Authorizes the superintendent of insurance to modify or disapprove health insurance rate filings as unreasonable, excessive, inadequate or unfairly discriminatory

Section 1 of the bill would further amend Insurance Law § 3231(e)(1) by adding a new subparagraph (B) to require that the expected minimum loss ratio for a policy subject to this section for which a rate filing or application is made pursuant to Section 3231 (e)(1), other than a Medicare supplement policy, may not be less than 85 percent. Subject to the approval of the Superintendent, policy forms rated consistent with community rating requirements may be aggregated to meet the expected minimum loss ratio. Section 1 of the bill would allow the Superintendent to modify the 85 percent minimum loss ratio requirement if the Superintendent determines the modification is in the interest of the people of the State. Insurers subject to the provisions of the bill would be required to annually report their actual loss ratio for the previous calendar year in a form acceptable to the Superintendent. The Superintendent may direct the insurer to take corrective action if the expected loss ratio is not met.

Section 1 of the bill would also amend Insurance Law § 3231(e)(2) to: (1) provide that an insurer may not utilize the alternate rate adjustment procedure pursuant to such paragraph to implement a change in rates to be effective on or after January 1, 2010; (2) increase the minimum loss ratio requirement from 75 percent to 85 percent; (3) remove the limitation that a policyholder's policy form must be in effect as of the date that the insurer issues a dividend or credit where the loss ratio for a policy form fails to comply with the loss ratio requirement; (4) require that the dividend or credit be prorated based on the direct premiums earned for the applicable year among all policyholders eligible to receive such dividend or credit; and (5) require an insurer to make a reasonable effort to identify the current addresses of, and issue dividends and credits to, former policyholders entitled to such dividends or credits.

Section 2 of the bill would amend Insurance Law § 4308(c)(1) to provide that the Superintendent shall not approve an increase or decrease in premiums, with respect to community-rated contracts, unless the increase or decrease complies with Insurance Law § 4308(c) and other applicable provisions of law. This section of the bill would also delete existing Insurance Law § 4308(c)(2) and (3), which require public hearings with respect to a rate filing for a premium rate adjustment.

Section 2 of the bill would further add a new Insurance Law § 4308(c)(2)(A) to require an Article 43 corporation that desires to increase or decrease premiums to submit a rate filing to the Superintendent. The Superintendent would be required to determine whether the filing should become effective as filed, or be modified or disapproved. This section of the bill would also permit the Superintendent to modify or disapprove the rate filing if the Superintendent finds that the premiums are unreasonable, excessive, inadequate or unfairly discriminatory, and would allow the Superintendent to consider the financial condition of the corporation when approving, modifying or disapproving any premium rate adjustment. New paragraph (2)(A) would also prohibit an Article 43 corporation from imposing a rate increase unless the corporation provides at least 30 days advance written notice to each contractholder and subscriber.

Section 2 of the bill would also add a new Insurance Law § 4308(c) (2)(B) to require that the expected minimum loss ratio for contracts subject to this subsection for which a rate filing or application is made pursuant thereto, other than a Medicare supplement policy, may not be less than 85 percent. Subject to the approval of the Superintendent, policy forms rated consistent with community rating requirements may be aggregated to meet the expected minimum loss ratio. The superintendent may modify the 85 percent minimum loss ratio requirement if the Superintendent determines that the modification is in the interest of the people of the State. Every corporation subject to the provisions of the bill would be required to report annually its actual loss ratio for the previous calendar year in a form acceptable to the Superintendent. If the expected loss ratio is not met, the Superintendent may direct the insurer to take corrective action.

Section 2 of the bill would add a new Insurance Law § 4308(c)(2)(C) to require that the expected minimum loss ratio for a Medicare supplement insurance contract form may not be less than 80 percent. Every corporation subject to this subparagraph would be required to report annually the actual loss ratio for each contract form for the previous calendar year in a form acceptable to the Superintendent. In each case where the loss ratio for the contract form fails to comply with the 80 percent loss ratio requirement, the corporation shall submit a corrective action plan to the Superintendent assuring compliance. Section 2 of the bill would further renumber existing Insurance Law§ 4308(c)(4) as § 4308(c)(3).

Section 2 of the bill would also amend Insurance Law § 4308(g)(1) to provide that a corporation may not utilize that subsection's alternate rate adjustment procedure to implement a change in rates to be effective on or after January 1, 2010. In addition, this section would amend Insurance Law§ 4308(g) and (h) to increase the minimum loss ratio requirement from 75 percent to 85 percent for contract forms for which a rate filing or application is made pursuant to Insurance Law§ 4308(c)(2).

Section 2 of the bill would further amend Insurance Law § 4308(h)(2) to remove the limitation that a member's contract must be in effect as of the date that the insurer issues a dividend or credit where the loss ratio for a contract form fails to comply with the appropriate minimum loss ratio requirement. The dividend or credit would be prorated based on the direct premiums earned for the applicable year among all contract holders and subscribers eligible to receive such dividend or credit. Article 43 corporations would be required to make a reasonable effort to identify the current addresses of, and issue dividends or credits to, former contract holders or subscribers entitled to the dividend or credit. Section 2 of the bill would also amend Insurance Law § 4308(i) to provide that the alternate rate adjustment procedure described in Insurance Law § 4308(g) and (h) may not be utilized for any rate filing to take effect on or after January 1, 2010. This section of the bill would also delete Insurance Law § 4308(j) since the bill would restore the minimum loss ratio for individual direct pay contracts to 85 percent.

Section 3 of the bill sets forth an immediate effective date.

Existing law

Currently, the Insurance Department does not approve health insurance premium increases before they go into effect. Under Insurance Law §§ 3231 and 4308, HMOs, Article 43 corporations and commercial insurers may utilize a "file and use" rate setting procedure under which premium rate adjustments are "deemed approved" by the Superintendent if the rate filing meets statutory minimum loss ratio requirements and is accompanied by an actuarial certification of compliance.

Prior legislative history

A similar proposal was introduced as an Insurance Department departmental bill in 2007-08 (A.11253/S.3677).

Statement in support

Prior to 1994, all health plans (for-profit commercial insurers licensed under Insurance Law Article 42, non-profit insurers licensed under Insurance Law Article 43, and HMOs licensed under Public Health Law Article 44) were required to obtain Insurance Department approval prior to increasing premium rates. Since October 1, 1994, for-profit insurers have been allowed to use a "file-and-use" mechanism, whereby an insurer can implement a premium rate increase of any magnitude without the Superintendent's prior approval if the increase met the minimal statutory requirements of minimum loss ratios (the percentage of premiums that must be spent on claims) and actuarial certification set forth in Insurance Law § 3231(e)(2). Similarly, since January 1, 1996, non-profit insurers and HMOs have been permitted to increase rates up to ten percent without the Superintendent's prior approval under the file-and-use mechanism. On January 1, 2000, the ten-percent cap expired, so non-profit insurers and HMOs may now increase premium rates by any magnitude without the Superintendent's prior approval, if the increase meets the statutory minimum loss ratios and actuarial certification requirements.

Since becoming free from regulatory oversight, health plans have routinely implemented double-digit rate increases. And, as confirmed by New York's highest court, the Superintendent lacks the ability to prevent these double-digit rate increases filed via the file-and-use mechanism, even if the rates were excessive, inadequate or unfairly discriminatory. See.Excellus Health Plan. Inc. v. Serio, 2 N.Y.3d 166 (2004).

In fact, the Insurance Department has found that, even though the file-and-use mechanism contains an objective minimum loss ratio standard (80 percent for individual policies and 75 percent for small group policies) and a means to effect refunds to policy holders if that standard is not met, it has been subject to manipulation and does not ensure that health plans set appropriate premium rates.

These shortcomings have arisen for several reasons. First, health plans have failed to self-regulate. Between 2000 and 2007, health plans refunded, without Insurance Department intervention, approximately $48 million in overcharged premiums. Insurance Department investigations, however, found that during that same period insurers and HMOs overcharged policy holders an additional $105 million, more than twice what was "self-reported" under the file-and-use system.

Second, Insurance Department enforcement has proven difficult. Under file-and-use, investigations are necessarily after-the-fact, allowing improper rate increases to be implemented even if health plans simply make mistakes in calculating rates. File and use also allows health plans to revise underlying assumptions after the rates go into effect to avoid paying refunds. For example, at the end of a plan year health plans can meet their medical loss ratios by overstating their reserves for "incurred but not received" claims (the health plan's estimate of claims incurred during the rate year but not yet received from the provider).

Third, even if enforcement loopholes could be reduced, the refund mechanism proves the adage "justice delayed is justice denied." Because file-and-use gives insurers and HMOs until September 30 after the applicable year to pay refunds -- up to 21 months after rate increases go into effect -- those refunds are not available to individuals or groups who had to cancel their coverage because they could not afford the rate increase in the first place. Therefore, an unjustified rate increase could result in an unjustified loss of health insurance coverage.

Fourth, the file and use mechanism is insufficient to protect the most vulnerable insurance markets, where competitive forces do not operate to suppress premiums. For example, Insurance Law §§ 4321 and 4322 require all HMOs in New York State to offer two standardized products in the individual marketplace in order to ensure that comprehensive coverage remains available to those consumers who must purchase health insurance coverage without employer assistance. However, most insurers are reluctant participants in this individual market, and have an incentive to price themselves out of meaningful participation. As a result, the file-and-use mechanism does not function effectively. Moreover, as rates increase and become more unaffordable, healthy individuals drop their coverage, leaving less healthy persons enrolled. As the health plan spends more on the sick consumers who remain, the loss ratios increase. This forces rates upward again and the cycle of increasing rates continues unchecked.

Given the foregoing, the file-and-use mechanism is inadequate to protect New Yorkers from improper premium increases. Reinstating the Superintendent's authority to subject health insurance premium rate filings to regulatory scrutiny before the rates go into effect avoids the pitfalls of file-and-use. Prior approval of rates does not rely on health insurers to self-regulate and does not have enforcement loopholes. Most importantly, allowing the Superintendent to review and approve rate adjustments enables the Superintendent to ensure that health insurance premium rates are not unreasonable, excessive, inadequate or unfairly discriminatory. This will protect consumers and businesses from improper rate increases before they go into effect. As a result, consumers and businesses will no longer be forced to drop coverage because improper rate increases have made insurance unaffordable. Similarly, prior approval of rates will allow the Superintendent to better protect vulnerable markets, limiting the ability of insurers to promote adverse selection by raising rates and forcing the healthy to drop coverage.

This bill would retain a minimum loss ratio standard, increasing it from 75 percent to 85 percent on individual and small group policies. This minimum loss ratio provides insurers with an objective standard, subject to and balanced against regulatory oversight, and ensures that a greater percentage of premiums are returned to consumers in the form of benefits.

Budget implications

This bill will not have an impact on State finances, as the requirements of this bill can be performed within existing resources.

Effective date

This bill would take effect immediately.