Hot buttons: candidates' opposing views on key issues mean high stakes for insurers in the 2004 election.

With pollsters predicting the 2004 presidential election to be the closest in years, insurers are on tenterhooks about the outcome. Though it's no secret that the insurance industry--and most of corporate America--reliably back Republican candidates, it's widely thought that a victory for Sen. John Kerry, D-Mass., would be worse than merely losing an industry-friendly incumbent; a Kerry victory could spell doom for most of the industry's legislative agenda.

That's because Kerry, as a senator and as a candidate, has opposed many key industry issues, while his running mate, Sen. John Edwards, a Democrat from North Carolina, was a successful trial lawyer prior to entering politics--meaning the insurance industry's agenda on tort reform would hit many of his old colleagues in the pocketbook.

GOP tort-reform efforts during the Bush administration have included limiting class-action lawsuits, capping jury awards in medical-malpractice trials and putting an end to the ongoing raft of asbestos lawsuits. Though President Bush has personally pushed for those reforms, they were all defeated in 2003 and 2004 by a minority of Democrats in the Senate.

Issues of concern now before Congress include tort reform, health care, re-upping the federal terror insurance backstop, regulatory reform and taxes. Proposals regarding Medicare, Medicaid and Social Security also have insurers' attention.

The various insurance trade groups on Capitol Hill are diplomatic about whom they support in the election, for the exact reason that no one yet knows who will be in the Oval Office next January.

"Our agenda is going to be the same no matter who is in there," said Julie Rochman, senior vice president of public affairs for the American Insurance Association. "But obviously, we support candidates who have a pro-business agenda, on every level, whether it's for the White House or Congress."

The consensus among the insurance lobbying groups is that much of the industry's agenda will fall on deaf ears in a Kerry White House. The Property Casualty Insurers Association of America has voiced concern about Kerry's take on tort-reform bills. The Council of Insurance Agents and Brokers has expressed concern about whether the federal terror backstop will be renewed this year. And the Independent Insurance Agents & Brokers of America has said Kerry's plan to roll back Bush tax cuts will hurt the agents and brokers they represent.

No trade groups have explicitly endorsed a candidate. AIA's Rochman, while saying that her association doesn't endorse candidates, acknowledged that it may have to alter its tactics, depending on who wins the election.

"We're willing to work with whoever is in there," she said.

And since the industry's entire legislative agenda met with failure in 2004, all of those bills will now carry over into the next administration--whether the Oval Office is occupied by an incumbent, or by someone whose voting record and public statements indicate he is opposed to much of that agenda.

By far, the issue with the most money at stake is tort reform, which covers a trio of subjects: medical malpractice, asbestos litigation and class-action lawsuits.

Tort Reform: Medical Malpractice

The Bush White House, backed by Senate Majority Leader Bill Frist, R-Tenn., tried on several occasions this year and last year to push through a bill limiting jury awards in medical-malpractice trials. Those bills have been backed by insurers and the American Medical Association, but after three attempts to bring the bills to an up-or-down vote, Frist declared the effort dead for 2004. The bill's supporters say the caps will put downward pressure on medical-malpractice premiums, while opponents, chiefly trial lawyers, say the legislation only denies patients compensation while shielding insurers and doctors.

Edwards is intimately familiar with medical-malpractice litigation. In the four years before becoming a senator, Edwards was credited with having made $26 million as a personal-injury lawyer. His personal wealth from medical-malpractice and personal-injury cases is estimated round $60 million. In his 20 years as a personal-injury lawyer, Edwards is credited with winning $152 million in verdicts in 63 cases, according to the American Tort Reform Association, including two widely reported cases in the 1990s worth $20 million and $30.9 million.

"For years, we have worked hard toward reforming asbestos litigation, product-liability suits, medical liability and class-action [lawsuits] ," said IIABA chief executive officer Robert Rusbuldt. "And there's no doubt that Sen. Edwards is on the other side of those issues."

Kerry opposes jury award caps, saying they benefit only insurance companies. He does, however, side with doctors and insurers on punitive damages, saying they should only be awarded in cases involving intentional misconduct, gross negligence or reckless indifference to life. Kerry's plan for malpractice reform instead calls for a "three strikes and you're out" provision against lawyers who repeatedly file frivolous suits, as well as requiring nonbinding mediation and requiring suits to be vetted by a medical specialist before they head to trial.

Tort Reform: Asbestos

Asbestos litigation, according to one study, is the single most costly category of litigation in the United States, and insurers are desperate to bring an end to the plethora of lawsuits. A record 100,000 cases were filed in 2003, while roughly 70 companies have been driven into bankruptcy as a direct result of asbestos awards; there remain about 600,000 claims pending, according to the Rand Institute and Tillinghast-Towers Perrin.

As with medical-malpractice caps, an asbestos bill has stalled in the Senate. Legislation creating a federally administered trust fund for victims would have been funded by both businesses and insurers, with a tradeoff: Further asbestos suits would be barred. Negotiations fell apart in May over the amount of the fund.

The GOP and the White House backed an insurer-friendly, less costly version of the bill, one which established a $124 billion trust fund. Democrats, led by Senate Minority Leader Tom Daschle, D-S.D., sought $141 billion to $149 billion in negotiations. Democrats accused the GOP of helping their backers in business and insurance, while Republicans said Democrats were seeking the bigger fund for their allies among the labor unions and trial bar.

"Clearly, the Bush administration has worked a lot for asbestos litigation reform," said the AIA's Rochman. "And even if it doesn't pass this year, it's going to come back."

Tort Reform: Class Action

The third prong of the industry's tort-reform agenda, hanging the way class-action lawsuits are handled, also died at the hands of Senate Democrats. The bill died by a single vote in July, prompting sharp criticism from the industry's representatives on Capitol Hill. Carl Parks, the PCI's senior vice president of federal government relations, called the bill's defeat a victory for "wealthy and greedy special interest trial lawyers over the best interests of the consumers and our nation's economy."

The bill would have moved most multimillion-dollar class actions from the state courts, where they are predominantly tried, into federal courts. The U.S. District Court system, however, is far less likely to hear those cases at all, prompting trial lawyers and consumer groups to cry foul. Insurers and business groups say the class-action system is broken, with unscrupulous trial lawyers "forum shopping" cases in favorable jurisdictions and juries too often handing out huge awards regardless of the merits of the case.

Health Care

A review of Kerry's campaign speeches shows that reforming the health-care system is his No. 1 priority--and his changes might not bode well for health insurers.

"Nothing, nothing is as significant as health care. Health care is critical," Kerry said at an August campaign stop in Derry, N.H. Health-care companies, he said, are bumping up copayments while trimming benefits, and "it seems to me that is not a very good equation. We want it the other way around."

Kerry is also at odds with the Bush administration's position on reimportation, the practice of bringing U.S.-made pharmaceuticals back into the country from places like Canada, where they are far cheaper. The GOP and the White House, flush with campaign donations from the pharmaceutical industry, have staunchly opposed reimportation, though some Republicans in Congress, faced with overwhelming public support for the practice, are beginning to soften.

Kerry has noted the Bush administration's role in blocking reimportation efforts, and now says Bush is wavering on the issue. "Do you think he's reading the polls?" Kerry asked at that New Hampshire campaign stop. "I thought he believed in the free market system, but I guess he doesn't believe in the free market when it comes to his friends in the big drug companies."

Kerry and Bush diverge on how best to reduce the number of Americans without health coverage. Kerry's health-care platform calls for $653 billion in expenditures over a 10-year period, which his campaign said would extend health coverage to 27 million uninsured. Bush's plan calls for spending $90 billion over that same period, extending health coverage to 2.1 million to 2.4 million people.

One Kerry proposal has uninsured workers enrolling in new pools modeled after the Federal Employee Health Benefits Program. Employers would pay 50% of the premium and get a refundable tax credit in return. Workers between jobs would get a 75% subsidy to pay for coverage through the pool, for up to six months.

Bush supports so-called Association Health Plans, or AHPs, which essentially allow small businesses, associations or trade groups to pool to buy group health for their members. Such an arrangement requires Congress to rewrite the 1974 Employee Retirement Income Security Act. Such a bill is now pending before the Senate.

Terrorism Insurance 

For the property and casualty sector, few things are more important than the Terrorism Risk Insurance Act, which requires insurers to offer terrorism coverage to their commercial customers, if they want it. A federal backstop guaranteeing the coverage will expire, however, before many of those policies do, unless Congress acts to renew it.

Three measures are now pending in Congress dealing with a renewal of the TRIA program. A Senate bill, filed in July, extends the federal backstop from Dec. 31, 2005, until Dec. 31, 2007. Two House bills also seek to extend TRIA for two years; one extends TRIA to cover group life losses, as well. The bills all enjoy bipartisan support but will likely be taken up by the next resident of the White House.

Insurers credit Bush with pushing the TRIA law through the first time, shortly after Sept. 11, 2001. Kerry has yet to weigh in on the program.

"He was absolutely out front on it, about the importance of getting TRIA passed, because he understood it was a jobs-related issue," said Rochman. "President Bush carried TRIA on his back."

Medicare and Medicaid 

Bush has been seen as a friend of the health insurance sector with the passage of the 2003 Medicare Modernization Act--the most sweeping overhaul of the government-run health program since its creation--because the overhaul gives insurers billions in subsidies.

Congressional Democrats, including Kerry and Edwards, opposed the bill. Kerry now campaigns against the bill's new drug coverage, set to take effect in 2006, saying that employers who now offer drug coverage as part of their retirees' health plans will drop it or weaken it. The Bush administration has said that new federal subsidies built into the bill will encourage those employers to keep their employees' drug coverage intact.

Kerry also calls for greatly expanding coverage by Medicaid, the joint state/federal health coverage program for the poor. His proposal calls for children whose families earn less than 300% of the federally designated poverty level to be covered by Medicaid and the State Children's Health Insurance Program. It also calls for enrolling parents without insurance into those Medicaid and SCHIP programs, as well as enrolling uninsured single adults and childless couple's who live below the poverty line in, to Medicaid starting in 2008.

Democrats have also called for rewrites to the Medicare law, including provisions which allow Medicare to negotiate for lower drug prices, which Kerry said he supports. The Bush White House backed the provision in the new Medicare law which barred the program from negotiating lower drug prices with pharmaceutical companies.

Retirement

Reports by the federal government show that Social Security will be insolvent within a few decades, and Federal Reserve Chairman Alan Greenspan began in February 2004 to sound a series of alarms warning that the government will have to trim both Social Security and Medicare benefits that the country's 77 million baby boomers expect to receive when they reach retirement age.

The GOP and Bush favor privatization, allowing workers to put some of their payroll taxes into private retirement accounts. The life insurance industry, which sells annuities and other retirement products, has been calling for privatization as well. Yet Social Security, the "third rail" of American politics--so called because politicians who touch it die--has received scant attention in the presidential race. Both candidates have been loath to broach the topic.

Bush has said he favors giving younger workers the option of setting aside part of their payroll taxes in private accounts. Kerry has said he opposes even partial privatization. "I will never privatize Social Security, I will not cut the benefits, and I will not raise the retirement age in this country, period," Kerry said during an August campaign stop in Las Vegas.

Key Points

* Issues of concern now before Congress include tort reform, health care, re-upping the federal terror insurance backstop, regulatory reform and taxes. Proposals regarding Medicare, Medicaid and Social Security also have insurers' attention.

* John Kerry, as a senator and as a candidate, has opposed many key insurance industry issues.

* Since the industry's entire legislative agenda met with failure in 2004, all of those bills will now carry over into the next administration.

Bush vs. Kerry

Here's a quick look at how both candidates stand on some of the insurance industry's hot buttons.

Medical-Malpractice Tort Reform

Bush endorses legislation limiting jury awards in medical-malpractice trials.

Kerry opposes jury award caps in medical-malpractice suits and promotes a "three strikes and you're out" provision against attorneys filing frivolous lawsuits.

Uninsured Americans

Bush's plan calls for spending $90 million over a 10-year period that will extend health coverage to 2.1 million to 2.4 million people. The president also champions Association Health Plans, that allow small businesses to pool to buy group health for their members.

Kerry proposes spending $653 billion on health care over a 10-year period which he says would cover 27 million uninsured. Kerry also supports a plan that allows employers to pay 50% of their health insurance premium and receive tax credits in return.

Medicare

Bush backed the passage of the 2003 Medicare Modernization Act, which included $12 billion in subsidies to encourage greater participation in the government-run health program by private insurance companies.

Kerry voted against the 2003 Medicare Modernization Act, and campaigns against the bill's prescription drug coverage, saying employers who now include that benefit as part of their retirees' health plans may drop it or water down the coverage.

Social Security

Bush is in favor of privatization, allowing workers to put some of their payroll taxes into private retirement accounts. The president said, however, there will be no changes in benefits for today's retirees or near-retirees.

Kerry opposes even partial privatization, claiming that approach would cut benefits and add $2 trillion to the deficit.