Junkets and Jobs: How the Insurance Industry Courts State Commissioners

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When the Arkansas insurance commissioner weighed the merits of a hospital’s billing complaint against United Healthcare, her interactions with one of the nation’s largest health insurers extended far beyond her department’s hearing room.

During months of deliberations, Commissioner Julie Benafield Bowman met repeatedly with United Healthcare lawyers and lobbyistsover lunch and drinks at venues such as the Country Club of Little Rock.

“I had a blast with you Monday night,” Benafield emailedUnited Healthcare lawyer Bill Woodyard, himself a former state insurance commissioner. “Thank you so much for entertaining us.”

Commissioner Benafield ultimately decided the case in United Healthcare’s favor — a 2008 ruling that stood to save the company millions of dollars. Nearly two years later, by the time a judge vacated the commissioner’s orders because there was “an appearance of impropriety in the proceedings,” Benafield had moved on: She was working for United Healthcare, having joined at least three of her predecessors representing insurers in Arkansas.

It’s a common career move. An investigation by the Center for Public Integrity found that half of the 109 insurance commissioners who have left their posts in the last decade have gone on to work for the industry they used to regulate — many leaving before their terms expire. Just two moved into consumer advocacy.

The revolving door swings in the other direction, too. For almost a year, Connecticut’s insurance commissioner was overseeing a merger involving a company where she had been a lobbyist. She recused herself last month amid a state ethics review.

Consumer advocates and some commissioners say the tight bond between regulators and industry — reinforced by campaign contributions, lavish dinners and the prospect of future employment — diminishes consumers’ voices as insurers press rate increases, shape regulations and scuttle investigations.

“It’s very difficult at times to take a stand for consumers and have your voice heard,” said Sally McCarty, a former Indiana commissioner and retired consumer advocate. “A lot of commissioners don’t bother doing that for that reason — and they don’t want to alienate the industry. …Many people consider the job an audition for a better-paying job.”

Insurers counter that the industry is highly regulated and their lobbying efforts are key to informing commissioners and other policymakers who oversee a part of the financial sector that touches millions of Americans’ lives.

“It is crucial for commissioners and other state and federal policymakers to understand the products and services we provide to people,” said Jack Dolan, a spokesman for the American Council of Life Insurers. “The information we provide and the perspectives we share must always be credible, trustworthy and follow the letter and spirit of the law.”

The stakes are enormous.

Because Congress has long left regulation of the insurance industry to the states, these little-known regulators, one per state, wield immense power over one of the largest segments of the U.S. economy. Charged chiefly with protecting consumers, commissioners review rate changes, investigate complaints and make sure insurers have enough money to pay claims.

Their decisions impact nearly every American. Most people are required to carry some form of insurance: auto, home, health. And yet, most commissioners operate outside public view, sometimes exempted from disclosure requirements that cover other state officials and often ignored by the decimated statehouse press corps.

‘It impresses our clients’

The cozy relationships between regulators and industry were revealed in the Center for Public Integrity’s review of lobbyist reports, regulator financial disclosures, campaign finance records and more than 3,700 pages of emails obtained through open records laws in 13 states.

At least four commissioners had direct financial ties to the industry, with New Jersey’s top regulator selling his insurance stocks — prohibited investments under state ethics laws — only after an inquiry from the Center for Public Integrity.

Many more have accepted thousands of dollars in trips to lavish conferences sponsored by insurance companies and their trade groups in locales like The Sanctuary Hotel on Kiawah Island, South Carolina, and the Four Seasons in Jackson Hole, Wyoming.

Multiple commissioners rely on industry campaign contributions. Over the past decade, insurance companies and their employees were among the top political donors to commissioner candidates in at least six of the 11 states that elect regulators, according to data collected by the National Institute on Money in State Politics. Four of those 11 states ban contributions from the insurance industry.

Above all, there is a steady drumbeat of lobbyists wining and dining commissioners in state capitals. Often, the ones picking up the tab are former insurance commissioners themselves.

In Mississippi, George Dale, who served as commissioner for more than three decades before becoming a lobbyist, represents at least two insurers, including Allstate Corp. Eight years after he left office, department staffers still address him as “Commissioner,” keep him abreast of employees’ birthdays and retirements and share internal reports on legislative developments, according to the documents obtained by the Center for Public Integrity.

In an interview, Dale said that his close ties with the department were the inevitable result of his 32-year tenure. “They’re friends of mine,” he said. “If that’s wrong, I’m guilty.”

Allstate declined to comment.

Emails from other states also show personal relationships between regulators and insurance representatives, who share dinner invitations, family news and friendly sports wagers.

“It gets at the whole integrity of the process,” said Bob Hunter, a former Texas commissioner who runs the insurance program for the advocacy group Consumer Federation of America. “It raises among the public more and more doubt about the honesty of government and about government generally.”

Crossing the line

While several current and former insurance commissioners lament the outsize influence of the industry, they reject the notion that coziness breeds corruption. Instead, they see the close relationship with insurers as critical in a complex, fast-moving industry.

“Access gets you in the door,” said Chaney, the Mississippi commissioner. “But it doesn’t mean you’re going to get any better treatment than anybody else.”

To counter industry influence, the National Association of Insurance Commissioners pays for a small group of consumer advocates to attend its meetings, where regulators set insurance standards and draft model laws.

“State insurance regulators are committed to their shared dual responsibilities of consumer protection and the regulation of insurance company solvency,” said NAIC President John Huff, who is also director of the Missouri Department of Insurance.

But some commissioners have crossed the line.

In California, a commissioner resigned in 2000 after allegations that he drafted secret settlements with insurance companies that required the firms to contribute to his nonprofit foundations rather than face hundreds of millions of dollars in fines for mishandling claims. In Oklahoma, the top regulator resigned just before his impeachment trial in 2004 and was later convicted of embezzlement and pleaded no contest to accepting bribes from an insurance executive. In New Mexico, the insurance superintendent left office in 2006 after a series of controversies, including intervening in his daughter’s car accident claim to get a larger payout.

The consequences for consumers are even larger today as commissioners have seen their role expand in recent years; they are now the state gatekeepers for Obamacare, interpreting and implementing key portions of the federal health care law.

The regulators are also tasked with reviewing mergers, making sure the deals do not restrict competition and harm consumers. As millions of Americans face rising health care premiums, two such deals now under consideration — Aetna-Humana and Cigna-Anthem — would shrink the major players in U.S. health insurance from five to three.

‘We are in real danger here’

Often underfunded and understaffed, commissioners face a number of political and financial headwinds.

Because most are appointed officials serving at the pleasure of a governor, turnover is high. According to a Center for Public Integrity analysis, the median tenure of a commissioner is less than four years.

On average, NAIC data from last year show 6 percent of the annual revenues collected by insurance departments were spent on regulation — well below the 10 percent that the Consumer Federation of America says is needed to keep pace with insurers. In most cases, the rest of the money is deposited into states’ general funds and used for other government services.

The workload is considerable. At best, when everyone from secretaries to the commissioners is taken into account, each employee of the average department oversaw 14 insurance companies and 1,150 agents.

Consumer advocates say all of this leaves policyholders vulnerable as insurers incorporate more and more personal data — including social media posts — into their assessments and create more complex insurance products.

Life insurance companies, for example, are expected to use new accounting standards next year that will allow them to maintain smaller reserves, a move that will likely boost shareholder dividends. But consumer advocates say that without actuaries and financial experts, insurance departments will be hard-pressed to ensure companies can pay consumers’ claims.

Some say the limited oversight is the result of a lack of resources, but also a lack of political will.

For many states, insurance companies are economic development engines as well as cash cows for state coffers.

In Texas, one of the nation’s largest insurance hubs, the state reaps about $2 billion a year from insurance taxes. That’s more than it collects from levies on natural gas production.

Enforcement can vary widely by state.

California, for example, held a three-hour public hearing on the proposed merger of Aetna and Humana, which would create the second-largest managed care company in the country. The state’s insurance commissioner, Dave Jones, ultimately urged the Justice Department to reject the plan. But at least three other states — Ohio, Kentucky and Connecticut — approved the merger without any hearings and with little public notice of their decisions.

Thirteen states held no hearings of any kind last year, and five states haven’t performed what is called a market conduct exam to probe companies’ sales practices in five years.

Even in Iowa, where insurance is one of the state’s leading industries, regulators were so overwhelmed that they briefly stopped accepting applications of insurance companies seeking to relocate there. In a twist, insurance executive Susan Voss, a former commissioner, pressed the governor and legislature for more funding to buoy regulators.

“We are in real danger here,” Commissioner Nick Gerhart wrote in an email to Voss. “They need to hear that without [a] strong regulator all this falls apart.”

In this year’s budget, the state gave the department funding for 15 new positions.

‘Appropriate expertise’

Of the 50 sitting commissioners, 24 came directly from the insurance industry or had worked for an insurer.

“You get somebody with expertise, and you get someone who is qualified to do the job from day one. This is not an uncomplicated financial service,” said Kathleen Sebelius, a former insurance commissioner and governor of Kansas and the U.S. secretary of health and human services until 2014.

But, she added, there is a fine line between “appropriate expertise and overly cozy” relationships.

“People are supposed to be doing the public’s business and not lining their own pockets or making their own deals for future benefit,” said Sebelius, who declined to accept industry campaign contributions while commissioner.

The Center for Public Integrity found four commissioners who had direct financial ties to the industry, either through insurance stocks, a spouse’s job or a retirement plan from a former employer.

For much of the last year, New Jersey’s Richard Badolato and his spouse held at least $10,000 worth of stock in two major insurers that his office oversees, a violation of the state’s ethics code.

After an inquiry from the Center for Public Integrity, he got rid of the shares — and all his remaining individual stock holdings “out of an abundance of caution,” an insurance department spokesman said on his behalf. Badolato had told ethics investigators that he failed to identify the insurance stocks as prohibited holdings after a broker purchased them on his behalf.

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