INFORM+INSPIRE The Griffith Insurance Education Foundation Life Insurance, Annuities and Health Insurance David T. Russell, Ph.D. Director, CSUN Center for Risk and Insurance March 14-15, 2013

Agenda  Overview of Life/Annuity/Health Market  Overview of Life Insurance Products  Overview of Annuity Products  Overview of Health Ins Products  Regulation Of Health Insurance  Review of PPACA The Griffith Insurance Education Foundation

Life/Annuity/Health Insurance  US Life/Health/Annuity Market: $1.24t  CA Life/Health/Annuity Market: $166b  Life Insurance Market Has Zero Growth  Annuity Market Growing Nicely  Life Insurers Continue to Gather Assets  Being ID’d as “Systemically Important?”  Health Insurance Market in Flux The Griffith Insurance Education Foundation

The Players in CA (2011 Prems)  1. Anthem Blue Cross  2. John Hancock  3. Met Life Investors (Annuities)  4. Prudential  5. Met Life  6. Lincoln National The Griffith Insurance Education Foundation

Why Buy Life Insurance?  Cover Risk of Premature Death  Protect Survivors’ Lifestyle  Fund Plans After Death (Ex: College)  Guarantee Debts and Settlements  Protect Knowledge/Skills of Key People  Investment Features  Tax Benefits (Always Under Review) The Griffith Insurance Education Foundation

Life Insurance Products  Whole Life Insurance  Term Life Insurance (No Cash Value)  Universal Life Insurance  Variable Life Insurance  Variable Universal Life Insurance  Other The Griffith Insurance Education Foundation

Term vs. Cash Value  Term: “Renting” Insurance  Protects Only for Term of Policy  Must Be Renewed, If Needed  Cash Value: “Owning” Insurance  Provides Permanent Protection  Usually Accumulates Cash Value  Higher Premiums Earlier in Life The Griffith Insurance Education Foundation

8 Term Life Versus Whole Life: Premiums Age $ overpayment under payment Level Prem (Whole) mortality curve (~term) 120x The Griffith Insurance Education Foundation

Term Life Insurance  Carries Low Prems that Rise Over Time  Builds No Cash Value  Favored by Most “Experts”  Must Be Renewed at Increasing Rates  Employer-Provided Ins is Group Term The Griffith Insurance Education Foundation

Whole Life Insurance  High, Level Premiums for Life  Permanent Coverage-No Need to Renew  Builds Cash Value  Earns Interest/Dividends Tax Deferred  Allows Policy Loans or Policy Surrender*  Variable Life Allows Investment Choices *If cash value exceeds surrender charges. The Griffith Insurance Education Foundation

Universal Life  Combination of Whole and Term Ins  Permanent Protection  Premiums are Flexible  Can Build Cash Value if Prems Paid  Carries Higher Fees  Variable UL Allows Investment Choices The Griffith Insurance Education Foundation

Life Insurance Pricing  Driven by Interest Rates  Driven by Mortality Factors  Age  Gender  Smoking  Family History  Health (Medical Records, Medical Exam)  Other (Hobbies, Mkt Competition) The Griffith Insurance Education Foundation

Life Insurance Contract Terms  Incontestible Clause  Suicide Clause  Reinstatement  Grace Period  Convertible The Griffith Insurance Education Foundation

Current Life Insurance Issues  Policy Replacements  Twisting & Churning  Sales of Unsuitable Products  Characterizing Life Ins as “Savings”  Life Insurance “Settlements”  Tax Benefit Under Attack (Again) The Griffith Insurance Education Foundation

Annuities  Annuity = Stream of Regular Payments  Life Annuity: Stream Lasts for Life  Cannot Outlive a Life Annuity  Second-to-Die/Joint Annuity: Two Lives  Social Security is a Joint Annuity  Annuities Primarily Used for Retirement  Annuities Often Purchased with 401(k) $ The Griffith Insurance Education Foundation

Types of Annuities  Fixed Annuities  Provides Fixed Return (Guarantees)  Inflation Adjustment Available, at a Cost  Indexed and Variable Annuities  Returns Depend on Performance of Stocks  Life Annuities vs. Period Certain Option  Life Annuities End at Death; Period Certain Options Protect Family if Death The Griffith Insurance Education Foundation

Annuity Pricing  Sensitive to Two Main Factors  Interest Rates  Mortality (Age and Gender)  Expenses and Commissions  Closer to Death Means More per Month  Premiums Often Funded w/401(k)  Premiums Can Exceed $1 million The Griffith Insurance Education Foundation

Why Regulate Annuities?  Most Annuities are Deferred  Insurer Gets $ Up Front and Invests  Payout May Last for Decades  Buyers Uninformed, Life Savings at Risk  Large Upfront Commissions May Result in Unsuitable Sales  Annuity Assets Exceed $1 trillion The Griffith Insurance Education Foundation

Annuity Facts  Regulation: Fixed vs. Indexed vs. Variable  Fixed & Indexed Regulated by State  Variable Annuities Regulated by SEC  Indexed Annuities May Transition to SEC  Suitability—Some Sales Not Advisable  Sell an Annuity to a 76 yo Cancer Survivor?  Adverse Selection with Annuities The Griffith Insurance Education Foundation

CA Health Ins Regulation  Most CA Health Plans Are Overseen by Department of Managed Health Care  Legislative Oversight by Assembly Committee on Health  Some Plans Sold by Life Insurers Remain Under DOI Jurisdiction  Rates Must Be Filed for Public Comment, but Rate Changes Need Not Be Approved The Griffith Insurance Education Foundation

Health Insurance Plans  Preferred Provider Organization (PPO)  Contracts w/Certain Providers who Discount  Health Maintenance Org (HMO)  Total Control of Member Health  Point of Service Plan (POS)  Elements of HMO (Some Choice of Provider)  Fee For Service (Major Medical)  Allows Most Choice of Provider The Griffith Insurance Education Foundation

Group Health Insurance  Most People Receive Group Health Ins Through Employers’ Plans  Benefit of Scale/Expense Savings  No Adverse Selection-Everyone Covered  Low Risks Cannot Opt Out  Usually Employer Subsidized  For Now, Group Ins Not Taxable The Griffith Insurance Education Foundation

Other Sources of Health Insurance  Social Security (Medicare)  Part A (Hospital); Payroll Tax (1.45% + Match) No Additional Premium if 40 Quarters of Work  Part B (Medical) $104.90* Monthly Prem in 2013  Part D (Rx) Premium (average $40*month 2013)  Medicaid (Medi-Cal)  State-Run, Federally-Subsidized Ins for the Poor  Medicare Supplement (“Medigap”)  Private Plans that Fill in Gaps in Medicare The Griffith Insurance Education Foundation

PPACA Key Provisions  Patient Protection & Affordable Care Act  Expansion of Medicaid: Cover Individuals < age 65 with AGI up to 133% of Poverty Level (~$14,200 Individual, $29,300 Family of 4) Effective 1/14  Individual Mandate: Must Carry Health Ins 2014 or Pay Penalty $695 - $2,085, Based on Income (1/14)  Employer Mandate: Employers of 50+ Workers Pay $2,000 Penalty for No Health Ins (1/14)  Medical Loss Ratio: 80% of Premiums (85% for Large Group Plans) Must Be Spent on Claims and Quality Improvements; Rebate the Excess to Consumers The Griffith Insurance Education Foundation

PPACA Key Provisions  State Health Exchanges: Individuals and Businesses < 100 Employees Can Access Exchange Market (1/14)  Federal Support for Creation of the Exchanges  Premium Subsidies For People with Incomes Up to 400% of the poverty level ($44k Individual, $92k Family of 4) and No Employer Plan  Subsidy for Insurance Purchased through Exchange  This Will Reduce Adverse Selection Concerns  Premium Tax Credit for Small Businesses Who Buy Ins The Griffith Insurance Education Foundation

PPACA Key Provisions  Coverage Requirements  Children Covered to Age 19 Despite Preexisting C.  No Annual or Lifetime Limits on Coverage  Children Covered to Age 26 on Parents Plan  Must Include Well Care with No Copay/Deductibles  Premiums  Limits Plan Increases, Compress Rate Differences  Prohibit Rescission for “Honest Mistake” The Griffith Insurance Education Foundation

Health Exchange Plans Bronze Plan Silver Plan Gold Plan Platinum Plan Catastrophic Plan % of coverage of benefit costs of the plan 60%70%80%90% Only available in individual market for those up to age 30 or exempt from mandate Out of pocket limit Equal to the Health Savings Account (HSA) limit $6,250 individuals, $12,500 families in 2013 Pricing Factors Age: 3:1 Smoking Status 1.5:1 Area within a state Family composition The Griffith Insurance Education Foundation

Feel free to contact me: David T. Russell, Ph.D. California State University, Northridge (818) INFORM+INSPIRE The Griffith Insurance Education Foundation Any Questions?