S.8088 (Rules) /A.11369 (Rules) Governor's Program Bill 278


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S.8088 (Rules) /A.11369 (Rules) Governor's Program Bill 278


Prior Approval of Rates in the Small Group Health Insurance Market



The Business Council of New York State opposes this bill which would reinstate a price control mechanism known as “prior approval” on community rated health insurance plans.

This bill requires health insurance carriers to submit their proposed health insurance rates for the various products they offer in the small group market to the Insurance Department, and to receive prior approval on those rates, before they can become effective.  The bill sets the medical loss ratio (MLR) for these plans – essentially the actual medical costs paid out on a claim – at 82%. Additionally this bill contains an immediate effective date, requiring health plans to make immediate rate filings for the current calendar year at an MLR of 82%.

Prior approval is not a new concept having been in place in the 1980s and 90's and The Business Council has been opposed to its reinstatement.  Although it is billed as a means to “hold health insurance plans accountable”, it more often results in premium rate suppression responding to political winds, more than sound actuarial data in support of rate filings

Now is not the time to be implementing new, New York specific, premium rate standards when the new federal mandates on small group plans contained within The Patient Protection and Affordable Care Act require an MLR of 80 in the small group market and for which regulations have yet to be issued.  State insurance regulators continue their work with the federal Department of Health & Human Services to establish these common standards and to get those regulations out so that all states are operating from a common competitive threshold.  Additionally, this bill establishes a process that will likely delay getting rates to market – putting those in the small group market at an even greater disadvantage in terms of knowing what products they will be able to offer to their employees and what premiums they will be able to afford.

The imposition of a higher MLR on plans in the small group market has been touted as a way to achieve “savings” as fewer people will enroll in taxpayer subsidized health insurance programs such as Medicaid.  In fact, independent actuarial review of the data shows that the savings from reinstatement of prior approval language are minimal at best and next to impossible to identify in the first year – no where near the $70 million contained as budget savings in the Governor's 2010-11 Executive Budget (see “Actuarial Review of the Proposed Medicaid Cost Savings Through the Regulation of Health Insurance Premium Rates” at www.bcnys.org).

With changes coming to health plans as a result of federal health care reform –changes which will likely drive premiums higher in the commercial market, and with federal law already establishing a national MLR standard for small group market plans, now is not the time to be adding additional bureaucracy and complications to a market trying to adjust to the substantial changes required as a result of federal health care reform.  Action on this bill will not generate budget savings to offset the health care cuts – and it is telling that this bill, at this time, is not being considered as part of the budget extender bill but separately as a program bill. 

For these reasons, The Business Council urges opposition to enactment of this bill.