Lack of kids' dental benefits, other coverage gaps help "tank" couple's Kaiser Permanente insurance plan - but so did contracts with California's health insurance exchange
Kaiser Permanente’s decision to cancel the insurance policies of lifelong Democrats Lee Hammack and JoEllen Brothers generated a flood of interest yesterday. The couple, supporters of President Obama, may have to spend twice as much next year for a health insurance plan that has fewer benefits than the plan they have.
Kaiser explained to them, and to me, that their plan didn’t meet the requirements of the Affordable Care Act and therefore had to be cancelled. But how could it be, many readers wondered, that the seemingly inferior plan offered for next year met the requirements of the act while the richer one they currently have does not?
I spent hours yesterday trying to figure that out and in the process came upon a related dispute between California’s insurance commissioner and the state’s new health insurance marketplace over these cancellations.
Here’s what I learned:
First, President Obama’s now-infamous pledge that those who liked their health plan could keep it applied only to people enrolled in those plans as of the day the Affordable Care Act was signed into law, March 23, 2010. That became known as the “grandfather” clause.
Hammack, a San Francisco architect, and Brothers have been members of Kaiser Permanente since 1995, but they’ve only been enrolled in this particular plan since January 2011. So they do not qualify for the grandfather protection. (Even if they did, Politifact has labelled the pledge “pants on fire.”)
Next, and more importantly, the benefits their plan offered didn’t fully comply with the Affordable Care Act.
It did not cover dependents in the manner set out by the law, and it did not cover pediatric dental and vision services, as well as “habilitative services,” which includes speech, occupational therapy and physical therapy.
“We did not cover these services in 2013,” Kaiser spokesman Chris Stenrud wrote in an email. “Pediatric dental and vision obviously do not apply to this couple, but it is one benefit package, regardless of age.”
These seemed like pretty minor points. Is this really enough to tank this plan? I asked Ken Wood, senior adviser for products, marketing and health plan relations for Covered California, the state’s health insurance marketplace.
“Any tiny point tanks the plan,” he told me last night. “If it was just the pediatric dental, that alone would say it’s a noncompliant plan.”
There was a bigger issue, too. The plan was medically underwritten, meaning that it carefully chose members based on their health status. The Affordable Care Act eliminates such screening and requires that insurers take all comers. “Because their current insurance pool is comprised of healthier people who use fewer medical services, the premium level needed to pay for those services is also less,” Stenrud wrote.
Put another way, Hammack and Brothers are casualties of an insurance system in transition. Until now, insurance companies could pick and choose which consumers to accept and reject. People were forced to pay different amounts based on their age and health status.
The new system created by the Affordable Care Act does not allow plans to turn away people with pre-existing conditions or charge them more. As a result, sick people previously denied coverage and healthy people who currently have insurance will pay the same.
That makes health care more affordable for many, but less affordable for some.
But there was something else at play. Stenrud noted that Kaiser’s contract with Covered California requires that insurers doing business on the exchange cancel existing contracts at the end of this year -- rather than renew them -- if they don’t meet the requirements of the act.
“We shared Covered California’s view that most consumers would benefit from lower premiums and greater stability in the exchange if we all agreed to forgo early renewals in the individual market,” Stenrud wrote.
For more explanation of what’s going on, I called the California Department of Insurance. The agency earlier this week forced Blue Shield of California to extend the cancelled health policies of 115,000 members for three months because the insurer did not give them proper notice.
Janice Rocco, the department’s deputy commissioner for health policy and reform, said she anticipates that by year’s end, between 900,000 and 1 million Californians will see their individual health insurance policies canceled.
But it didn’t have to be this way, she said.
It’s not the act, but the arrangement between insurers and Covered California that mandated the cancellations right now.
While the Affordable Care Act aims to improve the quality of insurance plans offered, she said, it does not require that insurers cancel all of their contracts at the end of this year. In other states, she noted, consumers are able to keep their policies until they expire in 2014, giving more time to make thoughtful choices.
Insurers, including Kaiser and Blue Shield, wanted the California Legislature to require that all existing individual contracts expire at the end of this year, Rocco said. That could give them a marketing edge because of their size and the short window to make choices, she said. But her department opposed it, and lawmakers didn’t go along.
The insurers were more successful with Covered California, which adopted the requirement, Rocco said.
“People who did the right thing, played by the rules, were responsible and had health insurance coverage are being forced out of their policies on December 31 by most of the health insurers in this state. This is not required by state or federal law,” Rocco said.
“People without insurance today will have until March 31 to choose which product is best for them,” she said, noting the end of the 2014 open enrolment period.
Covered California defended its requirement.
“It has always been one of our stated goals to try to start on a level playing field in 2014 and start out the new year with a single risk pool,” meaning a melding of young and old, sick and healthy, said Anne Gonzales, a spokeswoman for the exchange.
Gonzales acknowledged that there will be winners and losers in this transition. “There are going to be people out there that are going to find that their premiums are about the same, some are going to have them go up, some are going to have them go down,” Gonzales said.
Of the 900,000 or so people whose policies are being cancelled in California, she said, about 310,000 will qualify for financial assistance, in the form of premium subsidies, which will lower the cost of coverage. The rest will not.
“The flip side is 32 million people [in California] will be keeping their plans, and 4 million people will get plans that they couldn’t afford to buy before this reform,” she said.
Wood said the situation facing Hammack and Brothers is “unique in my experience” and that the rate they have been paying is more akin to rates for people in their 20s. Hammack is 60; Brothers, 59.
Together, they pay $550 a month now and could pay up to $1,300 a month after Jan. 1. “At their respective ages, a more typical rate would be $550 each,” Wood said.
Hammack told me that he doesn’t know what he’s going to do. He makes slightly more than 400 percent of the federal poverty level — $62,000 for a couple — which means he isn’t eligible for premium subsidies. But he’s considering reducing his income below that level, which would reduce his premiums substantially.
Wood says that’s smart. If Hammack is able to get his income at or below $62,000, he stands to save $10,740, Wood told me in an email.
“Just as people think about the tax consequences of home ownership and retirement savings, I think health care will now become another area where the middle class will need to think about the tax implications of purchasing individual health insurance,” he said.
Has your insurance been cancelled? Have you tried signing up for coverage through the new exchanges? Help us cover the Affordable Care Act by sharing your insurance story.
Due to tightening of the foreign exchange situation in India, Iran decided not to accept more than 45% of the money in Indian rupees. The shipment has come down to 194,000 barrels per day of Iranian crude oil as against 324,000 barrels per day last year
Imports of Iranian crude, during 2011-12 amounted to 18.1 million tonnes (mt), which, during 2012-13 came down to 13.1 mt due to sanctions imposed on Teheran by the US and the European Union.
In order to meet our needs and to overcome the sanctions, Iran had agreed to receive its payments for oil in rupees which was credited to its account in UCO (United Commercial Bank) at Kolkata, upto 45% of its value and the balance paid in foreign currency through Halbank in Ankara, Turkey, in Euros. It may be recalled that petroleum minister Veerappa Moily had proposed that by importing Iranian crude and paying for it wholly in rupee account would have saved $8.5 billion for India.
Even this arrangement was plagued by the problem involving insurance coverage, and the proposal to set up an oil insurance pool fund, valued at Rs2,000 crore, has been collecting dust due to bureaucratic bungling. The Petroleum Ministry was to make a Rs1,000 crore contribution to the fund and the balance from General Insurance Corporation (GIC).
So far, even the first instalment, promised for Rs500 crore from Petroleum Ministry has not been received and the Finance Ministry is waiting for the same.
After the last Euros payment was recovered in February this year, Iran agreed to take the entire payment for crude in rupees to be credited it to the IRNOC (Iranian National Oil Company) account in UCO Bank. But, due to tightening of the foreign exchange situation, Iran decided not to accept more than 45% in rupees.
As the stalemate continues, the shipment has come down to 194,000 barrels per day as against 324,000 last year, before the sanctions were strictly enforced.
MRPL (Mangalore Refinery & Petroleum Ltd) has been the largest recipient of crude from Iran, where phase III of expansion plan is nearing completion. From the current processing capacity of 12 metric tonnes per annum (mtpa), MRPL will be able to handle 15 mtpa but this uncertainty looming large, arrangements have been made to obtain crude from Iraq, Venezuela and Oman. So far, 2 mtpa have been received from Iran and it is hoped that for the year 2013-14, India may still be able to obtain 13 mtpa from Iran.
The MRPL expansion in the next few months will be able to process cheaper heavier crude oil into high value end products. If we digress for a moment, this means, for those investing now in MRPL, at the current market price of Rs40 per share there are prospects for better returns in the months ahead.
Although Iran has declined to accept 100% payment in rupees for crude oil supplies to India and insisting on payment of 55% in free foreign exchange, to overcome US sanctions, is in India's interest to send a high-powered trade delegation to Iran to sort out this difficult and important issue.
There is no doubt that US sanctions, supported by European Union, are affecting Iran. India is under obligation to comply with UN sanctions only. If we tow the US line, it is due to political expediency rather than compulsion.
Why not, we turn around and demand from US that they compensate us for the loss of Iranian crude? This first round waiver, which also affects Japan and China, which depend heavily upon Iranian supplies, expires by the end of December, by which time, all the three are supposed to gradually reduce their dependence upon Iran. It is therefore, in our interest to watch what China and Japan propose to do when this deadline expires in December. Why not try to work out a joint strategy with them to tackle this issue?
As we start to resolve this issue, with a few weeks to go, what needs to be done immediately is to ensure insurance cover for the cargo that needs to come. Without the cover, Indian refineries cannot take the risk of getting Iranian crude, lest the tankers are subject unilateral military action, or are being even hijacked on the high seas? Both of these actions are unlikely, but we need to find a workable solution to get the Iranian crude. With the thawing of US-Iran relations, as a sequel to Iranian president's overtures to USA, it is possible that an amicable solution may be worked out.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
Market regulator Securities and Exchange Board of India (SEBI) has issued a show cause notice to HSBC for allegedly using fraudulent and unfair trade practices with its client, singer and actor Suchitra Krishnamoorthi. This case was first exposed by Moneylife way back in April in 2012
In a strongly-worded notice issued by the market regulator, the Securities and Exchange Board of India (SEBI) on 1st November has asked Hong Kong and Shanghai Banking Corporation (HSBC) to explain why its acts in handling the portfolio of Suchitra Krishnamoorthi are not in violation of its regulations governing fraudulent and unfair trade practices and violation of the code of conduct governing mutual fund distributors. After an extensive investigation of her complaint, SEBI found out that:
SEBI argues that this is in violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and SEBI circular MFD/CIR/06/210/2002 dated 26 June 2002 prescribed under Regulation 77 of the SEBI(Mutual Funds) Regulations, 1996 read with Clauses 1,9 and 13 of the Code of Conduct of Intermediaries of Mutual Funds.
Warning HSBC of a strong action, including but not limited to barring the lender from markets, SEBI called upon the Bank “to show cause as to why suitable directions under sections 11, 11(4) and 11B of the SEBI Act, 1992 read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 should not be passed against you for the violations specified above, which may include but not limited to disgorgement of the commission earned by you from the complainant while executing transactions in her name, directing all the fund houses not to allow you to act as a mutual fund distributor for their funds, debarring you from accessing the securities market and prohibiting you from buying, selling or otherwise dealing in securities for an appropriate period of time and/or any suitable direction deem fit by the Board in the facts and circumstances of this case under the aforesaid provisions.”
As Moneylife reported in April 2012, Ms Krishnamoorthi, a well-known singer and actor, was taken for a ride by HSBC Bank for over five years by promising an extravagant assured return of 24% from mutual funds as well as insurance.
Whenever she complained about losses in her account, the standard reply from HSBC Bank was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Needless to say, the losses were never made good. The one-way road for the customer was downhill. If a well-known celebrity could be cheated with such impunity, it is surely happening routinely with others.
The modus operandi for HSBC in this case had been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting on her taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.
The officers of HSBC Bank also informed her that “portfolio management is one of the prime businesses of HSBC Bank other than banking” and assured her “a minimum of 24% pa return” on her investments. However, following her complaint to the officials of the bank, she said that “HSBC Bank now claims that they have not acted as portfolio managers but merely advised me on the management of my wealth.”
Ms Krishnmoorthi refutes this saying, “This is a false claim as they have clearly performed the duties of portfolio managers as stated by law and as per the power of attorney obtained from me in 2004.”
Moneylife reviewed Ms Krishnamoorthi’s mutual fund transactions and found massive malpractices by HSBC
• Her mutual fund portfolio was continuously churned resulting in high transaction costs in the form of entry loads and exit loads. While several transactions led to huge losses for her, HSBC was the gainer of commissions.
• Out of the 75 transactions made, nearly 60% of the transactions were in equity schemes kept for a period less than one year. Here investments were made in schemes like HSBC India Opportunity Fund and HSBC Mid-cap Equity Fund, both of which have been underperformers. Apart from these, majority of the investments were made in balanced schemes of HDFC Mutual Fund, ICICI Mutual Fund and Sundaram Mutual Fund.
• The worst part of the transactions came around the market peak in November 2007 where nearly Rs3 crore was invested across five schemes on a single day which included over Rs1.67 crore invested in three sector schemes—ICICI Prudential Infrastructure Fund, Sundaram CAPEX Opportunities and Reliance Diversified Power Sector. Nearly Rs50 lakh was invested in Sundaram CAPEX Opportunities which has a current corpus Rs200 crore.
• The investments from all sector schemes were withdrawn between June and August 2010 at a loss of nearly Rs40 lakh, almost half her initial investment. The schemes from ICICI Mutual Fund and Sundaram Mutual Fund went down by nearly 50%. The other schemes were also withdrawn at a value 15%-30% lower resulting in a total loss of Rs86 lakh. These schemes included JP Morgan India Equity Fund (a poorly-performing scheme) and IDFC Premier Equity Fund.
• Surprisingly, in the whole portfolio there was not a single debt scheme and just one liquid scheme— HSBC Cash Fund. Ironically, commissions paid on debt schemes and liquid schemes are much lower.
• Ms Krishnamoorthi says an entry load amounting to over Rs29 lakh was deducted from her investments. If the bank had opted to only invest her amount of Rs3.60 crore in performing equity schemes for the long term, without any further buying or selling, the entry load of 2% at that time would have worked out to just Rs7.20 lakh.
The end result after five years was Rs83 lakh—direct loss from investment, about Rs28 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank.
When Ms Krishnamoorthi wished to surrender her insurance policies, HSBC refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.
“It took my chartered accountant six months to authenticate the figures of losses—as not only was the HSBC team adept at covering its paper trail. They also very conveniently refused/ evaded furnishing me the documents to which I am legally entitled for over a year—giving me one silly excuse after another like mismatch of signature/officers being on leave,” she told Moneylife.
Unfortunately, in several such cases, banks tend to get away scot-free because the consumer is conned into signing a number of documents based on misplaced trust in their bankers. For instance when Ms Krishnamoorthi took her issue up with the Banking Ombudsman, the bank replied stating that she had signed on all the letter of instructions (LoIs) to carry out the transactions in her account. The manner in which bank officials discharge their fiduciary duties was not even taken into account.
On 18 April 2013 Moneylife Foundation had presented a memorandum to RBI Governor on unchecked mis-selling by bank relationship managers. It says, “Banks’ relationship managers have been particularly brazen in recommending financial products to their customers while completely disregarding their financial situation. It is commonplace to hear of a senior citizen being conned into investing in a mutual fund, unit-linked insurance plan or a hybrid-derivative product on the promise of higher returns. In many cases, private bank executives go over to their homes and persuade them to break secure fixed deposits and invest the money in Unit Linked Insurance Products (ULIPs) with the false assurance that these are as safe as fixed deposits and offer a higher return and security.”
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