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December 01, 2015 at 06:09 AM
Here’s our annual list of the top 10 individuals, organizations or regulations (in no particular order) that are hindering — instead of helping — the life insurance, health insurance and retirement planning industries.
Dave Ramsey
He bills himself as “America’s trusted voice on money.” His website is cluttered with financial self-help products for sale, everything from the “Financial Peace University” for a $109 membership fee to his “Destroy Debt Bundle” for a mere $35.
But what if the millions of people that listen to Ramsey’s frequent radio show and buy his products are getting the wrong advice? And without even knowing it? Many of Dave’s pieces of advice are actually myths, but they’re said often enough and passionately enough that their validity is accepted without knowledge.
For example, Ramsey claims that if you invest his way, you can expect a 12 percent annualized return, yet his math never adds up. He recommends individuals work with an endorsed local provider (ELP) instead of investment advisor.
The difference? ELPs get paid to sell you something, not give you advice. Ramsey believes term life insurance is the only way to go (never perm life) because when term expires, his followers will have no debt, no house payment and hundreds of thousands of dollars in savings. However, as LifeHealthPro.com writer Michael Markey puts it, “the security of death benefit proceeds doesn’t completely or necessarily evaporate with the elimination of debt and/or creation of wealth.”
There’s more. On Ramsey’s website, he writes that he is not a fan of annuities. “One of the main reasons is that annuities have significant expenses that reduce the growth of your investment,” he explains. “Annuities also have surrender changes on early withdrawals that can limit access to your money in the first few years after you buy the annuity.”
However, as most readers of this publication can attest, annuities are not investments, surrender charges on early withdrawals only exist when it’s in excess of the penalty-free withdrawal amount and, of course, all annuities do not have significant expenses.
Sadly, this is only the tip of the bad financial advice iceberg. Go to LifeHealthPro.com/seriouslydave for complete analysis of Ramsey’s misleading efforts.
Sylvia Mathews Burwell
Burwell is the secretary of the U.S. Department of Health Human Services (HHS).
She’s a rogue because of the sad, sudden end of many of the new, nonprofit, member-owned Consumer Operated and Oriented Plan (CO-OP) carriers.
Burwell took over as HHS secretary in June 2014, as travelers were starting to come down with the Ebola virus infections they would eventually bring to the United States. Burwell is not a doctor or a public health expert, but, still, while she was HHS secretary, the U.S. Centers for Disease Control and Prevention (CDC) and other HHS units took charge of bringing Ebola under control. Her team kept 2015 from being like a nonfiction version of a “Walking Dead” episode.
So, what about Burwell’s relationship to the CO-OP crisis makes her rogue? We think there are three possibilities about why she failed to speak up about the CO-OPs’ problems early in 2015:
1) She had no idea how bad the CO-OPs’ situation was until late in the summer of 2015.
2) She knew the CO-OPs were in trouble early on and worked hard behind the scenes to save them, but she said little or nothing about her concerns in public.
3) She knew the CO-OPs were in trouble early in the year and shrugged.
We know of no evidence for the second possibility — that Burwell worked hard behind the scenes to try to save the CO-OPs.
If the first possibility is true, and Burwell had no idea how poorly the CO-OPs were doing: What good is having a Rhodes Scholar who’s a former OMB director as HHS secretary if she’s not energetic enough to skim through an S&P press release about the CO-OPs’ risk corridors program problems?
So, for us, the most plausible possibility is the third one: that Burwell knew the CO-OPs were in trouble early in the year, and responded by not doing much of anything, either to keep the CO-OPs alive or shut them down in an orderly way.
In some areas of her life, she may be a good guy. In this particular area, we believe that she qualifies as a rogue.
Kevin Counihan
Kevin Counihan is the director of the Center for Consumer and Information and Insurance Oversight (CCIIO), and also the chief executive officer of HealthCare.gov, the Patient Protection and Affordable Care Act (PPACA) enrollment system for states that let the U.S. Department of Health and Human Services (HHS) handle exchange enrollment. He’s on our list of rogues this year because he tried to get state insurance regulators to believe in the stability of the PPACA risk corridors program at a time when he should have been warning them to watch out.
The risk corridors program is one of the “risk management” programs PPACA drafters created in an effort to keep the health insurance market healthy. The program was supposed to use cash from exchange plan issuers that did well in 2014, 2015 and 2016 to help exchange plan issuers that did poorly during those years.
Regulators at the National Association of Insurance Commissioners raised doubts about the collectability of the risk corridor payments at least as far back as April 2014.
Deep Banerjee and other analysts at Standard & Poor’s Ratings Services estimated back in April 2015, based on a review of insurer financial filings for the first three quarters of 2014, that the risk corridors program might collect only enough cash from exchange plan issuers that did well in 2014 to pay about 10 percent of the amount owed to issuers that did poorly.
But, in a memo to state insurance commissioners on July 21, after CCIIO analysts should have been able to crunch a full year of the same kind of data that the S&P had crunched, Counihan wrote the following: “We anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments…. We believe these payments should be taken into account before decisions are made on final rates.”
Counihan was a vice president at Cigna. He was a senior vice president at Tufts Health Plan. He’s been the president of Choice Administrators, a private exchange administration firm.
He seems to be a smart, wonderful, well-intentioned guy, who has probably done a lot of good, overall, for the U.S. health finance system, but what on earth led him to tell insurance commissioners to have faith in the risk corridors program in July, when big rating agencies were already putting out national press releases highlighting concerns about collectability?
10 FOMC Doves
We’re listing 10 members of the Federal Open Market Committee (FOMC) as a group rogue, owing to those 10 members’ failure, as of press time, to use whatever influence they have over interest rates to make rates go up.
The FOMC is the part of the Federal Reserve System that decides what the Fed will do about interest rates and the money supply.
The current low rates are terrible for life and health insurers that write products that involve benefits with a long duration, or that protect consumers against events that may occur years, or decades, in the future. Issuers of those products depend on earnings on investments to supplement premium revenue.
State laws, regulations and guidelines sharply limit the kinds of investments life insurers can use to back up their products. They can invest some of their assets in stock, and some in vehicles such as private equity funds, but, mostly, they have to invest in corporate bonds, mortgages, mortgage-backed securities, government bonds and other instruments that rating analysts and insurance regulators view as being highly secure. Even if, when you think hard about it, you realize that some of those investments might not necessarily be much more secure, over the next 25 years, than a timeshare in a dream castle on Mars. (At least you can be sure that you can continue to fantasize about visiting a dream castle on Mars.)
Exactly how much influence the FOMC has over the kinds of long-term rates that insurers care about is complicated and unclear, but at least the FOMC has direct control over the federal funds rate.
By the time you read this, the FOMC might have started nudging that rate a bit higher. Even if that’s the case: What took so long?
The current members of the FOMC are Janet Yellen, the Federal Reserve Board chair, and William Dudley, Lael Brainard, Charles Evans, Stanley Fischer, Jeffrey Lacker, Dennis Lockhart, Jerome Powell, Daniel Tarullo and John Williams.
We designated Yellen as a rogue last year, because of her role in perpetuating insurer-smothering low interest rates. Because she was a rogue last year, we’ll leave her off the list this year. But she knows she should be featured on these pages.
We’re also exempting Lacker, the president of the Federal Reserve Bank of Richmond, who, according to FOMC meeting minutes, pushed for a rate increase in September.
Of course, the FOMC are probably all brilliant, patriotic people who deserve our gratitude for doing their best to keep our monetary system stable, but, still: The interest rates are too damn low.
Jim Staley
Jim Staley was a prominent man in his community. He was a bible teacher and pastor with Passion for Truth Ministries, out of St. Charles, Missouri, which grew from a basement bible study to a ministry that reached some 2 million people worldwide through weekly live streaming, radio and television broadcasts, social media, the ministry website and other resources.
This seeming do-gooder had a Devil on one shoulder, however. In April of this year he pleaded guilty to four counts of fraud and confessed that he cheated others in an investment scam from which he profited $570,000.
An FBI release outlined the details of the scheme: “James Staley was indicted for his alleged scheme to defraud investors by making false promises of high rates of return and minimal risk. The indictment states that Staley defrauded 11 investors/lenders by causing them to invest over $3.4 million.”
The pastor’s elderly victims, some of whom were living with cognitive disorders, said they trusted Staley because he professed his Christian faith and family values. But in court last spring, they called him “sick, manipulative and deceitful.”
Staley, a married father of six, was sentenced to seven years in federal prison and ordered to pay $3.3 million in restitution to his defrauded investors. He makes this year’s list for giving the industry — and religion while he’s at it — a bad name.
U.S. Senator Elizabeth Warren
Too scared to run for President, U.S. Senator Elizabeth Warren decided to spend her energy on a witch hunt of the government’s whipping boy du jour — the annuity advisor.
What’s Warren got against annuity advisors? She thinks it’s bad business that annuity advisors get incentives to hit their numbers. (That’s not a typo.) Warren is against people in a sales-oriented profession from earning incentives and perks for the work they do and the deals they close.
A quick perusal of Warren’s resume revealed that she’s never sold insurance or financial products. In fact, unless it was left off of her CV, she’s never sold anything. She’s spent her career pushing to overregulate consumers and the products they buy.
Warren was an early advocate for the creation of the Consumer Financial Protection Bureau (CFPB). The bureau was established by the Dodd–Frank Wall Street Reform and Consumer Protection Act.
According to a report from www.WhiteHouse.gov, President Obama named Warren as Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau to set up the new agency. Liberal groups jumped on the bandwagon to have Warren run the agency, but financial institutions and Republican members of Congress opposed any nomination for fear she’d be an overly zealous regulator.
