THIS MONTH

From a Guest President

3Academy Work Group

Examines Clinton StandardBenefits Package

4Interview with Utah InsuranceCommissioner Robert Wilcox

Onsion Council Prepares four

49. irement Income Debate

7Capitol Views

8Public Service Actuaries

ENCLOSURESincluded with this month's

issue ofThe Actuarial Updateare the following:

In Search Of

ASB Boxscore

Academy Rolodex Cards

New Academy Address Labels

Farley Service Award Card

Committee Service Request

Enrolled Actuaries MeetingCassette Order Forms

Enrolled Actuaries MeetingTranscript Order Forms

• w MvmalDETAILS INSIDEON PAGE B.

AMERICANACADEMY OFACTUARIES

VOLUME 23NUMBER 5

MAY 1994

Academy Group: Clinton HealthPremium Estimates May Be Too LowBy Jeffrey Speicher

H ealth insurance premiumsunder the proposed HealthSecurity Act could be asmuch as 20°/o more expen-sive than estimated by the

Clinton administration, accord-ing to the Academy Cost Esti-mates Work Group .

Such an underestimation ofpremium costs would add $125billion to the federal budget over5 years because the governmentwould have to pay higher subsi-dies to small businesses and low-income Americans .

The cost estimates groupannounced its findings at anApril 21 press conference at theNational Press Club in Washing-ton, D.C .

The work group's membersare health actuaries Phyllis Doranof Milliman & Robertson, AliceRosenblatt of Coopers &Lybrand, and Dale Yamamoto ofHewitt Associates. The group isone of seventeen organized bythe Academy to study actuarialaspects of the administration'shealth care reform package.

To arrive at its higher esti-mates, the group varied severalkey assumptions that underlie theClinton administration's estimateof premium costs, including theactual cost of health care intoday's market and the cost ofcovering the currently uninsured,

Date Yamamoto (left) and Jim MurphyatApril 21 press conference.

While praising the work of theactuarial staff of the Health CareFinancing Administration (HCFA)in preparing the administration'sestimates, the Academy groupnoted that those estimates depend-ed on possibly inadequate data. Ina statement at the press confer-

ence, HCFA chief actuary andAcademy board member Guy Kingpraised the thoroughness of thework group's effort, but cast doubton its most pessimistic scenario.

In comments to reporters,Doran emphasized the danger thatthe administration's premium capscould reduce payments to healthinsurers "to a level lower thanrequired to cover their costs," thusforcing them to leave the market .The result could be health careshortages and rationing .

In announcing the release ofthe report , Academy ExecutiveVice President Jim Murphy notedthat since most other currenthealth care reform proposals arebased on the HCFA models anddata the work group used, "theAcademy's work has broad appli-cability to other bills that aregaining prominence ."

After the press conferenceRosenblatt and Yamamoto head-ed to Capitol Hill, where theybriefed Congressional BudgetOffice analysts and key SenateFinance Committee staffers ontheir findings .

Media coverage for the CostEstimates Work Group was han-dled by the actuarial profession'sForecast 2000 campaign . Thegroup's findings were featured onCNN-TV, the Reuters , AssociatedPress, and UPI news services, andin articles in the Washington Post,the Los Angeles Times, the SanFrancisco Chronicle, the Washing-ton Times, the White House Bul-letin, and Business Insurance.

The work group's report,number seven in the Academy'smonograph series, is now avail-able from the Academy's Wash-ington office. ∎

I ile U Sr°vuit!l [ nlftl ;aFflg3-E Ksn p ' Flin accordanu with the Acadern bylaws grid the ri?cotnn?eh lint ;the Actuarial Wa?fd fu r l'c~q*jng lij is d 0 [),e, €+as i~cp ill3cl . islPortermain from me tt, rehip in tha Ai rr>y. Te 4h-day perkMr. Portermain to appeal the Discipfinc Committu 'a decision to the

Academy Board of Directors has expired without anycommunication from Mr. Portermain .

AMERICANACADEMY OFACTUARIES

PresidentDavid G . HartmanPresident-ElectCharles A. BryanVice Presidents

Howard J . BolnickHoward Fluhr

Paul F . KolkmanStephen P. Lowe

Jack M . Turnquist

Secretary- TreasurerJames R . Swenson

Executive VicePresident

James J . Murphy

EXECUTIVE OFFICEThe American Academy

at Actuaries1100 Seventeenth Street, NW

7th FloorWashington, DC 20036

(202) 223-8196Fax : (202) 872-1948

MEMBERSHIPADMINISTRATION

Woodtield Corporate Center475 Ni. Martingale Road

Schaumburg, IL 60173-2226(708) 706-3513

THE ACTUARIALUPDATE

Committee on PublicationsChairman

E . Toni MulderEditor

Adam ReeseExecutive Editor

Erich Parker

Associate EditorsWilliam Carroll

Ronald GebhardtsbauerPatrick J . GrannanManaging EditorJeffrey Speicher

Contributing EditorKen Krehbiel

Production ManagerRenee Cox

Statements of tact and opinion in thispublication. including editorials andletters to the editor, are made on the

responsibility of the authors alone anddo not necessarily imply or representthe position of the American Academy

of Actuaries, the editors, or themembers et the Academy .

FROM A GUEST

president

By Sieve Radclifle

Building Fences andFoundations

I have observed two megatrendsthat will dramatically influ-ence the future of the actuarialprofession . One trend is driv-en by compliance and the

other by science . The interplaybetween the two will be crucial toall actuaries .

The first trend involves licens-ing actuarial practice. The profes-sion has taken several steps toenhance the credibility of actuar-ies with our various publics. Wenow ensure consistent, qualityactuarial work products by pro-mulgating enforceable standardsof practice . A fairly sophisticatedset of qualification standards isalso emerging . A strict set of dis-ciplinary procedures that can beenforced firmly and consistentlyis on the way. The profession hasbeen building this infrastructurefor the past 15 years . However,this new structure is still in thedevelopment stage and has notbeen fully tested.

The second trend has as itsgoal strengthening the founda-tion of our profession by advanc-ing actuarial science . The thrustof this trend is to enhance theprofession by "building bettermousetraps ." It requires theretooling of existing paradigmsand the creation of new ones .The pathfinders of our professionmust grind out new research to auseful and productive conclu-sion. This need is driven by achanging world economy towhich we simply must respond .We need a new science to ensurethat the financial security systemsof the future will be as successfulof those of the past .

Both megatrends will influ-ence the future of the profession,and a careful balance between the

two will be necessary . However,they are not necessarily comple-mentary. Licensing the profes-sion documents the currentparadigms and builds fencesaround allowable actuarial prac-tice . These fences potentiallycould hinder the pathfinders .We may be fencing ourselves injust when we should be lookingfor greener pastures . Licensingmay protect current jobs, butbuilding new foundations willcreate the jobs of the future .

The profession is at a cross-roads. We are at once successfuland vulnerable . Our past suc-cesses have given us tremendousprosperity. The future is not asclear. Jobs will be the number-one issue for actuaries in the nextfew years. Traditional actuarialwork will be devalued as theindustries that employ actuariesconsolidate . This will put greateremphasis on the creation of newwork for actuaries-work that isnot yet described by anyparadigm and that may be com-pletely out of the traditionalmolds. This environment willrequire more foundation settingthan fence building .

Don't get me wrong . It isimportant to require that compe-tent actuaries do quality work .The profession's integrity is atstake. However, most actuariesare already doing good work. Onthe other hand, they are notdoing as well at keeping tools up-to-date with the changing world .

As president of the Society ofActuaries, I have been trying totilt the emphasis toward the sci-ence of our profession . I firmlybelieve that development of use-ful ideas and productive newtools will provide a sound claimon the future . We cannot relysolely on requiring actuarial cer-

tification as a basis for our future .In the future it may be that actu-aries who are well trained in thescience of evaluating the financialconsequence of risk will be morevaluable than a licensed actuarskilled in some specific practic

One final thought. We nresist the temptation to developlicensing requirements that arenot firmly grounded in scientificprinciple. We need to define thetools before we write the rules forusing them.

One example of this problemoccurred a couple of years agowhen the Academy consideredadopting qualification standardsfor actuarial work on Statementof Financial Accounting StandardNo. 106. The science for this dis-cipline had not even been devel-oped. It was therefore prematureto promulgate qualification stan-dards, and the standard was notadopted. Another recent exam-ple is the illustration of cash val-ues on life insurance policies .Because of the urgency of theproblem, there has been anintense demand for standards inpreparing these illustrations .However, the profession hasn'•agreed on definitions of the terused in the illustrations prosThe very first step in building ascience is writing clear and pre-cise definitions. The SOA canhelp write some of these defini-tions and principles to provide afoundation for these standardsfor illustrations . At any rate, wemust have good principles toback up the standards .

Licensing actuarial work isimportant to the profession . Forsome sectors of our profession,especially those dealing withcompliance, standards are cru-cial. However, we need to spendmore time on the science of ourprofession .

Yes, fences do help keep thesheep in and the wolves out . Butat the very least, we should builda good gate in the fence so theshepherds can search for greenerpastures and build the new foun-dations of the future .

Radc president of the SocieofActuaries. A

2 The Actuarial Update ∎ May 1994

Academy Work Group Examineselinton Standard Benefits Package

ulia Philips addressed a pressbreakfast in Washington,D.C., on April 5 to announce

the release of the Academymonograph "Actuarial IssuesInvolved in Evaluating a Guaran-teed Standard Benefit PackageUnder Health Care Reform." Shethen met with legislative staff onCapitol Hill to discuss in moredetail the importance of includ-ing a carefully designed standardbenefit plan in any health carereform .

Philips is chair of the workgroup of ten Academy memberswho collaborated on the Acade-my's fifth monograph on healthcare reform issues. The group'sreport suggests as an initial alter-native to sweeping health carereform, a leaner, lower-premiumpackage with basic safety-net cov-erage if the public is unwilling toay the cost of a benefit package

~`"s rich as the Clinton administra-rI s proposal. In the future it

Ould be easier to enrich leanbenefits after cost-saving goalshave been achieved than toreduce rich benefits if the cost-saving goals are not beingachieved. The report states thatthe alternative of financing bene-fit enhancements with actuarialcost savings as they develop ismuch less risky .

The monograph also addressesthe inclusion of HMO plans in astandard benefit package, as wellas the issue of prescription drugbenefit copayments. Accordingto the monograph, a plan withhigher cost sharing than the Clin-ton administration's combina-tion plan for both in- and out-of-network should be included to beconsistent with the most popularpreferred provider plans today .

Philips's appearance was thesource of several reports in thepress, including an article in the

gWpril 6 Washington Post underhe headline "Actuary Study

es a `Leaner' Start on Healthe Reform ." Fifteen reporters,

mcludin a camera crew fromg

the press breakfast . AssociatedPress, Dow Jones News, the Indi-anapolis News, Atlanta Constitu-tion, the Bureau of NationalAffairs, and Business Insurancereported on the standard benefitsmonograph .

The Academy's governmentinformation and public relationsdepartments worked together onthe event. The Academy's mono-graphs, which are availablethrough the Washington office,are products of the Academy'sseventeen work groups studyingspecific issues related to healthcare reform or the Health Securi-ty Act. ∎

The Actuarial Update welcomes letters from itsreaders . Letters for publication should be submitted to"Letters to the Editor ," and must include the writer'sname , address , and telephone number. Letters may

be edited for style and space requirements .AND REMEMBER-THE UPDATE CORRESPONDENTWHO WRITES THE BEST LETTER TO THE EDITOR

BETWEEN MAY AND OCTOBER WILLWIN A MONT BLANC PEN .

ACTUARIAL SALARY SURVEYIn mid-May the Academy will be sending a questionnaire to a sample group of actuaries in the UnitedStates . The questionnaire is part of an actuarial salary study that will provide information to prospectiveemployers of actuaries. The study is particularly geared to states and municipalities that need actuarieson staff but have no experience in hiring them . This study is the brainchild of the Academy Committee onActuarial Public Service .

If you receive the one-page questionnaire, please lake the approximately 2 minutes necessary tocomplete it. Also, please encourage your coworkers to do the same, particularly actuaries who are notAcademy members or who have not yet attained Associate status . The information obtained will bevaluable in enhancing employment opportunities for the entire profession .

All questionnaires will be completely confidential . The questionnaires will not be identity-coded, andthere will be no follow-up interviews . To obtain the results of the study, please complete the separatepostcard that will accompany the questionnaire .

ALICE, IT HA5 COME TOMY ATTENTION THAT YOUARE 5PENDING TIMEWITH YOUR FAMiL'( ATNIGHT .

Medical News Network, attended I DILBERT reprinted by permission of UFS, Inc .

The Actuarial Update • May 1994 3

Standards Should AccommodateHealth Reform, Says Utah's Wilcox

It should notmake a differencewhether an insurer

is organized asan HMO , a preferred

provider organization,or a traditional

indemnity carrier.They all need to

operate on a levelplaying field .

Late last year, Utah InsuranceCommissioner Robert Wilcox wasappointed head of a NationalAssociation of Insurance Commis-sioners (NAIC) working groupcharged with writing a model lawon risk-based capital for healthinsurers. Wilcox, himself anAcademy member, requestedAcademy assistance in developingthe model law's central component:the risk-based capital formula . AnAcademy group under AcademyState Health Committee Chairper-son Bill Bluhm is currently engagedin an intensive effort to craft thisformula .

Commissioner Wilcox recentlyattended a meeting of the formula-writing group in Washington,D.C., where he had this conversa-tion with The Actuarial Update .

UPDATE: Why did you contactthe Academy State Health Com-mittee to assist in this project?

WILCOX: This formula is not aneasy thing to develop, and theNAIC could not do it withoutoutside assistance. We just donot have the expertise to do this

I job adequately . I knew theAcademy had participated indeveloping risk-based capital for-mulas mulas for life and property/casu-alty insurers, so I jumped on thechance to seek its help for thisproject as well . And once againthe Academy responded by step-ping in and taking on the com-mitment to work with the NAIC.

I'm confident that Bill Bluhmand his State Health Committeebring to this project exactly thesort of experience we need. Iguess we'll see the proof in thepudding when the assignment is

` completed, but I feel good aboutthe progress that's been made .The Academy members involvedin the formula-writing processhave already proven their dedica-tion .

I've asked them to develop aformula that is probably morecomplicated than we will end up

adopting because I want them toaddress all possible technicalissues involved. The NAIC work-ing group will then undertake tosimplify the formula before it'sactually put into effect .

UPDATE: What has the NAICcharged your risk-based capitalworking group to do?

WILCOX: The simplest part ofthe charge is to develop risk-

Utah Insurance CommissionerRobert Wilcox

based capital standards for healthentities that had not been includ-ed in the risk-based capital modellaw for life and health companies.Most notably, HMOs, nonprofit

j health service corporations, andBlue Cross .

But it has taken on a broaderdimension. One of the thingsthat you quickly discover whenyou start working with these enti-ties is that there is no consistencyin the way we regulate these orga-nizations. If we expect there tobe a viable market under healthcare reform, we have to developconsistent regulations . I feelquite strongly that we have toeradicate the regulatory differ-ences based on corporate organi-zation structure .

It should not make a differ-ence whether an insurer is orga-nized as an HMO, a preferred

4 The Actuarial Update ∎ May 1994

provider organization , or a tradi-tional indemnity carrier. Theyall need to operate on a levelplaying field . There must beconsistent financial accountinrules, and certainly risk-basecapital standards are crucialthat consistency . In the fianalysis we're going to come upwith a risk-based capital standarddthat goes across the board andwill include everyone who has arole in health insurance, evenentities that haven't been invent-ed yet.

UPDATE: You expect then thatnew health insurance hybrids willemerge in the future?

WILCOX: Yes. For instance, onthe airplane today, I happened tosit next to a doctor from Mon-tana who's working to develop anew health plan where the risk-taking entity will be a combina-tion of hospitals and doctors .That's different from what we'veseen before . As new kinds ofhealth care organizations evolve,we have to have the financialstructure to deal with thembecause the consumer is going tovexpect the same level of prottion from that kind of organiction as he would expect from atop-ranked insurance company .So it's our responsibility to setforth standards that will giveconsumers that kind of assur-ance.

UPDATE: So the model law willbe flexible enough meet thedemands of the changed marketthat will emerge after health carereform legislation is adopted?

WILCOX: I think that we wouldreally be avoiding our responsi-bility if we didn't try to encom-pass the new things that are goingto come out. We can't be animpediment to health carereform. It would be very easy tosay that insurers have to fit intothese little boxes, but in the pro-cess we would be really puttingsome restraints on health carereform that don't need to bedthere. -

UPDATE: How would the f~mula apply to different kindsentities?

WILCOX: What we're strivingfor is a single formula that wouldapply to any type of insurer, butthe formula will actually take in

Scount the kind of contract thatey write . So that if you're writ-

n HMO contract , then thatd invoke certain provisions

of the formula that are appropri-ate to an HMO . For example,you have to deal with assets in anHMO quite differently than youdo an indemnity carrier becausethe assets provide services notcash .

And if an indemnity carrierwants to run an HMO, it shouldnot be forced to set up a separatesubsidiary in order to do that . Itshould be able to do that withinits basic corporate structure, andwith the risk-based capital for-mula accommodating that modi-fication and ensuring that properfinancial standards would apply .

UPDATE: Do you see any insur-ers dropping out of the marketbecause of the new risk-basedcapital standards?

LCOX: I would certainly hope

Wt. If insurers drop out because

WS s e risk-based capital stan-, they probably shouldn't be

in the market in the first place. Idon't see risk-based capital stan-dards as an impediment in themarket .

We've had a risk-based capitallaw in Utah for maybe 10 years.It's about the same order of mag-nitude as the NAIC life standard .Ours is a simpler formula, but ithas worked well . We recentlysuspended the certificate ofauthority of a property/casualtycompany writing in Utah basedon the risk-based capital stan-dard. If we had been using theold flat-dollar-amount standard,we would not have been able toact as quickly as we needed to .

UPDATE : What effect willhealth care reform have on themarket? Do you think more cap-ital will be needed?

AKILCOX: It depends on what isacted of course. I am con-

ce ed about the capital demandse self-insured market . The

i red market is adequately cap-italized and will require little, if

any, additional capital . However,if Congress passes something likethe Clinton plan that would elim-inate self-insurance for mostemployers, we might have aproblem .

Currently, employers who self-insure are dramatically undercap-italized . If the individuals cov-ered by those plans enter theinsured market, we will have toattract some capital to providesecurity for their health care con-tracts . The extent to which wehave allowed the self-insuredmarket to become undercapital-ized is something often over-looked in the health care debate .

UPDATE: As a state regulator,how do you see the process ofreform?

WILCOX: Health care reform isnot a one-stop journey. It willtake us 2 or 3 decades to developthe kind of health care deliverysystem that our society is going tofeel comfortable with . If youlook at other countries, at Cana-da, for instance, you see it is notliving with the system that it'sgoing to end up with . The Cana-dian system is going to evolveand change. In this country we'llhave to get used to the fact thatit's going to take some time todevelop a system that we'll all becomfortable with .

The financial standards thatwe're formulating now can pro-vide the foundation to make thesystem work, if we keep standardsflexible and even-handed . If welock ourselves into a straightjack-et with our financial standards,then health care might evolve indirections that we will not like .What we do as regulators shouldnot be the driving force behindwhat kind of health care reformwe have. Those decisions need totake place in a different arena. Sowhat I'm striving for is a financialstructure that can accommodatewhatever health care reforms areadopted .

UPDATE: When do you expectthat the health risk-based capitallaw will go into effect?

WILCOX: We plan to presentthe work product from theAcademy at the June NAIC

meeting in Baltimore . Then we'llproceed to make the necessarymodifications and adjustments,expose the formula for publiccomments, and respond to thosecomments. I'm hopeful thatbefore the end of the year, we'llbe able to present the formula tothe NAIC executive committeeand see it adopted at the Decem-ber meeting. That would be areal accomplishment, but I thinkwe can get there. We would nothave been able to get there with-out the people from the Academyputting in a strong effort to meetthat commitment .

UPDATE: How many actuariesdo you have on your staff in theUtah Insurance Department?

WILCOX: Just myself. Duringthis session of the legislature, Ireceived authorization to hire ahealth actuary, and so we're goingto bring someone on boardbetween now and July 1. Untilnow we've been using consultantsand have made that work rathereffectively, I think.

UPDATE: The Academy Com-mittees on Actuarial Public Ser-vice is trying to find ways toenhance the role of actuaries ingovernment service. Do you haveany suggestions?

WILCOX: Strengthening the roleof actuaries in the regulation ofinsurance is something I've felt jvery strongly about for a long jtime. One of the reasons I wasinterested in taking this job wasto try to do what little I could tobring greater actuarial expertiseto bear on regulatory issues .

And frankly, in the business of 11insurance regulation we need tostrengthen the role of actuariesgenerally, government actuariesas well as company and consult-ing actuaries. We must give themmore authority and responsibilitywith regard to the issues thatinsurance regulators deal with. Ifwe don't do that, I don't thinkwe'll succeed in our major task ofimproving insurer solvency regu-lation.

UPDATE: Thank you, Commis-sioner. ∎

Currently , employerswho self-insure aredramaticallyundercapitalized .If the individualscovered by thoseplans enter theinsured market,we will have toattract some capitalto provide securityfor their health carecontracts . The extentto which we haveallowed theself-insured marketto becomeundercapitalized issomething oftenoverlooked in thehealth care debate .

The Actuarial Update ∎ May 1994 5

∎pensionPRACTICE COUNCIL

NEWS

Academy Pension CouncilPrepares for RetirementIncome Debate

By Howard Fluhr

financialsecurity

F in retire-ment for thebaby boomgenerationwill be oneof the keypublic poli-cy issues ofthe 1990s .

Howard Fluhr

The Academy Pension PracticeCouncil and its committees are

FAILEV SERVICE AWARDThe Academy is now soliciting nominations forthe 1994 JarvisFarley Service Award . ;

The award honors individuals' who have given exemplary.volunteer service to . the . actuarial profession.. The award wascreated in 1991 in : :inemory of Jarvis Farley who served theAcademy and its-committees "with untiring devotion for manyyears. The award was presented for the first time in -1992 toMary Hardiman Adams . The 1993 recipient was JeromeScheibi .

All Academy members are eligible nominees, including pastand present committee members,and chairpersons, board andcommittee members of the Actuarial Standards Board, mem-bers of the Actuarial Board for Counseling and Discipline, andmembers of the Academy Board of Directors . Current-Acade-my officers are not eligible.

To nominate an Academy member for the Jarvis Farley Ser-vice Award, fill out the postcard enclosed with this month'sUpdate. Please provide a ; brief description of your nominee'scontributions to the profession and include your name andtelephone number . Nominations must be received by July 15 . . .if a worthy nominee is chosen by the Academy Executive Com-mittee, the award will be presented at the Academy's AnnualMeeting on September 28 .

And on the subject of service. . .Academy committee service request cards are also

enclosed with this issue of The Update. Please consider help-ing the Academy advance our profession by volunteering toserve on an Academy committee . .

pre-paring for what is ex-expectedto be an intense national debateon pension policy.

Late last year, the council cre-ated a task force charged withstudying trends in retirementincome with emphasis on thelong-term future . The task forcewill examine recent trends in themajor components of retirementincome, analyze factors affectingthose trends, and report on theprospects for retirement incomesecurity for successive cohorts ofretirees .

The task force, under the lead-ership of former Academy VicePresident Larry Zimpleman, hasalready begun gathering data andis expected to release its prelimi-nary findings later this year. Thetask force's report will be a focusof this year's profession-wideForecast 2000 public relationscampaign .

To further ensure that theactuarial profession will be wellpositioned for the public debateon retirement income, the Pen-sion Practice Council has recom-mended that the Academy Boardof Directors sponsor a pensionplan modeling project and createa high-profile Academy fellow-ship for a senior pension actu-ary. Furthermore, the council isspearheading a coordinatedeffort with other U .S . actuarialorganizations, as well as keynonactuarial groups, such as theEmployee Benefit ResearchInstitute .

Committee Actions

On April 19, Pension Committeemembers Gregg Richter and LaneWest testified before the U .S .House of Representatives Ways &Means Committee on the Clin-ton administration's PensionBenefit Guarantee Corporation(PBGC) reform legislation . ThePension Committee's testimonycommended the Clinton admin-istration for its efforts, and pro-vided recommendations for fur-ther improvement . The commit-tee provided input to the admin-istration's PBGC task force lastsummer.

The Pension Committee iscurrently drafting numerous let-ters and comments on proposedPBGC reform legislation . In let-

ters to congressional committees,the Pension Committee focusedits comments on sections in theClinton administration's bill thatwould eliminate cross testing f~nondiscrimination compliancecontrolled groups that havedefined benefit and definedtribution plans.

The committee has contactedthe office of Sen . Bill Bradley (D .-N .J.) and offered its technicalassistance as his staff drafts com-prehensive pension reform legis-lation. The committee is alsopreparing comments for theDepartment of Labor's ERISAAdvisory Council on public dis-closure of plan descriptions,annual reports, and participantstatements .

The Pension AccountingCommittee is commenting ontwo proposed GovernmentalAccounting Standards Boardstandards that cover publicemployee retiree benefits . Thecommittee is also assisting thePension Committee in its com-ments on the PBGC legislation .

The Social Insurance Com-mittee has completed a drastandard of practice for soci14insurance program actuarThe draft will be presented tActuarial Standards Board at itsApril meeting. The committeehas offered its assistance to theHealth Practice Council's workgroups on Medicare and Medi-caid .

In preparing for the retire-ment income debate, the com-mittee is drafting two whitepapers. The first will supportSenate Finance CommitteeChairman Daniel Patrick Moyni-han's (D-N.Y.) position that ameans test for Social Security isinappropriate because it is asocial insurance program . Thesecond will examine the long-range deficit and the option ofraising the retirement age .

Fluhr is chairperson of theAcademy Pension Practice Counciland president and chief executiveofficer of The Segal Company .

6 The Actuarial Update • May 1994

•ALTHCARE

0tte cat health care debate reachescal stage, Congress's pulse

remains erratic . With bothHouse and Senate deadlines forfloor action nearing, the gapbetween those who favor moregovernment involvement andthose who would leave healthcare to the free market is stillunbridged. In the House, thethree committees with primaryjurisdiction still remain dividedon major issues, most notably onthe employer mandate, price con-trols, and plan structure .House Ways and Means

Chairman Dan Rostenkowski,has begun a series of caucuses tostart hammering out the compo-nents of a bill that would garnerenough votes to pass the fullcommittee. Rostenkowski, whobelieves that a broad-based taxincrease may be needed tofinance health care reform, hasnnounced that he will use the

Man passed by Pete Stark's healthcommittee, minus its financ-

rovisions, as the startingpmt for full committee markup .

In another key House com-mittee, Energy and CommerceChairman John Dingell hasoffered further concessions tosmall business in hopes of win-ning the swing votes of his com-mittee's moderate Democrats .However, Dingell's latest effortsto woo conservative Democratsto his camp have met with littlesuccess. One of the key swingvotes on his committee, Rep . JimSlattery (D-Kans .) says he willsupport no bill that containsemployer mandates and mayoffer his own plan soon if a com-promise on the issue cannot bereached with Dingell .

The most liberal committeeinvolved in the process, HouseEducation and Labor, has begunmarkup on a bill submitted byPat Williams (D-Mont.), chair-an of the Labor and Manage-ent Relations Subcommittee .illiams's plan uses the basic

Iftework of the Clinton pro-T, but replaces the mandatoryallia ces with voluntary alliances,

increases subsidies for small busi-nesses and low income workers,and makes the benefits packagemore generous. Williams expectshis subcommittee to approveboth a version of his plan and asingle-payer reform bill .

While the House Democraticleadership seems content withsecuring all of the votes neededfor passage without Republicansupport, Democrats in the Senateare aiming for a bipartisan mea-sure. Members of the SenateFinance Committee, who heldtheir first bipartisan caucus April19, have expressed optimism thata bipartisan bill can be crafted .Although no agreements havebeen reached yet, support is grow-ing for two measures-a tax capon employers that would limit taxdeductibility for employer-pro-vided coverage, and some sort of"trigger" device that wouldimpose an employer mandate if aspecified level of coverage had notbeen achieved by a date certain .

Senate Majority Leader GeorgeMitchell (D-Maine) has presentedoptions to Senate Democraticleaders that address small businessconcerns about an employer man-date. Mitchell's frameworkincludes : making benefits less gen-erous through higher deductiblesand out-of-pocket limits; chang-ing the maximum amount a smallfirm pays for health care to aworker-by-worker limit on premi-ums as a percentage of pay; andreducing the mandatory employercontribution from 80% to 50% .Mitchell also suggests lowering thealliance threshold from 5,000 to1,000 employees .

As momentum for a biparti-san compromise builds in theSenate, many House members arewary of passing a comprehensivebill that would be struck down bythe more conservative Senate,and leave House members vul-nerable to attacks by small busi-ness groups . House members'distrust of the Senate may par-tially explain their inability tobridge the gap between opposingsides and move the reform pro-cess through more rapidly .

PENSION ISSUES

Pension plan participants may notsue plan nonfiduciaries who do

not receive or control plan assets,even if the nonfiduciaries haveknowingly aided in a fiduciary's 1breach of duty, according to a jdecision by the U .S . First CircuitCourt of Appeals, The court's rul-ing in Reich v. Rowe, expands onlast year's U .S . Supreme Courtdecision in Mertens v. Hewitt, ~,which held that ERISA does notauthorize suits for compensatorydamages against nonfiduciaries forknowing participation in a fidu-ciary's breach of duty . In Mertens,the Supreme Court limited itsholding to compensatory dam-ages. The First Circuit ruled thatERISA itself contains no autho-rization for equitable relief againstnonfiduciaries. The court's deci-sion has increased the LaborDepartment and Sen . HowardMetzenbaum's (D-Ohio) determi-nation to pass legislation thatwould restore a pre-Mertensworld .

Rep. Dan Rostenkowski hasintroduced legislation that wouldrequire most baby boomers towork longer before they receivefull Social Security retirementbenefits. The bill would raise thenormal retirement age from 65 to67 for people born in 1960 orlater . Further, the proposalwould lower the income thresh-old at which Social Security bene-fits are subject to income tax andhike the Social Security payrolltax starting in the year 2020 . Thebill was introduced a week afterthe annual report of the OASDItrustees concluded that the OldAge and Survivors Trust Fund isin close actuarial balance andshould remain so well into the21st century. While legislativeaction on Rostenkowski's bill isnot expected this year, the mea-sure is expected to be a key vehi-cle for tax legislation next year.

Meanwhile, another Ways andMeans Democrat has also intro-duced a bill to strengthen theSocial Security system . Rep. J.J .Pickle (D-Tex.) has offered legis-lation that would extend the nor-mal retirement age to 70, reducespousal benefits, and make COLAadjustment once every 2 yearsinstead of annually . The planwould not raise payroll or incometaxes.

Continued on next page

1-994CAL NOAHNational Associationof InsuranceCommissionersSummer MeetingJune 12-15'.

Society of ActuariesSpringy Meeting(Pension , Healtl )June 15--17

Actuarial Standards' Board MeetingJuly 19-20

-National Association,of Insurance:Commissioners FallMeeting `September 18-20

Casualty Loss 'Reserve SeminarSeptember 19-20

Academy AnnualMeetingSeptember 28 .

Conference ofConsulting ActuariesAnnual MeetingOctober 2-5

Achiiaiial StandaccsBoard, MeetingOctober 13-14

.Society of ActuariesAnnual vleetingOctober 16-19

American Soclet}o ofPension AotiiariesAnnual MeetingOrtet 16-19

Casualty ActuarialSuciety AnnualMeeting ,No err ber f3-1 G

The Actuarial Update ∎ May 1994 7

Public Service Actuaries :Getting Their Due

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stfof '11 Wi '*,or new,atld~e88 a .mclud~dwith fhis rn airing ofMe Attvaraf- Update:We suggest that youattach tern to printed

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By Edwin Hustead j asked a prominent actuary for

n the past year, the AcademyCommittee on Actuarial PublicService has taken severalactions to support the actuaryin public service.A pay survey that will assist us

in promoting equitable compen-sation for government actuaries isannounced in this issue of TheUpdate. (See page 3 .) In the nearfuture, the Academy Board ofDirectors will act on our sugges-tion of an annual award to honoroutstanding public service by anactuary. Our committee worksclosely with the National Associa-tion of Insurance Commissionersto promote the interests of actu-aries who work for state govern-ments. We also collaborate withthe federal government to contin-ue and expand its visiting actuary

ary, I myself faced the decision ofwhether to join the Academy. I

program.Last year, the committee made

a very tangible recommendationdesigned to increase the participa-tion of government actuaries inthe life of the profession : We sug-gested that the Academy lower itsdues for actuaries in public ser-vice . The Academy Boardresponded by reducing 1994 duesfor actuaries employed by govern-ment and is considering an exten-sion of that practice .

Governments do not reim-burse their employees for duesand other professional expenses .As a result, many governmentactuaries maintain their profes-sional designation through mem-bership in the Society of Actuariesor the Casualty Actuarial Societybut do not join the Academy .

Academy membership offersmany advantages to governmentactuaries, the most importantbeing the opportunity to join inthe effort to bring the profession'sexpertise to the public policymakers. And needless to say, theexperience of government actuar-ies is an invaluable resource to thework of the Academy.

As a young government actu-

advice on why I should join boththe Academy and the SOA . Hereplied that if I ever disagreed withthe profession, I could publiclyresign from the Academy and stillquietly maintain my professionalcredentials as an SOA member .That was an interesting, but notconvincing, reason for what wasthen an outlay of $100 a year .

Fortunately, I joined theAcademy, and over the years Ihave gained a real appreciation ofits efforts to advance the profes-sion.

The Academy instituted the

CAPITOL VIEWS,continued from previous page

The Senate has overwhelminglypassed a comprehensive bankrupt-cy reform bill that does not includetwo key provisions regarding pen-sion plans . The final versiondeleted language that would haverequired debtors to use post-peti-tion financing to pay retiree con-tributions before other debts .Also, an expected amendment togive administrative priority toChapter 11 debtors' minimumfunding of pension contributionsdid not materialize.

SUPERFUND

The fate of Superfund reauthoriza-tion remains uncertain after a keycongressional player announcedhe's decided to shelve legislation .Rep. Al Swift (D-Wash .), chair-man of the House Energy andCommerce Subcommittee onTransportation and HazardousMaterials and chief House sponsorof the Clinton administration'sSuperfund reauthorization bill,had earlier warned that Congress'sfull agenda this session wouldrequire a quick consensus fromSuperfund participants if any leg-islative action was to take placethis year. After consulting withcommittee members, Swift deter-mined that the vast differencesbetween parties on two main

1994 government actuary duesreduction on an experimentalbasis . So far, more than 10% ofeligible actuaries have takenadvantage of the offer and becor*members. While this responseencouraging, it is perhaps notficient to justify continuatiothe policy in future years . TheCommittee on Actuarial PublicService will contact the remainingpotential members directly andinform them of the new policy .We hope that readers will encour-age government actuaries who arenot members to participate morefully in the life of the profession byjoining the Academy .

Hustead is chairperson of theCommittee on Actuarial PublicService .

issues-the insurer-financed pooland remedy selection-are toogreat . If the Superfund law is notreauthorized by September, thefederal government could lose itsability to assess taxes on certainindustries to pay for site cleanupnext year. Despite Swiftannouncement, not everyowriting off the chances forthorization in this Congress . eadministration and the chiefsponsor of superfund legislationin the Senate, Sen. Frank Lauten-berg (D-N .J.), have stated theircommitment to continuing theirefforts to reform the superfundprogram. There could be a 1-yearauthorization without reform .

Idaho Gov. Cecil D. Andrus(D) has signed legislation thatguarantees individuals the right toobtain health insurance. The Indi-vidual Health Insurance Availabili-ty Act expanded on a bill passedlast year that requires all insurancecarriers to offer small businessesone of two health plans. The newlaw extends most of the provisionsof the small business bill to indi-viduals. Under the legislation,individuals must be offered at leastone of two health plans from aninsurer; rates must not vary bymore than 25% from the aversrate charged for such plans ; prerrurn increases may not exceed 15%annually, and limitations onexisting conditions cannot ex~ jone year. /

8 The Actuarial Update ∎ May 1994