Unless you have been on “Lost” for the past 12 to 18 months, you have undoubtedly heard some commotion about Health Care Reform.  Wait!  It started as “Health Care Reform”, then moved to “Health Insurance Reform” (check out an earlier post entitled “Health Care Reform vs. Health Insurance Reform“).  As an Insurance Professional, some may think that my views are motivated by greed (aka money).  In all candor, commissions from health insurance make up probably 1% of my agency’s revenue, so if I lost those commissions, no big deal.

My issue is not that I think that the status-quo is all that great.  In fact, I think that there are some serious problems with Health Care in the United States.  My problem is that the political debate has taken what could be a good cause, and turned it down a path that will do no good for the average American.  Now, I don’t care to, nor am I qualified to, talk about the actual constitutional validity of what is taking place in Washington right now.  I simply want to spell out some issues I see with the debate.

In the movie, The American President, Michael Douglas (playing the role of President) makes a speech where he talks about how his advisary (and pretty much all politicians) operates.  He states (I am paraphrasing) Bob doesn’t come up with solutions that can help the country, instead, he talks about better times and evokes memories of a better day.  Then Bob tells you who is to blame for your lot in life.  Wow!  I don’t think there is a much better way to sum up what has taken place in Washington.

When our President took office, a primary objective was to “transform, or fix, health care” (this has been a Democratic mantra for decades).  There is nothing wrong with that (to be “transparent” I am a registered Republican but my views are probably “Independent”).  If I were to go out and take a random survey of people, and asked the questions “Are you happy with the premium(s) you pay for Insurance?”, or asked “Would you like to pay less for Insurance?”, my guess is that 99.99% of the time people would answer in a fashion that they would like to pay less for Insurance.  Notice, I didn’t say health insurance.  People want to pay less (actually $0) for Insurance.  I bet you could substitute just about any common good or service in the place of “Insurance” and get the same response.  However, it is the politically vogue thing to blame the big bad insurance companies for everyone’s financial problems.  Let’s face it.  Most people have some form of insurance!  Then there are the stories of some insurance company not paying a claim (not very much talk when the carrier goes above and beyond to find ways around the policy language to pay a claim).  Add all that together, blend in a need to blame someone for people’s problems, and politicians have their villian.

Let’s Look At The Definition Of Insurance

Wikipedia’s Definition of Insurance “Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss.”

OR

Chris Rock’s view of insurance…”It shouldn’t be called insurance, it should be called in case stuff happens”!

Insurance is not something that you are required to have (not as of now at least, unless you live in a state that requires you to carry auto liability insurance, or your have an asset (auto or home) that insurance is required as part of the loan obligation).  So, why do people carry health insurance?  They have health insurance so if something “major” happens, they will not suffer a catastrophic loss.  The problem with health insurance today is that people don’t view their policy as something to prevent “major” loss, they look at health insurance as a “co-pay” for every time they get a sniffle!  Given this “co-pay” mentality, there has been over-utilization within the Health Insurance Industry.

Think of it this way.  We all get sick.  That “sickness” is usually something like a “cold” or a little “flu”.  If you know that you can go to the doctor and pay just $15 or $25, each time you get a little cold, you think nothing of going to the doctor to have them check it out.  Now, work the math backwards.

(Assumptions:  Doctor’s Normal Charge for an office visit $200, Health Insurance Company’s negotiated doctor’s rate $150, Insured’s Co-Pay $25 )

• Your Cost (if you were uninsured) – $200 / Health Insurance Company’s Cost – $0
• Your Cost (insured under co-pay plan) – $25 / Health Insurance Company’s Cost – $125

Now multiply the Health Insurance Company’s Cost for this visit due to a “sniffle” by the number of customers they have (let’s use Blue Cross & Blue Shield of NC) if each customer made just one of these trips a year.

3.7 Million X $125 = $462,500,000

You want to know why your health insurance premiums keep going up?  That calculation above generates over $450 MILLION a year in needless cost to the Insurance Company.

To further back up my theory, lets take a look at one Insurance Company’s ACTUAL 2009 Financial Results (Blue Cross & Blue Shield Of NC 2009 Financial Results).

• Revenue – $5.2 Billion
• Total Medical Cost (TCM) – approx. $4.52 Billion (87% of Revenue)
• Taxes – approx. $134 Million
• Executive Compensation – approx. $17 Million
• Net Profit – $107.3 Million (2.1% Profit Margin)

This is an actual example!  As you can see the insurance companies are not making an “above average” return!  Compare BCBS of NC’s Profit Margin of 2.1% to a company like Google.

Finally, I think that the proof is in the pudding when you try to determine the true culprits in our “Health Care” Debacle.  Lets look at statements made by Blue Cross & Blue Shield of NC.  When asked about premium increases, BCBS of NC shared the following information:

Premium Increases In Major Health Insurance Plans

• Employer Group Plans – approx 15%
• Individual Co-Pay Plans (Blue Advantage) – approx 12%
• Health Savings Account – approx 3%

Why would High Deductible HSA’s see the smallest increase?  Think back to what the largest driver of Health Insurance Premiums is…Cost of Medical Care!  HSA’s have lower utilization of services, thus their costs stay low.  You want to know who is to blame for high health care premiums…all you have to do is look in the mirror.  In addition, if more people used this type of plan, you as the consumer would be more diligent about looking into what the Health Care Providers are actually charging you.  Gone would be the days of $1,000 Tooth Brushes & $140 Tylenol Pills.  You would pay attention to those types of over charging infractions.

The President and Congress decided that they could garner more votes playing on the emotions of “average” Americans.  They decided that instead of trying to tackle the wasteful practices within the Health Care Arena, they would try and blame the cost of Health Care on insurance.  In fact, during the recent “Health Care Summit”, President Obama stated their were two types of Health Care Insurance: Good Insurance & Bad Insurance.  To show how far the President and his Congressional allies are being, the “bad insurance” he talks about is the High Deductible HSA.  The very plans that could in fact start to reduce Health Care Costs (lower utilization + more fiscal accountability) and lower health insurance premiums (that is to say reduce your health insurance premiums)!  After all, isn’t that what the Health Care Bill is supposed to accomplish?  Or is the Health Care Bill a means to increase the government’s role in our lives?

There are far more qualified places to find information about the economics and political views about the health care debate.  I encourage you to read William “Bill” Heasley’s BLOG The Last Embassy.

About The Author:  Jack Wingate is the President and Co-Founder of ALLCHOICE Insurance, in Greensboro, NC.  For more information about Health Insurance, ALLCHOICE Insurance, or Jack Wingate, please visit: http://www.allchoiceinsurance.com

Blue Cross and Blue Shield of North Carolina announced their 2009 financial results.  The financial highlights are as follows:

BCBS of NC 2009 Financial Highlights

Revenue:  $5.2 Billion

Profit: $107.3 Million

Total Medical Cost (TMC) Ratio:  87%

Taxes:  $134 Million

Customers: 3.7 Million

BCBS of NC Explanations

As part of the release of Blue Cross and Blue Shield of NC’s 2009 Financials, the company explained several components of the report.

Compared to 2008, BCBS of NC reported that customers (or membership) actually remained relatively flat.  According to the company, this was not unexpected given the economic climate in both the United States and the North Carolina.  The net profit margin was considerably lower for 2009 (2.1%) compared to 2008 (3.6%) (and well below expectations).  The drop in profit margin is due, in large part, to the increased TMC (Total Medical Cost) Ratio (87% vs 85% for 2008).

BCBS of NC explained the Total Medical Cost incurred was due, in part, to the following:

• Increased Cost of H1N1 & Seasonal Flu
• Waiving of Co-Pays for Generic Drugs (1st 6 months of 2009)
• Aging of Employer Groups

Increased Cost of H1N1 & Seasonal Flu

Blue Cross & Blue Shield of NC provided its members free immunizations for both the H1N1 & Seasonal Flu during 2009.  Given their severity, a large number of members received this benefit, thus increasing cost(s) to the company.

Waiving of Co-Pays For Generic Drugs

Over the past four (4) years BCBS of NC has actively encouraged its members to use Generic Drugs whenever possible.  This focus on generic drugs will allow more members to afford their medications and keep total costs down.  To help encourage the use of generic alternatives, BCBS of NC waived all “co-pays” for generic drugs during the 1st 6 months of 2009.  BCBS of NC witnessed an increase in the use of generic drugs of 2% (to 68%) between 2008 and 2009.

Aging of Employer Groups

Given the state of the economy, many employers have “laid off” workers.  In many cases, the workers that have been laid off were “newer” employees.  Essentially, the employer groups are reducing the number of “younger” employees, thus increasing the overall age of the employer group.  On average, Total Medical Costs increase the older a person becomes.

Blue Cross & Blue Shield of NC Premium Increases

Blue Cross & Blue Shield of NC has stated that, on average, health insurance premiums will be increasing.  These increases are due, in large part, to the increased medical costs and utilization.  BCBS of NC announced that average increases on their 3 major lines of health insurance will increase as follows:

Health Savings Account (HSA’s) – approximately 3%

Individual Co-Pay Plans (Blue Advantage) – approximately 12.24%

Employer Group Plans – approximately – 15%

These increases are “averages” and individual policies and groups may experience higher or lower premium changes.

About The Author:  Jack Wingate is the President, and co-founder of ALLCHOICE Insurance in Greensboro, NC.  Jack Wingate is an authorized agent for Blue Cross & Blue Shield of NC.  For more information about Blue Cross & Blue Shield of NC, ALLCHOICE Insurance, or Jack Wingate, please visit:  http://www.allchoiceinsurance.com

As an Independent Insurance Agency that represents Erie Insurance, ALLCHOICE will now help North Carolina Schools with the formation of Erie Insurance’s “Lookin’ Out” Program.

What Is Lookin’ Out?

Lookin’ Out is a safe teen driving awareness program initiated by Erie Insurance to reduce auto crashes and promote safe driving habits among teens.

Positive peer influence
Lookin’ Out is unique because each activity is created by teenagers for their peers. Areas covered include:

• Seat belt use
• Speeding or reckless behavior
• Limiting the number of passengers in the car
• Alcohol and drug use, and their effects on driving
• Eliminating distractions such as cell phones and loud music

ALLCHOICE & Erie Insurance believe it is our responsibility as a North Carolina Insurance Agency & leading auto insurer (respectively) to actively encourage teens to become safe, responsible drivers. Helping to make teenagers better drivers will make the roads safer for everyone.

Funding
Lookin’ Out can provide student groups with up to $2,000 in grant funding to support Lookin’ Out activities.

Since 2000, Erie Insurance has provided more than $350,000 in Lookin’ Out Grant Funding!

Interested In Lookin’ Out?

If you are interested in the Lookin’ Out Program, please visit ALLCHOICE’s North Carolina Teen Driving Program Page, or contact ALLCHOICE.

REGIONAL INSURANCE CARRIER DONATES TO HAITI

While most stories you hear about Insurance Carriers place the companies in a bad light, Erie Insurance is proving that some Insurance Carriers are just “built” differently.  On February 11th, Erie announced that it had made a donation $234,782 to the American Red Cross in support of Haiti relief efforts.  The donation was actually a joint effort between Erie Insurance, Erie Insurance Employees, and Independent Erie Insurance Agents.

In the aftermath of the Haiti Disaster, Erie Insurance announced a plan to its employees and Independent Agency Force to help in the relief efforts.  Erie Insurance announced that they would match the collective contribution(s) of its employees and Independent Agency Force up to $100,000.  During the donation phase, Erie Insurance Employees and the Erie Insurance Independent Agency Force donated $92,391.  Erie Insurance not only matched those donations, but included an additional $50,000.

Erie Insurance – A Name You Should Get To Know

Erie Insurance is a regional insurance carrier that does business in 13 States on the east cost.  Founded in Erie, PA, Erie Insurance’s footprint extends as far south as North Carolina.  For insurance consumers in the southern portion of the Erie Insurance Footprint, the insurance carrier’s name is not very recognized in comparison to the “Big Three” Insurance Carriers.  However, Erie’s performance and reputation are every bit as impressive as its larger competitors.  Instead of spending vast amounts of money on large marketing campaigns, Erie chooses to focus on its core principles of providing superior insurance coverages, superior customer service, and superior claims handling.

In addition to fulfilling its role as an Insurance Carrier, Erie understands that it has a role to play within their community(ies).  As a part of their Corporate Citizenship, Erie felt strongly that they had a responsibility to come to the aid of the victims in Haiti.

About The Author:  Jack Wingate is the co-founder and President of ALLCHOICE Insurance, located in Greensboro, NC.  For more information about ALLCHOICE Insurance, Erie Insurance of Jack Wingate, please visit: http://www.allchoiceinsurance.com

As an insurance profressional, I continually remind myself that my customers (for the most part) do not fully understand the coverages that they have (or don’t have).  In all honesty, they shouldn’t have to.  If every person fully understood exactly what coverages are present, or not, in their various insurance policies, there would be no need for someone like me.  Insurance carriers would simply move their “distribution” system to an online environment (hello GEICO).  Customers would go to a website, type in what they needed coverage for (exactly), press a button, and presto!  The problem lies in the details.

Many people think they know what is covered under their various policies (like Home Insurance & Auto Insurance) simply because they can read their coverage limits off of their current declarations page.  While this does tell you what coverage limits you have, does this actually tell you under what circumstances these coverages would “kick in”.  If you really think about it, you have the insurance coverages / limits (auto and home) you have today because the first time you purchased insurance someone (friend, parent, insurance agent) told you that this limit or that was what you needed.  Under that assumption, you better hope that your source was very smart.

The value of understanding exactly what is covered and what is not on an insurance policy became clear to me when I was hit in the face with a fresh dose of reality on a snowy winter day in January.  I was just finishing a great book by Vince Flynn when my oldest daughter yelled from the basement that the floor was wet.  Having dealt with a few times where it had rained so much that water had gotten in our basement, I knew what weather conditions caused such an event.  While we had received quite a bit of precipitation, the form we received was in the form of white powder (better known as snow) and not the clear liquid which could usually lead to a basement of water.

Wearing a T-Shirt, jeans, socks, and a pair of flip flops (I thought you should get that odd visual in your head); I rushed down the steps to get a handle on the situation.  Our washing machine is downstairs, so I first thought that maybe a hose had come loose and soaked the basement.  Once my feet landed on the terracotta colored tile that covered the bottom stoop, I swung my gaze to the right.  As I looked into the half bathroom that was at the bottom of the steps, I realized that I would have been lucky if the water had come from the washing machine.

Much to my dismay, the “water” was coming from, and mostly contained in, the bathroom.  None of the kids had been in the basement for days, so I knew something was disgustingly wrong.  As I entered the tiny bathroom, I looked into the toilet and was overcome with….well just let me say I was overcome and leave it at that.  Evidently, my “waste” line had backed-up.  Being the lowest plumbing fixture in the house, all water and waste that had been used in the house was now backing up in this particular toilet.  Of course, a single toilet can not hold all of that run-off, so fluid had come out and on to the floor.  Needless to say, I am happy I have a strong stomach and a Shop-Vac.

Luckily for me, we caught the problem in time.  We were able to get the water off the floor and mediate the problem before any real damage was done.  However, once I was done cleaning up my first thought went to a little known fact about home insurance.  To that end, I thought it would be helpful to give a little lesson about Home Insurance.

Homeowner’s Insurance Covered Cause Of Loss

I would assume that if I were to make a wager with every person who reads this article (which is not an insurance professional (notice I said professional and not agent as I would win my bet with most agents)) that they could not tell me if the difference between a Named Peril Policy & a Special Form Policy, that I would make a few bucks.  The fact is, most people do not even know what a “Peril” is.  Let the class begin!

Dictionary.com gives the following definition:   Peril:  something that causes or may cause injury, loss, or destruction.

Now that we know what a “Peril” is, we need an understanding of the common property insurance forms: Named Peril & Special Form.

Named Peril

Just as the name suggests, the policy will cover only those perils that are specifically listed (named) in the policy.  Comparitively speaking, this policy type provides the least amount of actual coverage.

Special Form

In direct contrast to the Named Peril coverage form, the Special Form coverage form provides coverage for ALL Perils unless the policy specifically EXCLUDES coverage.

North Carolina Home Insurance Common Policy Form(s)

To the best of my knowledge, the majority of North Carolina Homeowner’s Policies are on one of two Homeowner’s Forms (HO-3 & HE-7).  Both of the aforementioned North Carolina Homeonwer’s Form are Special Form policies.  As a matter of performing your due diligence, I would suggest you determine which form your current home is covered under.  To be clear, when I refer to “Homeowner’s Insurance” I am referring to policies that cover your primary residence and not property that you may hold for rental.

Damage Caused By Water / Sewer Backup

The HO-3 & HE-7 policy forms both have the following Exclusion:

Water Back-Up Of Sewer Or Drains

Included in the HE-7 Form with the HE-21 Endorsement

1. The policy forms excludes coverage for loss resulting from water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump, or related equipment.
2. The policy may be endorsed to provide such coverage up to the policy limits of liability

Conclusion

Hopefully you have a better understanding of Perils, Named Peril Policy Forms, Special Form Policy Forms, & Water or Sewer Back-Up.  You might think that this particular endorsement or coverage does not apply to you.  Let me give you a nugget of wisdom:

If you own your home, there are, to my knowledge, on two ways that your “waste” can leave your house (and I am talking about waste in the plumbing since of the word).  Your home is either hooked into the city sewer system or you have a septic system.  In either case, your waste system can become clogged or broken and literally “back-up” into your home.

While I hear the argument daily about not needing this coverage because “I am on city sewer”, what you may not understand is that the city is not going to take responsibility for any damages (to the system or your property) unless the problem is found to be on their property.  That means that if there is a problem in one of the drain lines (underneath the ground) but still on your property, the “city” has determined that they are not “at-fault”, thus you get no help from them.

If your North Carolina Home Insurance policy is not endorsed to cover Water or Sewer Back-Up, you should highly consider it.  Most carriers charge an additional $25 (approximate) a year to add this coverage back.

About The Author:  Jack Wingate is the Co-Founder and President of ALLCHOICE Insurance in Greensboro, NC.  For more information about Homeowner’s Insurance, ALLCHOICE Insurance, or Jack Wingate, please visit http://www.allchoiceinsurance.com

Erie Insurance announced to their North Carolina Agency Force today that they are now able to accept Credit & Debit Card Payments for Premiums in North Carolina.  Long known for their superior customer service (their motto is “Above All In Service”), Erie was not an early adopter of this payment method in North Carolina due to various restrictions & details they felt needed to be worked out so that their customers would not be inconveinenced.

Erie hopes this new mode of payment will increase their customer’s ease of doing business.  Customers will simply link to the appropriate web page (ALLCHOICE Customers can link through the “Member Center” of http://www.allchoiceinsurance.com), enter their policy & payment information and complete their transaction.  Erie will e-mail a payment confirmation noting the date and time of the transaction.

Are you a North Carolina (NC) Landlord?  Do you own rental property in North Carolina?  If so, the State of North Carolina has introduced a new law that you need to pay attention to.

Starting January 1st, 2010, all North Carolina rental properties that have an attached garage or use fossil fuels for heat and/or appliances must have a working Carbon Monoxide Detector.

N.C. Gen Stat. § 42-42 to 42-44 – Landlord and Tenant Articles – Residential Rental Agreements

This statute requires NC Landlords to provide one operable carbon monoxide detector per rental unit / per level.  NC Landlords that install one such detector per rental unit level shall be deemed to be in compliance with the standards.  The statute goes on to say that the landlord shall replace or repair the carbon monoxide detectors within 15 days of receipt of notification if the landlord is notified of needed replacement or repairs in writing by the tenant.  The Landlord is responsible for ensuring that a carbon monoxide detector is operable and in good repair at the beginning of each tenancy.  Unless the Landlord and the tenant have a written agreement to the contrary, the Landlord shall place new batteries in a battery operated carbon monoxide at the beginning of a tenancy, and the tenant shall replace the batteries as needed during the tenancy.

In regards to Carbon Monoxide Detectors, many Insurance Carriers that write NC Rental Property Insurance have been requiring their customers (which fit the above statute standards) to have Detectors in place.  While their is a small cost for the detectors (typically $25 – $30), Landlords should be concerned with the threat of Carbon Monoxide and the danger(s) it presents to their tenants.  Having a house burn down is bad, being sued by a tenant for the death of a loved one due to Carbon Monoxide poisoning would be worse.  If you own NC Rental Property, make sure you abiding by best practices with regard to the up-keep of your property.  As a Landlord, you should also make sure your Liability arising out of your rental property business is protected.

About The Author:  Jack Wingate is the Co-Founder and President of ALLCHOICE Insurance in Greensboro, NC.  For more information about Jack Wingate, ALLCHOICE Insurance, or North Carolina Rental Property Insurance please visit http://www.allchoiceinsurance.com

ALLCHOICE will be closed Thursday December 31st & Firday January 1st.  Our offices will reopen on Monday January 4th, 2010!

ALLCHOICE is pleased to provide the following updated information for Health Savings Account (HSA).

HSA DEDUCTIBLE REQUIREMENT(S)

HSA ANNUAL OUT OF POCKET MAX

HSA CONTRIBUTION LIMIT

ALLCHOICE is please to provide you with the updated Retirement Plan Contributions for 2010.

IRA CONTRIBUTION LIMITS

ROTH IRA CONTRIBUTION LIMITS