Tag Archives: internal revenue service

IRS Set to Nail Employers on ACA

The Internal Revenue Service is acting to help individuals who are eligible for Patient Protection and Affordable Care Act (Obamacare) health subsidies and who live in regions where exchange insurers do not offer bronze (lowest-cost) coverage, even as it moves ahead to nail employers failing to comply with Obamacare’s employer shared responsibility rules (commonly referred to as the “employer mandate”).

IRS New Individual Obamacare Relief

Notice 2017-74  will provide that individuals who are not eligible for coverage under an eligible employer-sponsored plan and who lack access to affordable coverage should not be denied the use of the affordability exemption under § 5000A(e)(1) of the code and § 1.5000A-3(e) of the regulations merely because they reside in an area served by a marketplace that does not offer a bronze-level plan. Consequently, for purposes of the affordability exemption under § 5000A(e)(1) and § 1.5000A-3(e), if an individual resides in a rating area served by a marketplace that does not offer a bronze plan, the individual generally should use the lowest-cost metal-level plan available in the marketplace serving the rating area in which the individual resides.

Notice 2017-74 will be in IRB 2017-51, dated Dec. 18, 2017.

See also: Optimizing Financing in Healthcare  

Employers Still Face Obamacare Penalties

While the IRS has issued limited relief for individuals from the ACA’s individual mandate penalties, so far it has remained steadfast in its refusal to grant employers corresponding relief from the ACA employer-shared responsibility penalties or other ACA penalties. Instead, IRS officials continue to make clear that the IRS intends to enforce the ACA employer-shared responsibility rules against employers with 50 or more full-time employees (including full-time equivalent employees).

Under the Obamacare employer mandate rules, covered employers face significant federal tax penalties for (1) failing to offer minimal essential coverage to substantially all full-time employees and their dependents (the “A Penalty”), or (2) offering coverage that is either “unaffordable” or does not provide “minimum value” (the “B Penalty”) if a full-time employee enrolls in the health insurance marketplace and receives a premium tax credit.

While many employers assumed President Trump’s Jan. 20, 2017, executive order “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” would insulate them against enforcement of the employer mandate and other Obamacare penalties, the IRS doesn’t see the executive order as barring its enforcement of Obamacare against sponsoring employers or their group health plans. In an April 14, 2017, IRS Chief Counsel letter, for instance, the IRS announced it does not interpret its discretionary authority under Obamacare to allow waiver of the employer mandate tax imposed under Internal Revenue Code Section 4980H against covered employers that fail to provide the affordable minimum essential coverage required by the employer mandate. In keeping with this interpretation, the IRS has announced that it will begin enforcement of the employer mandate tax liability for plan years after 2015 against covered employers that failed to meet the employer mandate.

Of course, the employer mandate is not the only Obamacare provision that employers and their health plans need to worry about. In addition to the employer mandate, Obamacare imposed a host of patient protection and other federal mandates upon employer-sponsored plans, most of which apply to plans covering two or more employees. In addition to any benefit and other administrative penalties that otherwise arise under the Employee Retirement Income Security Act or the Social Security Act for violating these mandates, employers sponsoring plans that violate any of 40 listed mandates imposed by Obamacare or certain other federal laws also become liable under Internal Revenue Code Section 6039D to self-identify, self-assess, report on Form 8928 and pay an excise tax equal to $100 per person per uncorrected violation. The IRS, Department Of Labor and Department Of Health and Human Services have taken the position that the Jan. 20 executive order also does not bar enforcement of those Obamacare penalties. Accordingly, employers and their group health plans continue to face potentially substantial liability if their group health plan does not comply with Obamacare.

See also: U.S. Healthcare: No Simple Insurtech Fix  

In the face of these exposures, employers and their group health plan should carefully review their plans and their administration for compliance before the end of the plan year so as to be able to take appropriate and timely corrective action before penalties attach and while stop loss or other insurance is available to help mitigate the cost of these corrections. Employers preparing for health plan renewals also should review their group contracts and conduct due diligence to verify their group health plans terms and operations meet the mandates as they initiate new plan years. Employers also generally will want to review their compliance and take action to address any deficiencies against any vendors or advisers who may have culpability in the defective health plan design or administration. Prompt action against vendors who may be culpable for the design or administration defects is necessary to preserve potential claims for deceptive trade practices or other causes of action that an employer might have under state contract, tort or other law. Employers and health plan fiduciaries should consider engaging experienced legal counsel to conduct this review on behalf of the employer or other plan sponsor within the scope of attorney-client privilege so as to assess and address these potential risks on a timely basis.

IRS Guidance on Hurricane Recovery

Hurricanes Harvey and Irma have wreaked havoc on the lives of thousands of Americans, leaving many looking for ways to assist those in need and achieve favorable tax treatment. The IRS has maintained historical guidance, and it made recent announcements that provide guidance for those individuals and employers looking to assist victims.

Employers Can Offer Tax-Free Assistance to Staff 

An employer may provide assistance to employees affected by a presidentially declared disaster in a manner that is exempt from federal income and employment taxes. Providing assistance in cash or services is relatively straightforward and requires no substantiation from the employees, while still allowing the employer to deduct the payments. Because there are virtually no administration requirements, an employer can react very quickly to help alleviate its employees’ immediate needs.

The exclusion is provided by Internal Revenue Code (IRC) Section 139(a) and specifically exempts from gross income “Qualified Disaster Relief Payments” that are not compensated by insurance or otherwise. “Qualified Disaster Relief Payments” can be paid to, or for the benefit of, an individual to reimburse or pay reasonable and necessary expenses incurred:

  • As a result of a qualified disaster for family, living or funeral expenses;
  • For the repair or rehabilitation of a personal residence; or
  • For repair or replacement of the contents of a personal residence — to the extent that the need for such repair, rehabilitation or replacement is attributable to a qualified disaster.

Revenue Ruling 2003-12 shows how this provision is particularly helpful after a hurricane, stating, “Payments that employees receive under an employer’s program to pay or reimburse unreimbursed reasonable and necessary medical, temporary housing or transportation expenses they incur as a result of a flood are excluded from gross income.” In addition, the rule explains that the amounts excluded from gross income under Section 139 are not subject to typical reporting requirements.

See also: Harvey: First Big Test for Insurtech  

Increased Access to Retirement Plan Funds 

The IRS recently announced relaxed procedural and administrative rules that normally apply to retirement plan loans and hardship distributions, specifically for victims of Hurricane Harvey. Participants in 401(k) plans, 403(b) tax-sheltered annuities and 457(b) deferred-compensation plans sponsored by state and local governments may be eligible to take advantage of streamlined loan procedures and loosened hardship distribution rules designed to provide quicker access to their money. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply. While IRA participants are not allowed to borrow from the IRA, they may be eligible to make IRA withdrawals under liberalized procedures.

Not only does this broad-based relief apply to victims of hurricanes, it also applies to a person who lives outside the disaster area, takes out a retirement plan loan or hardship distribution and uses it to assist an immediate family member or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement. To qualify for this relief, hardship withdrawals must be made by January 31, 2018.

Before accessing retirement funds, it is important to remember that the relaxed procedures have not changed the tax treatment of loans and distributions. Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less and hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax unless one of several exceptions is satisfied.

Employee Donations of Leave

The IRS also recently issued Notice 2017-48, which indicates they will not assert that cash payments an employer makes to a charitable organization in exchange for vacation, sick or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are: (1) made to the charity for the relief of victims of Hurricane Harvey and Tropical Storm Harvey; and (2) paid to the charity before January 1, 2019. The employee does not take the money into income and therefore does not get a charitable deduction.

IRC 501(c)(3) status for disaster relief organizations

When considering natural disasters like Harvey or Irma, a company may want to donate to an existing charity, or they may want to form a new charity. If an employer forms a new charity, it should be sure the assistance is geared towards a class of persons broad enough to constitute a “charitable class.” In other words, assistance cannot simply be for a single family or an individual. Even if the group is smaller and limited to a particular group of employees or franchisees, the group could still qualify as a charitable class if the group is indefinite and open ended, such as one that includes victims of a current or future disaster. If a new organization applies to the IRS for 501(c)(3) status, it could be eligible for an expedited review of the application.

Existing organizations qualified under section 501(c)(3) could get involved in disaster relief activities that accomplish charitable purposes — even though those activities were not described in its exemption application, without first obtaining permission from the IRS. However, it should report new activities on its annual return.

Public charity or private foundation?

If the organization qualifies as a 501(c)(3) organization, a determination must be made as to whether the organization is a public charity or a private foundation. Employer-sponsored private foundations can make payments to employees for certain “qualified disasters” that the Secretary of the Treasury has specified. On the other hand, public charities can make payments under broader circumstances, like other disasters or employee emergency hardships. Classification as a public charity will depend on whether there is broad-based public support for the organization, as opposed to a few individuals or a company making the major contributions. In some cases, an organization can be classified as a public charity if it supports another public charity, such as a community foundation.

When companies form new organizations to help employees who encounter disasters, it may be possible to show broad public support if other employees make donations. Even though these employees are associated with the company, they still may be considered the general public when it comes to their individual donations, allowing the organization to qualify as a public charity.

See also: Hurricane Harvey: A Moment of Truth  

Employers cannot excessively control a public charity

In addition to the charitable class requirement, an employer cannot excessively control a public charity, nor can the organization impermissibly serve the related employer’s private interests. Recipients should be chosen based on an objective determination of need or distress and should be selected by a group independent of the employer so that any benefit to the employer is merely incidental.

If these requirements are met, the public charity’s payments — even if those payments are to employees and their family members — are considered payments for charitable purposes and, thus, are not considered taxable income.

For more information

This is just a short summary of what companies and organizations need to keep in mind the next time disaster strikes and they wish to extend a helping hand. Companies should review IRS Publication 3833 for more information.

Additional resources concerning other tax relief, specifically related to Hurricane Harvey and Hurricane Irma, can be found on the IRS disaster relief page. For information on government-wide relief efforts, visit www.USA.gov/hurricaneharvey or www.USA.gov/hurricane-irma.

IRS Is Stepping Up Anti-Fraud Measures

The Internal Revenue Service is taking as long as 21 days to review tax returns, according to research from fraud prevention vendor iovation, a clear sign that Uncle Sam has stepped up anti-fraud measures.

Even so, tax return scams that pivot off stolen identity data continue to rise for the third consecutive tax season. The latest twist: Tax scammers are increasingly targeting vulnerable populations—low-income, children, seniors and homeless—as well as prisoners, overseas military personnel and the deceased, according to an FBI alert.

Complimentary webinar: How identity theft protection has become a must-have employee benefit

And criminals have gotten very creative about conducting phishing campaigns to fool individual consumers—and key employees at targeted companies—into handing over personal tax-related information, useful for filing fake returns.

Tax software vulnerable

The FBI also says criminals often use online tax software to commit the fraud. That’s particularly troubling, considering what the Online Trust Alliance found in a recent audit of free e-filing services approved by the IRS. Of the 13 services audited, about half failed somewhat basic security protocols, such as email authentication and SSL configurations.

craig
Craig Spiezle, Online Trust Alliance executive director

Craig Spiezle, executive director of Online Trust Alliance, says some of the vulnerabilities, such as unsecure sites, are obvious to the casual person, let alone criminals.

“These sites are such high targets, you’d expect 100% of these to be like Fort Knox,” he says. “There’s no perfect security, but you would expect not to see (simple) vulnerabilities.”

Some e-filing sites, for example, had simple server misconfigurations or didn’t have current secure protocols; one provider failed to adopt an extended validation (EV) SSL certificate, leaving it open to spoofing.

Although not everyone is eligible for the free e-filing services that OTA audited, Spiezle says many of the paid e-filing services are run by some of the same parent companies, and thus use much of the same lightly protected infrastructure. He says it would be fair to assume that many of the paid e-filing sites would have the same 46% failure rate as the free e-filing services audited by OTA.

Personal information trades on black market

Even if cyber criminals don’t use stolen tax-related data for filing fraudulent returns, that information is highly valuable on the black market. Spiezle points out that it’s the only place where this type of rich information—such as income, employer, number of dependents, Social Security numbers and even bank accounts—is available all in one swoop.

“All that data that’s amassed is a treasure chest,” he says. “If you want to create a persona of someone’s identity, you have all the data in one place.”

The IRS expects that, this year, 80% of the estimated 150 million individual tax returns will be prepared with tax software and e-filed—and that’s music to fraudsters’ ears.

One typical avenue for cyber thieves is to file returns as early as possible, claiming refunds as large as $1,000 to $4,000 on untraceable prepaid debit cards. They can fly under the radar by filing very generic returns, and those multiple refunds turn into a lucrative operation.

“They have immediate access to that cash, as opposed to credit card fraud where the value is not as high and the delivery is through a retailer, so they have to figure out what to do with those goods,” says Scott Olson, vice president of product at iovation, a provider of device authentication and mobile security solutions.

Phishing, malware skyrocket

According to the Government Accountability Office, the IRS prevented $24 billion in fraudulent tax refunds related to identity theft in 2013, while paying out $5.8 billion in fraudulent refunds that it didn’t discover until a year later. And the number of fraud attempts is on the rise: As of March 25, the IRS reported a 400% increase in phishing and malware incidents related to the 2016 tax season.

Email phishing campaigns include links to web pages requesting personal information, useful for filing fake returns.

These fake pages often imitate an official-looking website, such as IRS.gov or an e-filing service, and also may carry malware, which can turn over control of the victim’s computer to the attacker. This January alone, the IRS counted 1,026 email-related fraud incidents, compared with 254 a year earlier.

Phishing scams also are targeting employers—because criminals know that’s where they can find large caches of income-related information. One growing trend is the so-called business email compromise (also known as “CEO fraud”), a variation of spear phishing. The phisher does deep research on a targeted company, then impersonates a senior executive to get a subordinate to do something.

vidur

Vidur Apparao, chief technology officer at Agari, which offers an email security platform, says malicious attachments and URLs compromised the bulk of spear phishing emails in the past. But what his company is seeing now is phishing ruses aimed at specific employees that leverage trust to get the recipient to take a specific action. Such attacks do not carry any viral attachments or bad URLs that can be detected. Yet they have proven to be very effective at duping the recipient into forwarding files containing employees’ W2 forms.

“Criminals are leveraging the cloud at three separate points, in ways they couldn’t before: developing social engineering content, sending out spear phishing attacks and getting back a response,” he says.

Basic security helps

According to the OTA, 92% of the publicly reported breaches in 2015 could have been prevented. Take email authentication. It’s almost a basic security tool that prevents emails from being spoofed. Those OTA-audited e-filing services that didn’t use it are contributing to the breaches.

“The lack of email authentication or the slow adoption in some cases has led to the prevalence of this easy type of attack,” Apparao says.

Spiezle says people need to be aware that emails and other tactics are becoming more sophisticated, and protect themselves accordingly.

“The problem is that we are all moving so fast, and we have all these devices and desktops—we are multitasking,” he says. “And the criminals play off that, and they’re getting more precise.”

This article was written by Third Certainty’s Rodika Tollefsen.

Can Long-Term Care Insurance Survive?

Why are long-term care insurance premiums rising faster than a speeding elevator? And what will become of the long-term care insurance marketplace? If you are interested in long-term care insurance, what’s going on and what may happen, read on.  If you have no interest in long-term insurance, then this is not the article you are looking for. (The next edition will take a closer look at the insurance consumer Bill of Rights).

Why Would Anyone Want Long-Term Care Insurance?

One of the largest projected expenses for the average American in retirement is medical expenses, with estimates approaching a total of $250,000.

Medicare and Medicare supplements provide coverage for medical expenses that are typically short-term or one-time, such as an annual physical, medical test or surgical procedure. Long-term care insurance provides coverage to pay the costs of service such as nursing home, in-home care and skilled nursing facilities that are not covered by Medicare or Medicare supplements. These costs are quite high—hundreds of dollars a day.  To see what the average cost of care in your area is, visit the Genworth Cost of Care page here.

The odds of needing some form of long term-care insurance can reach 50% or more, with an average claim period of two to three years (depending on the statistics you look at). According to the U.S. Department of Health and Human Services (HHS), by 2020, about 12 million Americans will require long-term care.

See Also: What Features of Long-Term Care Should You Focus On?

Long-term care insurance premiums will typically be in the thousands of dollars a year. However, just like with any other type of insurance, it is about the leverage of protecting against a risk—a simple financial calculation: Can you afford to pay for the risk in the event of a claim out of pocket and can you afford to pay the premiums? In terms of leverage, if you have a long-term care insurance policy with a total benefit pool of $250,000 and an annual premium of $5,000, the annual premium is 2% of the total benefit pool. If 2% sounds like good leverage to you, this policy makes sense.

The Big Question: Why Are Long-Term Care Insurance Premiums Rising? 

There are multiple layers to this questions, but the main underlying factor is that the first long-term care insurance policies offered by insurance companies had unlimited benefit periods on a type of coverage where they had minimal historical data. Think about it this way: If I offered you a bet on a football game this weekend with the provision that, if you win, I’ll pay you $100, and, if I win, you’ll pay me a $1 a month for the rest of my life. Now, that’s a great bet for me if my team consists of all-pros and your team consists of benchwarmers. Without knowing who is on your team, would you make this bet? There’s no need to answer; of course you wouldn’t.  Yet this is exactly the bet insurance companies made, just with much bigger numbers. And, unsurprisingly, this business model hasn’t been profitable for them.

There are some other major factors to consider, such as the prolonged historically low-interest-rate environment where insurance companies have not been able to make their historical investment returns. (This is something that no one could have foreseen.)

Another major factor is that insurance companies counted on a certain percentage of people lapsing (terminating) their policies at some point. Again, the insurance companies made this prediction without much historical data. And guess what? Policy owners actually liked and valued the coverage they purchased, and they have kept their long-term care insurance policies in force, despite some significant rate increases.

Premiums have had to be increased because, at the end of the day, it is in everyone’s best interest for insurance companies to be profitable. If an insurance company is not profitable, it will go out of business and will not be able to pay claims, which is definitely a problem.

Rate Increase Oversight and Perspective

Rates for in-force policies have been increased and will almost certainly face future increases; older policies still are priced lower than what a current policy would cost. Premium increases on long-term-care insurance policies have to be approved, in most states, by the state insurance commissioner. When faced with a rate increase, policyholders will need to consider whether their benefit mix makes sense and fits their budget. These are the “visible” rate increases.

If you have a long-term care insurance policy with a mutual insurance company where the premium is subsidized by dividends, you may not have noticed (or been informed) of a reduced dividend scale. When an insurance company reduces its dividend scale, it does not have to get approval from anyone or disclose that it has reduced its dividends. Reduced dividends mean a higher premium. This is a hidden rate increase.

As mentioned, policies issued today have significantly higher premiums than those issued in the past. Some rate increases are attributed to companies “catching up” on premiums to get closer to current premiums they hope are more accurate. The bottom line is that insurance companies are trying to bring the premiums on older policies into line with their current pricing on new products. The closer that pricing gets, the less likely it is there will be future premium increases. So, if you have an older policy (even if you’re faced with a significant premium increase), keep in mind you’ve gotten a discount on past premiums. While that’s not comforting in the face of a premium increase, it will help put things into perspective.

Insurance departments will approve premium increases so that they are sufficient to meet anticipated claims. Any increase granted must apply equally to all policy owners from the requested class of policies, and the carrier must keep the policy in force if the premium payments are made. Changes in age or health have no bearing on the contract premiums once issued; the policy may only be canceled if premiums are not paid. Nearly all existing long-term-care insurance policies have had one or more rate increases granted.

Please keep in mind that rates on other types of insurance also increase over the years, some slowly like auto insurance and homeowners insurance and some rapidly like health insurance.  Inflation affects everything. There are no nickel candy bars any more. This is all about the value of the coverage and the leverage of your premium to the total benefit pool.

Options When You Have A Premium Increase

When you have a premium increase, you should always start by reviewing your coverage and deciding whether you still need the current coverage or whether you can make changes. For example, because the average claim period is two to three years and there is a much longer benefit period, is the trade-off in premiums for the longer benefit period worth it? It is important to understand that, once a change is made, it cannot be undone, so be sure you are comfortable with any modifications.

The following are options when you have a premium increase:

  • Pay the increased premium.
  • Reduce the daily/monthly benefit amount.
  • Increase the waiting period.
  • Shorten the benefit period.
  • Change the inflation rider 
(e.g. go from compound to simple or reduce inflation percentage from 5% to 4%).
  • Change/remove other riders.
  • Terminate the policy.
  • If your policy has a non-forfeiture benefit that allows for a “paid-up reduced benefit,” consider this option: You’ll get at least some value for the premiums you’ve paid. But remember, once you accept the option, the policy will not be reinstated. Some states are now requiring all new policies to include this feature. (It’s relatively rare in older policies.)

New Long-Term Policy Designs (Hybrid/Combination Products)

With all the issues in the traditional long-term care insurance marketplace, there are very few companies selling individual long-term care insurance policies. Instead, insurance companies have come out with whole new types of products: hybrids and combinations. For instance, you can purchase a life insurance policy or an annuity with a long-term-care insurance rider. Other options are a life insurance policy or annuity that is combined with a long-term-care policy. (Rather than the long-term-care insurance being part of the rider, it is part of the policy.)

While, in theory, these sound like great ideas, they ignore some simple facts:

  • There may be no need for life insurance or an annuity, but you will be paying for the life insurance or annuity in addition to the long-term care insurance component.
  • Some require an up-front lump-sum premium payment.
  • These policies are complex and opaque. There are multiple variables to these policies that the insurance company can change and that will affect the performance of the policy—many of which do not have to be disclosed to the policy owner and do not show up anywhere. The more complex the product, the greater the chance that something won’t work properly.

Considering that insurance companies are still working on accurately pricing long-term-care insurance products and that universal life insurance policies are having issues (see: Will Your Life Insurance Policy Terminate Before You?), it is hard to imagine that combining two problematic products will magically work out.

The big selling point for these policies is that, with a traditional long-term-care insurance policy, the policy owner does not get anything back if there is no claim made. However, there is no expectation with any other type of insurance (except for life insurance) that there is a return if a claim does not occur, and most homeowners, for example, are happy when their house doesn’t burn down even though they don’t get any payout from their insurer.

Lessons Learned and a Positive Outlook For Long-Term Care Insurance?

There is no doubt of the importance of a thriving private sector long-term-care insurance marketplace. Public policy would seem to favor long-term-care insurance paid for by the private sector.

The Internal Revenue Service (IRS) is increasing the amount people may deduct from their tax returns this year when buying long-term-care insurance or paying monthly premiums. Check out the IRS page on long-term care Insurance premium deductibility here .

The Bipartisan Policy Center (BPC) released its first set of recommendations calling for increasing access to the private insurance market. BPC initiatives call for increasing access to the private insurance market, improving public programs such as Medicaid and pursuing a catastrophic insurance approach for individuals with significant long-term-care needs such as Alzheimer’s or a debilitating physical impairment. These proposals were developed by former U.S. Senate Majority Leader Tom Daschle along with Bill Frist, another former U.S. Senate majority leader, former U.S. Secretary of Health and Human Services Secretary and Wisconsin Gov. Tommy Thompson and Alice Rivlin, the former director of the Office of Management and Budget. They aim to address the needs of America’s seniors and specifically target middle- and lower-income individuals and families. Daschle said, “Today, families and caregivers are becoming impoverished by the financial demands of long-term care … Since there is no single, comprehensive solution to solve this unsustainable situation, our strategy calls for a combination of actions that could help ease the extraordinary financial burdens Americans are facing.”

If the BPC has its way, these retirement long-term-care policies would be sold on federal and state health insurance exchanges. The question is whether this can be accomplished. Part of the Affordable Care Act (ACA, aka Obamacare), the Community Living Assistance Services and Supports (CLASS) program established a national, voluntary insurance program for purchasing community living services and supports that is designed to expand options for people who become functionally disabled and require long-term help. Unfortunately, this program was abandoned because it wasn’t financially feasible.

History repeats itself

Back in the 1980s, insurance companies made similar poor product design decisions with individual disability income insurance. Unsurprisingly, claims experience was not great, and a number of companies left the marketplace. Is this sounding familiar?  The current individual disability insurance marketplace has returned with more sensible products, where the companies do full underwriting, offer benefits that are less than earnings and do not guarantee the premiums. A great read on this is: IDI Déjà Vu: Optimism For The LTCI Industry, by Xiaoge Flora Hu and Marc Glickman.

The long-term-care insurance industry is making similar changes to its products, which should buoy the marketplace. Products are being priced based on actual experience, policies are being fully underwritten and unlimited benefits are no longer available.

Smarter product design, better risk selection and a strong need should result in a solid long-term-care insurance marketplace. As America continues to age, there will be a stronger need for the coverage. It may take a few years, but there is a future for long-term-care insurance. The only real question is when.

Let me know what you think.

Expect More Cyber Turbulence in 2016

In February 2015, Anthem, the nation’s second-largest health care insurer, disclosed losing records for 80 million employees, customers and partners. That was followed a few weeks later by Premera Blue Cross admitting it lost records for 11 million people.

Then in July 2015, the U.S. Office of Personnel Management began a series of mea culpas. OPM ultimately conceded that hackers swiped sensitive personnel records for 21.5 million federal employees, contractors and their family members. Anthem, Premera Blue Cross and OPM were among the high-profile breaches in a year when the Identity Theft Resource Center counted more than 750 publicly disclosed data leaks.

ThirdCertainty asked three IDT911 experts — Brian Huntley, Eduard Goodman and Victor Searcy — for their 2016 prognostications. (Full disclosure: IDT911 underwrites ThirdCertainty.)

Wire fraud and politics 

Brian Huntley, IDT911 Chief Information Security Officer
Brian Huntley, IDT911 Chief Information Security Officer

 

Huntley: In the coming year, fraud and theft will plague the merchant payments and ACH wire transfer systems. Small and medium-size businesses are especially vulnerable. If enough SMBs get victimized, it could result in a public outcry about the inherent vulnerabilities in these systems, especially as consumers and small business owners come to realize there is minimal regulatory protections in these types of cases.

This being an election year, U.S. presidential candidates will focus on cyber war strategy and armament. Armchair quarterbacking of the 2015 U.S.-China cybersecurity agreement will arise as the centerpiece of this debate. We could see the U.S.-China cyber accord ascend as the basis for peer agreements between other nation states.

Meanwhile, the search will continue in different industries for an information security control framework that is akin to what the financial services sector has in the Federal Financial Institutions Examination Council’s (FFIEC) Information Security Guidelines and the health care sector has in the Health Insurance Portability and Accountability Act (HIPAA) of 1996.

Data tranfers and children’s privacy

Eduard Goodman, IDT911 Chief Privacy Officer
Eduard Goodman, IDT911 Chief Privacy Officer

 

Goodman: U.S. companies with a European presence will encounter a tremendous amount of uncertainty in 2016 with respect to Europe’s stricter Safe Harbor data privacy rules, relating to the sensitive data transfers to businesses in the U.S.

European regulators can be expected to harass the likes of Facebook and Google. And the threat of sanctions for noncompliance with Europe’s tougher Safe Harbor standards could easily filter down to many smaller companies, as well.

In another area, the recent hacking of toy maker VTech and Hello Kitty parent company SanrioTown.com signals that the theft of children’s information could become a worrisome new trend. As children obtain earlier access to social media, smartphones and Web-enabled toys, details of their personal information and preferences are rapidly becoming part of the greater data ecosystem.

As a result, we will see more breaches that involve the theft of information for individuals under the age of 18. Hopefully, we also will see more public dialogue about the concept of preserving children’s privacy, whether it be school record data, health information or data files containing images, video and audio recordings.

Taxpayers targeted—once again

Victor Searcy, IDT911 Director of Fraud Operations
Victor Searcy, IDT911 Director of Fraud Operations

 

Searcy: One of the most pervasive identity theft scams involves the filing of a faked federal tax return using an ill-gotten Social Security number. Sadly, this will continue to be true again in 2016.

In the 2010 and 2011 tax seasons, the Internal Revenue Service paid out $8.8 billion of taxpayer money to identity thieves. And statistics pulled from a sampling of customers assisted through IDT911’s Resolution Center in 2014 show a 120% increase in tax fraud victims in 2014 and another 134% increase in 2015.

We expect this number to grow again in 2016. It can take months for a victim to sort out the mess with the IRS. Worse, there is little stopping criminals from using a victim’s Social Security number and other personal information in other scams.

IDT911 stats show that 16% of tax fraud victims also were victims of financial identity theft; 12% of customers experienced multiyear tax fraud; and 16% were victims of both federal and state tax fraud.