A04688 Summary:

BILL NO    A04688 

SAME AS    Same as S 3062

SPONSOR    Morelle (MS)

COSPNSR    Lancman, Cymbrowitz, Perry, Koon, Alessi, Galef, Stirpe, Schimel,
           Christensen, Maisel, DelMonte, Cusick, Lupardo, Gabryszak, Titone,
           Pheffer

MLTSPNSR   Benjamin, Bing, Magnarelli, Weisenberg

Amd SS3231, 4308, 3216, 3221, 4303 & 3224-a, Ins L; amd S4406, Pub Health L

Enacts the health insurance premium integrity act; amends procedures for
determination of loss ratio; amends provisions relating to payment of dividends
and credits; relates to coverage of services of participating providers; and
relates to fair and equitable settlement of claims for health care and payments
for health services.

A04688 Actions:

BILL NO    A04688 

02/05/2009 referred to insurance
01/06/2010 referred to insurance

A04688 Votes:

A04688 Memo:

 BILL NUMBER:  A4688

 TITLE OF BILL :  An act to amend the insurance law, in relation to
premium rates for health insurance; to amend the insurance law and the
public health law, in relation to coverage of services of
participating providers; and to amend the insurance law, in relation
to the fair and equitable settlement of claims for health care and
payments for health services

 PURPOSE : The purpose of this legislation is to standardize the
calculation of minimum loss ratio for purposes of the alternative
premium rate adjustment process known colloquially as "file and use."
The bill would also provide the Superintendent the authority to
suspend an HMO's, Article 43 corporation's or a commercial insurer's
ability to use the alternative premium rate adjustment process upon a
determination that there was a deliberate miscalculation of minimum
loss ratios. Additionally, the bill changes the minimum loss ratio
applied to small group coverage from seventy-five percent to eighty
percent.

 SUMMARY OF PROVISIONS :  Section 1 of the bill captions it the
"Health Insurance Premium Integrity Act."

Section 2 of the bill amends subsection (e) of Section 3231 of the
Insurance Law to provide a definition of the terms "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 intentionally and significantly misrepresented the minimum
loss ratio in its filings on three consecutive occasions.

Section 3 of the bill amends Section 4308 of the Insurance Law to
define the terms "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.

Section 5 of the bill makes changes 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 section further provides the
method to calculate direct claims incurred to be used in determining
the minimum loss ratio.

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 intentionally and significantly
misrepresented the minimum loss ratio in its filing on three
consecutive occasions.


Section 7 of the bill directs the Superintendent of Insurance to
reconvene the technical advisory committee, formed pursuant to Section
3233 of the Insurance Law, to advise the Superintendent on correcting
inconsistencies in the premium rate submissions and to address
inconsistencies between community rating requirements and the premium
rate adjustment process.

Section 8 of the bill provides for a January 1, 2009 effective date.

 EXISTING LAW : Section 3231 of the Insurance Law permits commercial
insurers to adjust premium rates for individual and small group
policies under the alternative process so long as they meet minimum
loss ratio requirements and an actuarial certification is submitted
with the filing. Section 3231 currently sets the minimum loss ratio
for small group policies at seventy-five percent.

Section 4308 of the Insurance Law permits Article 43 corporations and
HMOs to adjust premium rates for individual and small group contracts
under the alternative process so long as they meet minimum loss ratio
requirements and an actuarial certification is submitted with the
filing. Section 4308 currently sets the minimum loss ratio for small
group and small group remittance contracts at seventy-five percent.

 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.

Recently, concerns have been raised that the "file and use" process
does not contain enough safeguards against inappropriate or excessive
rate 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. This suspension is in addition to other
punitive remedies already available to the Superintendent under the
Insurance Law.

This bill also raises the minimum loss ratio for small group coverage
from seventy five percent to eighty percent. Thus, at least at least
eighty cents of every premium dollar must be used to pay for health
care services. The higher ratio ensures that a greater amount of the
premium dollar be returned in health care benefits for this price
sensitive market.

Finally, the bill requires the Superintendent of Insurance to convene
the technical advisory committee created under Section 3233 of the
Insurance Law to look at the "file and use" process and make
recommendations for standardization and to identify and address
situations where the "file and use" process may be inconsistent with
principles of community rating. This committee was originally created
to provide advice about premium and market stabilization concerns with
the enactment of community rating and open enrollment requirements.
Its involvement in the issues presented by "file and use" is a natural
extension of its purpose.

 LEGISLATIVE HISTORY : New bill.

 FISCAL IMPLICATIONS : None.

 EFFECTIVE DATE : This act shall take effect on January 1, 2009.