The Sarbanes Oxley Act was passed by Congress as a measure to prevent accounting irregularities after scandals such as Enron and WorldCom. President George W. Bush signed the bill, which caused implementation difficulties, into law on July 30, 2002. Health insurance companies were affected. Consequential accounting irregularities basically forced the federal government to become proactive and protect unsuspecting investors from compromised accounting practices and proceedings. It primarily focuses on two entities, director and officer liability insurance coverage, and the auditing processes including "corporate governance," internal facets of insurance companies that oversee and regulate accounting.

Health insurance directors and officers have a high risk of liability due to compromised governance and accounting inconsistencies. As a result, these inveterate personnel are confronted with increased obligations, time investments, and diminished stockholder forbearance for effectuation and regulatory dereliction. Investors are demanding accountability, honesty, and integrity with validation.

These issues create contributory risk for potential litigation and substantial damage awards. Audit committees are now responsible for selecting auditors, evaluating non-audit related functions, and establishing policies and operations that encourage internal irregularity reporting or whistleblowers. In companies, including health insurance companies, senior administrators must verify and validate that the company's actuarial and periodic accounting documentation are indisputable. Furthermore, they must attest to the efficiency and efficacy of the health insurance's disclosure protocol, processes, and procedures.

Health insurance directors and officers must be indemnified against litigation because of the prevalence of security related class action suits being filed, the devastation and subsequent damages resulting from 911, and depreciated investment returns have caused inflated insurance premiums, higher policy deductibles and lower policy face amounts. There are few insurance companies offering these required indemnification policies, a consequence of the Sarbanes Oxley Act. Many insurers are hesitant to provide coverage in the event a policyholder is found guilty in a suit and said company would suffer substantial financial losses. Therefore, the cost of this required coverage is formidable, intimidating, and expected to increase exponentially in the years ahead, from 25-40% for directors and officers, and even more significant increases for less secure insurance companies.

The second area are that affects health insurance companies is the actuarial and accounting expenses which are expected to increase by 38% during the first year of company compliance with Section 404 It is projected that the actual cost for first year compliance could exceed $4.6 million for larger companies and $2 million for mid-sized companies according to statistics reported in 2004.

Undoubtedly, the Sarbanes Oxley Act will result in more accountability and accounting accuracy, but the expenses that health insurance companies will incur for compliance are significant and substantial.