May 4, 2017

Contact: Jaryn Emhof Jaryn.Emhof@mail.house.gov

Statement from FL Rep. Daniel Webster on passage of the American Health Care Act

Washington, DC - Today, Florida Representative Daniel Webster (R-Clermont) released the following statement regarding his vote on H.R. 1628, the American Health Care Act.

"Today, I voted to end the nightmare that has been the [un]Affordable Care Act (ACA) and to provide Americans with the care they need, at a price they can afford, from the doctor they choose. For six years, I have been an advocate for repealing the failed Obamacare and replacing it with real healthcare reform. ACA has is collapsing across the country - currently 4.7 million people are without an insurer. This failed policy is raising costs for patients and forcing insurers out of the marketplace, which leaves patients and families with nowhere to go.

"I have been very concerned about Florida's Medicaid-funded nursing home beds. These are critical to the access some of our senior population has to our nursing homes.

"President Trump, Vice President Pence, Center for Medicaid Services and House leadership have committed to find a solution to ensure Florida is equipped to serve one of our most vulnerable. With these assurances and Chairman Walden's comments that are now in the official record, I voted for the bill today."

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Background:

Florida is a very efficient state when it comes to providing Medicaid services. We have a million more Medicaid enrollees than New York and yet half the funding. We are also among the fastest growing states in the nation. Many seniors depend on Medicaid-funded nursing home beds when their Medicare coverage runs out. Our high senior population is exploding as more baby boomers reach senior age. The formula expressed in the bill calculates a per capita cost multiplied by the number of eligible Medicaid recipients for the previous year. The normal increase in cost of services coupled with being one of the fastest growing states in the country, puts Florida particularly at risk for exceeding the costs established under the bill. This would trigger a claw-back provision that places a huge burden on the state.

More about recent healthcare bills passed by the House:

* Lowers administrative costs for small businesses who seek to provide health insurance for their employees.

* Allows small business owners to join association health plans and thus lower their and their employees' health care costs.

* Maintains protections for those with pre-existing conditions and prohibition against insurers turning away patients when they renew their plans simply because they may be sick. More information on pre-existing conditions policy is at: https://webster.house.gov/macarthur-amendment-mvf.

* Allows dependents up to age 26 to stay on their parent's plan.

* Eliminates the individual and employer mandate penalties and medical device tax

* Repeals Obamacare subsidies this year

* Reduces qualifying income threshold from 10 percent to 5.8% which is lower than the pre-Obamacare level.

* Doubles the amount of tax-free money individuals can contribute to their Health Savings Accounts (HSAs).

* Empowers states to convert their Medicaid program to a block grant and establish work-requirements.

* Subjects health insurance issuers to same laws which prohibit unfair trade practices, including laws that prohibit price fixing, collusion or market allocations to the detriment of consumers.

The monthly cost of insurance charges deducted from universal life policies are at the center of lawsuits against several life insurers, with two proposed class-action settlements totaling $156.75 million and another case against Farmers New World Life Insurance Co. moving forward in federal court.

The disputes raise a question for insurers, policyholders, and, ultimately, judges: How much discretion do companies have in setting charges, and what does the policy contract require them to consider?

The proposed settlements involve Brighthouse Financial and Lincoln National Corp., which operates under the Lincoln Financial Group name.

How cost-of-insurance charges affect policyholders

Universal life policies build an account value from premiums and interest credited by the insurer. Insurers deduct insurance and administrative charges from that value each month.

The cost of insurance is generally calculated against the policy's net amount at risk, the difference between the death benefit and account value. A lower balance leaves more subject to the charge.

“If that cash value is lower, your net amount of risk is larger,” said Jerry Vanderzanden, an insurance consultant with The Ethical Edge.

As insured individuals age, cost-of-insurance rates generally rise. Higher deductions or lower interest credits leave less money to support coverage, potentially requiring larger payments to keep the policy in force.

Unlike traditional whole life insurance, universal life policies generally offer flexibility in premium payments.

That flexibility does not necessarily guarantee coverage for life with a fixed payment. Funding needs depend on interest credits, insurance costs and other deductions.

Dick Weber, an insurance consultant with The Ethical Edge, said the flexibility can contribute to misunderstandings.

A policy may give an insurer discretion to set rates within guaranteed maximums, while a customer may understand “cost of insurance” to mean a charge tied only to mortality.

“There is probably an understandable disconnect between the language of cost of insurance and the expectation that the customer and her attorney would have about what that means and what the contract language says about the right of the carrier to increase its charges beyond mere experience,” Weber said.

Policy language at the center of COI disputes

That question is central to a case against Farmers. Policyholder Sheila Marino alleges the company included factors beyond mortality when calculating monthly risk charges on her universal life policy and failed to reduce the charges as mortality expectations improved.

Marino bought the policy in 1988. Its monthly deductions include a risk charge and a separate administrative charge. She argues the distinction limits the risk charge to the cost of the insured's death.

Farmers argued that the policy gave it discretion to set the risk charge, provided it did not exceed the maximum rate guaranteed in the contract.

U.S. District Judge Jamal N. Whitehead denied Farmers' motion to dismiss Oct. 13, finding Marino's reading of the risk-charge provision reasonable enough for her breach-of-contract claim to proceed. He also lifted a stay that had paused the case.

Marino separately alleges Farmers credited only the policy's guaranteed 4.5% interest rate for 2023-24, despite higher interest earnings.

Whitehead found she plausibly alleged that Farmers breached its implied duty of good faith through how it exercised its discretion over interest and that its conduct could violate Washington's Consumer Protection Act. The ruling does not establish that Farmers overcharged her, underpaid interest or violated the law.

Vanderzanden said earlier COI lawsuits often alleged insurers raised charges to improve profitability, rather than to reflect mortality experience.

The Brighthouse case raises a related but distinct issue: whether the insurer should have reduced COI rates as mortality expectations improved and expenses declined, as plaintiffs contend its policy language required.

In Martin v. Brighthouse Life Insurance Co., policyholder Lawrence Martin alleges the company failed to lower COI rates as mortality expectations improved. His policy says rates will be based “only on our future outlook for mortality and expenses.”

Martin's complaint says annual COI charges rose from $2,453.05 in 2014 to $4,321.68 in 2019. He alleges Brighthouse told him in 2020 to raise his planned monthly premium from $200 to $694.28 to prevent a lapse. Those figures are allegations, not court findings.

Proposed settlements face further court review

Brighthouse denies wrongdoing and has reached a proposed $9.25 million settlement covering certain policies with the disputed contract language. A federal judge granted preliminary approval Sept. 1. Policyholders have until Dec. 11 to opt out and Dec. 23 to object. A final approval hearing is scheduled for Jan. 26, 2027.

Lincoln National Corp. also faces a proposed $147.5 million settlement over disputed deductions from universal life policies.

In August, the 2nd U.S. Circuit Court of Appeals vacated the original settlement approval, finding that the named plaintiffs were not typical of a broader class that included policyholders whose contracts were issued by other Lincoln affiliates. Those policyholders faced a different legal hurdle in establishing privity of contract with the defendants.

The decision addressed class representation, not whether Lincoln improperly calculated the charges.

A September amendment added policyholders with coverage issued by First Penn-Pacific Life Insurance Co. and Lincoln Life & Annuity Co. of New York, as well as those insurers as defendants.

The proposed fund remains $147.5 million. Lincoln disclosed in a Nov. 5 securities filing that some class members had filed objections to the amended agreement.

Class members filed objections Oct. 28, and reply memoranda are due Nov. 11. The amended settlement remains unapproved.

Combined with the proposed Brighthouse settlement, the two funds total $156.75 million. Neither fund is an approved payment to policyholders.

The cases involve different policy provisions and do not establish a single industrywide standard for setting COI charges. Their outcomes will depend on the language of the policies and the facts presented in each dispute.

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