High Altitude Thinking

And it didn’t take many voices…..

You may recall I have posted a couple of blogs on Anthem Blue Cross and Blue Shield’s recent rate hikes and on February 11 I had called on Commissioner Morrison to join California in a review of their rate filings.  We may have had some success.

Yesterday the Denver Business Journal reported that Anthem Blue Cross and Blue Shield would be examined by the Division of Insurance noting 35 customer complaints in the month of December alone. (I’m not sure whether my 3 hours reviewing Anthem’s documents at the Division’s office on December 18 counted towards this number or not.)

The review is to commence on March 1 and is expected to take about eight weeks to complete.  Based on this timeline, Colorado’s review should be completed around the same time as California’s.  It is not clear what ultimate action may result, however House Bill 1389 does provide the Division with some “teeth” to discipline Anthem by ordering rebates, assessing fines, along with other actions.

Coincidentally, WellPoint president Angela Braly testified in front of the House Energy and Commerce Committee yesterday defending their rate hikes.  She may be right.  She may not.  But I hope pressure from the States can drive Congress and the industry for solutions, not excuses.  As they say, “if you’re not part of the solution, you’re part of the problem.”

Ok, so what do I find of interest that could come out of this?

First, I and others have contacted Anthem and switched individual plans to reduce monthly premiums over the past several weeks.  In light of this examination, it seems appropriate that Anthem should leave the option open to switch back pending the outcome of this review.  I will be calling them.

Second, I would hope that the resulting report from the Division’s review will be made public…..timely.  I don’t want to know every detail but I would like to see this “special examination” contrasted against what the Division does as a matter of standard practice.

Finally, I would like to see the Colorado Division collaborate with California on this review.  I see know reason to do this in isolation and believe communication would facilitate an understanding of the potential for interstate commerce in the insurance industry.

We shall see…..

BA

SPECIAL NOTE:  Yesterday, Berkshire Hathaway announced that their annual report would be available on their website this Saturday at 8AM (EST).  The annual report contains Mr. Buffet’s annual letter to shareholders which is always a worthwhile read.  You should be able to find it (along with prior letters) at http://www.berkshirehathaway.com/letters/letters.html .

Thankfully some Colorado democrats on Monday took proposed Senate Bill 91 and tossed it in the bin.  Hopefully the House will take HB 1036 and do the same.  I wouldn’t want to see some soccer mom wrecking her Sienna in rage over school spending on the wrestling team or pizzas.

Colorado lawmakers had considered legislation in 2009 (that was defeated) that would have greatly increased the reporting requirements for school districts.  Similar measures have been on the agenda for 2010.  While their proponents promote the demand for transparency, I believe these proposals go way, way above the threshold representing quality communication in the spirit of solid corporate governance.

The most touted proposals would effectively require the school district to make their general ledger available online allowing any concerned citizen to “drill down” into the details including to see how much Ms. Jones, the 2nd grade teacher, is making.  Really?  So what sort of sound judgment is Joe Public going to gain from this level of detail?  Probably none.  It is unlikely he will spend the amount of time necessary to understand the overall workings on the educational funding and spending system let alone how Ms. Jones fits into the overall picture.

A limited number of school districts in Colorado have already gone down the path of detail disclosure.  Jefferson County R-1, Colorado’s largest school district, has implemented a website that presumably offers (I’m not so curious to look myself) significant details of spending.  Amazing what you can do when you get 10% of the State’s share of school district funding.

For decades the private sector has explored the boundaries of transparency and quality reporting.  Over those years, accounting principles have been continuously revised to respond to changes (or perceived changes) in public demand for information, accountability and transparency.  With these changes (and I believe most for the good), I haven’t seen one legitimate proposal that would suggest that GMAC, AIG, Freddie or Fannie should put their general ledgers out on the web in order for investors, regulators and taxpayers to  see every detail.  In fact, the principles of financial reporting demand that information is presented in a summarized format that is useful.  It is understood that most interested parties are not accountants and need management and the directors to exercise judgment within professional standards to ensure the information is understandable.

In Colorado this responsibility rests with the school district’s board, superintendent and staff having financial accounting responsibilities.  In most, if not all cases, this information is then subjected to an annual audit.  I would suspect that public availability of this report, board minutes, and open access to board meetings satisfies the vast majority of any legitimate interest in the activities and oversight of the school district’s activities.

Because something “can” be done, doesn’t suggest it “should” be done.  Nor is this a matter of monetary cost.  Those engaged to govern school operations have enough issues to deal without being subjected to scrutiny over frivolous claims of spending abuse.

As for this taxpayer, I don’t need an app for my iPhone.  Open communication and accountability for financial and academic results are enough.

BA

This letter was submitted to my state representatives.

February 1, 2010

The Honorable Dan Gibbs

Colorado State Senator, District 16

200 E. Colfax

Denver, CO 80203

The Honorable Randy Baumgardner

Colorado State Representative, District 57

200 E. Colfax

Denver, CO 80203

By: Email Delivery

RE: Colorado Senate Bill 10-001 (SB 1)

Dear Sirs,

My name is Bob Akright.  I am a Tabernash (Grand County) resident, self-employed Colorado CPA, and registered republican.  I have been following the progression of SB 1, “Concerning Modifications to the Public Employees’ Retirement Association Necessary to Reach a One Hundred Percent Funded Ratio Within the Next Thirty Years.”

While I accept that employers (in essence Colorado taxpayers) will need to assist in the shortfalls of PERA funding, I would request that you give consideration to the following.

• In discussions with a limited number of PERA members, they are somewhat surprised that more consideration is not being given to the curtailment of the existing defined benefit plan and the introduction of some form of defined contribution plan for new members.  While I understand that PERA’s board of trustees have stood in support of the current defined benefit plan, I find this logic out-of-sync with current business practices and quite frankly detrimental to many Coloradoans who are not in the program and keep their fingers crossed for social security.
• The plan presented by PERA assumes an 8% rate of return on plan assets over the foreseeable future.  By most accounts I believe this is viewed as a very aggressive assumption.  Even as early as February 2008, Warren Buffett balked at the reasonableness of an 8% average rate of return.  As you are aware, you don’t need to miss this assumption by much to cause a further significant gap in the underfunded state of PERA.  The Wall Street Journal reported on January 27 that certain states (e.g. Wisconsin) are turning to leverage strategies to boost the returns on their plan assets.  I hope any consideration of this strategy by the PERA board of trustees has been (or will be) appropriately vetted with the legislature.
• We must appreciate that the increased demands for shoring up PERA will put further strains already challenging school district budgets.  Already in the East Grand School District, PERA costs represent more than 5% of the district’s budget.  This will surely increase if not rationalized with headcount reductions that will most likely occur at the lower end of the pay-grade.  I would point out that in the Colorado Education Association’s support of the Rule of 88 amendment they note their support “because raising the minimum retirement age in school districts forces employees to work longer and costs district[s] money as it limits their ability to replace retiring employees at the top of the salary schedule with new employees who make less.”

There are a number of other factors that lead me to believe that if SB 1 comes into law it will require significant modifications in the “not-so-distant” future.

I would encourage each of you to re-consider any push to get SB 1 passed with what I and others believe to be significant flaws in the assumptions that purport to fix the problem.

I appreciate your consideration of my concerns.

Sincerely,

Robert J. “Bob” Akright

cc:     The Honorable Al White

Colorado State Senator, District 8

Attachment:

Excerpt from Warren Buffet’s Letter to Berkshire Hathaway shareholders (February 2008) – 3 pages [redacted for blog publication]

BA