Thursday, January 16, 2014

Obamacare: A Midterm Report Card

by Charles Ornstein ProPublica, Jan. 14, 2014, 11:01 a.m.

The first half of the Obamacare open enrollment period is over, and yesterday, federal health officials announced sign-up figures from the first three months.

After a disastrous start, (which handles enrollment for 36 states) began functioning properly. It, along with state-run insurance exchanges, netted more than 2.1 million signups between Oct. 1 and Dec. 28.

But are sign-ups on pace to meet the Congressional Budget Office's projection of 7 million this year? And is there an adequate balance between young and old, sick and healthy, to keep costs in line? That's harder to say.

Here's what we know:

  • Some states are performing much better than others. Connecticut has already exceeded the target the Centers for Medicare and Medicaid Services (CMS) wanted it to have by the end of March, according to New York and Rhode Island are also on pace to beat expectations. But other states are lagging. They include Maryland, Oregon and Massachusetts, which run their own exchanges and continue to be plagued by website problems. Also far behind are New Mexico and Mississippi, which rely on
  • Enrollees are skewing older. Currently, 33 percent of enrollees are 55 to 64 years old, compared to only 30 percent who are under 35. In Arkansas, Maine, Ohio, West Virginia and Wisconsin, at least 40 percent of enrollees are over 55. A higher proportion of younger enrollees are going to have to sign up before the end of March in order to help offset the costs of older ones. CMS officials say younger enrollees tend to sign up later in the process, as they did several years ago when Massachusetts implemented its individual mandate.
  • The vast majority of those signing up qualify for financial assistance. About 79 percent of the early sign-ups will receive financial assistance, just a bit less than what the Congressional Budget Office estimated (86 percent 2013 see page 3). That ranges from an implausible low of 9 percent in Washington D.C., to 100 percent in Oregon.

Here's what we don't know:

  • How many of those who signed up for coverage previously had plans canceled by insurance companies If the policies are merely replacing coverage that individuals already had, the law won't make the dent in the uninsured that proponents hoped for. In New York, for example, only 44 percent of the early enrollees had been uninsured.
  • The health status of early enrollees. While some people consider age a proxy for health status, in truth, it isn't a very effective stand-in. Experts say they need to know more about the health of those who enrolled to know if the insurance risk pool will be balanced, keeping premiums from exploding in the years to come. Health insurer Humana reported last week that the mix of its early enrollees was "more adverse than previously expected," in part because the Obama administration gave those with canceled policies the ability to stay in them for another year. That assumes those who chose to stay were healthier than others.
  • Whether enrollees have paid their first month's bill. Coverage does not take effect unless consumers pay their initial bill. There has been plenty of confusion about the deadline to sign up 2013 and confusion about when the first payment is due. Dates have changed and vary from state to state, insurer to insurer. Some insurers set a deadline of Jan. 10; others have set other dates in January for coverage that began Jan. 1. "It's been pulling teeth," Shaun Greene, chief operating officer of Utah-based Arches Health Plan, told the Wall Street Journal. The newspaper reported that, as of Thursday, Arches had collected about 60 percent of premiums for people who signed up for coverage that took effect Jan. 1.
  • How many people have signed up for coverage outside of the exchanges. In order to receive a premium tax credit to offset the monthly cost of coverage, individuals have to sign up using one of the health exchanges created under the law. But those who do not qualify or don't want to bother can sign up directly with an insurance company. Ultimately, those figures will be publicly reported, but that will take months, or even years.
  • Will the open-enrollment period close strong as it did in Massachusetts? Supporters of the Affordable Care Act regularly point to the experience of Massachusetts, which implemented a similar individual mandate in 2007, and saw a late surge of enrollment, particularly among the young. The open enrollment period for Obamacare runs through March 31, leaving plenty of time for folks to sign up.

Editor's Note: This post is adapted from Ornstein's "Healthy buzz" blog. Have you tried signing up for health care coverage through the new exchanges? Help us cover the Affordable Care Act by sharing your insurance story.

Tuesday, September 4, 2012

Sen Wendy Davis Asks Gov. Perry to Remove Insurance Commissioner

By Faith Chatham - DFWRCC - Sept. 5, 2012
Texas State Senator Wendy Davis responded to constituents complaints about arbritary actions by Texas Insurance Commissioner Eleanor Kitzman by calling on Governor Perry to remove Kitzman from her appointed post. In a letter to Gov,. Perry Friday, Aug. 30,  Sen. Davis calls for transparency and accountability in the Texas Insurance Commission and cites anti-consumer actions by Kitzman which cost Texas taxpayers money.

Sen. Davis released sent this message to constituents:

From day one, you have heard me talk about the importance of government accountability and full transparency. Some recent decisions made by Texas Department of Insurance (TDI) Commissioner Eleanor Kitzman were anything but transparent.
Over the course of just a few months, Ms. Kitzman has proven that she is only concerned with protecting insurance companies and has shown complete disregard for protecting Texas consumers. That’s why I’ve called on Governor Perry to remove Kitzman from her appointed post. 
Kitzman has already managed to roll back years’ worth of consumer protection for Texans:
  • Without asking the opinion of taxpayers or elected officials, Kitzman arbitrarily announced she would remove important rules that protect health insurance policyholders from being charged certain fees that could otherwise be avoided;
  • Kitzman removed from TDI’s website a list of insurance companies found to have used deceptive or illegal practices against policyholders; 
Texans deserve an Insurance Commissioner who works for them and not against them.  Eleanor Kitzman should be protecting Texans’ household budgets rather than making it easier for insurance companies to fill their own pockets.
Please know that I will continue fighting to protect the rights of Texas consumers by working to see that failed and irresponsible appointed officials like  Commissioner Kitzman are not allowed to stay on our state’s payroll.Your friend, and proudly, your state senator,Wendy

 Senator Davis updated her website and included this background:

Following her request to Perry, Davis said, “Commissioner Kitzman’s actions reflect a pervasive anti-consumer, closed-door culture at the Department of Insurance. And, unfortunately, this hostility toward consumers spreads beyond TDI and into the Legislature.”
In 2009, and again in 2011, legislators were tasked with performing a constitutionally required “sunset review” of the Department. Unfortunately for policyholders, special interests carried the day.
More concerned with lining their donors’ pockets than protecting consumers, dozens of State House members, including Fort Worth’s Mark Shelton, repeatedly voted against the constituents they were elected to serve.
Shelton and his cohorts voted to protect insurance companies by:

  • Allowing them to raise rates on consumers without State oversight;
  • Blocking full accountability at the Department of Insurance by allowing the Commissioner to continue being a Perry appointee, versus an elected official chosen by voters at the ballot box.
  • Allowing insurers to deny coverage based on applicants’ credit scores;
  • Allowing insurers to deny coverage for losses incurred when residents evacuate during natural disasters.

Unlike her opponent, Wendy Davis championed legislation that would protect Texas consumers by:

  • Requiring insurers to refund excessive premiums to policyholders;
  • Creating an online “apples-to-apples” comparison of Texas insurance rates, which would allow consumers to identify the most competitive rates available;
  • Allowing voters to elect the Insurance Commissioner;
  • Requiring insurance companies to give policyholders notice of pending rate increases;
  • Requiring health insurers to pre-file rate increases with the Department of Insurance for review before implementing increases.

Davis is a strong advocate for government transparency and accountability. “Texans deserve better than what they are getting from the current majority in Austin,” she said. “State officials are supposed to be representing Texas’ hard working families, not insurance companies and other special interests.”
Davis pointed out the fact that, under the Texas Constitution, the Texas Senate will be responsible for confirming or denying Kitzman’s appointment during the upcoming 83rd Legislature.
“Commissioner Kitzman was appointed during the interim, when the Legislature is not in Austin,” said Davis. “Her qualifications have not been reviewed by the Senate. When we return in January and begin the confirmation process, I think the odds are very high that Commissioner Kitzman will not be confirmed.”

Petitions to the Department of Insurance have gone unheeded from constituent upset by the Commission requesting exceptions to allow Texas Insurance Companies to apply more than the mandated 20% maximum  of premium costs toward Insurance Company profit and administrative cost for medicare payments. One of the reforms passed by Congress (and frequently discounted by insurance industry distractorss as "Obamacare" requires that no more than 20% of the premiums paid for health insurance can be diverted from health care costs and pocketed by insurance companies as profit or applied to administrative cost.

Thursday, July 8, 2010


By Michael Reilly - Discovery News - June 16, 2010

Everyone knows air pollution is bad for you, your kids, trees, and the planet. Small particles of partially burned car and truck exhaust are particularly insidious, and can get into your lungs, your bloodstream, even your brain.

Now a new study suggests it can mess with your breathing while you sleep, too, and put you at higher risk for a host of serious health problems.

People exposed to high levels of "microparticle" pollution -- mostly those living near roadways and/or in urban areas -- can have higher rates of asthma and other lung afflictions, but they just as often show no ill effects, even after years of exposure.

It isn't until researchers look at data from thousands of people across a whole city, or many cities, that patterns begin to emerge -- high microparticle concentrations increase risk of high blood pressure, heart attack, and stroke.

Antonella Zanobetti of Harvard University and a team of researchers put a new twist on this type of work -- they looked at whether air pollution could interfere with sleep. They matched a dataset of 6,000 people monitored for the Sleep Heart Health Study between 1995 and 1998 to air pollution measurements from the same time and locations.

The team found that "sleep disordered breathing," -- a catch-all term for snoring and any other interference with normal breathing during sleep -- increased 13 percent with elevated levels of pollution. Blood oxygen levels were depleted for 20 percent more time in people sleeping in high-pollution environments, too. This was primarily seen during the summer, when high temperatures are known to exacerbate the effects of air pollution.

The researchers' work appears in American Journal of Respiratory and Critical Care Medicine. Zanobetti was quoted in an article on

"Particles may influence sleep through effects on the central nervous system, as well as the upper airways," wrote Dr. Zanobetti. "…Poor sleep [associated with poor health outcomes] may disproportionately afflict poor urban populations. Our findings suggest that one mechanism for poor sleep and sleep health disparities may relate to environmental pollution levels."

Poor sleep habits have also been shown to increase risk of cardiovascular diseases, so this study presents a kind of double whammy. Not only are people exposed to high levels of microparticle pollution already at risk for heart attack, stroke, and the like, but the pollution is preventing them from sleeping well, exacting yet more punishment on their bodies.

As if we needed another reason to clean up air pollution, this is a pretty good one.

Source: American Thoracic Society, via PhysOrg
Read more in Discovery News

Tuesday, June 15, 2010

AMA: 1 in 5 insurance companies inaccuraely process claim

By DEAN TRAVINSKI - WFAA - June 14, 2010
The nation's largest doctors' group says one in five medical claims is processed inaccurately by commercial health insurers, often leaving physicians shortchanged.
The American Medical Association released its third annual report card on insurers Monday. Medicare performed well in how quickly and accurately it paid doctors.
Commercial insurers such as Aetna Inc. and Anthem Blue Cross matched their payments to what they agreed to pay doctors about 80 percent of the time.
The group's report card is an effort to reduce the cost of claims processing for doctors.
The AMA is meeting in Chicago in its first annual meeting since the passage of President Barack WFAA

Monday, April 19, 2010

Presidential Memorandum - Hospital Visitation

The White House

Office of the Press Secretary

Presidential Memorandum - Hospital Visitation


SUBJECT: Respecting the Rights of Hospital Patients to Receive Visitors and to Designate Surrogate Decision Makers for Medical Emergencies

There are few moments in our lives that call for greater compassion and companionship than when a loved one is admitted to the hospital. In these hours of need and moments of pain and anxiety, all of us would hope to have a hand to hold, a shoulder on which to lean -- a loved one to be there for us, as we would be there for them.

Yet every day, all across America, patients are denied the kindnesses and caring of a loved one at their sides -- whether in a sudden medical emergency or a prolonged hospital stay. Often, a widow or widower with no children is denied the support and comfort of a good friend. Members of religious orders are sometimes unable to choose someone other than an immediate family member to visit them and make medical decisions on their behalf. Also uniquely affected are gay and lesbian Americans who are often barred from the bedsides of the partners with whom they may have spent decades of their lives -- unable to be there for the person they love, and unable to act as a legal surrogate if their partner is incapacitated.

For all of these Americans, the failure to have their wishes respected concerning who may visit them or make medical decisions on their behalf has real onsequences. It means that doctors and nurses do not always have the best information about patients' medications and medical histories and that friends and certain family members are unable to serve as intermediaries to help communicate patients' needs. It means that a stressful and at times terrifying experience for patients is senselessly compounded by indignity and unfairness. And it means that all too often, people are made to suffer or even to pass away alone, denied the comfort of companionship in their final moments while a loved one is left worrying and pacing down the hall.

Many States have taken steps to try to put an end to these problems. North Carolina recently amended its Patients' Bill of Rights to give each patient "the right to designate visitors who shall receive the same visitation privileges as the patient's immediate family members, regardless of whether the visitors are legally related to the patient" -- a right that applies in every hospital in the State. Delaware, Nebraska, and Minnesota have adopted similar laws.

My Administration can expand on these important steps to ensure that patients can receive compassionate care and equal treatment during their hospital stays. By this memorandum, I request that you take the following steps:

1. Initiate appropriate rulemaking, pursuant to your authority under 42 U.S.C. 1395x and other relevant provisions of law, to ensure that hospitals that participate in Medicare or Medicaid respect the rights of patients to designate visitors. It should be made clear that designated visitors, including individuals designated by legally valid advance directives (such as durable powers of attorney and health care proxies), should enjoy visitation privileges that are no more restrictive than those that immediate family members enjoy. You should also provide that participating hospitals may not deny visitation privileges on the basis of race, color, national
origin, religion, sex, sexual orientation, gender identity, or disability. The rulemaking should take into account the need for hospitals to restrict visitation in medically appropriate circumstances as well as the clinical decisions that medical professionals make about a patient's care or treatment.

2. Ensure that all hospitals participating in Medicare or Medicaid are in full compliance with regulations, codified at 42 CFR 482.13 and 42 CFR 489.102(a), promulgated to guarantee that all patients' advance directives, such as durable powers of attorney and health care proxies, are respected, and that patients' representatives otherwise have the right to make informed decisions regarding patients' care. Additionally, I request that you issue new guidelines, pursuant to your authority under 42 U.S.C. 1395cc and other relevant provisions of law, and provide technical assistance on how hospitals participating in Medicare or Medicaid can best comply with the regulations and take any additional appropriate measures to fully enforce the regulations.

3. Provide additional recommendations to me, within 180 days of the date of this memorandum, on actions the Department of Health and Human Services can take to address hospital visitation, medical decisionmaking, or other health care issues that affect LGBT patients and their families.

This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

You are hereby authorized and directed to publish this memorandum in the Federal Register.


Monday, February 8, 2010

Moratorium passes in DISH

DISH, Texas is a giant of a tiny town. Tonight they passed a 90 day moratorium on new drilling permits.

Dish imposes gas drilling moratorium
February 8, 2010
By Peggy Heinkel-Wolfe
Dish town leaders commissioned an ambient air quality study last year, which focused on a complex of natural gas compression facilities on the edge of town and found a host of toxic substances at troubling levels. State environmental officials followed that study with a broader look at a variety of production equipment in the Barnett Shale and found many of the same toxic substances.

Chemist Wilma Subra, together with the Oil and Gas Accountability Project and its Texas chapter, followed Dish’s air quality study with a survey that showed many of the health symptoms residents were experiencing could be associated with exposure to toxic substances. Currently, state health officials have conducted biological samplings and are awaiting lab results from the Centers for Disease Control and Prevention.

The emissions from all the various natural gas infrastructure continue to poison the air in DISH. Mayor Tillman said he is just getting started.

Citizens' Right to Run for Office Challenged by Bank C.E.O.'s Lawsuit

By Faith Chatham - Feb. 12, 2010
The right to compete and let the voters decide has been skewed by influence money. Now in Tarrant County, an independently wealthy candidate is using his ability to out-sue, out litigate, out spend on attorney's fees to chase his opponents out of the primary and/or drain-dry the resources of opponents.

Richard (Dick) N. Abrams filed for Justice of the Peace, Pct.6 in South Fort Worth against two other Democratic opponents. He challenged the petitions of his opponents claiming that all spaces on the form were not filled in or were incorrect. Abrams threatened to sue his opponents and the County Chair if the county chair did not remove their names from the primary ballot. One opponent, John Williams, was disqualified for filing for more than one office. Tarrant County Democratic Chair Steve Maxwell reviewed the challenge and ruled that Ms. Brooks had sufficient valid signatures of registered voters in the precinct to remain on the ballot. Abrams filed a law suit in Tarrant County District Court against Maxwell and Brooks, seeking and injunction to keep her name off the Primary Ballot and all his court costs and legal fees. All judges in Fort Worth are Republicans.

"It is absurd," said Harriet Irby, Ms. Brooks' treasurer. "I don't understand why a Democratic candidate would do this. There are no Democratic judges in Tarrant County. This matter will be settled in a Republican judge's courtroom. He knew that when he filed this suit!" She added: "He seems to be someone who likes to file lawsuits and has plenty of money to easily pay the legal costs. There are a number of them filed by him in recent months. He seems to win about half of them."

There are court records to support Irby's impression of Abrams. He sued Unity Mutual Life Insurance Company over what he claimed was a hand-shake agreement for commissions. When the ruling was that hand-shake agreements ae unenforceable, he appealed it from the U.S. Northern District of Illinois, Eastern Division No 99 C 3182 to the Seventh Circuit U.S. Court of Appeals. All rulings were that his alleged hand-shake agreement for commission on preneed funerals were non-enforceable.

Abrams' lawsuit against Tarrant County Democratic Chair Steve Maxwell and his opponent, Roy LaVerne Brooks, is worded to indicate intentions of appealing any decision which does not remove Ms. Brooks' name from the Democratic Primary Ballot all the way to the Texas Supreme Court (another all Republican body).

Mr. Abrams has established a pattern of using his financial prowess to threaten costly legal action in attempts to intimidate less affluent citizens from exercising their constitutional right to run for public office. At each stage, he threatens further legal battles. In the brief filed by his attorney in Tarrant County District Court further threats of lawsuits and costs if he does not win are included in # 4 on the last page: "Abrams' reasonable and necessary attorney's fees incurred through trial and through any appeal taken to the court of appeals and/or the Texas Supreme Court, as permitted by Chapter 37 of the Texas Uniform Declaratory Judgements Act, or as otherwise recoverable by contract, common law and/or statue;"
and "#5. Prejudgement and post-judgement interest, if any , as provided by law;"
and "#6. All cost of suit;"
and "#7. Such other and further relief, special or general, legal or equitable, to which Abrams may show himself to be justly entitled."


Roy LaVerne Brooks, former Vice Chair of the Texas Democratic Party, is a candidate for Justice of the Peace, Pct. 6 in Tarrant County. Roy's vision is to partner with the community to help prevent some of the situations which bring people into the JP Court. One of her opponents, a billionaire and C.E.O. of Surety Bank, filed a challenge on all of his opponents seeking to get their names removed from the ballot. Abrams alleges that they did not have enough valid signatures on their petitions. One candidate withdrew rather than to fight legal challenges.

The challenge against Roy LaVerne was reviewed by the Tarrant County Democratic Chair. The ruling was that she had sufficient names on her petition of registered voters in the precinct and her name remains on the ballot. Mr. Abrams was not satisfied with that ruling and threatened to sue the party chair and Roy LaVerne. He filed suit in District Court, asking for an injunction to keep Roy's name off the ballot and asking that she pay all his court costs should she lose. Since all judges in Tarrant County are Republicans, he knew that this Democratic Party election case would be tried in a Republican judge's courtroom. Due to snow on the original court date, Fri. Feb. 12th, the hearing has been rescheduled for Friday, Feb. 20, 12 noon in Room 236 of the Tim Curry Court Bldg. in Fort Worth.

In addition to Get Out the Vote and other campaign expense, she is now forced to hire an attorney to defend her right to run for office. Unlike her opponent, Roy LaVerne Brooks is not a woman of independent wealth. She is a hard-working Democratic activist, community organizer, who is employed as a hospice counselor.

Mr. Abrams has the right to pursue legal means, as do all citizens. He is not the only Tarrant County JP candidate to challenge his opponent this year. He is the JP candidate who has already filed lawsuits and refused to accept the ruling of the court this year. He is the one who said he'd sue instead of mediate and whose brief asks the court to have his opponent pay his cost up to and through appeals to the Texas Supreme Court if she loses. He is the candidate whose substantial wealth dwarfs that of his opponent. Just because he has the right to sue and the means to doesn't mean that suing is the right thing to do, or that it is fair for him to. Bigger, stronger "kids" can tell a weaker one what they can do and what they have done. It's intimidating when someone with a history of taking things to the mat has many more resources to arm and fight than you do. When you do something to show your strength to intimidate instead of seeking a fair resolution, that is bullying.

She has strong name recognition in the district and years of community service/activism. Many believe that Mr. Abrams knows that she will probably beat him if the election is fair and if she is given an equal opportunity to take it to the voters. He prefers to bully and sue his way, to attempt to keep his opponent enmeshed in court, attorney's offices and in last minute fundraising to pay court costs.

Mr. Abrams track-record in banking leaves questions about why he is pursuing election as Justice of the Peace. The Dallas Business Journal published an article about the sale of Surety Bank, a financial institution which Mr. Abrams served as C.E.O./C.O.B. from 2000-2007.
The former chairman of Surety Bank, Dick Abrams, remains one of the largest shareholders in Surety Capital Corp., Surety Bank's holding company.But he was barred in June by the Office of the Comptroller of the Currency from engaging in banking and leading the holding company.
The number of shares owned by Abrams is in dispute, but Surety's bankruptcy filings describe Abrams as one of the corporation's largest shareholders and notes that his son, girlfriend and family trust are also significant shareholders. Abrams could not be reached for comment.
Abrams stepped down on Oct. 1 as Surety Capital Corp's chairman. Weiner, another shareholder in the bank, took that role on the condition that Abrams promise not to sue him, Weiner said.
Says Thompson: "He volunteered to do the job that nobody else wanted."
Since then, Weiner has focused on getting the institution sold and getting investors' money out of the institution.
Surety Capital Corp. filed for Chapter 11 bankruptcy protection on Dec. 21.

This Fund Raising Appeal in support of Roy LaVerne Brooks is an appeal to stand up for the right of ordinary Americans to run for public office.

It is an appeal to stand with her against a man who is trying to bully and harass his way onto the General Election ballot instead of campaigning and letting the voters decide.

This is an appeal to help her defend this case in court and defend the right of all citizens to exercise their civil right to participate in the democratic process which is the foundation of our American system.

This is an appeal to let the Voters' Decide who they want as the Democratic Nominee for Justice of the Peace, Pct. 6.

Contributions of ANY AMOUNT are welcome. We welcome contributions as small as your weekly coffee money or as large as you can afford. If you can join us Saturday and show Roy LaVerne that you stand with her, we welcome your presence at the tea.

Contributions can be made securely on-line at BROOKS FOR JP6

THIS IS A CASE OF "I'll Drain You Dry in Court If My Challenge Doesn't Result in You Being Thrown Off of The Ballot."
If Mr. Abrams had a pristine registered voters petition list, we might think he was fighting over principle. However, his petition has more incomplete boxes than Ms. Brooks and many more names of people who live outside the district. If he wins and gets her thrown off the ballot on the grounds he claims in his brief, a counter-suit on the same grounds should result in him being removed from the ballot.

His financial resources are greater than the two other candidates in the race. (John Williams withdrew rather than face the challenge by Richard Abrams.

In June 2000 Richard N. Abrams Richard N. Abrams, Northfield, Illinois filed with the F.D.I.C. to acquire additional voting shares of Surety Capital Corporation, Fort Worth, Texas, and thereby indirectly acquire additional voting shares of Surety Bank, National Association, Fort Worth, Texas.

Surety had problems with the S.E.C. In the Sept. 12, 2001 Share Holder's Report Richard N. Abrams, C.E.O. wrote:

We entered into a formal agreement with the Office of the Controller of Currency in November, 1998. This Formal Agreement still remains in place, although the bank is currently in compliance with all requirements. Hopefully, we will be operating without this Formal Agreement next time I address the shareholders. However, due to the Formal Agreement, the bank can not pay dividends to the holding company. Therefore, we are unable to meet the holding company's financial obligations, i.e., debenture interest and operating expenses. I have guaranteed these payments for 2001. All loans made for this purpose are evidenced by a note payable which is convertible into stock of the holding company at $0.36 per share.

In return for meeting the Holding Company's obligations, Mr. Abrams and the board granted him (them) generous stock options. Surety's 2001 Stock Holder's Report showed Richard N. Abrams, age 60, as a Chairman of the Board, Director and C.E.O. since 2000. His bio at that time was:
RICHARD N. ABRAMS has served as a director of Surety Capital since May 2000 and was named Chairman of the Board of Directors and Chief Executive Officer in March 2001. He has served as Chairman of the Board and Chief Executive Officer of Funeral Financial Systems, Ltd. (a special purpose finance company that specializes in the funeral industry) since August 1985, and of Executive Offices, Ltd. (a shared office building) since October 1986. Mr. Abrams has also served as Chairman of the Board of FuneraLeasing, Ltd. (a leasing company that specializes in the funeral industry) since December 1998. Mr. Abrams is a certified public accountant. Mr. Abrams has served as a director of Surety Bank since March 2000.

It baffles many who are watching this race. Why would a man with Richard Abrams financial interest run for Justice of the Peace??? Few can envision him actually sitting in a Justice of the Peace courtroom five days a week listening to truancy and eviction cases? Why is he doing this?

Abrams grabs power in troubled by exercising stock options.
His relative, Rodney Abrams, also increased his bank s

Following an S.E.C. investigation on Surety Holding's insurance division, this notice was sent to Surety Bank Stock Holders (signed by Richard N. Abrams, C.E.O.):

We entered into a formal agreement with the Office of the Controller of Currency in November, 1998. This Formal Agreement still remains in place, although the bank is currently in compliance with all requirements. Hopefully, we will be operating without this Formal Agreement next time I address the shareholders. However, due to the Formal Agreement, the bank can not pay dividends to the holding company. Therefore, we are unable to meet the holding company's financial obligations, i.e., debenture interest and operating expenses. I have guaranteed these payments for 2001. All loans made for this purpose are evidenced by a note payable which is convertible into stock of the holding company at $0.36 per share.

Mr. Abrams acquired an option on stock at a fixed $0.36 per share which he could exercise after the price of the stock rose.


Surety Capital's and Surety Bank's board of directors consist of the same members and both organizations hold meetings on the same dates. In 2000, the bank paid each director $500 for each bank meeting attended. In 2001, the cash compensation was stopped and each outside director now will receive 2,000 shares of unregistered common stock for each board meeting attended and 1,000 shares for each committee meeting attended.

We have adopted the 1996 Stock Option Plan for Directors and the 1997 Non-Qualified Stock Option Plan for Non-Employee Directors. Under the 1996 and 1997 Directors Plans, an aggregate of 250,000 shares of our common stock were set aside for issuance pursuant to the exercise of options granted thereunder. The 1996 Directors Plan is a formula plan pursuant to which annual options are automatically granted to our directors who are not our employees at fair market value. All options under the 1996 Directors Plan are non-qualified stock options, and vest one year following the date of grant. On the first business day of each calendar year, each non-employee director is automatically granted an option to purchase 2,000 shares of our common stock at 100% of fair market value on the grant date.

2000, each non-employee director received an option to purchase 2,000 shares of our common stock at an exercise price of $0.74 per share. The 1997 Directors Plan provided for the one time grant of 25,000 non-qualified stock options to directors who were not employees at fair market value. In 1997, each non-employee director received an option to purchase 25,000 shares of our common stock at exercise prices ranging from $4.18 to $5.375 per share. These options vest over five years.

We also adopted the 2000 Non-Qualified Stock Option Plan for advisory directors. Under the provisions of the plan, 100,000 shares were allocated for non-qualified stock options to advisory directors. Grantees are awarded 10-year options to acquire shares at the market price on the date the option is granted. The options vest and become fully exercisable based on a vesting schedule as determined by the compensation committee on the date of grant. On November 6, 2000, grantees were awarded options to acquire 28,000 shares of our common stock at $0.55 per share, which vest and become fully exercisable on November 6, 2001.

Abrams capitalized on the bank's situation:
In addition, in consideration for the extraordinary time and effort the members of the board of directors have given to the company and the bank, various members of the board were awarded shares of unregistered common stock at the August, 2001 board meeting. The awards were as follows: Mr. Abrams received 400,000 shares, Mr. Chappell received 60,000 shares, Mr. Bley received 30,000 shares, Mr. Kwentus received 15,000 shares and Mr. Morris received 10,000 shares. Mr. Abrams also received shares of restricted stock which will vest upon certain events. Pursuant to the grant, Mr. Abrams will receive 300,000 shares of common stock when the Office of the Comptroller of the Currency terminates the formal agreement entered into by Surety Bank prior to Mr. Abrams' affiliation; 200,000 shares if he remains as the Chief Executive Officer until the end of the 2002 fiscal year; and he will receive one share of common stock for every $3.00 of net profit realized by Surety Bank, as determined on a quarterly basis with a maximum of 400,000 shares over any two year period.

The following table shows beneficial ownership of shares of our common stock by all current directors, nominees for director and named executive officers individually, and together with all current executive officers of the Company as a group, as of August 28, 2001:

Amount and
Name of Individual Nature of
or Number of Beneficial Percent
Persons In Group Ownership (1) of Class (2)
Richard N. Abrams 1,266,744(3) 16.2%

Charles M. Ireland 44,583(4) *

Garrett Morris 166,749(5) 2.2%

David F. Chappell 115,555(6) 1.5%

Thomas J. Kwentus 17,777 *

Guy J. Butts 0 --

Milton M. Bley 99,000(7) 1.1%

All directors and 1,710,408(8) 21.6%
executive officers as
a group (7 persons

-------------------- * Less than 1% of all the issued and outstanding shares of common stock.

(2) Based on 7,624,511 shares of common stock issued and outstanding at August 28, 2001, as adjusted for shares convertible or exercisable within sixty (60) days which are deemed outstanding for a specific stockholder pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of 1934.

(3) Includes 184,444 shares of common stock which are convertible from notes and 2,000 shares which Mr. Abrams has the right to acquire within sixty (60) days from the date hereof. Also includes 65,100 shares owned by Funeral Financial Systems, Ltd., a company under the control of Mr. Abrams. Does not include the restricted stock described on page 5.

(4) Includes 33,333 shares of common stock which Mr. Ireland has the right to acquire within sixty (60) days from the date hereof.

(5) Includes 19,000 shares of common stock which Mr. Morris has the right to acquire within sixty (60) days from the date hereof.

(6) Includes 55,000 shares of common stock which Mr. Chappell has the right to acquire within sixty (60) days from the date hereof.

The following table sets forth certain information with respect to our stockholders who were known to be beneficial owners of more than five percent (5%) of the issued and outstanding shares of the common stock as of August 28, 2001, except for Richard N. Abrams, whose ownership interest is disclosed in the preceding table.

Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial of Class(2)
Carlson Capital, L.P. (3) 519,300 6.8%
301 Commerce Street, Suite 3300
Fort Worth, Texas 76102

Pine Capital Management, Incorporated(4) 528,647 6.9%
353 Sacramento Street, 10th Floor
San Francisco, California 94111

Cullen W. Turner(5) 471,377 6.2%

Rodney A. Abrams(6) 575,055 7.5%

With his relative, Rodney Abrams' shares, Richard N. Abrams controlled more Surety stock than the rest of the board combined by August 2001

Questions about his employment status
In January and February 2007 he made Federal Campaign contributions and listed "retired" as his employment status on the donor cards. In March 2007 he lists CEO Mortuary Financial on another Federal Campaign donor card. On June 11, 2007 the Comptroller of the Currency issued a cease and desist order to Surety Bank, National Association, Fort Worth, Richard N. Abrams, C.E.O.

S.E.C. Investigations and Cease and Desist Orders
In 2001, Surety's S.E.C. difficulties were attributed to his predecessor. However, in 2007 when Surety was issued a Cease and Desist Order by the Comptroller of the Currency, Richard N. Abrams has been at the helm of Surety Bank of Fort Worth and Surety Holding for seven years. Difficulties could no longer be attributed to any failure of leadership other than his own. He was the major stockholder and controlled more voting shares than any other member of the Board.

Saturday, October 24, 2009

Small Business Faces Sharp Rise in Costs of Health Care

By REED ABELSON - The New York Times - October 24, 2009
As Congress nears votes on legislation that would overhaul the health care system, many small businesses say they are facing the steepest rise in insurance premiums they have seen in recent years.

Insurance brokers and benefits consultants say their small business clients are seeing premiums go up an average of about 15 percent for the coming year — double the rate of last year’s increases. That would mean an annual premium that was $4,500 per employee in 2008 and $4,800 this year would rise to $5,500 in 2010.

The higher premiums at least partly reflect the inexorable rise of medical costs, which is forcing Medicare to raise premiums, too. Big employers are also seeing higher health insurance bills, but because they have more negotiating clout, their increases are generally not as steep.

Higher medical costs aside, some experts say they think the insurance industry, under pressure from Wall Street, is raising premiums to get ahead of any legislative changes that might reduce their profits.

The increases come at a politically fraught time for the insurers, as they try to fight off the creation of a government-run competitor and as they push their case that they have a central role to play in controlling the nation’s health care costs.

President Obama, in his Saturday radio address, said the Democrats’ health insurance overhaul would help small businesses and stimulate the economy by providing relief from “the crushing costs of health care — costs that have forced too many small businesses to cut benefits, shed jobs, or shut their doors for good.”

The insurance industry has already been under sharp attack by Democratic lawmakers who favor creating a government-run insurance plan that would compete with private insurers. Without that competition, proponents say, insurers will continue to price coverage beyond the reach of many Americans.

The House speaker, Nancy Pelosi of California, said the sharp rise in premiums for small businesses offered the latest evidence that Congress must act swiftly on health care legislation.

“This underlines the urgent need for health insurance reform, including a public option,” she said in an interview. “We need to have competition for the insurance companies to keep premiums down.”

Insurers vehemently oppose a government-run insurance plan. So do most Republicans, who traditionally portray themselves as champions of small business.

They, with the insurers, argue that the proposed legislation would raise premiums across the board because sick people would be more likely to enroll than healthy people. They also say the taxes and other ways of paying for the program would be passed on to employers and their workers in higher premiums.

The minority leader, Mitch McConnell, Republican of Kentucky, said in a response to the president’s radio address, “We can’t support a bill that will raise premiums.” The big insurance companies declined to comment.

With negotiations over next year’s premiums still under way between some small companies and insurers, data on rate increases are mostly anecdotal. Formal surveys have not yet been completed by the health benefits consultants who track the figures. And in some parts of the country, experts say they are not seeing overly high rates.

But benefits consultants say there is no doubt that many small businesses are seeing a spike in premiums. Edward Kaplan, a consultant with the Segal Company, said his clients are seeing renewals for coverage at prices 15 to 23 percent higher this year. Last year, he said, they typically faced increases of 7 to 12 percent.

The brokers and consultants say the price jumps seem hard to justify. “Frankly, I’m mystified by the size of the increases,” said one broker, Charles J. Newman, who works with small employers in the New York area.

Some say the threat of an overhaul may be at least part of the reason. Joshua Miley, a consultant with HighRoads, which analyzes benefit information for employers, said the “undercurrent of health reform is driving part of the renewal increases.”

HighRoads projects that premiums will rise 14.4 percent for an individual in a health maintenance organization plan at a typical small employer.

There is no question that insurers are under pressure from Wall Street. In recent years, insurers were often not quick enough to raise their premiums well above the rising cost of medical care.

But they have heard from angry investors who disappointed by the companies’ earnings.

“There’s no one out there who hasn’t had to do a mea culpa to Wall Street,” said Sheryl Skolnick, an analyst for Pali Capital who follows the companies. While the industry is particularly vulnerable now in Washington, she said, “it seems like they’re more afraid of Wall Street.”

Michael A. Turpin, a former senior executive for UnitedHealth, the insurer, and now a top official at USI Holdings, an insurance brokerage firm, said insurers were now “under so much pressure to post earnings, they’re going to make hay while the sun is shining.”

Along with many Republican lawmakers, the insurers say the current Congressional proposals do too little to address the underlying reasons for high premiums — the unabated rise in medical costs and effects of a weak economy. Hospitals, for example, have been treating greater numbers of people who have lost their jobs and their insurance, and they are passing along some of those costs by charging higher prices to private insurers.

The industry also points to low government payments to hospitals and doctors, which insurers say result in higher prices for employer-based coverage to make up for the shortfall.

In an analysis released two weeks ago by the industry’s trade association, America’s Health Insurance Plans, insurers said premiums would rise even faster under the legislation under study in Congress — an assessment fiercely disputed by Democratic Congressional leaders and some health care economists but shared by many Republicans.

Of course, the mere mention of profit pressures tend only to galvanize supporters of a Congressional health care overhaul.

Small businesses, besides having less negotiating leverage than big employers, tend to pay more for the same coverage because they cannot spread the cost of expensive medical conditions or hospitalizations over large numbers of workers. Premiums can be especially high if they have sick or older workers.

Small businesses, which employ about 40 percent of the private labor force, are a big constituency for both parties. And they have long complained they are forced to pay more for the same coverage as large employers.

Owners of small companies say the lack of options is why they have been paying increasingly higher premiums for less and less coverage — this year perhaps more than ever.

In August, when Walter Rowen, who owns Susquehanna Glass in Columbia, Pa., sought to renew his company’s coverage for two dozen employees, he said his insurer demanded a 160 percent rate increase. Mr. Rowen said he was told his work force was “getting too old and very expensive.”

Mr. Rowen said his insurance broker found that any other health plan was likely to charge 30 to 50 percent more than he paid last year. He chose a less generous plan from a different carrier for 44 percent more.

David M. Herszenhorn contributed reporting.
Read more in The New York Times

Wednesday, October 14, 2009

Is a Virus the Cause of Fatigue Syndrome?

By DENISE GRADY - The New York Times - October 12, 2009
Could a virus be the cause of chronic fatigue syndrome?

A study published last week in the journal Science suggested that might be the case, reporting that many patients who had the syndrome were infected with a recently discovered virus.

Chronic fatigue syndrome has long been a medical mystery and the subject of debate, sometimes bitter, among doctors, researchers and patients. It affects at least one million Americans, causing extreme fatigue, muscle and joint pain, sleep problems, difficulty concentrating and other symptoms. Its cause is unknown, symptoms can last for years and there is no effective treatment. Researchers disagree about whether it is one disease or a collection of symptoms that may have different causes in different patients. It has sometimes been stigmatized as more mental than physical, with patients labeled neurotic, depressed or hypochondriacal. Many patients find even the name of the disorder offensive, a not-so-subtle hint that it is not a real disease.

The new report has intrigued scientists, been seen as vindication by some patients and inspired hope for a treatment.

“I just feel like the whole future has changed for us,” said Anne Ursu, 36, a writer living in Cleveland who has had the syndrome in the past.

But the new study is not conclusive, and a great deal of work remains to be done to find out whether the new virus really does play a role. Just detecting it in patients does not prove it is what made them sick; people with the syndrome may have some other underlying problem that makes them susceptible to the virus, which could be just a passenger in their cells.

Even so, thousands of patients have already contacted scientists, asking to be tested, said Dr. Judy Mikovits, the first author of the study and the research director at the Whittemore Peterson Institute in Reno, a research center created by the parents of a woman who has the syndrome. Dr. Mikovits said she expected a test to become available “within weeks.”

The new suspect is a xenotropic murine leukemia virus-related virus, or XMRV, which probably descended from a group of viruses that cause cancer in mice. How or when XMRV found its way into humans is unknown. But it has also been linked to cancer in people: it was first identified three years ago, in prostate cancer, and later detected in about one-quarter of biopsies from men with that disease (and in only 6 percent of benign biopsies). It is a retrovirus, from the same notorious family that causes AIDS and leukemia in people.

Dr. Mikovits and researchers from the National Cancer Institute and the Cleveland Clinic reported in Science that 68 of 101 patients with chronic fatigue syndrome, or 67 percent, were infected with XMRV, compared with only 3.7 percent of 218 healthy control subjects. Further testing after the paper was written found the virus in nearly 98 percent of about 300 patients with the syndrome, Dr. Mikovits said.

She said she believed that the virus would eventually be found in every patient with chronic fatigue syndrome. XMRV affects the immune system, can probably cause a variety of illnesses and may join forces with other viruses to bring on the syndrome, she said.

The study received a mixed review from Dr. William C. Reeves, who directs public health research on the syndrome at the Centers for Disease Control and Prevention. He called the research exciting but preliminary, and said he was surprised that a prestigious journal like Science had published it, because the researchers did not state the ages or sex of the patients and controls, or describe the duration of the illness or how it came on.

“If I don’t know the nature of the cases and controls, I can’t interpret the findings,” Dr. Reeves said.

“We and others are looking at our own specimens and trying to confirm it,” he said, adding, “If we validate it, great. My expectation is that we will not.”

He noted that there had been false starts before, including a study in the 1990s linking the syndrome to another retrovirus, which could not be confirmed by later research.

Many patients and a community of doctors and researchers who specialize in the syndrome take issue with the disease centers’ approach to the illness and the way it defines who is affected. They claim that the C.D.C. includes people whose problems are purely psychiatric, muddying the water and confounding efforts to find a physical cause.

Frustration with the lack of answers led Annette and Harvey Whittemore, whose 31-year-old daughter has had the syndrome for 20 years, to spend several million dollars to set up a research institute at the University of Nevada in Reno in 2004, and to hire Dr. Mikovits to direct it.

Mrs. Whittemore said she had long believed that the syndrome was an infectious disease, but that scientists had rejected the idea.

She finally decided, she said, “if there was a place of our own where we could find the answers, we could do it more quickly.”

Dr. William Schaffner, an infectious disease expert at Vanderbilt University, said that the notion of a lingering viral infection was plausible. He said that although some patients claiming to have the syndrome seemed more likely to have a psychological problem, others seemed to have a physical illness.

“There is a group who are young, healthy, active and engaged, and all of a sudden they are laid low by something,” Dr. Schaffner said. “Everyone tells the physicians these are people who are functional and productive, and this is totally out of character. They are frustrated and often quite disheartened. You feel that medical science hasn’t caught up with their illness yet.”

To determine whether XMRV is to blame, more studies are needed, said Dr. John Coffin, a professor of molecular biology and microbiology at Tufts University. It would help to find an animal model, he said, and to look at stored blood samples to find out if there were people who became ill some set amount of time after contracting the virus. If antiviral drugs make patients improve, that will also help make the case against the virus, he said.

The National Cancer Institute is taking XMRV seriously, said Dr. Stuart Le Grice, head of its Center of Excellence in HIV/AIDS and Cancer Virology.

He said health officials became especially concerned last spring when several research teams looking at prostate cancer reported finding XMRV in 3 percent to 4 percent of blood samples from healthy people in control groups. That could translate into 10 million American being infected with a newly discovered, poorly understood retrovirus that has already been linked to two diseases.

“Any virus at that level is obviously cause for concern,” Dr. Le Grice said, adding that it was important to find out if the virus was associated with any more diseases, and how closely.

He said that just carrying the virus did not necessarily mean a person was at high risk for disease, noting that people may harbor other viruses that will never harm them. The immune system probably keeps the viruses in check.

But he asked: “If it is a problem, how well can we diagnose it and how well can we treat it?”

Even though antiretroviral drugs have already been developed to treat H.I.V. infection, he said this virus was different and might need its own line of drugs.

He said more studies were needed to find out how common the virus is and how it is being transmitted. It is not known whether people can catch the disease from mice, or can infect one another. Retroviruses are often spread by blood and bodily fluids.

“How significant a risk is this to blood banks?” Dr. Le Grice asked. “Do we need to consider large-scale screening in blood banks?”

He said the institute would be working to develop reliable diagnostic tests.

Dr. Le Grice emphasized that there is no evidence that the virus is spreading through the population.

“I don’t want to scare anyone at the moment,” he said.

Read more in the New York Times

Thursday, September 10, 2009

Statement Of Hank Gilbert Following The President’s Healthcare Address

By Hank Gilbert - - Sept. 9, 2009
TYLER—Hank Gilbert (D-Whitehouse), a candidate for Texas Governor, issued the following statement at the conclusion of the President’s healthcare address tonight:
“Texas has a higher percentage of its citizens living without health insurance than any other state in the nation. Instead of working constructively to do something about this problem, Governor Perry and Senator Hutchison behave like children on a school playground—each one peevishly blaming the other for our state’s problems. Or Washington. Or the 10th Amendment. Basically, doing anything BUT acknowledging their own failure and disregard for their fellow Texans.

One thing you also haven’t heard them say is how they’ll solve the health insurance crisis in Texas. Whether or not the President’s national healthcare plan becomes a reality, we have to do something about health insurance in Texas. We lead the nation in the number of uninsured children. We rank 46th out of the 50 states when it comes to the number of people covered by employer-funded healthcare plans.

That’s inexcusable. During the 24 years Rick Perry has held public office, and during the 18 years Kay Bailey Hutchison has held statewide office, neither has demonstrated the courage Texas needs to pull our state up by the bootstraps from the health insurance sinkhole. These two have more than four decades of government experience between them, and this is the best we get? Allowing health insurance lobbyists to control the agenda in their offices? Campaign coffers filled with money from health insurance interests?

I applaud the folks in Washington who are trying to do something to ease healthcare costs in an effort to help small businesses and ordinary Texans who have been abused for decades by greedy insurance companies. Insurance companies need aggressive competition and fair but strict regulation so consumers are protected and prices don’t skyrocket out of reach of ordinary Texans. Here in Texas, the first step toward making sure that happens is reforming the Texas Department of Insurance. As your governor, I will transform this agency, in cooperation with the Legislature, to make the Texas Insurance Commissioner an elected office held accountable to the voters, and not the governor.”

Sunday, September 6, 2009

Wall Street Pursues Profit in Bundles of Life Insurance

By JENNY ANDERSON - The New York Times - September 5, 2009
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.

“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media.

In the aftermath of the financial meltdown, exotic investments dreamed up by Wall Street got much of the blame. It was not just subprime mortgage securities but an array of products — credit-default swaps, structured investment vehicles, collateralized debt obligations — that proved far riskier than anticipated.

The debacle gave financial wizardry a bad name generally, but not on Wall Street. Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products.

In addition to securitizing life settlements, for example, some banks are repackaging their money-losing securities into higher-rated ones, called re-remics (re-securitization of real estate mortgage investment conduits). Morgan Stanley says at least $30 billion in residential re-remics have been done this year.

Financial innovation can be good, of course, by lowering the cost of borrowing for everyone, giving consumers more investment choices and, more broadly, by helping the economy to grow. And the proponents of securitizing life settlements say it would benefit people who want to cash out their policies while they are alive.

But some are dismayed by Wall Street’s quick return to its old ways, chasing profits with complicated new products.

“It’s bittersweet,” said James D. Cox, a professor of corporate and securities law at Duke University. “The sweet part is there are investors interested in exotic products created by underwriters who make large fees and rating agencies who then get paid to confer ratings. The bitter part is it’s a return to the good old days.”

Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout.

But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.

“When they set their premiums they were basing them on assumptions that were wrong,” said Neil A. Doherty, a professor at Wharton who has studied life settlements.

Indeed, Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies.

Critics of life settlements believe “this defeats the idea of what life insurance is supposed to be,” said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. “It’s not an investment product, a gambling product.”

After Mortgages

Undeterred, Wall Street is racing ahead for a simple reason: With $26 trillion of life insurance policies in force in the United States, the market could be huge.

Not all policyholders would be interested in selling their policies, of course. And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment.

But even if a small fraction of policy holders do sell them, some in the industry predict the market could reach $500 billion. That would help Wall Street offset the loss of revenue from the collapse of the United States residential mortgage securities market, to $169 billion so far this year from a peak of $941 billion in 2005, according to Dealogic, a firm that tracks financial data.

Some financial firms are moving to outpace their rivals. Credit Suisse, for example, is in effect building a financial assembly line to buy large numbers of life insurance policies, package and resell them — just as Wall Street firms did with subprime securities.
The bank bought a company that originates life settlements, and it has set up a group dedicated to structuring deals and one to sell the products.

Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.

Spokesmen for Credit Suisse and Goldman Sachs declined to comment.

If Wall Street succeeds in securitizing life insurance policies, it would take a controversial business — the buying and selling of policies — that has been around on a smaller scale for a couple of decades and potentially increase it drastically.

Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.

Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay.

But the industry has been plagued by fraud complaints. State insurance regulators, hamstrung by a patchwork of laws and regulations, have criticized life settlement brokers for coercing the ill and elderly to take out policies with the sole purpose of selling them back to the brokers, called “stranger-owned life insurance.”

In 2006, while he was New York attorney general, Eliot Spitzer sued Coventry, one of the largest life settlement companies, accusing it of engaging in bid-rigging with rivals to keep down prices offered to people who wanted to sell their policies. The case is continuing.

“Predators in the life settlement market have the motive, means and, if left unchecked by legislators and regulators and by their own community, the opportunity to take advantage of seniors,” Stephan Leimberg, co-author of a book on life settlements, testified at a Senate Special Committee on Aging last April.

Tricky Predictions

In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected.

It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.

It happened again last fall when companies that calculate life expectancy determined that people were living longer.

The challenge for Wall Street is to make securitized life insurance policies more predictable — and, ideally, safer — investments. And for any securitized bond to interest big investors, a seal of approval is needed from a credit rating agency that measures the level of risk.

In many ways, banks are seeking to replicate the model of subprime mortgage securities, which became popular after ratings agencies bestowed on them the comfort of a top-tier, triple-A rating. An individual mortgage to a home buyer with poor credit might have been considered risky, because of the possibility of default; but packaging lots of mortgages together limited risk, the theory went, because it was unlikely many would default at the same time.

While that idea was, in retrospect, badly flawed, Wall Street is convinced that it can solve the risk riddle with securitized life settlement policies.

That is why bankers from Credit Suisse and Goldman Sachs have been visiting DBRS, a little known rating agency in lower Manhattan.

In early 2008, the firm published criteria for ways to securitize a life settlements portfolio so that the risks were minimized.

Interest poured in. Hedge funds that have acquired life settlements, for example, are keen to buy and sell policies more easily, so they can cash out both on investments that are losing money and on ones that are profitable. Wall Street banks, beaten down by the financial crisis, are looking to get their securitization machines humming again.

Ms. Tillwitz, an executive overseeing the project for DBRS, said the firm spent nine months getting comfortable with the myriad risks associated with rating a pool of life settlements.

Could a way be found to protect against possible fraud by agents buying insurance policies and reselling them — to avoid problems like those in the subprime mortgage market, where some brokers made fraudulent loans that ended up in packages of securities sold to investors? How could investors be assured that the policies were legitimately acquired, so that the payouts would not be disputed when the original policyholder died?

And how could they make sure that policies being bought were legally sellable, given that some states prohibit the sale of policies until they have been in force two to five years?

Spreading the Risk

To help understand how to manage these risks, Ms. Tillwitz and her colleague Jan Buckler — a mathematics whiz with a Ph.D. in nuclear engineering — traveled the world visiting firms that handle life settlements. “We do not want to rate a deal that blows up,” Ms. Tillwitz said.

The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet.

As an added precaution, DBRS would run background checks on all issuers. Also, a range of quality of life insurers would have to be included.

To test how different mixes of policies would perform, Mr. Buckler has run computer simulations to show what would happen to returns if people lived significantly longer than expected.

But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed?

If the computer models were wrong, investors could lose a lot of money.

As unlikely as those assumptions may seem, that is effectively what happened with many securitized subprime loans that were given triple-A ratings.

Investment banks that sold these securities sought to lower the risks by, among other things, packaging mortgages from different regions and with differing credit levels of the borrowers. They thought that if house prices dropped in one region — say Florida, causing widespread defaults in that part of the portfolio — it was highly unlikely that they would fall at the same time in, say, California.

Indeed, economists noted that historically, housing prices had fallen regionally but never nationwide. When they did fall nationwide, investors lost hundreds of billions of dollars.

Both Standard & Poor’s and Moody’s, which gave out many triple-A ratings and were burned by that experience, are approaching life settlements with greater caution.

Standard & Poor’s, which rated a similar deal called Dignity Partners in the 1990s, declined to comment on its plans. Moody’s said it has been approached by financial firms interested in securitizing life settlements, but has not yet seen a portfolio of policies that meets its standards.

Investor Appetite

Despite the mortgage debacle, investors like Andrew Terrell are intrigued.

Mr. Terrell was the co-head of Bear Stearns’s longevity and mortality desk — which traded unrated portfolios of life settlements — and later worked at Goldman Sachs’s Institutional Life Companies, a venture that was introducing a trading platform for life settlements. He thinks securitized life policies have big potential, explaining that investors who want to spread their risks are constantly looking for new investments that do not move in tandem with their other investments.

“It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes,” Mr. Terrell said.

Some academics who have studied life settlement securitization agree it is a good idea. One difference, they concur, is that death is not correlated to the rise and fall of stocks.

“These assets do not have risks that are difficult to estimate and they are not, for the most part, exposed to broader economic risks,” said Joshua Coval, a professor of finance at the Harvard Business School. “By pooling and tranching, you are not amplifying systemic risks in the underlying assets.”

The insurance industry is girding for a fight. “Just as all mortgage providers have been tarred by subprime mortgages, so too is the concern that all life insurance companies would be tarred with the brush of subprime life insurance settlements,” said Michael Lovendusky, vice president and associate general counsel of the American Council of Life Insurers, a trade group that represents life insurance companies.

And the industry may find allies in government. Among those expressing concern about life settlements at the Senate committee hearing in April were insurance regulators from Florida and Illinois, who argued that regulation was inadequate.

“The securitization of life settlements adds another element of possible risk to an industry that is already in need of enhanced regulations, more transparency and consumer safeguards,” said Senator Herb Kohl, the Democrat from Wisconsin who is chairman of the Special Committee on Aging

DBRS agrees on the need to be careful. “We want this market to flourish in a safe way,” Ms. Tillwitz said.

Read more in The New York Times

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