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Pension Actuaries Sound Retirement Alarm for Baby Boom Retirees THIS MONTH 2 From a Guest President

3 46 Letters to the Editor 4 Committee Will Review Continuing Ed 5 Standards Outlook 6 Academy Active in Health Care Reform 7 Capitol Views

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

CLRS Brochure and Reply Card Committee Service Request Card Enrolled Actuaries Meeting Cassette Order Form

By Ken Krehbiel T he United States retirement system is at a crossroads, and if public policy makers do not seek solutions now, by 2010 we could face a social problem the magnitude of today's health care crisis, Larry Zimpleman told legislators and reporters in Washington on April 21, Zimpleman, Academy vice president and chairman of its Pension Practice Council, was joined by Ed Hustead and Gregg Richter. They addressed separate parts of the retirement system, first in the U .S . Capitol at a briefing for congressional staff, then at a press conference at the National Press Club as part of the actuarial profession's Forecast 2000 program .

Ed Hustead, member of the Academy Committee on Social Insurance, spoke about the future of the Social Security system, and Academy Pension Committee member Gregg Richter addressed the current state of the Pension Benefit Guaranty Corporation (PBGC) . Richter presented pros and cons of three possible solutions to the PBGC's $2.7 billion shortfall, as stated in the PBGC's 1992 annual report . Richter recommended reducing plan sponsors'

risk rather than cutting participant guarantees or increasing employer premiums, two other possible solutions. He said that large risks and high-profile plan failures damage public confidence in the private pension system and in the PBGC. In order to address both problems, public

policy and PBGC reform should focus on plan funding and reducing plan sponsors' risk. According to Richter, reducing participant guarantees would reduce the value to workers and undermine the program's initial intent . He also advised against increasing premiums that employers pay into the system, because most employers can choose not to sponsor a defined benefit plan ; the only employers who have no choice are those who have very underfunded plans. This could present a scenario for a classic underwriting spiral : raise premiums so that good risks (well-funded plans) leave-the system ; then premiums need to be raised again, which drives out more good risks ; and finally only those that cannot leave (precisely the plans that pose the greatest risk to the PBGC) remain . Hustead explained that the Social Security system was not created to be the primary source

Continued on page 8

Forecast 2000, the North American actuarial profession's public relations

campaign has won the Silver Anvil award of the Public Relations Society of America . The Silver Anvil, the most prestigious award in the industry, is awarded annually to public relations efforts in fourteen = categories . Forecast 2000 was selected the best institutional public relations program for 1992 . A panel of judges, fifty-five senior public relations professionals, awarded this singular honor to Forecast 2000, calling it "a superb, effective program that brings responsible commentary on public policy issues to a wide audience . The Silver Anvil ''ill be presented to Academy Director of Public Relations Erich Parker at a black -tie ceremony on June 9 in New York City . Forecast 2000 was begun in 1989, part of the celebration of, the actuarial profession's centenary in North America, and has become the premier public outreach program for the profession . It is sponsored by the Academy, the American Society of Pension Actuaries ; the Casualty Actuarial Society, the Canadian - Institute- of Actuaries , the Conference of Consulting Actuaries, and the Society of Actuaries,'

AMEBiCAiti ACADEMY OF ACTUARIES President John H . Harding President-Elect


guest president A Vision for Our Profession

David G . Hartman Vice Presidents Howard J . Bolnick Stephen P . Lowe Walter N . Miller Richard H. Snader Larry D . Zimpleman Secretary-Treasurer James R . Swenson Executive Vice President James J . Murphy

EXECUTIVE OFFICE The American Academy of Actuaries 1720 I Street, NW 7th Floor Washington, DC 20006 (202) 223-8196 Fax : (202) 872-1948

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

THE ACTUARIAL UPDATE Committee on Publications Chairman E . Toni Mulder Editor E . Toni Mulder Executive Editor Erich Parker Associate Editors William Carroll Stephen A . Meskin Charles Barry H, Watson Managing Editor Jeffrey Speicher Contributing Editor Ken Krehbiel Production Manager Renee Cox

Statements of fact and opinion in this publication, including editorials and letters to the editor, are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy of Actuaries , the editors, or the members of the Academy .

By Waller Rugland

W hen I received the badge and gavel of the office of Society of Actuaries president, I felt enormous pride in being part of such an honorable and respected profession . As actuaries, we hold a public trust that I predict will continue to be unrivaled among other professions . Today, users of actuarial expertise expect work of the highest caliber and, rightly, hold us accountable for our work . That accountability is part of what it means to be a profession . For a long time actuaries have struggled with this notion of whether we are a collection of practitioners or a true profession .

More and more, the actuarial work force is taking on every other mark of the compleat profession-we apply actuarial research to dayto-day practice, we attest that we are qualified to do the work we do, we hold ourselves and are held by others accountable for our work, and we have in place an effective counseling and discipline process . I make this statement with not a little perspective . Twenty years ago, I joined the American Academy of Actuaries Board of Directors as secretary. I've seen where the actuarial profession was then ; I see how far we've come . My tremendous pride at taking the helm of the Society of Actuaries is based in part on the sense of this profession having come of age .

2 The Actuarial Update ∎ May 1993

And it is a gradual process I have been fortunate to witness and perhaps even shape . Let's note just some of the recent accomplishments of the actuarial profession in the United States . U We have achieved legal recognition of the integrity of our employee benefit plan assumptions . U The Actuarial Standards Board has been established to promulgate standards of practice . D The actuarial profession discipline processes have been strengthened and streamlined through the establishment of the Actuarial Board for Counseling and Discipline .

us, with our unique set of skills, to open doors and forcefully say : "Ask us! Ask actuaries to be a part of your problem analysis and solution." There's no such job as "a ary," but being an actuary means that we possess a host of unique problem-solving skills and native abilities-expertise that we are learning to apply broadly to social and business challenges . In that regard, I have a vision for the actuarial profession that I want to share . I see the day in the 21st century when business and government decision makers "Ask an Actuary" when faced with a question of future risk and cost assessment . Share that vision with me; wear an "Ask an Actuary" button. They are available in quantity from the Society of Actuaries office . The buttons give you an opportunity to say that you are more than a back-room technician restricted to the liability side of the balance sheet . You are also a useful adviser on the asset management side, as advances in actuarial education and research have positioned us . Your knowle e and judgment afford y prominent place on the prob solving teams of any number of businesses and industries . Actuaries are heeding this vision and realizing that together we can make it happen .

U The Academy has set qualification standards. 0 We have pressed for and achieved a meaningful insurer valuation role, the "appointed actuary," which recognizes the need for actuarial skill in the analysis of an insurer's investment risk and economic health . 0 The Academy publishes an award-winning magazine, Contingencies, that brings the world of actuarial thought and analysis to public policy makers and business leaders.

1 For 4 years the actuarial profession has pooled financial resources to fund an issue-oriented public affairs campaign called Forecast 2000, which focuses public attention on actuarial expertise as it enlarges and enhances public policy debate . These major developments, all within the last half decade, enable

Rugland is president of the Society of Actuaries.

Put professional pride on your lapel . Wear the "Ask an Actuary" button! To order your supply of buttons, contact Connie Tegeler, Communications, Society of kctuartes, 475 N . Martingale Road, Suite 800, Schauinburg, IL 60173-2226 ; Telephone : (708) 706-3500 . Fax : 17081706 3599 . nee'd's Plea specify quantity and intended usc .


Clean Slate at PBGC ctuaries and other pension professionals have reason to A hope that the Pension Benefit Guaranty Corporation (PBGC), under newly appointed executive director Martin Slate, will become a positive force on behalf of defined benefit plans. In congressional testimony on April 20, Slate was thoughtful and non- alarmist in tone-a wel-

come change from the alienating style of his predecessor . For example, he acknowledged that the PBGC has "enough cash flow and assets to meet its obligations for many years," and is not faced with an imminent S&L-type crisis . Thus, there is time to think about ways to protect its solvency, as an interagency task force is now doing . Slate will serve the public well by maintaining a constructive approach . Plan sponsors need assurances that defined benefit plans can not only work well, but are a highly effective tool for corporate retirement planning. In that vein, perhaps he will now

halt the PBGC's major effort to publicize the fifty largest unfunded plans, a campaign that suggests that conditions are much worse than they really are . Slate's 10 years of working in pensions at the IRS may also enable him to launch a joint-agency effort to focus on the reduction of complexity and the easing of contribution restrictions. If plan sponsors come to see our federal officials truly showing care and concern, the decimation of the private defined benefit plan system may yet be halted . David Langer New York City

The Update

welcome s letters from its readers. Letters for publication should be submitted' to "Letters to the Editor," and

Keeping Practice Notes Current •onna Claire


ractice Notes were created primarily to assist actuaries

Koloms is now coordinating the effort for Practice Notes on health insurance topics . Some actuaries also requested more information on reinsurance and shareholder dividends ; we are looking for volunteers to write these Practice Notes. Other Information

involved in asset adequacy,

but they require the continuing assistance of the profession if they' re to serve their purpose . Our goal is to update them during the summer-based on the response from practitioners and the industry, so that the updated Practice Notes will be available at the Valuation Actuary Symposium in the fall. By now, a number of valuation actuaries have received the 1992 Practice Notes . By keeping the notes up to date, practitioners can stay apprised of current practices among other actuaries. On the whole, reaction from the approximately 75 actuaries who have responded has been positive. The two most frequent specific requests have been for revisions of existing standards and notes to address additional cs . Asset adequacy testing for health insurance is one topic actuaries would like to see included in new notes. Leonard

A survey cosponsored by the Academy and the Society of Actuaries will provide another source of information for Practice Notes . The survey is being sent to all those who are listed as chief actuaries for their company, and it will include questions about several different sources of material available to the appointed actuary, including the Practice Notes.

Sessions at the June Postmortem 1992 Valuation Actuary Seminar, sponsored by the Financial Reporting Section of the Society of Actuaries, will provide a third source of information . Current plans are to have several seminar sessions on the topics covered in existing and future Practice Notes. In order for the Practice Notes to fulfill their dual purpose of reflecting current practices and providing guidance to those performing asset adequacy testing, we need your help . So keep those cards and letters coming!

must include the writer's name, address, and telephone number . Letters may he edited for style and space

If you have suggestions or recommendations for Practice Notes, please write or call Donna Claire, 55 Shoreham Dr. East, Dix Hills, NJ 11746-6581 ; (516) 586-0112.






i A

a-l a

DILBERT reprinted by permission of UFS, Inc.

The Actuarial Update - May 1993 3

Committee on Qualifications Will Review Continuing Education By John K . Boath

dards are currently required to obtain an average of twelve credit n a letter to the editor in the hours per year of continuing April issue of The Update, education (the average being calculated based upon a two-year Ralph Healy lamented that "the Academy Board of Direcperiod), and at least half of the tors establishes qualification actuary's credits must be derived standards and then does little to from "organized activities", e .g ., help the practicing actuary fulfill meetings, seminars, or other prothe continuing education grams with actuarial content, including correspondence coursrequirements ." Since the Qualification Stanes for which a grade or certificate dards were first adopted in 1991, of completion is awarded . Many actuaries who seek a great many members of the !, Academy have raised questions guidance on the Qualification concerning the requirements for Standards want to know whether a specific educational endeavor continuing education, and inquiries continue to pour in to qualifies as an "organized activithe Academy office . It is clear ty." However, the Academy does not currently have any criteria for that the Academy's members recognize and wish to fulfill their determining whether a particular continuing education responsiactivity is "organized," apart from the inclusive list of exambilities under the Qualification ples appearing at Part III, ParaStandards but, sadly, it is even graph 2(a) of the Qualification clearer that many actuaries are Standards, and no more definite unsure of just what those responsibilities might be . answers to actuaries' questions At a meeting in January of this can be provided . Rather, the actuary is left to make a goodyear, the Committee on Qualififaith determination of whether a cations agreed to undertake a particular meeting or seminar project that will assist actuaries to amounts to "organized activity ." determine whether particular The Committee on Qualificaseminars, meetings, and other tions plans to develop criteria for educational opportunities constidetermining whether a particular tute "organized activities" for educational opportunity is "orgapurposes of the Qualification nized," to assist actuaries in their Standards . Actuaries who must efforts to obtain sufficient credits satisfy the Qualification Stanfrom "organized activities" to satisfy the Qualification Standards' continuing education requirements . The development of criteria for designating educational activities as "organized" is a major task and is likely to take some time to complete . In the Inquiries regarding continuing education are th interim, the Committee on questions most frequently asked of Academy staff, Qualifications recognizes that Continuing education requirements appear in the booklet actuaries will need answers to titled, Qualification Standards for Public Statements, their questions not only about adopted by the Academy Board in January 1991 . This continuing education, but about booklet should be filed in Section VIII of the Actuarial all aspects of the Qualification Standards Handbooks . To obtain a copy of the Standards . Fortunately, many standards write : American Academy of Actuaries, 1720 1 actuaries have similar questions Street NW, Washington, DC 20006 Attention : Devara' and concerns, and these can be Bodog readily responded to by Academy staff. (For example, Mr . Healy's comment that "it is literally



4 The Actuarial Update ∎ May 1993

impossible to maintain the continuing education requirements for both the pension and health qualification standards" sugg that the actuary who wish* satisfy both standards must complete an average of 24 hours of continuing education each year . However, some educational activities are relevant to the subject areas of both standards, and credit hours spent on those activities could be credited toward satisfaction of the continuing education requirements for both standards .) For other inquiries, the Committee on Qualifications is available to answer members' questions concerning application of the Qualification Standards on an individual basis . Such inquiries should be addressed in writing to : Committee on Qualifications American Academy of Actuaries 1720 1 Street NW, 7th Floor Washington, DC 20006 The Committee on Qualifications is gratified that actuaries e eager to understand and sa their obligations under the Q ification Standards, and it is committed to improving members' comprehension of the standards' requirements .

Booth is chairman of the Academy's Qualification Committee.

The Academy's important work of promoting public understanding of the actuarial profession and offering its expertise to public policy makers depends on the efforts of its volunteers . Please take time to consider how your talents may best contribute to the advancement of the profession as you fill out the Committee Service Request Card enclosed with this month's newsletter. New committ assignments will be ma before the Academy Annual Meeting on October 6 .

standards OUTLOOK

ASB Adopts Three Standards at April Meeting By Christine Nickerson L ife and health insurance statutory opinions, the actuary's responsibility to the auditor, measuring pension obligations, and continuing care retirement communities were among the items on the agenda for the April meeting of the Actuarial Standards Board (ASB) . During a busy 2 days, the board reviewed and adopted three final actuarial standards of practice (ASOPs) and voted to release two proposed standards for exposure .

Standards Adopted The board adopted the following actuarial standards of practice : SOP No . 21, The Actuary's onsibility to the Auditor. This ndard provides a basic set of recommended practices for actuaries concerning their responsibilities to auditors, It applies to any organization's statements or reports that are expected to be audited or examined by a public accounting firm . The standard replaces Financial Reporting Recommendation 2, Relations with the Auditor. ASOP No. 22, Statutory Statements of Opinion Based on Asset Adequacy Analysis by Appointed Actuaries for Life or Health Insurers. This standard applies to actuarial opinions required by the National Association of Insurance Commissioners' (NAIC's) amended Standard Valuation Law and by Section 8 of the model Actuarial Opinion and Memorandum Regulation . Section 8 requires the actuary to perform an analysis of the assets that support the reserves to mature a compa-

obligations and to opine on adequacy of those assets . ASOP No . 4, Measuring Pension Obligations . This standard, originally adopted in 1988, has been reformatted in the uniform

format adopted by the ASB . The only significant change to the standard is a new section dealing with disclosures about the possibility of changes in benefit values arising from changes in the amount and timing of benefit payments and changes in actuarial assumptions because of plan terminations or special plant shutdown benefits . Two exposure drafts dealing with the shutdown issue were previously released , and a public hearing was held on the topic . Exposure Drafts The following proposed standards were approved by the ASB for release as exposure drafts : Statutory Statements of Opinion Not Including an Asset Adequacy Analysis by Appointed Actuaries for Life or Health Insurers . This proposed actuarial compliance guideline applies to the actuarial opinion required under Section 7 of the NAIC's model Actuarial Opinion and Memorandum Regulation . The opinion rendered under Section 7 does not require an asset adequacy analysis, nor does it require an opinion as to whether the reserves are adequate to mature the insurer's obligations . ASOP No . 3, Practices Relating to Continuing Care Retirement Communities. This standard was originally adopted in 1987 . It has been substantially revised by the Committee on Continuing Care Retirement Communities of the Academy. One significant change is that the "component approach" is no longer included as an acceptable actuarial basis for financial management of a CCRC . The component approach focused solely on health care costs, on the presumption that other costs do not produce significant gains or losses. This and other changes necessitated exposure of the revised standard . Other Agenda Items The board reviewed a proposed actuarial glossary developed by the Editorial Advisory Committee of the ASB . The purpose of

the glossary is to assist actuaries by providing general definitions of terms used by actuaries in their work. The board decided to defer action on the glossary until the July ASB meeting in order to allow time for further review . The board also discussed the March 4 public hearing on the determination and illustration of nonguaranteed elements and policyholder dividends . This hearing was called by the ASS to hear testimony from regulators, actuaries, and other interested parties about what problems exist that might be addressed by standards of practice. Seven witnesses testified at the hearing and thirteen written statements were submitted . The board reviewed the hearing transcript and discussed whether these issues might be handled more appropriately as public policy questions rather than as concerns falling within the standards arena. Given the public policy nature of the issues, the board agreed to ask the f Academy to review the transcript and written statements and coordinate action that might include involvement by the ASB and the NAIC .

The next meeting of the ASB will be July 20-21 in Washington, D .C. Nickerson is director of the Academy's standards program.

CALENDAR Actuarial Board for Counseling and Discipline Meeting June 3 Canadian Institute of Actuaries Annual Meeting June 9-10 Society of Actuaries Spring MeetingFinancial Reporting June 14-15


Actuarial ndards Board Meeting

July 20-21 National Association of Insurance Commissioner fall Meeting September 12-14 Casualty Loss Reserve Seminar

September 13--14 Actuarial Board for Counseling and Discipline Meeting '_ September 28 Academy Annual Meeting

October 6 Actuarial Standards Board Meeting October 13-14 Society of Actuaries Annual Meeting October 17-20 American Society of Pension Actuaries Annual Meeting October 17-20 Conference of Consulting Actuaries Annual Meeting October 25-27

The 1992 Annual Report of the Actuarial Standard Board is enclosed with this month's mailing of The Actuarial Update.

Casualty Actuarial Society

Annual Meeting November 14-17

The Actuarial Update - May 1993 5


Academy Members and Groups Help U.S. Health Care Reform By Christine Cassidy

In an extensive discussion with committee chairman Hal Barney, task force members asked whether CCRCs should be part of the health care reform agenda . After consulting Barney, the task force decided that

he actuarial profession is lending its specialized tools to the construction of a reformed U .S . health care system . As the Clinton administration's deadline for its health care reform plan approaches, the Academy continues to provide technical information and analyses to key members of the health care task force headed by Hillary Rodham Clinton. An Academy task force on community rating, organized jointly by the Academy Health Practice Council and Health Committees, has submitted a report to the administration task force's Quantitative Analytic Support Working Group, at the request of its chairman Ken Thorpe . The task force met with Thorpe to discuss the paper and the consequences of community rating .

the Academy for further expert opinion on costing mental health services. Risk Adjusters The working group on health risk adjusters has completed a paper on health risk assessment, health risk adjustment, and the roles they play in health care reform. Alice Rosenblatt, head of the working group, has met with Gary Claxton, chairman of the administration's Insurance Reform Working Group . Rosenblatt and members of her group have participated in several meetings with the administration's task force on the issue of insurance reform and the use of risk adjustment .

The administration's task force requested general information from the Academy Committee Continuing Care Retiremo Communities (CCRCs) . In an extensive discussion with committee chairman Hal Barney, task force members asked whether CCRCs should be part of the health care reform agenda. After consulting Barney, the task force decided that CCRCs will not be part of the administration's initial proposal, although their role in the health care system should be considered at a later date. The Health Practice Council and Health Committees also are looking at the issue of administrative costs, focusing on the impact of Health Plan Purchasing Cooperatives, the regional entities expected be central features in the administration's reform proposal .

Cassidy is Academy Government Affairs Liaison .

CCRCs will not be part of the administration's initial proposal, although their role in the health care system should be considered at a later date .

Standard Benefits In addition, Academy working groups have prepared white papers for the administration, which will be distributed to the appropriate congressional committees when the debate moves to Capitol Hill. The working group on minimum benefits, headed by Julia Philips, is focusing on the cost of minimum and standard benefit packages and the role of those packages in a reformed health care system. In a letter to Thorpe, the group recently challenged estimates of the cost of including mental health care in a mandatory minimum benefits package . The group urged the task force to consider closely the problem of induced demand for mental health care . Access to insurance coverage for mental health services often increases demand, at a much greater rate than the demand for other types of health care. Task force members asked

6 The Actuarial Update ∎ May 1993

Academy Executive Vice President Jim Murphy (center) and Actuarial Board of Counseling and Discipline (ABCD) members Daphne Bartlett

and Curtis Hamilton attended the quarterly meeting of the ABCD in Washington, D.C. At the meeting, board members discussed the rapid pace of case resolutions; of the fifty-six cases the ABCD received in 1992,

twenty-six have been resolved.

CASUALTY LOSS RESERVE SEMINAR The 1993 Casualty Loss Reserve Seminar will be held September 13-1 at the Hilton at Walt Disney World Village, Lake Buena Vista, Florid> Among the topics covered by new sessions at this year's seminar are solvency regulation, graphical methods' for loss reserving loss reserving with limited data, and catastrophe reinsurance reserving :

"lRie Medicare hospital trust fund, which pays benefits to 35 million elderly and disabled patients, will run out of money in 1999, according to the trustees' annual report . Last year, the trustees projected that the Medicare hospital trust fund would be insolvent by 2002 . The report also said that the combined Social Security retirement and disability funds are expected to remain solvent until 2036, but that the disability fund alone will run out of money within the next 4 years. To remedy the problem, the trustees recommend shifting funds from the healthier old-age fund to the disability fund . According to the trustees, a .75% increase in payroll tax rates would preserve the combined funds until 2067 . The Social Security Administration estimates that during the next 75 years, the costs of hospital benefits will be almost three times the 0nue received by the hospital d at current tax rates. Social Security old-age and disability programs paid about $290 billion in benefits in 1992 . Pension simplification legislation was introduced by Sen . David Pryor (D-Ark.) . The bill, S . 762, is intended to simplify the definition of a highly compensated employee and provide safe harbors from nondiscrimination rules for lump sum or deferred plans . The proposed "Pension Simplification Act" includes substantially the same provisions that were in House Ways and Means Committee Chairman Dan Rostenkowski's tax simplification bill (H .R. 13) passed by Congress and vetoed by President Bush in 1992 . The bill would create two alternative design-based safe harbors under Section 401(k) to allow sponsors to avoid onerous testing requirets . The definition of a highly spensated employee would be changed to include any employee who owns 5% or more of the business or who has received compensation exceeding $50,000

during the current or previous tax year . S . 762 would repeal the 5-year income averaging rules for lump sum distributions from pension plans and would institute a simplified method for taxing annuity distributions under certain employer plans . A National Commission on Private Pension Plans would be created to examine the private pension system and report its findings to

Congress. Florida adopted a comprehensive health plan designed to use managed competition and the purchasing power of eleven regional community-based pools to help small employers, government, and individuals buy health care coverage at affordable rates . The legislation, which takes effect in 1995, establishes a number of practice parameters for physicians and requires insurers issuing policies to employers with up to fifty employees to do so on a guaranteed basis without regard to health status, preexisting conditions, or claims history . The bill requires community rating of small business products with adjustments for age, sex, family composition, tobacco use, and geographic location . MEWA legislation introduced by Rep . Thomas Petri (R-Wis .) would establish new funding and reserve requirements under ERISA for multiple employer welfare arrangements (MEWAs) that provide health care benefits. H .R. 1272 is similar to a bill sponsored by Petri in the 102d Congress.

Tennessee's Medicaid program would be abolished under a proposal introduced by Gov . Ned McWherter . The proposal expands an existing state program that covers people who are denied health insurance for medical reasons to include Medicaid recipients and the uninsured . The reform package would bring 900,000 Medicaid recipients and 500,000 uninsured Tennesseeans together in a single health care network of managed care plans . Universal coverage would be provided by a system of health maintenance organizations and pre-

ferred provider organizations . The plan is based on the state employees insurance plan, whose participants saw an increase in costs of only 2% over last year . The plan would be paid for by pooling public and private monies to provide enough state money to obtain $2 .26 billion in federal matching funds . The state will request a waiver from the federal Health Care Financing Administration if the General Assembly adopts the proposal . New York Gov . Mario Cuomo proposed a health care reform package in a series of bills before the New York state legislature . The plan would create regional health systems management agencies responsible for planning and global budgeting . Providers and hospitals would be encouraged to form comprehensive service organizations called preferred health networks, with primary care given an elevated role . Primary care would be expanded through Medicaid fee increases, and the state's all-payer system for hospitals would be extended to ambulatory care as a way of controlling costs and improving access . Other provisions include an extension of the state's hospital rate-setting law, technology assessments, and medical equipment limits .

In a recent interview on the subject of health care policy, Hillary Rodham Clinton said, "I'm not an actuary and I'm not an economist ." The good news is that she and the task force she leads know what actuaries do and

The Arizona Senate approved a small-group health coverage bill that provides for actuarial certification, health insurance availability for small employers, establishment of classes of business, renewability of coverage, health benefit plan provisions, and preexisting condition limitations . The bill would require insurers to file an annual actuarial certification report with the state insurance department, stating that the insurer's premium rates for conversion policies are actuarially sound and not excessive, inadequate, or unfairly discriminatory .

where to find their expertise . (See page 6.)

Georgia health care reform is dead for the 1993 legislative session . A health reform package aimed at limiting insurance rates and broadening access for the uninsured did not pass the General Assembly. The plan has been Continued on page 8

The Actuarial Update ∎ May 1993 7

PENSIONS, continued from page 1

Ed Hustead, senior vice president, HaylHuggins, Washington, D .C.

GreggRichter, consulting actuary for Noble Lowndes, Chicago.

Larry Zimpleman, second vice president, Principal Mutual Life Insurance Co., Des Moines .

of income for a comfortable retirement but rather only as a basic floor for retirement income . He also stated that baby boomers who say Social Security wouldn't be there when they retired were mistaken . However, while the Old-Age and Survivors Insurance portion of the Social Security system is financially sound over the next 75 years, the Disability Insurance and Medicare portions of the program are in trouble, with funds expected to be exhausted in 1995 and 1998, respectively . Although the system will be there, Hustead said that future retirees can expect to receive a substantially lower percentage of their preretirement income from Social Security than today's retirees . "Declining Social Security replacement ratios, caused by increases in the normal retirement ages for full benefits and aggravated by the Clinton administration's proposed greater taxation of benefits, will make meeting anywhere near the two-thirds to three-quarters of preretirement wages that retirees need to maintain their standard of living impossible," according to Hustead. "And proposed changes to redistribute benefits more generously to spouses may further reduce direct benefits to workers ." The unforeseeability of future events over such a long term is another factor to consider. For example, if actuaries 75 years ago had attempted to establish the financing required for such a system today, Hustead pointed out that they would have been hardpressed to predict or allow for the effects of events such as World War II and the Depression . Sixteen reporters from general and trade press attended the afternoon press conference at the National Press Club . Zimpleman offered a brief overview of the entire retirement system, and

Hustead spoke about Social Security . Richter was asked several questions about the PBGC, specifically which of three possible solutions he thought best. He recommended measures focused on funding and reducing plan sponsors' risk, which effectively would increase public confidence . Academy Executive Vice President Jim Murphy and Director of Government Information Gary Hendricks joined Hustead, Richter, and Zimpleman in the morning . Murphy introduced the speakers at both sessions, and at the congressional briefing Hendricks summarized results of the Academy's survey of defined benefit plan terminations . The Hill briefing, in the Hugh Scott Room of the U .S . Capitol, was presented to give congressional staff a better understanding of the whole retirement system, its individual parts, and the need for reforms . Zimpleman expressed support of H .R . 199, introduced this year by Rep . William Hughes (D-N .J .), which includes a provision for a commission to study the U .S . retirement system.

Zimpleman is second vice president for Principal Mutual Life Insurance Company in Des Moines, Hustead is senior vice president for Hay/Huggins Washington, and Richter is c suiting actuary for Noble Lowndes in Chicago . The congressional breakfast and press conference at the National Press Club were joint efforts of the Academy' s public relations and government information departments for Forecast 2000, the public affairs and information program of the actuarial profession in North America . Forecast 2000 is cosponsored by the six organizations in North America representing actuaries : the American Academy of Actuaries, American Society of Pension Actuaries , Canadian Institute of Actuaries, Casualty Actuarial Society, Conference of Consulting Actuaries , and the Society of Actuaries .

Krehbiel is assistant director of public relations for the Academy.


CAPITOL VIEWS, continued from page 7 placed in a study committee by the House Insurance Committee . The package was developed after twenty public meetings around the state and had passed the Senate by a wide margin . On April 13, Maryland Gov . William Donald Schaefer signed health care reform legislation that would limit insurance company profits. HB 1359 requires insurers to offer a standard benefit package to employers of fewer than fifty workers and to grant coverage regardless of preexisting conditions . The legislation also establishes commissions to moni-

for health care providers' fees and procedures, and to set clinical guidelines for physicians . Doctors and insurance companies will have to follow regulations similar to those the state has used for the last 20 years to control hospital costs and competition . Also, information about medical prices and practices to help consumers select cost-effective care will be required to be published .

For more information on these legislative proposals or regulations, contact Christine Cassidy in the Academy's government information department.

i 8 The Actuarial Update ∎ May 1993

May 1993 Actuarial Update  

T he United States retirement system is at a crossroads, and if public policy makers do not seek solutions now, by 2010 we could face a soci...

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