Relates to health maintenance organization benefit designs

BILL NUMBER:S7334

Title of bill

An act to amend the insurance law and the public health law, in relation to health maintenance organization benefit designs

Purpose

To permit persons interested in purchasing HMO products to have more affordable coverage due to impending federal tax advantages of certain HMO products.

Summary of provisions

Amends section 1109(e) of the insurance law to clarify provisions relating to the modification of HMO benefit designs, and adds a new subdivision 6 to section 4406 of the public health law to permit HMOs to offer contracts at the 60%, 70%, 80% and 90% actuarial valuation levels.

Justification

The percentage of New Yorkers who have HMO coverage continues to decline each year. They are transitioning to insurance coverage, typically utilizing an Exclusive Provider Organization (EPO) because the EPO premiums tend to be lower than HMO premiums. New York allows greater cost sharing in EPO products than it does for HMO products resulting in lower EPO premiums.

One of the benefits of the HMO is its emphasis on preventive and well care services. In the Healthy NY program, an enrollee can access certain preventive services before the deductible is reached, which include well-child and routine prenatal care, prostate cancer screening, mammography, cervical cytology, and adult physicals and immunizations.

A robust HMO market helps drive down health care costs, while improving the quality of health care. New York needs to reverse the declining enrollment trends in HMO products. To do so, New York should change its outdated limitations for cost sharing in HMO products. New York should permit HMOs to offer coverage with cost sharing levels that are comparable to EPO products.

There is precedent for permitting cost sharing changes in the existing portfolio of New York State insurance products. Healthy New York currently offers a health plan that requires the enrollee to pay for most medical expenses up to a certain dollar amount before the insurance policy begins to cover them. In fact, as of January 1, 2012, this plan is the only plan available to new Healthy New York enrollees.

In 2014, a new federal health insurance tax (HIT) will be imposed on all health coverage, including Medicaid, Medicare Advantage and all other fully insured products. The health insurers will pay the HIT based on their market share of the fully insured market across the nation. However, health insurers that are exempt from federal income tax (e.g. non-profit Article 44 HMOs in New York) will be eligible for a 50 percent tax credit against their HIT liability.

This tax advantage can be leveraged to reduce the cost of health insurance, Unfortunately, the existing rules that restrict cost sharing designs for HMO products make it impossible for an Article 44 HMO to issue contracts at varying actuarial valuation levels established. Customers, especially those on a more limited budget, who are interested in purchasing HMO coverage, would lose the pricing advantages provided by the federal tax policy if the current limitations on HMO products are maintained.

Article 44 HMO policies are not for everyone. However, consumers should be given the choice at all levels of actuarial value to purchase Article 44 policies in all markets, especially given the favorable federal tax treatment of these policies which will increase their affordability. This will result in more New Yorkers accessing health coverage.

Legislative history

New bill.

Fiscal implications

None.

Effective date

January 1, 2013 and applies to policies and contracts issued, renewed, modified, altered or amended on or after such date.