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For Release — March 23, 2010

Milliman Report Concludes Fiscal Year Savings from Prior Approval Will be Negligible

ALBANY— The Business Council of New York State, Inc. today released a report revealing that restoration of a price control mechanism known as “prior approval” to regulate health insurance rates will not produce the cost savings claimed in the Executive Budget proposal. At best, savings would be hundreds of millions less than what is projected by the Governor.

Specifically, the Governor's proposal allows the State Insurance Department to suppress premium rates and then claims there will be savings because fewer people will enroll in public programs, such as Medicaid.

“Prior approval is not a new concept. In fact, it was in place in the late 1980s and early ‘90s,” said Kenneth Adams, president and CEO of the Business Council of New York State, Inc. “Unfortunately it didn't work. And this year, in order to pressure the Legislature into reinstating bad public policy, the Governor has attached a specious Medicaid savings amount, which doesn't hold water. Milliman confirms what most fiscal experts believed: the savings are outrageously exaggerated.”

According to the Milliman report titled “Actuarial Review of the Proposed Medicaid Cost Savings through the Regulation of Health Insurance Premium Rates,” savings from the prior approval proposal are minimal and next to impossible to identify in the first year. And estimates using data that will become available later in 2010 could result in even smaller savings than currently forecast for subsequent years.

"The Milliman report clearly concludes that the savings to the state are nominal and, at best, speculative,” said Adams. “Relying on these savings in balancing the state budget would be another classic example of the budget gimmicks which have placed the state in a financial crisis.”

Price controls don't work – in health care or any other market. New York found this out the hard way years ago when prior approval failed miserably. It was because of this failure that in 1995 the Legislature unanimously voted to eliminate prior approval. Health plans simply could not afford to deliver care at the rates mandated by the state.

“We all want to find ways to keep health insurance costs in check,” said Adams. “However artificially suppressing premium rates without addressing what really drives the cost of health care does not make premiums more affordable; it only postpones and compounds the price increases that will be required in later years to cover ever-increasing claims expenses.”

The full report is available here.

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