Health insurance companies are putting the squeeze on hospitals and other healthcare providers in preparation for the rollout of the health insurance marketplaces, scheduled for Oct. 1, according to Jeff Taylor, vice president of The Bovinette Agency in Belleville. The firm specializes in employee benefits and group health insurance.
“I think what a lot of these carriers are wanting to do is be able to get their pricing as low as possible when these exchanges open,” Taylor said. “It will be similar to when you search for an airline fare. You’re going to go on and you’ll see these different rates from these different companies with fairly similar plans. No one wants to be the high-cost provider, so the ball is swinging over to the side of the court that’s going to push them to really do their best to drive down costs.”
Another byproduct of the marketplace competition, according to Taylor, is that insurers are limiting the number of providers that are “in network.” That may mean, he says, that the insurers will continue to have a fairly broad network structure but offer deeper discounts with a handful of select providers. Blue Cross, he says, is doing that and Coventry in St. Louis has also designated a select network which excludes certain providers.
“California is a lot farther along in its exchange development,” Taylor said. “Unlike Illinois, California is actually doing all of the work to build its own exchange. When they initially announced their rates, they looked pretty good. But when you really looked into them, the networks that were being provided were about one-third the size of their normal network and didn’t even include Cedars-Sinai Medical Center, which is one of the major hospitals in the Los Angeles area.”
He says Blue Cross of California, for example, has a network that includes about 96 percent of the healthcare providers in the state. But its exchange network includes only 36 percent of them.
Taylor says it will be interesting to see if these networks stay tight or grow over time. He adds that when PPOs (preferred provider organizations) and HMOs (health maintenance organizations) were created, they had stricter networks, too.
“When HealthLink first started, it was set up by a group of hospitals and only about half of the hospitals in the area were actually in it,” Taylor said. “They were able to drive more discounts then. But as time went by, more and more hospitals and doctors came in to where pretty much everybody was in it. It’s very hard to get preferential pricing or a deeper discount from one provider when they know that every other provider in the area is in because they’re not going to be able to generate new patients by joining the network that everybody is in.”
According to Taylor, the Affordable Care Act is also driving the movement to a capitated reimbursement system under which healthcare providers are paid by the person - not by the service. He predicts that a capitated reimbursement approach will improve service and outcomes while driving down costs, as providers will be incentivized to get patients better faster and keep them that way.
Speaking of the American healthcare system, Taylor said, “Our costs are high. Our costs are two to three times what you see in other parts of the world. It’s a challenge for us. Our providers have not really had a whole lot of limitations placed on them in the past. They may think they have, but in comparison to the worldwide medical community, they have not. It’s going to be incumbent on them to do what they can to bring the costs down. There’s going to be constant pressure simply because of the expense of health care in this country.”
Locally, the struggle between Memorial Hospital in Belleville and United Healthcare has been well publicized. Joe Lanius, Memorial’s chief financial officer, says the conflict with UHC has nothing to do with the health insurance marketplace, as UHC has announced it will not be participating.
Pending approval of an official court order by the U.S. District Court, an Illinois-based company will move full-steam ahead in refining and recycling metals contained in the slag piles surrounding the former Chemetco plant in Hartford, Ill.
Paradigm Minerals & Environmental Services - a privately held, secondary recycling company incorporated in Illinois in 2009 - has been working in close partnership with the US EPA over the past three years. Paradigm CEO Elliott Stegin’s affiliation with the site extends further back; his sister company, Industrial Asset Disposition, performed the massive demolition work in 2011, razing a lion’s share of the former plant buildings at the site.
Chemetco, once one of the largest U.S. copper refinery operations with reported annual revenues of $500 million in 1999, opened in 1970 but was shuttered in 2001. Its former owner and CEO, Denis L. Feron, and others, were found guilty of violating the Clean Water Act. A measurable layer of toxic pollution covered the bottom of Long Lake (a Mississippi River tributary) by the time a secret drainage pipe was discovered 10 years later. The pipe had been installed in 1986 by Chemetco to drain several types of toxic metal pollutants.
Regulators had originally proposed big increases in risk weights (banks’ off-balance-sheet exposures) for balloons and other residential mortgage loans, in some cases from 50 to 150 percent. Schroeder says the original proposal discounted the community bank business model of fair dealing and soundly underwriting these types of loans. Fortunately, he says, this proposal did not survive. The final NPR includes retaining the existing risk weight of 50 percent for high-quality, seasoned residential mortgage loans and 100 percent for all other residential mortgage loans.
Banks with customers who live in rural communities have relied greatly upon balloon mortgages - as have their lenders, for years, says Brad Rench, regional president at First Mid-Illinois Bank & Trust. “A balloon mortgage, by its very nature, is typically a community bank product,” said Rench. “If we all had our choice, we’d put 30-year secondary market loans out. But they don’t fit everyone, and that’s why this alternative exists in the product mix. If you’re selling into the secondary market and you’re in small-town USA, those (balloon) loans may not qualify. So you typically do a balloon note. When regulators initially announced this rule last fall, it was a huge issue for banks serving rural communities across the country, because balloon notes - which they’d been making for decades and more - could have had to be phased out by the end of this year. Now we’ve gotten a reprieve on balloons.”
As regulators continue to tweak the two rules that have been delayed until the start of 2015 which directly affect community banks, Rench says First Mid is continuing to keep balloon notes in its product offerings but preparing to embark upon additional training as to more residential loan opportunities for its clients.
“We are preparing for a change,” he said. “The easiest way to adapt is to add adjustables to our product mix. We know that some change is coming, and that it is going to affect our overall loan portfolio.”
Dennis Terry, president and chief executive officer of First Clover Leaf Bank, says the financial institution also still offers balloon mortgages and “probably always will,” although for many of FCLB’s clientele, still-low interest rates make the bank’s conventional residential mortgage products - both the in-house and external options - a better fit.
“In a more normalized rate environment, there are situations where a balloon would make sense,” Terry said. “It’s traditionally priced a little lower than a fixed-term rate. For someone whose career is in the military or is such where they know they’re going to be transferred every five years, it often makes a lot of sense. Also, there are situations - particularly so in small towns - where factors exist that could cause it to be completely out of the norm of a 15 or 30-year realm.”
One such example, says Terry, is if the properties are each served by their own well; the inspections and standards required to get a residential loan may necessitate going the route of a non-traditional mortgage such as a balloon note. Another example might be if a rural property is unusual enough that comparables cannot be found.
Of the four rules initially proposed by regulators back in June 2012, two of the four that will indeed have an impact on community banks, according to Schroeder, are Basel III and the Standardized Approach rule. Basel III applies to strengthening capital and increasing capital levels; the Standardized Approach rule deals with the risk weights or different categories of assets on a bank’s books.
As the CBAI’s federal lobbyist, Schroeder spent a great deal of time studying the interconnectivity of both of these rules.
“The difficulty in trying to get our arms around these two rules was that they have a certain amount of interplay,” he said. “If you make a change on the risk weight side, then on the Basel III side it’s really a double impact.”
Regulators had given banks an initial expiration date of Sept. 7, 2012, which only allowed for a 90-day comment period on the new rules. The first thing banks did, says Schroeder, was to ask regulators for an extension to give them time to digest the massive amount of information presented. As a result, they received an extension until October 22. Now, bankers have been given until Jan. 1, 2015 to continue grappling with interpreting and planning for the impact, he adds.
“All in all, it was a great victory for community banks,” said Schroeder. “It really proved that community bank involvement in the rulemaking process is important. It’s very unusual, based on our experience, for the regulators to make these types of concessions. But then again, it’s unusual for them to propose these kind of misguided rules.”
A California-based based consumer lender that has sometimes tangled with state regulators around the country says it will expand its small-business loan program to Illinois and four other states.
CashCall Inc. of Anaheim, Calif., launched its Entrepreneur Loan program in California last year and recently announced plans to extend the program to Illinois, Ohio, Virginia, South Carolina and North Carolina.
The program offers unsecured business loans of up to $30,000 repayable via monthly fixed payments over terms of up to 10 years. Interest rates range from 44 percent to more than 158 percent, according to the company’s website.
Loans can be arranged online or by phone and money is wired to a borrower’s bank account as quickly as the same day. No business plan, financial statements or tax returns need be submitted.
“Small businesses cannot get the capital they need to grow their businesses because the loan process is broken,” Min Choi, CashCall’s managing director, said. “Banks are unwilling to lend to small businesses, and if they do, the process is long and requires a great deal of documentation.”
The Entrepreneur Loan allows businesses in nearly any industry to obtain capital with a repayment structure that is as flexible as a credit card, CashCall says. There are no prepayment penalties and timely payments help build or repair credit.
Choi says the program is designed to help small businesses that are underserved by traditional banks and those that experience unforeseen emergencies or opportunities.
CashCall saw unmet needs for small business capital in Illinois and the other four states, and more states will be added soon as the company seeks to take the business loan program nationwide, Choi says.
“I would have to say that it is important that business owners and entrepreneurs have as much access as possible to sources of funding but sometimes these types of operations take advantage of people who are in difficult circumstances,” said Patrick McKeehan, director of the Small Business Development Center at Southern Illinois University Edwardsville.
CashCall is owned by J. Paul Reddam, who founded the mortgage lending company DiTech Funding Corp. and sold it to General Motors in 1999. Reddam owned the racehorse, I’ll Have Another, that won last year’s Kentucky Derby and Preakness Stakes.
CashCall and an associated company, Western Sky Financial, have recently been hit with lawsuits or regulatory orders over consumer loan issues by state officials in Illinois, New York, Minnesota and Georgia.
The Illinois Dept. of Financial and Professional Regulation issued a cease-and-desist order against Western Sky in March, alleging that the company was making payday and consumer installment loans to Illinois residents without required licenses. Western Sky, without admitting wrongdoing, entered a settlement agreement with the department in May, agreeing not to offer, make or arrange payday or consumer installment loans in the state.
In the Minnesota litigation, state officials allege that CashCall and subsidiary companies use Western Sky Financial as a front company to try to avoid state licensing, usury and consumer-protection laws. The complaint alleges Western Sky “holds itself out as a tribal entity that purports to be exempt from state consumer protection under the doctrine of tribal sovereign immunity.” Western Sky is not operated by or for the benefit of any Native American tribe, the officials allege.
CashCall agreed to a $1 million settlement with California in 2009 to resolve allegations of “loan shark tactics;” a West Virginia court last year ordered more than $13 million in civil penalties against CashCall and canceled all the company’s outstanding loans in the state.
Choi says CashCall’s differences with regulators have not involved nor had any impact on its business loans program.
Sue Hofer, spokeswoman for the Illinois Dept. of Financial and Professional Regulation, says no license is required for business lending in Illinois. She also notes that Illinois has no usury laws.
McKeehan says, in his opinion, CashCall “really isn’t a good thing for entrepreneurs in Illinois.” He says companies like CashCall provide only “a temporary fix.”
McKeehan adds that nonprofit organizations like Accion in Chicago and St. Louis-based Justine Petersen make loans at much-lower interest rates, and are designed to aid entrepreneurs and small businesses without exploiting them.
“Their goal is not to make money but to help a business succeed and become eligible for a bank loan,” he said.
Entrepreneurs and startups often find themselves in desperate straits, but borrowing to pay current bills usually just puts off troubles if underlying problems aren’t addressed, McKeehan says. “If you don’t change the way you do business, you’re going to be in trouble again.”
Justine Petersen helps small businesses repair and build creditworthiness, says McKeehan, while the Small Business Development Center can help with marketing, cash flow, hiring, training and other issues. Justine Petersen offers micro loans in Madison and St. Clair counties in cooperation with TheBANK of Edwardsville.