Governor David A. Paterson signed into law Governor’s Program Bill No. 278, that reinstates the New York State Insurance Department’s authority to review and approve health insurance premium increases before they take effect. Since 2000, New York had regulated health insurance premiums under a “file and use” law that significantly limited the State’s ability to disapprove health insurance premium increases and allowed the insurance industry to self-regulate.
“Deregulation of health insurance premiums is a failed experiment leading to unjustified premium increases and more people losing their health insurance coverage,” Governor Paterson said. “Health care is a right, not a privilege, and requires sound, balanced regulation to make sure insurance premiums are fair and justified. I am pleased to sign into law my program bill, which will help make coverage more affordable and allow more small businesses and individuals to keep their coverage."
The new law, which is part of Governor Paterson’s successful health insurance reform agenda, requires health insurers and HMOs to make an application to the Insurance Department to implement premium increases. The Department would have the opportunity to review the rate applications, as well as the underlying calculations, to ensure that the rates are justified and not excessive, and may approve, modify or disapprove the rate application. The law would apply to all rate increases taking effect on or after October 1, 2010.
In addition, the legislation will immediately require health insurers and HMOs to spend more of every premium dollar they collect on medical claims. In particular, the legislation raises the “medical loss ratio”—the percentage of premium spent to provide medical care—from 75 percent to 82 percent for small businesses and from 80 percent to 82 percent for individuals. This would allow the State to ensure that a greater percentage of premiums are returned to consumers in the form of benefits.
“Not only will stronger oversight of rate increases benefit New York’s individuals and small businesses, but prior approval will also provide us with the tools necessary to make sure federal health care reform is implemented in a fair and efficient manner,” the Governor added.
Under the Federal Patient Protection and Affordable Care Act, health insurers will be required to report justifications for “unreasonable” rates increases as well as the percentage of premiums spent on claims, quality of care, taxes and administrative costs.
New York State Insurance Department Superintendent James J. Wrynn said: “This legislative victory, under Governor Paterson’s unwavering leadership, is the culmination of years of battling for more affordable quality health care. Prior approval will work in tandem with President Obama’s health care reform to make sure insurers’ premium rates are transparent and their reporting is correct. Prior approval will also ensure that insurers comply with the requirements of the health insurance exchanges that will be developed under federal reform.”
The legislation also provides an opportunity for policyholders and the public to provide comments to the insurer and the Insurance Department on the rate applications. The Insurance Department is required to post relevant comments on its website to provide a forum for public input and discussion. Small businesses and individuals will also receive longer notice of rate increases – 60 days instead of 30 days – allowing them more time to consider alternative coverage options if they cannot afford a rate increase.
The bill signed into law is part of Governor Paterson’s ambitious health insurance reform agenda. The Governor’s initiatives in this area have thus far:
The following statements were provided in support of the prior approval legislation:
Senator Neil D. Breslin, Chair of the Senate’s Insurance Committee, said: “For too long New York families and small businesses have been faced with the nightmare of choosing between out-of-control premiums or forgoing health insurance. By restoring prior approval, we will be bringing smart and responsible regulation to the health insurance industry.”
Assemblyman Joseph D. Morelle, Chair of the Assembly’s Insurance Committee, said: “As insurance chairman, I strongly believe that we must always fight to make sure that New Yorkers have access to affordable health care. This measure moves us in that direction by restricting undue premium increases while still ensuring that insurers remain solvent in the face of rising medical costs. I thank the governor and legislative leadership for their commitment on this issue.”
Elisabeth Benjamin, Vice President of Health Initiatives at the Community Service Society and a founder of Health Care for All New York, said: “Between 2000 and 2009, health insurance premiums have increased by 92 percent, while median wages have only increased by 14 percent. The Governor and the Legislature’s move to re-regulate out-of-control insurance rate hikes is a desperately needed State lifeline while we wait for the fruits of federal health reform.”
Leah McCormack, MD, President of the Medical Society of the State of New York, said: “The extraordinary profits generated by the health plan industry over the last several years have been made at the expense of New York’s magnificent but financially strained health care system. At the same time, physician reimbursement has been aggressively constrained, the premiums paid by businesses—including physician employers—to support the health care system have increased dramatically, and patient cost-sharing obligations have grown significantly. Returning the authority of the Superintendent of Insurance to review health plan premium rate requests, and increasing the minimum medical loss ratio that the companies must meet, will not only better control health insurance premium increases, it will better assure that the health insurance industry is not allowed to extract grossly excessive amounts of resources from New York State’s health care system and divert such resources to company dividends and profits. Instead these resources will be committed to enhancing patient access to needed care.”
Todd L. Shimkus, President and CEO of the Adirondack Regional Chamber of Commerce, said: “On behalf of small business and sole proprietors struggling to pay skyrocketing health insurance premiums every year, I want to thank the Governor for his leadership in pushing for the passage of prior approval. Our Chamber has supported the passage of this legislation for several years now. We’re so thankful that the Governor included prior approval in the budget extension legislation so that health insurers can and will be held to a higher standard balancing their need to pay for reasonable medical costs with the ability of small business to afford health insurance in the first place.”
Mark Scherzer, Legislative Counsel, New Yorkers for Accessible Health Coverage, said: “By increasing the amounts insurers are required to spend on medical care and giving regulators authority to prevent excessive premium increases, New York has taken a major step toward more affordable health coverage. The new law will provide welcome help to consumers who have endured years of unreasonable rate increases.”