Each year, the insurance industry finds itself up against one bastion of evil or another. Whether its strict regulations, bad seeds in the business or reputation damage, the sector is in a constant state of “fight to live.” And that it does.
As your trusted source of news and analysis within the industry, it is our job to bring to light — and publicize — that which is keeping the industry from reaching its full potential. This year, we have several newcomers to the infamous list, as well as a few veterans who may not come as a surprise.
The following is National Underwriter Life & Health’s 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.
Keep reading for a look at our 2016 Rogues Gallery.
2016 Rogue No. 10: Joshua J. Cerna
Joshua J. Cerna, seen at right in a photo by Marvin Pfeiffer of the San Antonio Express-News, was once an employee of The Mullen Pension & Benefit Group, LLC, a health benefits services company in San Antonio that provided insurance and related services to state and local government entities — including school districts and municipalities, on behalf of various insurance companies. Prosecutors say since 2007 Cerna, 43, has helped rig contracts to cover workers in the San Antonio, Edgewood and South San Antonio independent school districts. The case also involved contracts for the Bexar Metropolitan Water District.
The San Antonio Express News reported that a former co-worker, Samuel Mullen, was indicted and arrested on Sept. 23 in the Rio Grande Valley on a similar conspiracy charge. Investigators say as part of the scam, the Mullen Group paid bribes to a consultant to help secure contracts with the school districts. The U.S. Attorney’s Office for the Western District of Texas said the consultant, William Oliver Haff, 46, pleaded guilty on March 31 to the kickback/bribery scheme.
According to the U.S. Attorney’s Office, from March 2008 to February 2010, Haff accepted around $64,584 from the Mullen Group in exchange for providing confidential information concerning employee insurance plan Request For Proposals (RFP), including one issued by the Edgewood Independent School District in San Antonio, that was not available to competitors of the Mullen Group.
In September, Cerna pleaded guilty to a charge of conspiracy to commit honest services wire fraud, admitting he helped corrupt the process of insurance company selection. Prosecutor Mark Roomberg said the commissions resulting from the rigged contracts were $2.5 million for the group. Cerna and Mullen both face up to five years in prison.
2016 Rogue No. 9: Celia Castillo
Seniors have enough issues to occupy them in retirement. One they can most certainly do without is financial exploitation by scam artists intent on cheating them out of their life savings.
Such exploitation is, unfortunately, a widespread problem.
One individual recently convicted of scamming a dozen seniors is Celia Castillo, seen here, a Houston-based insurance agent who cheated her victims out of more than $3 million. The con: She sold them phantom annuities.
The money she received actually went to line her own pockets. Case records of Devon Anderson, the district attorney for Harris County, Texas, reveal that Castillo deposited the clients’ funds into a bank account she created for the purpose.
Geneva Titus, an investigator for the Texas Department of Insurance (TDI), described the crime as “especially insidious” because Castillo targeted seniors who had no nearby relatives with whom to consult about the annuity sales pitches. All of Castillo’s victims were over age 70; two of them were older than 90.
In Titus’ telling, Castillo assiduously cultivated relationships with her quarry — oftentimes taking them out for dinner or for a ride about town — with a view to securing their trust, then bilking them of their nest eggs.
It all went off without a hitch until TDI investigators — peace officers working within the department — coordinated with Harris Count Special Assistant District Attorney Jesse McClure to lift the veil on the scheme.
Once hit with an indictment, Castillo agreed to a 20-year sentence rather than face trial and a potentially longer prison term. Authorities locked her up last May.
Whether many other would-be fraudsters preying on the elderly will learn from Castillo’s experience seems questionable. A frequently cited report by the MetLife Mature Market Institute estimates losses resulting from financial exploitation at $2.9 billion.
That was in 2011. Undoubtedly, given the huge dollar amounts involved, criminals will continue to find the elderly attractive targets for their fraudulent schemes. One can only hope that state and federal initiatives — including a bill passed by the House in July that would protect financial advisers from liability when they try to stop financial exploitation of seniors — will reduce the amount of swindling.
2016 Rogue No. 8: Jeffrey Grant
He’s the boss of the people in charge of the CMS unit that runs the Affordable Care Act risk adjustment programs.
From the perspective of someone interested in how the Obama administration went about setting up the ACA public exchange program and related programs, Grant could be on a list of heroes. In July 2013, he sent an email to another CMS official warning that development of the HealthCare.gov exchange system enrollment software was going poorly, in part because the contractor had only 10 software developers working on the project.
But he’s on this list because he’s the official closest to the ACA risk adjustment program with a photo on the Web.
The ACA risk adjustment program is supposed to take cash from individual and small-group major medical coverage issuers with enrollees with relatively low health risk scores and shift the cash to issuers with enrollees with relatively high risk scores.
The Medicare Part D prescription drug program has a risk adjustment program that seems to be working well enough. But the ACA risk adjustment formula has been working in such unexpected ways that Molina Healthcare, a Long Beach, California-based carrier, says the system has shifted about one-quarter of its exchange plan revenue to competitors.
Insurance regulators in New York state, a state in which insurance regulators generally like the ACA and are tough on insurers, are so worried about the program that they are setting up a special market stabilization fund to help insurers hurt by excessive risk-adjustment program revenue transfers.
The incoming Trump administration may find a way to make a deal and fix the program. In the meantime, the program certainly looks as if it’s gone rogue.
2016 Rogue No. 7: Rick Gerhart
Iowa Insurance Commissioner Nick Gerhart, seen here, isn’t unique in allowing the growth of insurer-owned special purpose vehicles or “captives.” But he’s first among equals in enabling the SPVs’ development with little oversight.
In the last 15 years, more 70 life insurers have dumped an estimated $440 billion in liabilities — blocks of in-force life insurance policies — to the SPVs. The problem: The ceded liabilities are often not matched by collateral assets sufficient to guard against default. Insurers that established the captives are thus at risk of financial insolvency.
For now, life insurers continue to shift policyholder liabilities to these opaque vehicles. The shell game is underway with the knowledge and approval of state insurance commissioners who oversee the SPVs. Astonishingly, the non-arms-length transactions are happening despite the fact they contravene the National Association of Insurance Commissioners’ (NAIC’s) Model Holding Act.
What sets Gerhart apart from other state insurance commissioners is his open invitation to allow the insurers to set up their captives within Iowa as well. Upshot: The SPVs are subject to oversight not by two state insurance commissioners (as is case when the ceding insurer and captive are domiciled in different states), but only one: Nick Gerhart.
“All commissioners that have allowed these sham transactions deserve to be publicly embarrassed,” says Tom Gober, a fraud examiner. “But, amazingly, Iowa’s commissioner has enabled Iowa-domiciled life insurers to form wholly owned subsidiaries as captives in Iowa.
“That means there is literally only one person — Gerhart — with the authority to say no to sham transactions between Iowa life insurers and their captives,” he adds.
Given Gerhart’s unabashed courting of the carriers’ business, any check on their use of the SPVs seems unlikely. And so it’s only a question of time before one of the bogus transactions makes headlines — and Gerhart is called to account.
2016 Rogue No. 6: Renata B. Hesse
Renata B. Hesse, at right, has been acting assistant attorney general responsible for the antitrust division at the U.S. Justice Department.
She has a bachelor’s degree from Wellesley College and a law degree from the University of California at Berkeley. She’s been vice chair of the insurance and financial services committee at the American Bar Association Section of Antitrust Law. She’s viewed as an expert on matters relating the intersection of antitrust law and intellectual property law.
But she’s on this list of rogues because she frustrated anyone (such as reporters) who wanted to see “Game of Thrones: The Affordable Care Act Public Exchange Version,” reach its full dramatic potential. This past summer, she let the division sue to block the effort by Indianapolis-based Anthem to acquire Bloomfield, Connecticut-based Cigna Corp. and by Hartford, Connecticut-based Aetna to acquire Louisville, Kentucky-based Aetna.
Before the Justice Department sued to block the two deals, executives at the four companies were expressing a tender hearted willingness to forgive the stumbles of the ACA exchange system. After the department sued, waves of announces of 2017 individual market footprint cutbacks and agent commission cuts poured out.