Transcript Legal Issues in Life and Health Insurance

Legal/Regulatory Issues in Life
and Health Insurance
RMI 4115
Solvency Regulations
• Financial solvency of insurer is required by all
states; insurers must be able to pay claims
• Market conduct and financial examinations
are performed by state insurance
departments
Claims Handling
• State insurance departments have consumer
services divisions to help consumers who are
having problems with their insurance.
• Regulators have broad authority to investigate
and require corrective action by insurers engaged
in inappropriate practices even when such
actions are not explicitly prohibited in state law
– Authority is granted through “unfair claims
settlement” and “unfair trade practices” laws.
Form Filing
• States require insurers to file their policy
forms to ensure they are selling compliant
products.
– Must cover required benefits
– Must provide for appropriate appeals and
grievance procedures
– Must meet any other state requirements
Corrective Actions
• If an insurer is not in compliance, the
commissioner can:
– Issue a “cease and desist” order
– Revoke the insurer’s license in that state
– Order the insurer to cease new enrollment
– Initiate a receivership or conservator action
Nonforfeiture and Settlements
• These provisions follow NAIC model laws
Can you name some of these options?
Patient Protections
• Access to emergency services
• Access to certain specialists
• External review laws
– Types of disputes eligible for review
– Fee for the review
– Deadlines for filing appeals
– Selection and qualification of external reviewers
Access to Health Insurance
• For small businesses: states have tried several
approaches:
– {note that without regulatory intervention, private
insurers would likely deny applicants with a
history of health conditions}
– Guaranteed issue required for small group market
(was required by 36 states; now a federal law)
– Guaranteed renewability now required for all
group and individual health insurance policies
Unfair Marketing Practices
• States have standards to prevent insurers from
circumventing guaranteed issue and
renewability requirements.
– States have developed standards: Insurers must
actively market policies to all small businesses, not
just businesses with a healthy workforce
– Note that federal law does not provide for such
requirements
Guaranteed access for special
populations
• States have also passed laws to improve
access to health coverage for “special
populations.”
– Most states prohibit insurers from canceling
insurance for dependent adult handicapped
children who were covered by their parents’
policies as minors.
– In all states, newborns are automatically covered
under their parents’ policy for 30 days provided
that the policy covers dependents.
Continuation Laws
• States have passed continuation laws similar
to federal COBRA. These apply to policies
purchased by small businesses not subject to
COBRA.
– Some offer shorter periods of continuation
coverage
– Some are more generous than COBRA
Rating
• Most states have enacted rating reforms in the small
group market
– In many states, insurers are restricted, or prohibited, from
charging higher premiums based on health status
– A “rate band” is a limit on the variation in premiums across
policyholders. They exist in 37 states.
• E.g., a model rating law for the small group market adopted by the
National Association of Insurance Commissioners (NAIC) in the
early 1990’s (and since replaced) provided for rate bands that
permit premium variation up to 200 percent based on health
status.
• It allowed further variation based on age, gender, industry, small
business group size, geography, and family composition.
• Rates based on adjustments for these factors had to be actuarially
justified but were not limited except for industry, which was
limited to a 15% variation.
Rating, continued
• A “community rating” law requires that insurers set
prices for policies based on the collective claims
experience of everyone in the plan. Ten states require
this.
– Insurers are not allowed to vary rates based on health or
claims of one person.
– Under adjusted or modified community rating, premiums
may be adjusted based on the geographic location and
sometimes for a person’s age; adjustments for gender are
generally not allowed.
– At renewal, premiums are based on the claims experience
of all people with that policy.
Why is this practice criticized???
Covered Benefits
• “Mandated benefits” govern the types of
conditions and treatments insurers must
include in health insurance coverage.
– Access to procedures (e.g., immunizations)
– Access to providers (e.g., accupuncture)
– Procedures in certain settings
– Coverage parity
Mandates can create adverse
selection… why?
• E.g, in the 1990s, the state of Washington required insurers to sell
comprehensive policies covering all mandated benefits
• It also allowed insurers to sell policies that did not cover certain
benefits, like maternity and mental health care.
• All policies had to be sold on a guaranteed issue basis and were
subject to community rating.
• By 1998, premiums for the policies that covered maternity and
mental health benefits were 30 to 100 percent more expensive
than the policies that excluded those two benefits.
Given a choice in benefits, consumers self-selected based on
their health care needs…adverse selection caused a spiral in
the disparity in premiums for the products!
Subsidization of Private Health
Insurance
• Some state programs help expand access to
health insurance by making it more affordable.
– Tax credits to small businesses
– Reinsurance program
– Purchasing alliances
• Subsidizing private coverage can quickly become
prohibitive
– Insurers can avoid or shed the most expensive risks or
steer them to the subsidized coverage (spillover)
– To limit adverse selection, states have adopted rating
rules and standardized benefit packages
ERISA and HIPAA
• Health benefits provided by self-insured private
employers are not regulated by states.
• HIPAA
– established national standards for plans sold to employers
– Prohibited insurers from denying coverage to small
businesses
– Limited use of preexisting conditions exclusions
– Prohibited discrimination based on health
– Required guaranteed renewability
– Established portability of health insurance
Current NAIC L/H Workgroups
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Consumer Information (B) Subgroup
Exchanges (B) Subgroup
Health Actuarial (B) Task Force
Regulatory Framework (B) Task Force
ERISA (B) Subgroup
Senior Issues (B) Task Force
Annuity Disclosure Working Group
Life Actuarial Task Force