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PSN on April 3, 2008 - 8:38am
Examples of the kind of tough state insurance regulations that would be undermined by wrong-headed federal preemption include the recent reforms Colorado and other states are pursing in their health insurance markets.
In 2007, Colorado enacted tougher standards on how health insurance companies set monthly premiums by outlawing the consideration of health status as a factor in premium rate-setting decisions. Building on this success, House and Senate leaders announced this week new efforts to rein in health insurance companies and ensure Coloradans are getting real value for their health insurance premiums.
Prior Approval and Transparency - Pointing out that premiums in Colorado increased by an average of 60% from 2001 to 2005 while wages rose on average only 13%, Rep. Morgan Carroll introduced a plan to require insurance companies to justify premium hikes. Regulators will be authorized to reject unjustifiable rate increases based on several factors, including incidence of claims and surplus revenues. The bill will also bring transparency to the rate process. The proposal's Senate sponsor is Sen. Paula Sandoval.
Timely Payment of Claims - Speaker Andrew Romanoff and State Sen. Ken Gordon announced a plan to prevent unreasonable denial of claims by insurance companies. The measure would impose penalties if a claim is improperly denied.
Holding Insurers Accountable for Unfair Business Practices - HB 1228, sponsored by Sen. Gordon and Rep. Gwyn Green, will enable regulators to impose tougher penalties on insurers who deal with customers dishonestly. It authorizes the insurance commissioner to collect restitution for wrongful acts and holds insurers accountable for the unfair business practices of both insurance companies and insurance agents. HB 1228 has passed both chambers in slightly different form; amendments are being reconciled.
As we've written previously, Colorado's renewed push on insurance company practices is part of an important trend in several states to clamp down on excessive premium hikes and ensure consumers are treated fairly.
Washington State enacted SB 5261, which restores the insurance commissioner's oversight of the individual health insurance market by reinstating prior approval for rate increases and requiring health plans to maintain a 77% medical loss ratio. As described by Families USA, a medical loss ratio is a requirement that insurance companies spend a certain percentage of premiums on direct medical care, limiting the percentage of premiums that go to inefficient administrative costs, like bonuses and excess paperwork.
The Pennsylvania House of Representatives just passed legislation (HB 2005) outlawing the consideration of health status, gender, or occupation as factors when setting premium rates in the small group market. The legislation also requires insurers to meet a medical loss ratio of 85% and allows state regulators to reject premium hikes if insurers have not met robust standards, including new efficiency and quality benchmarks.
- Connecticut is moving SB 491 to establish a task force to study medical loss ratios and the effect of establishing thresholds that insurers must meet. The process laid out by the bill could shed important light on insurance company business practices and their efficient use of premiums paid.
- West Virginia lawmakers are moving HB 4466 to create a permanent consumer advocate in the Insurance Department to act on behalf of consumers in rating decisions, legal proceedings, and other situations where a strong consumer voice is needed.
As reported by Health Access - California, California legislators are considering a panoply of bills to rein in insurers. The strong push in the legislature comes after abusive business practices by many of the state's largest for-profit and not-for-profit insurers came to light over the past year, from providing bonuses to employees who cancel coverage after consumers submit costly claims, to recruiting physicians in canceling health insurance coverage. State regulators continue to investigate these practices and levy fines. Legislation in 2008 to watch includes: SB 1440 to set an 85% medical loss ratio; AB 1150, AB 1945 and AB 2549 to regulate how and how often insurers rescind, or cancel, health insurance polices, including outlawing compensation based on rescissions; and SB 1522, which would rank health insurance options according to quality and benefits covered, and limit total out-of-pocket costs in individual health plans.
Lest we forget that insurance companies are in the business of making money, the Pittsburgh Post-Gazette reports that health insurer Highmark enjoyed total revenue of $12.4 billion in 2007, growing its surplus to $3.5 billion despite a reduction in net profits. The article goes on to report that several insurers are planning premium hikes over the summer because "per-share earnings" have not met projections, down from a forecasted $6.41 per share to between $5.76 and $6.01 in the case of the huge multi-state insurer Wellpoint. Before you shed a tear for their financial woes, the Post-Gazette reports that Highmark's $3.5 billion surplus represents 734% of its risk-based capital - a measure of the money an insurer might need on hand in case of unforeseen claims. The National Association of Insurance Commissioners, however, say that surpluses exceeding 250% of risk-based capital are troubling. Troubling indeed.