NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7439
SPONSOR: Cahill TITLE OF BILL:
An act to amend the insurance law, in relation to rating of individual
and small group health insurance policies
PURPOSE:
To the amend the insurance law, relating to the health insurance premium
rate setting process as currently interpreted and used by the Department
of Finance Services.
SUMMARY OF PROVISIONS:
Section 1 and 2 of the bill amend sections 3231 and 4308 of the insur-
ance law to require that any adjustment to a health insurance rate
filing or application comply with generally accepted actuarial princi-
ples and practices. Within thirty days of the health insurance rate
filing the Superintendent of Financial Services is required to provide
an initial rate determination that describes in detail the actuarial
assumptions and methods used in the rate determination. The health
insurer has fifteen days to appeal the determination of the Superinten-
dent in writing, and the Superintendent has fifteen days to issue a
revised rate determination. If the health insurer does not appeal the
rate determination it will become final fifteen days after the rate
determination is issued. All final rate determinations shall be certi-
fied by an actuary designated by the Superintendent.
Section 3 of the bill would provide for an immediate effective date.
JUSTIFICATION:
The "prior approval" process that existed before the enactment of the
"file and use" system in 1996 was highly susceptible to political influ-
ence, not based on sound actuarial principles, and compromised the
solvency of some insurers. In 2010, when DFS proposed reinstituting
prior approval, the Department provided assurances to the Legislature
that it would not revert to the politicization of rate setting and would
instead use a system that would yield actuarially sound rates. In fact,
the statute expressly requires that the DFS superintendent make deci-
sions "based on sound actuarial assumptions and methods." The statute
also requires that the superintendent's decision be provided in writing
between 30 and 60 days following the submission of rates. During last
year's review of 2015 premium rates, DFS did not provide any written
documentation to support its decision making nor prove that its deci-
sions were actuarially sound.
The following are just a few examples from the most recent prior
approval process of how DFS deviated from "sound actuarial assumptions
and methods," choosing instead to use an approach that was subjective in
an effort to artificially restrain prices:
*Made rate decisions based on broad-based regional trends when, in fact,
medical trends vary by smaller regions or even counties and also by
insurer;
*Lowered rates in some cases without any explanation, asserting that it
simply thought the rate was too high;
*Disparately and inconsistently applied assumptions related to the
federal risk adjustment mechanisms to health plan filings, with the risk
adjustment reduced from what the DFS prescribed simulation produced,
which calls into question the validity of the simulation and the DFS
process;
*Imposed arbitrary limits on administration and profit, despite the
existence of express state and federal statutory provisions governing
the medical loss ratio;
*Made adjustments to the level of rates based upon their relative posi-
tion to competitors' rates, which is not an actuarially sound modifica-
tion; and
*Reduced rates for expected improvement in statewide small group morbid-
ity even though insurers have provided 2014 data to DFS showing that no
such improvement is occurring since the inception of the ACA.
In addition to the rate decisions being inconsistent and noncompliant
with statutory requirements, there was also a significant breakdown in
the procedural actions to finalize rate modifications. After the Depart-
ment notified plans of its decisions regarding health plan rates, there
was no time provided to allow plans to discuss the determination and to
seek adjustments where the DFS decision was flawed. Instead, DFS issued
its public press release announcing final rates the very next day after
the initial notification. By rushing out the press release, DFS
precluded any meaningful discussion between the health plan and DFS
actuarial staff and any opportunity to adjust rates even where mistakes
or errors were identified and acknowledged by DFS. In fact, health plans
were provided with only cursory information not in any written format
with which to make major market decisions potentially adversely affect-
ing thousands of consumers. This rush to judgment further de-legitimized
the rates and the existing prior approval process.
DFS has not made public the actuarial assumptions and methodologies
utilized to determine rates for 2015. It merely conducted informal
DFS/plan conversations and only produced written consumer summaries of
its final rate decisions. To date, however, it has still not produced
the actuarial analysis to justify its premium rate decisions as intended
by the legislature.
Consumers, businesses, providers, and plans need to see and know that
DFS is utilizing sound actuarial assumptions and methodologies in the
prior approval rate review and decision making process. Whether premiums
are increasing or decreasing due to new benefits or taxes, reduced costs
or utilization or other federal or state actions, all parties need to be
assured that premiums are sound. The financial losses being incurred by
health plans are directly related to the prior approval process.
Improved transparency is needed to guaranty the financial solvency of
plans and stability in the marketplace.
LEGISLATIVE HISTORY:
New Bill.
FISCAL IMPLICATIONS:
None.
EFFECTIVE DATE:
Immediately.
