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AMERICAN ACADEMY OF ACTUARIES VOLUME 23 NUMBER 8 AUGUST 1994

Academy Assists Regulators at NAIC Summer Meeting THIS MONTH 2 From the President-Elect Letters to the Editor 4 Standards in the Workplace

5 Influence and Professionalism 6 Health Practice Council News 7 Capitol Views

By David Bryant

he actuarial profession had the ear of insurance regulators as Academy representatives offered valuable T information and advice at the June 12-15 summer meeting of the National Association of Insurance Commissioners (NAIC) in Baltimore . This increased NAIC/Academy collaboration meets a goal set by the organizations ' leaders at their most recent joint meeting .

Health Risk- Based Capital

ENCLOSURES Included with this month's issue of The Actuarial Update are the following: In Search Of ASB Boxscore

it

An Academy task force charged with developing a riskbased capital . formula for health insurers submitted its preliminary report to the NAIC Health Organizations Risk-Based Capital Working Group . Task force chairperson Bill Bluhm detailed the process the task force followed in developing its model . He stressed that the report was a work-in-progress and that substantial revisions were yet to be incorporated into its preliminary findings . Bluhm also noted that a significant amount of information needed to compute riskbased capital tinder this formulaa was not available from current annual statement filings .

Several industry and trade association representatives I expressed concern about basic factors in the task force report . Utah Commissioner Robert Wilcox, chair of the NAIC working group, joined Bluhm in requesting additional input from all groups as the task force continues to refine the proposed model . Wilcox called for wide distribution of both the report and the comments of interested professionals . Membership of the Academy task force has been expanded to include representatives from dental plans, the Group Health Association of America,the Health Insurance Association of American, and the Blue Cross/Blue Shield Association . Commissioner Wilcox has set a December target date for producing a final formula .

P/C Risk- Based Capital An Academy task force on interest - rate risk and credit for loss-sensitive contracts recommended formula changes to the NAIC Property/ Casualty RiskBased Capital Working Group . Task force chair Fred Kist emphasized that the new method involves only changes in surplus as a result of changing interest rates and therefore does not duplicate the current C-3 risk .

Task force recommendations included changes to : base i charges-the timing difference of assets and liabilities ; market value adjustments-differences in valuation rates between assets and liabilities ; and capital charges-the sum of the base charge and market value adjustments . The proposed formula was tested with data from a dozen companies and appears to be consistent . However, both Academy task force members and regulators recognize the need for additional testing . The working group will meet later this summer to review the report in greater detail .

Sales Illustrations At a meeting of the Life Disclosure Working Group, Academy Committee on Life Insurance Chairperson Andy Ware presented his committee's review of several proposals, comparing them to the working group's own criteria set forth in a 1993 white paper. Ware noted deficiencies in all of the proposals and suggested that prospective standards examine the issues of new money versus portfolio income and margins (the spread between actual experience and illustrated values) . He also stated that lapsesupported products pose the greatest potential problems and suggested that illustrations of these products be prohibited . In response to a question from Iowa Commissioner David Lyons, Gary Corbett of the Actuarial Standards Board told the working group that it would take approximately 9 months to a year to develop acceptable draft model regulation .

Other Items Academy Vice President Jack Turnquist reported to the Financial Condition ( EX4) Subcommittee on a joint NAIC/Academy Council on Professionalism project to educate state insurance departments on actuarial stanContinued on page 8


AMERICAN ACADEMY OF ACTUARIES President David G. Hartman

FROM

president-elect

President-Elect Charles A. Bryan

To Our Members: Thank You

Vice Presidents Howard J . Bolnick Howard Fluhr Paul F. Kolkman Stephen P . Lowe Jack M . Turnquist

By Charles A. Bryan

Secretary- Treasurer James R . Swenson Executive Vice President James J . Murphy

EXECUTIVE OFFICE The American Academy of Actuaries 1100 Seventeenth Street, NW 7th Floor Washington, DC 20036 (202) 223-8196 Fax : (202) 872-1948

MEMBERSHIP ADMINISTRATION Woodfield Corporate Center 475 N . Martingale Road Schaumburg, IL 60173-2226 (708) 706-3513

THE ACTUARIAL UPDATE Committee an Publications Chairman E . Toni Mulder Editor Adam Reese Associate Editors William Carroll Ronald Gebhardtsbauer Patrick J . Grannan Managing Editor Jeffrey Speicher Contributing Editor Ken Krehbiel Production Manager Renee Cox

Statements of tact and opinion in this publication , including editorials and letters to the editor, are made on the responsibility of the authors alone and do nut necessarily imply or represent the position of the American Academy of Actuaries, the editors, or the members of the Academy,

W e begin the 1994-95 Academy year the fortunate beneficiaries of several years of tremendous progress . Do you remember where we started? Six years ago, you, the membership, told us that the Academy should be more supportive of the actuarial practice areas, more aggressive in voicing the actuarial viewpoint, and more tightly linked to the supporting actuarial organizations . The Academy leadership listened and acted . Under the able leadership of our recent presidents-Joe Brownlee, Mavis Walters, Harry Garber, John Harding, and Dave Hartman-the Academy has made many improvements . In the past few years, we have reorganized the Academy's structure around practice councils that represent our profession's four practice areas-casualty, health, life, and pension . We have spoken loudly and effectively on such issues as health care reform and loss reserve opinions . We have improved our cooperation with the supporting organizations by adopting a working agreement with the American Society of Pension Actuaries, the Casualty Actuarial Society, the Conference of Consulting Actuaries, and the Society of Actuaries and by inviting the leaders of those organizations to serve on our board of directors . Thanks to the your support, we have succeeded in making the Academy work much more effectively for our profession.

During the 1994-95 Academy year, we will focus on making our voice even more clearly heard in the public policy arena . How will we do this?

2 The Actuarial Update • August 1994

We will emphasize the importance of the individual practice areas and, more than ever before, structure the Academy's efforts around the practice councils that represent them . Actuaries work in a wide variety of specialties, each with its own expertise to offer public policy makers. Each area faces its own challenges and opportunities . It is only fitting that Academy goals-where we spend our time and money-be determined at the practice council level . Over the last several years, we have enhanced the role of the four discipline-specific practice councils and the Council on Professionalism . The councils now have strong organizational structures, outstanding volunteers, and increased visibility within the profession . Now we must make a final leap and use the practice councils as the driving force of the Academy agenda . Our vice presidents, as leaders of the practice councils, have articulated key issues important to each practice area . With the approval of the Academy Board, these issues become the Academy's priorities . The five Academy vice presidents will have primary executive responsibility for managing the Academy's response to these issues . The Academy Board is now considering a strategic plan that reflects the enhanced role of the practice councils . (All Academy members will be receiving a copy of this strategic plan very soon .) The plan redirects Academy staff and volunteer attention to make sure practice council goals are fulfilled . Activities that do not directly support our mission will be discontinued, so that we can use the valuable resources you

supply us to meet these goals . The vice presidents are making sure that members, the supporting organizations, and the pr

sion at large are kept informe our progress through regu reports. Most important, we are recruiting the best and the brightest to the Academy volunteer force. The Academy needs your help now to meet the exciting challenges of the next year . We have recently established a voicemail system that permits members to offer their ideas and volunteer their services to the practice councils . Just telephone the Academy's Washington office at 202/223-8196 and ask to be connected to the practice council whose issues interest you . For example, if your expertise is in environmental liability issues, call the vice president of the Casualty Practice Council with your ideas . If you can help on the issue of sales illustrations, call the vice president of the Life Practice Council . The vice presidents and the Academy staff stand read , willing, and very able to put energy and ideas to good use . On a personal note, thank you for selecting me as Academy president this year . I cannot promise that we will succeed in everything we do . However, I can promise that we will have an exciting year and make an impact on key issues . We will raise the profile of the actuarial profession in all corners of the public policy arena . There's room in the game for all of us . When the dust settles, you will be glad to have been in the game and not on the bench .

Members, start your engines .

Bryan will assume the Academy presidency September 28 at the 1994 Annual Meeting.

t


s

leers

Actuaries on

Health Care Reform

TO THE EDITOR

A View from Abroad T hank you for publishing Howard Young's and Frederick Kilbourne's opposing views on health care reform in the July "Point/Counterpoint ."

I began full-time actuarial work in 1961 at a time when the health insurance industry was mobilizing to stop John Kennedy's proposals that finally led to Medicare and Medicaid . As a young actuarial student, I worked on alternatives put forward by the industry and was deeply ashamed to be part of an inadequate response to real problems.

Health care spending in the United States now amounts to 14% of gross domestic product (GDP), 50% higher than in any other modern economy . All r developed economies have 0 e sort of national health insurance system, with considerable government cost- and quality-controls. It is hard for me to understand Frederick Kilbourne's assertion that government is primarily responsible for the increase in health care costs from 5% to 14% of GDP since 1950 . It is even harder to understand Kilbourne's view that costs are the only problem . Some forty million Americans totally lack health insurance coverage, and at least as many lack coverage that can be defined as adequate . In practically every country in the world, all citizens are regarded as entitled to basic health services that are financed collectively. Perhaps I have lived and worked abroad too long . From my perspective, the USA would win as a society by adopting a c prehensive and universal Onal health insurance plan . Ellis Wohlner Stockholm, Sweden

What is the proper role for actuaries in the debate on health care reform? (July Update, "Point/Counterpoint .") I believe our role is to analyze data, make assumptions, apply them to the various proposals, and interpret the results . We should use our unique blend of judgment and numerical expertise to help focus the debate on the relative merits of each proposal. I recognize that reasonable people can disagree at each step in this process and can derive different conclusions from the same set of facts . However I believe that we have a responsibility to separate personal ideology from professional evaluation of any particular design. The

public has difficulty understanding the work we do . Won't it find it even more difficult to differentiate our value judgments as concerned citizens from our objective appraisals as actuaries? I respect the viewpoint of each author, and the editor's introduction clarified that these were personal opinions . Other actuaries who read this debate should easily be able to distinguish between opinion and analysis . To aid the public in recognizing that same distinction, I urge actuaries engaged in health care reform to remember the John Ruskin quote that is the motto of the Society of Actuaries : "The work of science is to substitute facts for appearances and demonstrations for impressions ." Robert J. Rietz Southfield, Michigan

The Update welcomes letters from its readers . Letters for publication should be submitted to "Letters to the Editor," and must include the writer's

name, address, and

Philips Delivers Actuarial Message on Health Care to Major Media

telephone number. Letters may be

Julia Philips met with reporters covering health care for major publications in New York in a series of one-on-one interviews on July 11-12, The meetings were arranged through Forecast 2000, the public relations program of the actuarial profession in North America . Philips spoke with reporters from Time magazine, Fortune, the Wall Street Journal, and the Journal of Commerce . All were wellversed with the complexity of issues related to health care reform and demonstrated interest in the Academy's recent efforts to inform policy makers of the actuarial profession's contributions to any successful reform package .

study specific components of health care reform . Most of the work groups have published monographs, which have been distributed extensively on Capitol Hill and to the media. (See p . 6) Several of the monographs have been presented to the media through press conferences, one-on-one meetings, or special briefings .

Philips, who is a consulting actuary in the Minneapolis office of Milliman & Robertson, is chair of the Academy's Standard Benefits Work Group, one of seventeen groups organized through the Health Practice Council to

Ken Krehbiel, Academy assistant director of communications, and Elizabeth Kelley Grace of Stephen K . Cook & Co ., outside public relations counsel for Forecast 2000, accompanied Philips to the meetings .

public relations

edited for style and space

WATCH

requirements .

The Actuarial Update - August 1994 3


Standards in the Workplace to indicate a response by an insurance or consulting firm and the number of actuaries employed by the firm . The committee received 137 responses, representing 63% of the total questionnaires sent.

By William David Smith oes the actuary's work environment actively encourage professionalism and compliance with standards? Are important professional activities such as commenting on exposure drafts and conducting independent work product reviews carried on as a matter of course? The Academy's Committee on Professional Responsibility sought answers to these questions in a recent survey of actuarial employers .

Two general conclusions : 0 Consulting firms focus more on standards and on formal reviews than insurance companies . This is probably because consulting firms are more conscious of public scrutiny and potential litigation, so are more sensitive to these issues . This, of course, says nothing about the relative quality of work of the two types of organizations . O The tendency to focus on standards and reviews increases with the size of the business . When the committee reviewed the results of the questionnaire, it was surprised to find that something like 85% of insurance companies and 40% of consulting firms answered no to its questions on organized procedures for professional compliance . Greater attention to issues of professionalism should be a priority for all actuaries and their employers . The committee hopes to see a significant increase in yes answers within a very few years . To obtain a detailed account of the results of the survey, you may write or call Christine Nickerson at the Academy office .

The survey was sent to the 102 insurance companies and thirtyfive consulting firms that employ twenty or more actuaries . Larger actuarial employers were selected to limit the study to a practical size and because larger firms typically are more likely to recognize the need for internal control . The questionnaire, which is reproduced at right, can be divided into two sections . The first three questions concern internal mechanisms for dealing with exposure drafts and compliance with written professional standards ; the two-part fourth question deals with independent internal reviews of work products. All questions within a section tended to be answered the same way . Therefore, the analysis below treats each section as a unit, and the results shown are the percentage of yes answers to the questions to each unit .

Smith is a member of the Academy Committee on Professional Responsibility.

Questionnaire results were anonymous, but each was coded

Type of Firm

Questionnaire

Number of Actuaries Employed by Firm 20-26

27-52 Yes Answers to Questions 1-3 7%

53+

Total

Insurance Consulting

12% 8%

50%

25% 76%

15% 60%

Total

11%

11%

46%

26%

Insurance Consulting

34%

21%

Total

Yes Answers to Question 4 21%

60%

50%

67%

26% 62%

36%

24%

40%

39%

4 The Actuarial Update • August 1994

1 . All actuaries are requ by the profession to obs published actuarial standards. Businesses might leave responsibility for compliance to each individual actuary, or organize internally to monitor and encourage compliance . Does your company have organized monitoring procedures? Dyes Dno 2. All drafts of proposed standards are exposed for comment . Response to these drafts could be left to individuals, or the business could organize internally for discussions and response. Does your company have any organized system to respond? D yes D no 3 . When new standards are adopted by the pr sion each actuary nee become familiar with the contents and to consider implementation steps necessary for compliance . This could be left to individual initiative, or could be internally organized. Does your company have any organized system to assure this need is met? Dyes Dno 4. For all assignments, actuaries should document that appropriate methods and procedures have been followed and that all relevant standards have been considered. Does your company have any structure designed to provide a comprehensive independent review of selected assignments : Prior to release for use? D yes D no After release for use . D yes D no


Influence and Professionalism he following article is one of a es prepared by the Actuarial Board for Counseling and Discipline (ABCD) to aid actuaries in complying with the Code of Professional Conduct of the U.S .based actuarial organizations . It is not necessarily based on inquires or requests for guidance received by the ABCD or on cases before that body, although such events may provide a source for the subject matter . These articles are advisory in nature. The applicability of professional standards to specific situations can only be determined from the facts associated with such situations . Citations refer to Precepts and Annotations of the code as amended January 1 ; the complete text of the code is found in the 1994 Academy Yearbook (pp. 40-43 .) Actuaries are encouraged to suggest topics for future articles . t t can be nice to have influence . fluence implies a position of rength . It can cut through the formality of red tape, gain an audience and sway opinion, and produce efficient resolutions of problematical situations . Influence can be earned by a good reputation or it can be bought ; it can be real or implied ; it can be legal or illegal ; it can be ethical or unethical . Actuaries often find themselves gaining or using influence on behalf of themselves, their principals, or third parties. Such actuaries are bound by the the profession's Code of Professional Conduct to ensure that such influence is obtained and exercised in ways that are legal, ethical, and consistent with professional standards . The most obvious requirements pertain to legality and ethics . Annotation 1-2 to Precept 1 of the code requires influence to be obtained and used in a I manner . The ABCD does le on legality and typically GT' ends on the state or federal judicial systems for that purpose . An actuary may violate Precept 1 through actions not necessarily related to providing professional

FROM THE

ABCD services . If an actuary pleads or is found guilty of any misdemeanor related to financial matters or any felony, such as bribery and blackmail, he or she stands in violation of Precept 1 . Annotation 1-3 addresses the unethical use of influence in a more direct way . It provides that an actuary should not use a relationship with a third party to attempt to obtain illegal or materially improper treatment of a principal . (Here, and throughout the code, principal is defined as any present or prospective client or employer .) The relationship need not involve professional services, and the attempt need not be successful to constitute a violation . Influence and Its Misuse Alt actuaries, regardless of their relationships with principals, are in positions of attaining and exercising influence and therefore may be vulnerable to violations of several precepts of the codes of professional conduct . The existence of influence and its misuse are not always obvious . A consulting actuary with numerous clients may give the appearance of influence by implying that certain clients might benefit from confidential information the actuary has obtained from other clients . Misuse of confidential information is prohibited by Precept 1 . An implication that such information might be used to the advantage of a client, when in fact it may not be, could be interpreted as false advertising under Precept 12 . An actuary may be in a position of apparent influence as the result of standing attained by some means other than reputation based on quality work . An example is an actuary who is an officer or committee member of

a professional organization . Precept 13 clearly states that any title conferred by an actuarial organization (as distinguished from designation) must be used only in a manner that conforms to practices authorized by that organization . Since officer status in an organization through office may be widely known, an actuary with such status should dispel the notion that any influence attained by that status somehow enhances his or her qualifications to provide professional services .

An actuary should not

Outside Clients

use a

A similar challenge is faced by actuaries who moonlight on the side . For example, an actuary employed full-time by a regulator has an obligation to dispel the notion that work for outside clients is in any way connected to his or her work for the regulator . The actuary should also make clear that the actuary's employment status does not enhance the quality of the work product or its acceptance by third parties . An actuary in this position must take special care to comply with Precept 8 concerning conflicts of interest by ensuring that all principals have expressly agreed to the performance of services by the actuary.

relationship with a third party to attempt to obtain illegal or materially improper treatment of a principal .

Compliance with the Code of Professional Conduct should not create a dilemma for the actuary who remains alert and sensitive to the existence of such influence and uses it wisely . When it appears that an actuary's work product or advice might carry more weight because of actual or implied relationships with other parties, the actuary should take steps to ensure that this does not happen . A good source of influence is a reputation based on quality of work and demonstrated honesty and integrity. A good exercise of influence is the use of reputation to instill and foster trust and confidence with principals, other professionals, and third parties .

Direct correspondence to the ABCD, 1100 Seventeenth Street NW, Seventh Floor, Washington, DC 20036.

The Actuarial Update ∎ August 1994 5


Health Practice Council News By Howard Bolnick s I complete my 2-year tenure as chairperson of the Academy's Health Practice Council (HPC), I think it appropriate to highlight the major efforts undertaken to date by the HPC in the health care reform debate . Many of these efforts have already been spotlighted in The Actuarial Update and other Academy and Society of Actuaries (SOA) publications . First of all, I would like to acknowledge the outstanding work of Academy volunteers who have participated in the health care Howard Bolnick effort . These dedicated individuals have spent countless hours reading legislative language, identifying the important actuarial issues, and crafting the profession's response to writing numerous drafts of monographs . Academy volunteers have also met with congressional staff members, held press briefings, and participated in policy forums, unselfishly devoting themselves to making sure the profession's voice was heard . The health care reform debate has given the actuarial profession a unique opportunity to contribute its expertise to the most important domestic political debates in decades . Our participation has strengthened the actuarial profession both externally and internally . The profession has impressed its external audiences by the high quality analyses it has delivered to Congress, the Clinton administration, and independent congressional support agencies such as the Congressional Budget Office, Congressional Research Service, Office of Technology Assessment, and the General Accounting Office . As a result of this new visibility, Academy staff respond almost

6 The Actuarial Update • August 1994

daily to requests for information from congressional staff, congressional agencies, and members of the Clinton administration . Our participation also has served to strengthen the profession internally by streamlining operating procedures, attracting new and energetic volunteers, developing new links between the Academy and the SOA, and providing valuable information to our profession .

Work Group Success In late 1993 the HPC established seventeen work groups to examine various components of President Clinton's Health Security Act . The HPC charged these work groups with developing monographs to educate congressional staff on technical issues associated with health care reform . These work groups were the foundation of our efforts .

Thus far, work groups have produced the following : Monograph No .1, Health Risk Assessment and Health Risk Adjustment: Crucial Elements in Effective Health Care Reform Monograph No . 2, Standard Benefits in Health Care Reform : The Impact and Cost Monograph No . 3, An Analysis of Mandated Community Rating Monograph No . 4, Actuarial Solvency Issues of Health Plans in the United States Monograph No . 5, Actuarial issues involved in Evaluating a Guaranteed Standard Benefit Package Under Health Reform

Monograph No . 6, Actuarial Issues Related to Budget Development and Enforcement Under Health Care Reform Monograph No . 7, A Review of Premium Estimates in the Health Security Act Monograph No . 8, Actuarial Issues in Designing Mental Health Benefits Under Health Reform Monograph No . 9, Administrative Costs for Regional

Alliances and Health Plans Under the Health Security Act. Monograph No . 10, Actuarial Issues Related to Pricing Health Plans Under Health C Reform

Monograph No . 11, Actuarial Implications of ERISA Changes Under Health Care Reform (All monographs are available from the Academy's Washington office .) Monographs on health alliances, Medicare, and long-term care and a second risk adjustment monograph will also be released. A third monograph on risk adjustment is also planned . Academy work groups have been in continuous contact with key Senate and House committee staff who are working on health care reform. In addition, work group members have testified in congressional committee hearings, held press briefings, or participated in policy forums, such as the George Washington University National Health Policy Forum .

Work group activity prompted the SOA Health Be Systems Practice Area to establish three task forces, and its research committee is working on projects related to or derived from work group endeavors .

Communication Efforts The Health Practice Council helped create a Joint SOA/Academy Communications Task Force to disseminate information to the Academy's three target audiences : the actuarial profession, the Congress and administration, and the public, via the press. The task force coordinates Academy and SOA health care communication efforts, Founding chairperson Barton Clennon recently passed on the task force reins to Julia Philips, who also chairs the Guaranteed Standard Benefits Work Group .

To date, our target audiences have received: Actuarial Profession . SP 1 mailings and articles in Actuarial Update, the Actuary: _r e Health Section newsletter, and Contingencies have kept the Continued on page 8


capiml VIEWS

e insurance industry would be subject to antitrust laws under a bill approved by the House Judiciary Committee on July 22 . Sponsored by Judiciary Chairman Jack Brooks, the bill modifies the 1946 McCarran-Ferguson Act that grants insurers immunity from antitrust suits . Certain essential joint activities that pose little or no anticompetitive risk would be permitted under the proposed law . Such safe-harbored activities include determining loss development factors, creating uniform policy forms, and participating in risk pools. The plan is a compromise between Brooks's staff and the American Insurers Association and enjoys the support of key industry groups . However, some in the insurance industry, supported by GOP members of Judiciary who voted unanimously against the bill, remain opposed . Republicans believe that modifica-

of the exemption is unnecesand may result in price increases for propertylcasualty lines . Time constraints and a full legislative calendar will likely prevent congressional action this year . A single-payer health care initiative has qualified for California's November 8 general election ballot . The proposal would create a new state agency to negotiate health care contracts with providers on behalf of state residents who choose to participate in the new system, effectively eliminating the role of insurance agents and insurance companies . The plan would be financed by existing expenditures for health care, plus a payroll tax on all employers, an additional income tax of 2 .5%, and a $1 tax on cigarettes . The California Health Security Act is backed by Californians for Health Security, a coalition of consumer, senior citizen, religious labor organizations . The ciation of Health Insurance ts, the Association of Hospitals and Health Systems, and the Association of California Life Insurance Companies oppose the proposal. A recent survey shows

65% of Californians opposed to the state-run health care system proposed in the initiative .

An antiredlining measure favored by the insurance industry has been sent to the House floor for debate . HR 1188, sponsored by Rep . Cardiss Collins (D-I11 .), won out over the alternative, HR 1257, introduced by Rep . Joseph Kennedy . The industry backs Collins' bill because it would require data collection by Zip Code, rather than use the census tract approach pushed by Kennedy . The bill also would require data from only twenty-five metropolitan statistical areas, as opposed to 150 in the Kennedy bill . In the Senate meanwhile, a bill that closely resembles Kennedy's proposal has been introduced by Sen . Russ Feingold (D-Wis.) . The Senate is expected to take a wait-and-see attitude toward Feingold's bill until after the House acts .

The financial practices of health insurers were the focus of a June 29 hearing of the House Energy and Commerce Subcommittee on Investigations . The hearing featured blistering critiques of insurance industry economics . Committee Chairman John Dingell (D-Mich.) pointedly reminded his audience of the industry's solvency problems and what he views as a weak regulatory apparatus . According to Dingell, future hearings will examine the role of the health insurance industry "in runaway health care costs, access to health care, and the quality of that care . This review will include the financial practices throughout the industry, who the players are, and how their organizational structures and interrelationships are changing."

Universal coverage is the top priority of congressional leaders as they take on the complicated task of melding together five health care bills reported by congressional committees . House Speaker Tom Foley, House Majority Leader Richard Gephardt, and Senate Majority

Leader George Mitchell are standing firm for a bill that requires universal coverage . Democratic leaders plan to take their case to the people via a full-scale debate on the airwaves . A final deal may hinge on how universality is defined . In Washington, universal doesn't necessarily mean 100% . Instead it has come to mean somewhere "in the ballpark of 95%," as the president was quoted as saying . The definition is important because of President Clinton's dramatic pledge to the American people to veto any legislation that does not guarantee health care coverage for all Americans . Congressional Democrats will have to fashion a compromise that has the support of liberals, answers the concerns of moderate Democrats, and allows the president to take credit for signing a universal coverage bill .

Financing health care coverage for the newly insured also remains to be determined. President Clinton has finely stated his belief that the so-called employer mandate is the only means to adequately finance universal coverage . Of the five bills reported by congressional committees, four include some form of employer mandate . The fifth bill, passed by the Senate Finance Committee, relies on low-income subsidies rather than mandates to expand coverage . The four employermandate bills guarantee universal coverage, while the Finance Committee merely authorizes Congress to vote on the recommendations of a new commission if 95% of the population is not covered by 2002 . Finance Committee members have conceded that their bill as written does not contain adequate financing to insure even 95% of the population . Despite the need to resolve these and other important issues, such as a standard benefit package, community rating, and state flexibility, Democrats remain positive they can pass legislation before the August congressional recess begins .

1994 CALENDAR National Association of Insurance Commissioners Fall Meeting

September 18-20 Casualty Loss Reserve Seminar September 19-20 Academy Annual Meeting

September 28 Conference of Consulting Actuaries Annual Meeting October 2-5 Actuarial Standards Board Meeting October 13-14 Society of Actuaries Annual Meeting October 16-19

American Society of Pension Actuaries Annual Meeting October 16-19 Casualty Actuarial Society Annual Meeting November 13-16

For further i nformation, contact David Rivera at the Academy's Washington office. The Actuarial Update ∎ August 1994 7


Ms.,

ifi[Ih s .,

continued from page 1 dards . The project's specific focus will be on the work done by valuation actuaries for failed or financially troubled insurers . Subcommittee chairman Robert Wilcox will work with the Council on Professionalism to implement this proposal . At its semiannual meeting, the NAIC/AcademylActuarial Standards Board Joint Committee on Standards and Related Items decided that the official NAIC representation on the committee should include the chairs of the actuarial task forces . It also voted to support the establishment of an NAIC actuarial task force on accident and health insurance, and decided to focus committee discussions on standards and professional practice guidelines, rather than specific actuarial issues which would be considered

health care stories . For instance, Julia Philips recently talked to I key writers from the Wall Street members of our profession Journal, Fortune, Time, and the informed of our health care Journal of Commerce, informing effort . In addition, sessions on them about the actuarial profeshealth care reform were offered at sion and its role in the health the Spring SOA meeting . care reform debate. Members of Congress . All members of Congress were sent Continuing Efforts copies of the Academy monographs . Work group members The Health Practice Council hopes to contribute to the new have made numerous personal momentum of cooperation visits and telephone calls to key members and staff to answer between the Academy and technical questions. Congress. One way to do this is through the technical assistance The Public . The public has teams recently established by the been kept informed through our Academy Federal Health Compress briefings and press releases, mittee . Technical assistance team many of which have been picked volunteers are on call to respond up by the national press, includto the increasing number of speing the New York Times, the Los cific inquiries from congressional Angeles Times, and the Washingstaff . In addition, new work ton Post, as well as by the health care and insurance trade press . groups will be formed to examine Several work group members emerging issues, and there will be increased coordination on health have given background interviews to reporters working on care between the Academy and

HEALTH, continued from page 6

After successfully organizing and staffing what may well be the single largest work effort ever undertaken by the actuarial profession , it is now time to settle in for the long haul .

by the technical task forces . The committee considered the proposed revisions to the Standard Nonforfeiture Law for Deferred Annuities and its requirement for actuarial certification and discussed how the Academy and the Actuarial Standards Board could assist in the development of life insurance sales illustration models and regulations . Finally, the committee discussed the current proposal for a centralized review of actuarial opinions . The Accounting Practices and Procedures (EX4) Task Force held a public hearing on the draft of the proposed "Statement of Concepts of Statutory Accounting Principles ." Most who testified expressed support for replacing existing SAP (statutory accounting principles) with a comprehensive codification of NAIC accounting principles . The common view is that this goal is attainable and will pro-

mote consistency and comparability in statutory accounting, Academy Board member Glen Gammill testified on behalf of t Academy Financial Repor Steering Committee, and u that both SAP and GAAP financial statements use the most accurate information possible about an insurer's current surplus position and recent operating results. Regulators worry that SAP could receive a designation as an "other comprehensive basis of accounting" (OCBOA) at the conclusion of the codification process . Accountants have indicated that SAP, as an OCBOA, could be used as a basis for their opinions on statutory financial statements with certain limitations .

Bryant is assistant director of government information for the Academy .

the SOA . The Academy communication effort will continu place a heavy emphasis on ht care information .

Plans for the Future After successfully organizing and staffing what may well be the single largest work effort ever undertaken by the actuarial profession, it is now time to settle in for the long haul . We will need to enhance our ability to provide meaningful support to federal and state governments as health care reform legislation evolves . The HPC will also continue to strengthen the profession by securing Academy/SOA ties and providing increased visibility and respect for the unique skills and expertise that the actuarial profession has to offer .

Bolnick is chairperson of the Academy Health Practice Council.

R 8 The Actuarial Update - August 1994


August 1994 Actuarial Update