Relates to premium rates for health insurance

Section 2 of the bill amends subsection (e) of Section 3231 of the Insurance Law to provide a definition of the terms "policy form," "loss ratio," "direct claims incurred," "direct claims earned" and "small group." It also sets the minimum loss ratio for small group policies at eighty percent and provides that where the application of the minimum loss ratio test results in a premium credit or a dividend, the credit or dividend applies to all policies in force at the applicable time, whether or not the policyholder remains covered by the health plan when the dividend or credit is issued. This section further provides the method to calculate direct claims incurred to be used in determining the minimum loss ratio and gives the Superintendent of Insurance the authority to suspend an insurer's ability to use the alternative premium rate adjustment process if it is determined that the insurer materially misrepresented the minimum loss ratio in its tilings on two consecutive occasions and filed to provide a required dividend within three years.

Section 3 of the bill amends Section 430R of the Insurance Law to define the terms "contract form," '"loss ratio," "direct claims incurred," "direct premium earned" and "small group."

Section 4 of the bill increases the minimum loss ratio for small group and small group remittance contracts from seventy-five percent to eighty percent and indicates that the actuarial certification that accompanies premium rate adjustment filings under the alternative method shall be subscribed to under penalty of perjury.

Sections 5 and 8 of the bill change the minimum loss ratio for small group and small group remittance contracts to eighty percent and provides that where a premium credit or dividend is due, it shall be issued to each contract that was in effect during the applicable time, whether or not the contract holder remains covered by the health plan at the time it is actually issued The sections further provides the method to calculate direct claims incurred to be used in determining the minimum loss ratio, and changes the reporting date from May 1 to August 1.

Section 6 of the bill gives the Superintendent of Insurance the authority to suspend an Article 43 corporation or an HMO's ability to use the alternative premium rate adjustment process if it is determined that the insurer materially misrepresented the minimum loss

ratio in its filings on two consecutive occasions and filed to provide a required dividend within three years.

Section 7 of the bill makes technical changes to the law.

Sections 9 through 12 of the bill amends sections 3216,3221, and 4303 of the insurance law and section 4406 of the public health law to prohibit health insurers from charging a patient out-of-network rates for hospital services in an in-network hospital even though the physician performing the service may be out-of-network. These sections further prohibit health insurers from charging a patient out-of-network rates for services performed by an in-network physician, even though the hospital where the services are performed may be out-of-network.

Section 13 of the bill amends section 3224-a of the insurance law to reduce the required time that an insurer must pay claims to health care providers when the claim is submitted electronically, from 45 days to 21 days.

Section 14 of the bill amends section 3224-a of the insurance law to require an insurer to provide written notification within 14 days after an electronic claim is submitted if such claim will be disputed.

Justification

Prior to 1996 (1994 for commercial insurers), all premium rate adjustments of individual and small group health insurance policies and contracts required the prior approval of the Superintendent of Insurance. For HMOs and for Article 43 corporations, a public hearing was also required as part of the rate adjustment process. The change to a "file and use" system was made to address the legitimate concerns that the prior approval process was overly subjective or political administratively burdensome and costly and, as a result, did not allow appropriate rate changes. Adoption of the "file and use" process was not made without appropriate standards and marketplace controls All new products continued to be subject to an initial prior approval and, for existing products, an actuarially based minimum loss ratio test was required which permitted a rate increase only when a product dedicated a certain percentage of the premium to the payment of claims for health care services. Moreover, a required dividend or credit for failing to meet the test was put in place to ensure that the adjusted rate implemented through this alternative process was justified and equitable.

This proposal seeks to address the concerns many have raised that the current "file and use" system does not contain enough safeguards against inappropriate or excessive increases. There are allegations that the minimum loss ratio test is ambiguous and subject to manipulation and, as such, allows insurers, Article 43 corporations and HMOs to implement excessive rates. Some parties suggest a return to the prior approval process.

This bill takes a measured approach to addressing those concerns by expanding the safeguards built into the existing process rather than taking a step backward to the artificially suppressed price control process of "prior approval". The bill responds to the concern that loss ratios are capable of manipulation by providing a definition of medical loss ratio and a means of calculating incurred claims. It gives the Superintendent of Insurance the authority to suspend a health plan's ability to use the "file and use" process where the health plan shows a pattern of intentionally manipulating data to obtain a favorable result. Specifically, the bill would reinstate prior approval for insurers who "materially misrepresent" their medical loss ratios in two consecutive years, and would be in effect for up to three years This suspension is in addition to other punitive

remedies already available to the Superintendent under the Insurance Law.

We all recognize that there are good players and bad players in the health insurance market. The intent of this legislation is to penalize the bad actors, those who deliberately play games a11d misrepresent their loss ratios to the insurance department. Those who play by the rules should be permitted to continue to enjoy the benefits of "file and use.

Further, the bill increases the minimum medical loss ratio from 75% to 80%, for the small group market, meaning that at least 80 cents of every premium dollar must be used to pay for health care services. This higher ratio is an important way of ensuring that a greater amount of the premium dollar is returned in health care benefits as opposed to administrative overhead costs or profits for this price sensitive market. The bill also establishes clear definitions and standards for calculating medical loss ratios, and provides a specific method for calculating "direct claims incurred." This is designed to eliminate the "gaming" used by certain health plans, whereby they deliberately miscalculate their minimum loss ratios. The current test for meeting minimum medical loss ratios is ambiguous and subject to manipulation. allowing for insurers to implement excessive rates. The bill further strengthens certification requirements. by requiring insurers to affirm. under penalty of perjury. that their rate filing was prepared in accordance with generally accepted actuarial principles.

The legislation also prohibits health insurers from charging a patient out-of-network rates for hospital services in an in-network hospital, even though the physician performing the service may be out-of-network. In other words. as long as a patient is being treated in an in-network hospital, he must be charged in-network rates for the hospital services he receives. Similarly, the legislation also prohibits health insurers from charging a patient out-of-network rates for services performed by an in-network physician, even though the hospital where the services are performed may be out-of-network. In other words. if the physician is in-network but the hospital is out-of-network, the patient must be charged in-network rates

The legislation also reduces the required time that an insurer must pay claims to health care providers when the claim is submitted electronically, from 45 days to 21 days. Claims that are submitted in written form would remain unchanged, at 45 days. This will ensure that payments to health care providers are made expeditiously. Also, by reducing the time frame for electronic claims only, we are subsequently providing an incentive for providers to submit claims electronically.

Legislative history

S.8354-B of 2008

Fiscal implications

None.

Effective date

Immediately.