Assembly Standing Committee on Insurance
Regulatory Approval of Health Insurance Premium Rates
President & CEO
June 8, 2009
I am Kenneth Adams, President and CEO of The Business Council of New York State, Inc. We are a statewide organization representing employers of all sizes in all of the state’s economic sectors.
Business as Consumers of Health Care, Health Coverage;
Top Cost of Doing Business Concern
Our member employers are consumers of health care. And many are consumers of health insurance, whether self-funded or fully insured.
And, regardless of how they pay for health care, they are tuned into – and turned off by – the cost. For a diverse membership, there is widespread agreement that the cost of employee health care and how to pay for it is our members’ most significant cost-of-doing business issue.
As the costs of health care and health coverage continue to rise, these costs have become an increasingly heavy burden on New York’s employers – particularly small businesses. They are hurting New York’s economic growth and competitiveness.
Agreement that Costs Must be Reduced
There is agreement among our members that to reduce the cost of coverage and make it more affordable for more New Yorkers, we have to get to the underlying cost drivers. That’s why health-care system reform, elevating primary and preventive care, employee wellness, health IT, regional and community health planning, medical liability reform and ensuring that value and quality are part of the dialogue are so important.
Diverse Membership, Diverse Opinion on Regulating Rate Setting
But, as you will hear today, among some of our members there is a diversity of opinion on what is the right approach to premium rate setting.
We believe that reinstating the process known as “prior approval” of rate changes and giving the Superintendent of Insurance complete discretion to set rates is the wrong approach. It will not solve the problem of rising health insurance costs, but will only serve to mask the underlying costs.
We support maintaining the current alternate rate adjustment process known as “file and use.” We acknowledge that there are concerns about the integrity of the process, and we support addressing these concerns and modifying the process.
In a moment, I’ll describe some of our concerns over restoring prior approval, followed by some of the modifications to “file and use” that we think should be considered instead of the Governor’s bill, Assembly 8280 and Senate 5470.
Underlying Cost Drivers
First, a few words about what’s driving premiums higher. In broad terms, the underlying cost drivers are general inflation, health care price increases beyond inflation – that is, medical cost inflation, and increased utilization of medical goods and services. Broken down further, they are the cost and use of hospital care, physician services, prescription drugs, and other medical services.
Other factors are reflected in the premium, like the expenses that come with running a health plan – administrative costs such as claims processing, care management programs, staff, marketing, and taxes. What remains is profit or net income, which goes into a plan’s reserves primarily for the protection of subscribers and providers in the event of unforeseen circumstances and to invest back into a plan’s operations. In the case of for-profit insurers, some of what remains goes to the investors.
Government Actions that Exacerbate Cost
Government actions such as the enactment of insurance mandates and taxes on health insurance add to the cost of coverage. Mandates make more services covered benefits. Who doesn’t want robust, comprehensive coverage? But, when considering adding more mandates, there needs to be the recognition that when you require insurers to cover more treatments and services, you are essentially requiring employers that provide health coverage to pay more for that coverage. The incremental cost of each mandate adds up. A mandate review commission was created in April 2007. Let’s get the last, three remaining appointments made, and let the commission get to work before passing more mandates.
Seven hundred million dollars in taxes on health care and health insurance were enacted as part of the 2009-2010 State budget. As a result, taxes on New Yorkers that voluntarily purchase private health coverage increased from $3.5 billion to $4.2 billion, reflecting as much as 10 percent of the cost of coverage in some areas of New York.
These taxes provide no additional covered benefits or do anything to address the rising cost of health care. Instead, a small business in New York City, for example, can expect to pay $708 more for an HMO family policy because of these new and increased taxes; in Long Island, $508 more; in Albany, $368 more.
The calls and emails have been coming in for weeks now from Business Council member employers who have been receiving mid-year rate increase notices from their health plans. They are not happy, and they’re asking “How could this be happening? We can’t afford another penny increase.” Perhaps you have been getting these calls as well.
Concerns About the Potential Impact of the Bill
First, I want to tell you about some of the concerns we have about the Governor’s bill, and then I’d like to offer some possible solutions to consider.
Eliminating the rate adjustment process known as “file and use” and making “prior approval” the exclusive mechanism for adjusting health insurance premium rates for existing products in the small group and individual insurance markets would mark a return to a time when New York’s rate setting process and the adequacy of rates were subject to political pressure.
Because of the unpopularity of increasing premiums, the Department frequently would not grant adequate rate increases. Under prior approval, premiums were artificially suppressed, regardless of the underlying costs and actual health-care trends. As a result, consumers were subject to arbitrary and erratic rate increases.
A subjective system of price controls and artificial rate suppression that historically has been susceptible to politicization would deny insurers adequate, actuarially-sound rate increases. When rates don’t reflect underlying costs and trends, insurers face significant losses for these products. These losses would have negative implications for employers that purchase coverage.
For example, losses incurred by an insurer could:
- Limit its ability to invest in technology and system improvements and wellness, disease and care management programs that help make insurers more efficient, help employers control their costs, and help workers maintain their health.
- Limit insurers’ support for health information technology and quality initiatives like regional health information organizations, pay-for-performance programs, medical home and primary care pilots. These valuable tools in reducing costs and medical errors, and enhancing value could suffer.
- Impact insurers’ reserves, which in large part serve to protect subscribers and health-care providers in the event of a catastrophic event like a pandemic.
- Lead to reductions in the industry’s workforce, which includes 26,000 New Yorkers in communities throughout the state.
- Financially weaken some insurers to the point of impairment or insolvency, potentially leading to fewer insurers, less competition and less choice for employers.
We need to ensure that rates are fair and equitable. If restoring prior approval will reduce rates, it will do so by suppressing rates and masking costs. It won’t get at what is really driving rates.
Maintain and Modify “File & Use”
With some modifications, The Business Council supports maintaining the rate setting process currently in place in New York, including “file and use” that ties rate changes to health-care costs. It’s a reasonable process based on objective, actuarial standards and a system of checks and balances that should be maintained.
However, it is not without controversy, which we acknowledge. To address concerns and improve the rate implementation process, we support revisions to the current law.
The "file and use" alternative was established to address 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 that reflected underlying costs.
It was part of a broad individual, or direct pay, market reform package that in addition to enacting “file and use” required all HMOs to offer two standard products in the individual market.
The term “file and use” has become, for better or worse – I’d say for worse - inaccurate shorthand for the process because it fails to fully capture the process and procedure and the rule of law and regulation behind it.
Modifications; Use Morelle/Seward (A4688/S3062) as Alternative
No one likes their premiums to increase – single digits, double digits. Not the employer – in this case, the small business, or the individual - which is reaching or has already reached the point where coverage has become unaffordable - and not the carrier, which is losing business. But, if rates have to increase – and they will because the trend is only heading north - let’s make sure that the rates are fairly set.
We support modifying the “file and use” process. First, we recommend providing employers with more timely notification of planned rate increases. To respond to concerns about the process, we also support expanding safeguards to ensure the integrity of rate changes and giving the Superintendent increased enforcement authority, among other provisions.
We recommend that the Morelle/Seward bill, Assembly 4688 and Senate 3062, which standardizes the calculation of the minimum loss ratio for purposes of the “file and use” process, serve as an alternative to the Governor’s bill. As the support memo for the Morelle/Seward bill suggests, the legislation takes a measured approach to the concerns that have been voiced about the current process.
We hear from brokers, from chambers of commerce and other Business Council member businesses that the current 30-day notice that insurers are required to give subscribers when changing rates is simply not long enough.
Insurers should be required to give subscribers more timely notice of rate changes. Under current law, insurers are required to notify customers at least 30 days in advance of a rate change; however, this leaves many businesses with little time to work with their insurers or brokers to consider other options.
In response to member concerns, The Business Council recommends that insurers be required to give at least 60 days advance written notice of a rate change. By giving subscribers more notice of planned rate changes, they would have more time to work with their insurers or brokers to perhaps identify a more affordable product or plan design, educate their workers about any policy changes, or shop for a more affordable product.
More timely notification is not in Assembly 4688 and Senate 3062, but we recommend that it be included.
We support, among other elements of Assembly 4688 and Senate 3062:
- Raising the minimum loss ratio to 80 percent for small group policies, from 75 percent. The higher ratio ensures that a greater amount of the premium dollar be returned in health care benefits for this price sensitive market. The “expected” minimum loss ratio of 85 percent proposed in the Governor’s bill is unrealistic and impractical, as a number of insurers simply could not meet it due to marketplace and financial considerations.
- Expanding the regulatory power of the Superintendent to suspend an insurer’s ability to use the alternate rate adjustment process if it is determined to be in deliberate and repeated non-compliance with the law.
- Clarifying ambiguous language in the law in order to standardize the calculation of minimum loss ratio when “file and use” is applied.
“File and use” is a reasonable system that should be maintained. Where there are shortcomings, address them, but don’t go back in time.
I am pleased to take any questions you may have. Thank you.