Legal/Regulatory Issues in Life and Health Insurance

RMI 4115

Solvency Regulations

• Financial solvency of insurer is required by all states; insurers must be able to pay claims

• Market conduct and financial examinations are performed by state insurance departments

Claims Handling

• State insurance departments have consumer services divisions to help consumers who are having problems with their insurance.

• Regulators have broad authority to investigate and require corrective action by insurers engaged in inappropriate practices even when such actions are not explicitly prohibited in state law– Authority is granted through “unfair claims

settlement” and “unfair trade practices” laws.

Form Filing

• States require insurers to file their policy forms to ensure they are selling compliant products.– Must cover required benefits– Must provide for appropriate appeals and

grievance procedures– Must meet any other state requirements

Corrective Actions

• If an insurer is not in compliance, the commissioner can:– Issue a “cease and desist” order– Revoke the insurer’s license in that state– Order the insurer to cease new enrollment– Initiate a receivership or conservator action

Nonforfeiture and Settlements

• These provisions follow NAIC model laws

Can you name some of these options?

Patient Protections

• Access to emergency services• Access to certain specialists• External review laws– Types of disputes eligible for review– Fee for the review– Deadlines for filing appeals– Selection and qualification of external reviewers

Access to Health Insurance

• For small businesses: states have tried several approaches:– {note that without regulatory intervention, private

insurers would likely deny applicants with a history of health conditions}

– Guaranteed issue required for small group market (was required by 36 states; now a federal law)

– Guaranteed renewability now required for all group and individual health insurance policies

Unfair Marketing Practices

• States have standards to prevent insurers from circumventing guaranteed issue and renewability requirements.– States have developed standards: Insurers must

actively market policies to all small businesses, not just businesses with a healthy workforce

– Note that federal law does not provide for such requirements

Guaranteed access for special populations

• States have also passed laws to improve access to health coverage for “special populations.” – Most states prohibit insurers from canceling

insurance for dependent adult handicapped children who were covered by their parents’ policies as minors.

– In all states, newborns are automatically covered under their parents’ policy for 30 days provided that the policy covers dependents.

Continuation Laws

• States have passed continuation laws similar to federal COBRA. These apply to policies purchased by small businesses not subject to COBRA.– Some offer shorter periods of continuation

coverage– Some are more generous than COBRA

Rating• Most states have enacted rating reforms in the small

group market– In many states, insurers are restricted, or prohibited, from

charging higher premiums based on health status– A “rate band” is a limit on the variation in premiums across

policyholders. They exist in 37 states.• E.g., a model rating law for the small group market adopted by the

National Association of Insurance Commissioners (NAIC) in the early 1990’s (and since replaced) provided for rate bands that permit premium variation up to 200 percent based on health status.

• It allowed further variation based on age, gender, industry, small business group size, geography, and family composition.

• Rates based on adjustments for these factors had to be actuarially justified but were not limited except for industry, which was limited to a 15% variation.

Rating, continued

• A “community rating” law requires that insurers set prices for policies based on the collective claims experience of everyone in the plan. Ten states require this.– Insurers are not allowed to vary rates based on health or claims

of one person. – Under adjusted or modified community rating, premiums may

be adjusted based on the geographic location and sometimes for a person’s age; adjustments for gender are generally not allowed.

– At renewal, premiums are based on the claims experience of all people with that policy.

Why is this practice criticized???

Covered Benefits

• “Mandated benefits” govern the types of conditions and treatments insurers must include in health insurance coverage.– Access to procedures (e.g., immunizations)– Access to providers (e.g., accupuncture)– Procedures in certain settings– Coverage parity

Mandates can create adverse selection… why?

• E.g, in the 1990s, the state of Washington required insurers to sell comprehensive policies covering all mandated benefits

• It also allowed insurers to sell policies that did not cover certain benefits, like maternity and mental health care.

• All policies had to be sold on a guaranteed issue basis and were subject to community rating.

• By 1998, premiums for the policies that covered maternity and mental health benefits were 30 to 100 percent more expensive than the policies that excluded those two benefits.

Given a choice in benefits, consumers self-selected based on their health care needs…adverse selection caused a spiral in the disparity in

premiums for the products!

Subsidization of Private Health Insurance

• Some state programs help expand access to health insurance by making it more affordable.– Tax credits to small businesses– Reinsurance program– Purchasing alliances

• Subsidizing private coverage can quickly become prohibitive – Insurers can avoid or shed the most expensive risks or steer

them to the subsidized coverage (spillover)– To limit adverse selection, states have adopted rating rules

and standardized benefit packages

ERISA and HIPAA

• Health benefits provided by self-insured private employers are not regulated by states.

• HIPAA – established national standards for plans sold to employers– Prohibited insurers from denying coverage to small

businesses– Limited use of preexisting conditions exclusions– Prohibited discrimination based on health– Required guaranteed renewability– Established portability of health insurance

Current NAIC L/H Workgroups

• Consumer Information (B) Subgroup• Exchanges (B) Subgroup • Health Actuarial (B) Task Force • Regulatory Framework (B) Task Force • ERISA (B) Subgroup• Senior Issues (B) Task Force• Annuity Disclosure Working Group• Life Actuarial Task Force