Like most top insurance executives, Edward J. Bonach, CFO of CNO Financial Group, has lately spent a good deal of time trying to discern the business impact of President Obama’s healthcare reform law. However, unlike many other senior executives, Bonach has identified what he believes to be an upside to the Obama reforms – a silver lining from which CNO’s market focus on middle-income families and seniors could benefit. Here’s what CNO’s finance leader told us:

Bonach: First of all, we believe that the reforms are neutral to positive for our business. The main reason I say that is that our market focus is 65-year-olds and older, and it’s our opinion that due to the healthcare reforms, Medicare is going to be cut back. This means that there will be more of a gap that needs to be supplemented. The Medicare supplement products that we offer will be even more needed and on average be a larger policy because of the gap growing.

The other part of healthcare reform that we think is neutral to positive is the so-called CLASS (Community Living Assistance Services and Supports) program, where there is proposed long-term-care type of product that would be written on a group basis. You have to be actively at work to qualify for it, but it has some features that we think are concerning. Number one, the benefit as we understand it would be up to $75 a day. Well, that is by most standards less than half of what a day in long-term care would cost. It is not going to cover the expected cost of long-term care in full. Still, it might raise the awareness of the cost of long-term care, but it’s concerning that people would buy this and later find out that maybe at best, less than half of their costs are covered. Another aspect of what is proposed is that government accounting is not like the accounting of for-profit companies. The government will book the 5 years of premiums as revenue and not put up any reserves. In essence, for 5 years, the government is saying not only that it’s a “no cost,” but also that it’s a “positive” because you are booking revenue. Ultimately, they will have to pay the benefits out, but they are not doing it like an insurance company, where most of the premium dollars would have to be put into reserves to protect the future benefit.

That’s perhaps a concern for the taxpayer. It’s also a concern that individuals may think that they can receive coverage but later find out that it will be 5 years at the earliest before they receive any benefit. Still, it could raise awareness and increase potential public interest in buying the offering. If it’s priced appropriately by the government (given that there is no underwriting, really), you would think that if a person could qualify for an underwritten product like what we offer or other companies offer, they could get more coverage for the same dollar, in which case it would help companies like us. Again, the reason that we don’t see this as a threat is that going back to our market focus, the government program requires that you have to be actively at work. Meanwhile, our program is focused on people who don’t have to be actively at work. Most of our end consumers would not be able to qualify for the government’s CLASS act. ###