Limits superintendent of insurance from allowing increases above five percent for certain hospital service corporations; repealer

Summary of provisions

Section one amends section 3231 of the insurance law to require commercial insurers to seek the prior approval of the SID for rate increase applications unless: 1) the insurer submits an actuar- ial certification that it will payout 85 cents for each dollar of premi- um for small group policies and 90 cents for individual policies; and 2) the rate of increase does not exceed five percent in a year. The SID would also be required to hold public hearings on such applications prior to ruling on the increase request.

Section two amends subsections (g) and (h) of section 4308 of the insur- ance law to establish the same loss ratio requirements as section 3231 and to provide that health insurance premium increases sought by HMOs and non-profit insurers for individual and small group customers will require the prior approval of the SID if the aggregate rate increase exceeds five percent during any continuous 12-month period. The SID would be required to conduct public hearings on such applications.

Section three amends section 4308 (i) of the Insurance Law to clarify that Medicare supplemental rate increase requests will also be governed by the provisions of subsection (g) of section 4308 of the Insurance Law, requiring minimum loss ratios and prior approval of rate increases in excess of five percent.

Section four repeals subsection G) of section 4308.

Section five sets out the effective date.

Justification

Prior to 1996, the SID conducted public hearings on all rate increase requests submitted by non-profit insurers and HMOs. In 1996, HMOs and non-profit insurers were allowed to increase rates up to 10% automatically, so long as certain minimum loss ratios were met. With the failure of the Pataki Administration and the Senate to join the Assembly in extending these provisions, this law expired on December 31, 1999. As a result, HMO's and non-profit insurers may "file and use" increased rates of any magnitude without approval by the SID.

After years of relatively flat premiums for individuals and small groups in the mid-1990's, recent /premium increases have been dramatic. Indi- vidual purchasers, senior citizens and small businesses are all reeling from years of double-digit premium increases ranging from ten to 150%.

Some individuals are now incredibly paying well over $3,000 per month in premiums for their family's health insurance.

Without adequate regulatory review, health plan profits have been increasing exponentially. An analysis of data provided by insurers to the SID revealed that HMO profits increased by 93 percent between 2001 and 2005, generating industry-wide profits of more than $6 billion, while enrollment fell by 14% in that time span. In 2005, health plans in New York had $5 billion more in reserves than is statutorily required, of which approximately $700 million was used to pay dividends to share- holders. And while HMOs often claim that the rising premiums reflect the increased costs for medical services such as prescription drugs and the use of specialty providers, the percent of funds used by insurers on medical expenditures has actually dropped.

As the state seeks to control rising health care premiums, this legis- lation would restore SID authority to review rates increases in excess of five percent for individuals and small groups, providing immediately relief and recourse for small businesses. Health plans should be required to justify every penny of their rate increase requests, and the knowledge that their increases are being scrutinized may enhance their cost control efforts. Prior approval of rates is among the most basic of consumer protections. Prior to 2000, the SID used their prior approval authority on countless occasions. Sometimes rate increase applications were granted, but many times they were reduced or rejected outright to the benefit of consumers. And in other areas where SID continues to have the authority to intervene, the result has been palpable relief. For example, in 2004, the SID used its authority to review workers compensation rates, an action which saved businesses millions of dollars in premiums when the SID rejected a proposed increase of 29%.

It is also important to keep in mind that this legislation would restore for individuals and small businesses the same cost-containment measures on which New York State currently relies to restrain the growth of the premiums it pays. The Family Health Plus, Child Health Plus and Medicaid Managed Care programs all require participating health plans to justify their rates before raising them. So does the New York State Health Insurance Plan covering state workers. Individuals and small businesses struggling to maintain their health insurance deserve the same protections.

The restoration of the public hearing requirement included in this legislation is also important. It provides the opportunity for consumers to both challenge the assumptions on which rate increases are based, and to educate policymakers and regulators on the impact of rate increases. Several important health insurance reforms over the past few years-such as the 1995 Point-of-Service Law and the HCRA 2000 direct pay market subsidy-came about in part because of input received from rate hike hearings. This bill would restore the public hearing requirement for rate increases in excess of 5%.

Finally, it is important to require that all health plans are playing by the same rules. This legislation eliminates discrepancies in the regula- tory treatment of commercial and non-profit health plans and HMOs.

Prior legislative history

1998: A.9634 - Passed Assembly 1999: A.1504 - Passed Assembly 2000: A.1504-A - Passed Assembly 2001: A.1084 - Passed Assembly 2002: A.1084-A - Passed Assembly 2003: A.6852 - Passed Assembly 2004: A.6852-A - Passed Assembly 2005: A.2518 - Passed Assembly 2006: A.2518-B - Passed Assembly 2007-2008: A7485/S2740 - Passed Assembly

Fiscal implications

None.

Effective date

This act shall take effect January 1, 2011.