional/regulatory reviewcommittee to evaluate the actuar-ial opinions of insurance compa-nies that have become insolventor identified as "troubled" com-panies. Academy Executive VicePresident Jim Murphy reiteratedthe three goals inherent in thisproject : 1) providing technicalassistance to regulators in fulfill-ing the needs relative to actuarialassurance; 2) providing informa-tion relating to standards to theASB; and 3) determining referralof cases to the Actuarial Boardfor Counseling and Discipline .

The joint committee also dis-cussed an addition to the Acad-emy's 1992 insurer solvency pro-posals. The addendum, in theform of a memorandum from theAcademy Secretary-TreasurerJames Swenson, outlined a pro-posed Surplus Adequacy Reto be prepared by a quallactuary and required from einsurers . This plan wouldrequire coordination with theNAIC Financial Analysis Divi-sion, and some regulatorsexpressed concern that these new

4 The Actuarial Update ∎ January 1994

tools should not be developed inlieu of existing restrictions or

the intent to eliminate con-tional formula reserves. Mur-

phy was quick to disabuse regula-tors of these concerns .

The essential need for dia-logue between the ASB and regu-lators was also discussed. LarryGorski of the Illinois InsuranceDepartment detailed two prob-lems noted by his department, inthe areas of reliance and interimresults. He expressed his depart-ment's preference that asset ade-quacy analyses, and perhapsopinions, take into account inter-im results , if appropriate .

Finally, a general wrap-updiscussion was held on furthercoordination of activities amongthe NAIC, the Academy, and theASB. Academy President DavidHartman gave a brief statusreport on joint leadership initia-tives to date. Hartman sought toclarify that the leadership meet-ings were not meant to preemptthe role of the joint committee .Rather, the meetings enable the

aria] profession's leaders tordinate with NAIC leadership

and staff as they plan 1994 goals,thus assuring that all the NAIC's1994 priority objectives receiveconsideration and support fromthe appropriate Academy com-mittees and task forces.

Summary of Actuarial Activities

The Life and Health Actuarial(Technical) Task Force, meetingDecember 2-4, made several rec-ommendations to its parent com-mittees, the Life Insurance (A)Committee and the Accident andHealth (B) Committee. TheL&HATF recommended:

U Combining two Standard Val-uation Law (SVL) projects relat-ing to possible revisions of theSVL and the Actuarial Opinionand Memorandum Model Regu-lation encompassing both lifeand health insurance issues . Thet c force further recommended

nating this project a num--one priority.

O Deleting long-range issuesrelating to the valuation actuaryconcept from the current agenda.L&HATF will continue to moni-tor work being done by the SOA

Dynamic Solvency Task Force .0 Exposing revised drafts of pro-posed amendments to the "Stan-dard Nonforfeiture Law for LifeInsurance" and the "StandardNonforfeiture Law for DeferredAnnuities," with adoption pro-posed for June .Q Exposing a revised draft of aproposed new model regulationentitled "Valuation of Life Insur-ance Policies-Special Rules,"also for June adoption .

The Life Disclosure WorkingGroup of the Life Insurance (A)Committee exposed for commenta draft Life Insurance Illustra-tions Model Act. The workinggroup reconsidered its earlierdecision, made at a Novembermeeting, not to include annuitiesunder the model act. Instead,clarifying language has beenadded so that only one act wouldbe needed to cover both lifeinsurance and annuities. The ini-tial regulation would be specificto life insurance . However, if anadditional charge is given to theworking group later, an annuityregulation could be developed .The working group made severalchanges to the existing draftmodel law. Specifically, theworking group :

O Modified Section 3 (Authorityto Promulgate Regulations) toincorporate broad authorizinglanguage instead of the list of spe-cific items to be addressed . How-ever, the list of items to use indeveloping standards (Novemberdraft) was retained as a draftingnote in Section 3 ;O Modified Section 4 (Penalties)to clarify a provision that wouldallow commissioners to requirethat insurers illustrating "benefitsthat are not supportable whenpresented" to pay benefits basedon their illustrations ; andO Modified Section 5 (Separabil-ity) to delete the section creatinga private cause of action, whichwas deemed to be a major depar-ture from NAIC policy.

The American Council of LifeInsurers and several consumeradvocacy organizations raisedobjections to one or more ofthese modifications. During ear-lier discussions, ASB representa-

tives had assured regulators thatcompanion standards could beplaced on a fast track and fin-ished within 12 months of com-pletion of the model regulation .A draft model regulation isplanned for exposure in June .(Comments on the draft modelact should be directed to CarolynJohnson at the NAIC in KansasCity .)

Blanks Task Force : The taskforce met on December 7 anddiscussed several items deferredfrom its October meeting.Specifically, the task force :

0 Adopted a proposal to requirelife actuarial opinions (thisrequirement also provides forCPAs to apply auditing pro-cedures to the SupplementalSchedule of Assets and Liabilities,a new supplemental schedule) ;0 Rejected proposed changes inthe due date of the Management'sDiscussion and Analysis and theAccident and Health Policy Expe-rience Exhibit from April 1 toMarch 1 ;O Added a definition of TabularDiscount to Note to FinancialStatements (the Casualty Actuari-al Task Force will develop a tran-sition rule by March for thoseinsurers who opt to changeaccounting methods as a result ofthis action) ;© Modified the Annual State-ment to implement the P/C Risk-Based Capital Formula ; andO Deferred until March theexpansion of the 2-year line ofbusiness to 10 years .

At its October meeting thetask force approved a change inthe annual statement instruc-tions, language that establishesprocedures an appointed actuarymust follow if the actuarial opin-ion submitted was determined tobe erroneous as a result ofreliance on data that, as of thebalance sheet date, were factuallyincorrect . (Specific instructionlanguage is available from theAcademy in Practice Note 1993-12, "Notification of Reserve Mis-statement.")

Bryant is assistant director ofgovernment information for the

i Academy.

1994CALENDAR .

Enrolled ActuariesMeetingMarch 7-9 .

National Associationof . Insurance .Commissioners .Spring Meeting .March fr$

Actuarial BoardforCounseling andDiscipline MeetingMarch 1 0

Joint ExecutiveCommittee MeetingMarch 21

Society of Actuaries .Spring Meeting withAFIR ColloquiumApril 20-22

Actuarial StandardsBoard MeetingApril 27-28

Casualty ActuarialSociety SpringMeetingMay 15-18

Society of ActuariesSpring. Meeting ,(Financial ReportingInvestment)May 26-27

National Associationof Insurance

-,Commissioners.Summer MeetingJune 12-15

Society of ActuariesSpring Meeting(Pension , Health)June 15-17

Actuarial StandardsBoard MeetingJuly 19-20<

The Actuarial Update ∎ January 1994 5

Academy Work Group Seeks Accessto Clinton Health Care Assumptions

ISSUE PAPERS .ON THE WAYThe Academy HealthPractice Council'shealth care reformwork groups are nowputting the finishingtouches on theirIssue papers. Eachissue paper willexamine a singleaspect of PresidentClinton's HealthSecurity Act, which isnow before Congress.Upon completion, thepapers will bedistributed to theappropriatecongressionalcommittees to fulfillthe need for detailedactuarial analysis of .the components ofthe health we ~reform , :packager A completelist of titles will bepublished soon, andof course the issue :papers will beavailable to allAcademy members.

he Academy Health Prac-tice Council's Cost Esti-mate Work Group hasrequested the Clintonadministration to release

the methodology and assump-tions used to arrive at the costestimations of the administra-tion's Health Security Act .

Academy Vice PresidentHoward Bolnick , chair of thework group , made the request ina December 17 letter to KenThorpe, deputy assistant secre-tary in the Office of Health Policyof the U .S . Department of Health

publicrelations

WATCH

Actuaries Speakto NCSL Workforce 2000

T hanks to three Academy mem-bers, National Conference ofState Legislatures (NCSL)

members are now better informedabout health care reform, work-ers' compensation, and pensionsand retirement. For the first timeever, actuaries were invited toaddress an NCSL meeting,December 16 and 17 in Monterey,Calif. The appearances were partof Forecast 2000, the public rela-tions program of the actuarialprofession in North America .

Julia Philips and SusanWitcraft, both consulting actuar-ies for Milliman & Robertson inMinneapolis, and Larry Zimple-man, second vice president ofpension operations for the Princi-pal Financial Group in DesMoines, spoke at the NCSL semi-nar on labor issues, "Coping withthe Changing American Work-place." Meeting attendees includ-ed state legislators, labor industry

and Human Services . Bolnickasked Thorpe to provide the esti-mation methodology and under-lying assumptions used to gener-ate the cost estimates to theAcademy work group, whichthen would use several sets ofalternative assumptions to testthe estimates' accuracy. Bolnickalso offered to meet with actuar-ies from the Health Care Financ-ing Administration and otherappropriate administration ana-lysts to discuss the methodologyand assumptions .

In his letter, Bolnick referred

representatives, corporate man-agers, and labor agency and eco-nomic development staff .

Philips and Witcraft addresseda general session of the meeting'slargest audience. Philips, a healthactuary, explained some of thetrade-offs and the expected costconsequences of those trade-offswhen health care reform is enact-ed. Witcraft, who works exten-sively on workers' compensationissues, spoke about the workers'compensation system in generaland how it is likely to be affectedby health care reform .

Zimpleman presented a work-shop on pensions and retirementthat was attended almost exclu-sively by state legislators and pen-sion plan administrators . Hespoke about the Academy'sMarch 1993 report on the declineof defined benefit pension plans,as well as some of the pensionissues facing today's employersand employees, and how they'reaffecting public policy makers atthe state level .

The seminar on labor issueswas one of several the NCSLsponsors each year in addition toits annual meeting, which attractssome 6,000 attendees. Meetingdirector Brenda Trolin expressedinterest in having an actuary speakor involving the actuarial profes-sion in some way at the group'sannual meeting this year. ∎

to skepticism that exists withinthe actuarial profession about the"validity and integrity ofadministration's cost estimateHe urged the administration todemonstrate its openness byallowing the Academy workgroup to perform an impartialreview.

Whether or not the Clintonadministration complies with theAcademy's request, the Cost Esti-mate Work Group, one of four-teen such groups formed by theHealth Practice Council to ana-lyze elements of the president'shealth care reform package, willproceed with its task of assessingthe administration's estimates .

As The Actuarial Update goesto press, Thorpe had not yetresponded to the Academy'srequest. ∎

MENTAL HEALTH CHANCES,continued from page I

the administration at varitimes in the process of craftthe health care proposal .

Currently, Bachman andPorter are members of theAcademy Work Group on Men-tal Health, which is reviewingmental health benefit pricing andthe final legislative language ofthe health care proposal as it pre-pares an issue paper for presenta-tion to the appropriate congres-sional committees.

In an interview with The Actu-arial Update, Bachman stressedthat his group had not advocatedany particular benefits be includ-ed in the administration's pack-age, but instead had offeredexpert pricing advice withouttaking specific policy positions ."The Academy support functionhas been to provide advice so thatthe health insurance premiumsassociated with any administra-tion proposal accurately reflectexpected costs," he said .

Bachman paid special trib eto Guy King and the HCFAarial staff saying, "The govement actuaries have displayedunquestioned integrity and hon-esty during a process thatinvolves enormous pressure fromspecial interest groups." ∎

6 The Actuarial Update ∎ January 1994

CapitolThe Clinton administration'shealth reform plan passed its firstcomprehensive cost analysis whenthe private health care consultingfirm Lewin-VHI released its studyon December 8 . The report con-cluded that although the adminis-tration's cost estimates are overoptimistic, the proposed fundingsystem is basically sound. Inaddition to its broad finding thatthe "financing structure works,"the study concluded that healthinsurance premiums under thepresident's plan would be about17% higher than the administra-tion estimated. The study alsopredicted that by 1998 employers(primarily small firms that do notnow insure their workers) wouldpay a net of $28 .9 billion more forhealth care than under currentlaw because of the employer man-date, but that households would

a net $26 .5 billion lessause the government and

employers would pay for muchmore of their costs . Eventually,according to the study, the plan'scost controls would slow thegrowth of health spending. How-ever, the Lewin-VHI study foundthat instead of the the administra-tion's projected deficit reductionof $58 billion over the 1995-2000period, savings will equal only $25billion .

The House Energy and Com-merce Committee report on theHealth Security Act is due byMarch 25, according to commit-tee sources. Committee chairRep. John Dingell (D-Mich .) alsohas set a March 4 deadline for allsubcommittee reports . The Ener-gy and Commerce Committee hasjurisdiction over health insurersolvency provisions, among otheraspects of the legislation. There isno word on deadlines in the otherHouse committees considering

resident's proposal, the Ways

TMeans Committee and the

E ucation and Labor Committee .

A tax on property and casualtyinsurers to fund hazardous wastecleanups has been endorsed by aWhite House-led interagency

group working on new Superfundlegislation . The proposed $500million per year tax is part of acompromise that appears toresolve differences within theadministration over rewriting theSuperfund law. The TreasuryDepartment and the Environ-mental Protection Agency hadbeen in disagreement for monthsover revising the 1980 law, whichgoverns the cleanup of aban-doned hazardous-waste sites .Foremost, the two agencies hadbeen at odds over how to handlethe retroactive liability for wastedeposited at sites before 1980. Atpresent, businesses are held liablefor cleanup of hazardous wastedumped before passage of theSuperfund law, even if it was legalto dump the waste at the time .Under the compromise plan,businesses would still be heldliable for some of the costs associ-ated with cleaning up pre-1980hazardous-waste sites . However,the majority of the costs (between50 and 80 percent) would be paidfor by the new $500 million fund .Under the new proposal, pollut-ing companies will have theoption either to accept a fixedpercentage from the fund (if theyagree not to sue their insurancecompany), or to reject the offerand challenge the insurance com-pany in the courts. The proposalis expected to be presented to thepresident soon, with an outline ofthe plan ready by mid-January,and detailed legislation intro-duced to Congress in February.

Providers of Medicare supple-mental insurance policies in Con-necticut will be allowed to limitcoverage based on preexistingconditions under legislation thattook effect on January 1 . The law(H. 9001), which was passed bythe state legislature in Octoberand permitted by Gov . LowellWeicker to become law withouthis signature, amends legislationadopted earlier in the year . Theearlier law made several changesin the statute governing theissuance of Medigap policies,including the prohibition of thepreexisting condition clause andthe mandate that insurers baseprices on a community-ratedbasis. The new law restores use ofthe preexisting condition clause .

It allows providers to excludebenefits for losses incurred within6 months from the effective dateof coverage for policies issuedafter January 1 . While Gov.Weicker said the new law repre-sents an improvement, he notedthat H. 9001 fails to address otherflaws such as "the impairmentinherent in mandating communi-ty rating for existing contracts ."Weicker said he would seek legis-lation addressing the community-rating mandate during the 1994legislative session .

The IRS issued final regulations(TD 8499) stipulating that thedifferential earnings rate and therecomputed differential earningsrate, which are used in determin-

Continued on next page

COURT EXPANDS FEDERAL FIDUCIARY ROLEA 1992 Second : Circuit Court ruling that extended the reach offederal fiduciary provisions to insurance company generalaccounts was upheld by the U.S. Supreme Court on December13. In John Hancock Mutual Life .Insurance Co. v. Harris Trustand Savings Bank, the high court held by a 6-3 vote that JohnHancock is a . fiduciary with respect to its management of aparticipating group annuity under which Sperry RandCorporation Retirement Plan purcleased deferred annuities forIts employees.

The Supreme Court rejected the Department of Labor's viewthat general account assets are not plan assets . Writing herfirst majority opinion for the court, Justice Ruth BaderGinsburg said the US. Senate specifically rejected . a proposalthat would have exempted all general account assets from thereach of fiduciary rules . Ginsburg explained that Congressenacted an exclusion instead, and did not. intend to shield aplan's deposit solely because they were placed in an Insurersgeneral " account. ; That provision, Section 402(b)(2), excludesfrom plan assets a guaranteed benefit policy defined as aninsurance policy orr contract "to the extent that [it] provides forbenefits the amount of which is guaranteed by the insurer ."

The Supreme Court rejected a Hancock argument thatCongress intended to yield the primary responsibility forregulation of the insurance industry to the states . "We aresatisfied ," wrote Ginsburg , "that Congress did not order theunqualified deferral to state law that Hancock both advocatesand attributes to the federal lawmakers . Instead, we held,ERISA leaves room for complementary or dual federal andstate regulation, and calls for federal supremacy when the tworegimes cannot be harmonized or accommodated ." TheSupreme Court added that Congress has the authority torewrite the law, and that the Labor Department " can provideadministrative relief to facilitate insurers ' compliance with thelaw; thereby reducing . the disruption it forecasts .

The Actuarial Update ∎ January 1994 7

Academy and SOA Form JointHealth Communication Task Force

mention products that don't fit one of these groups .The information you send us will help us planContingencies' advertising strategy for 1994 . All

information will be kept entirely confidential , of course, andwill not be released to any other source . As an incentive to our

loyal readers, all entries will be entered in a drawing for a $100GIFT CERTIFICATE redeemable at the sporting goods storeof your choice ! So please be sure to print your name and

address on your entry form . Entries must be received via tax ormail by February 15 for the drawing on February 18 . Mail your entry form to : Contingencies, 1720 IStreet NW, 7th Floor, Washington, DC 20006, or fax it to : (202) 872-1948, attn : Contingencies.

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Final HaveDecision Maker Direct Influence

Computer Software 0 0

Computer Hardware 0 0Insurance Products

(e .g ., reinsurance,benefit packages, etc .)

Consulting Services

Other Types of ProfessionalProducts Not Listed Above

Your Name

arton Clennon, an actuaryfrom Wenatchee, Washing-ton, has been appointed tochair a Joint Task Force ofthe Academy and Society of

Bolnick and SOA Vice PresidentSam Gutterman . The task forcewill coordinate the Academy'sand the SOA's efforts to commu-nicate the profession's role in theprocess of health care reform.

The health care debate is themost highly visible public policyarena for the actuarial professiontoday. Academy and SOA lead-ers believe it is imperative to

Actuaries on Health Care ReformCommunication .

The new joint task force wasestablished by the health practiceleaders of both organizations,Academy Vice President Howard

ACTUARIAL BUYING POWERContingencies needs Information about your buying habits-and no, wedon't want to know your favorite brand of Scotch . Rather, we'd like toknow what work-related purchases you influence . Just fill out the form

a L)

Have NoSome Influence Influence0 0

0

0

0

0

0

Your Address

below, using the graded scale indicated in the column heads . We'velisted the major categories of business purchases, but feel free to

convey an accurate messageabout the profession's role . Bpolicy makers and the gepublic need to know that actuar-ies provide valuable objectiveanalysis of the cost implicationsof policy makers' decisions . Indeveloping a communicationstrategy for the Academy and theSOA, the task force will ensurethat this message comes throughloud and clear. The task forcealso will combat the false impres-sion, which sometimes creepsinto media accounts, that actuar-ies are biased in favor of certainpolicy outcomes .

Task Force Chairperson Clen-non is not himself a health actu-ary, but comes to the job with adesire to help the Academy andthe SOA inform the public aboutthe profession's significant con-tribution to health care reform.The joint task force welcomes theideas and suggestions of allAcademy members to help itaccomplish that goal. ∎

CAPITOL,continuedfrom previous page

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ing the deduction for policyhold-er dividends of a mutual lifeinsurance company, cannot benegative. The regulations, whichare under Section 809 of theInternal Revenue Code, becameeffective December 10, 1993, andwill be effective for taxable yearsafter December 31, 1986. Section809(a) of the Internal RevenueCode states that for mutual lifeinsurance companies, the amountof the deduction allowable underSection 808 for policyholder divi-dends is reduced (but not belowzero) by the differential earningsamount, i .e., the portion of thepolicyholder's dividends that aredeemed to be a distribution of amutual company's profits to poli-cyholders in their capacity asowners of the company. SFor more information on thelegislative and regulatory actionsaddressed above, contact DavidRivera of the Academy governmentinformation department.

8 The Actuarial Update ∎ January 1994