TESTIMONY BEFORE
THE NEW YORK STATE ASSEMBLY COMMITTEE ON INSURANCE

CONCERNING REGULATORY APPROVAL
OF HEALTH INSURANCE PREMIUM RATES

June 8, 2009

Good morning/afternoon, Chairman Morelle and members of the Committee. My name is Mark Hannay, and I am the Director of the Metro New York Health Care for All Campaign.  We are a coalition of community groups and labor unions in New York City founded in 1993 to advocate for fundamental health care reform leading to a universal health care program either here in New York or nationally. We also focus on policy issues strategic to that goal, such as health insurance regulation.  We are also one of the leadership groups of Health Care for All New York, and are a cooperating member of New Yorkers for Accessible Health Coverage, two statewide coalitions also testifying today.

Thank you for the opportunity to address this Committee today on the important matter of restoring regulatory oversight of health insurance rates by the New York State Insurance Department through a process known as “prior approval”, which was also formerly coupled with a public hearing where consumers could voice their concerns about their insurers and their coverage.  This is a system New York has historically relied upon to moderate unfounded health insurance premium increases and identify and address broader policy issues and problems in the insurance markets.  However, it was phased out at the beginning of this decade as part of a broad policy agenda of the Pataki administration to promote deregulation of business. We all know where that agenda has, in general, led us today, namely a financial liquidity and debt crisis that has sparked a severe national economic recession. 

As Superintendent Dinallo has called for, New Yorkers desperately a system of prior approval to be restored in order to keep health insurance affordable, available, and comprehensive, and to restore rationality, as opposed to profiteering, to our state’s health insurance markets.  We whole-heartedly support the Superintendent’s efforts in this regard, and support Governor Paterson’s program bill to do so.  We also thank you, Mr. Chairman, for your leadership in introducing and carrying this bill in the Assembly (A. 8280.)

Background

A decade and a half ago, New York, long a leader in health policy, took steps to stabilize its individual and small group health insurance markets by eliminating discriminatory practices against New Yorkers who were sicker, older, female, or employed in risky occupations.  These steps, known as guaranteed issue and community rating, made health insurance available to tens of thousands of New Yorkers.  In 1995, New York standardized health insurance products in the individual market so that consumers would have comprehensive coverage within an affordable cost-sharing structure.  We would not that these reforms are all steps that the federal government is now considering as part of a broader national health care reform package, and even the health insurance industry has stated its willingness to accept them.

The one drawback with the steps New York took over a decade ago was that nothing overly-significant was put in place to assure affordable premiums for products in these markets over the long term. At first, mechanisms were attempted to adjust for high risks and high cost claims across insurers, but they were never adequately operationalized, to the detriment of certain insurers and their policyholders. Later, at the beginning of this decade, New York created a stop-loss funding mechanism to mitigate high-cost claims insurers incurred in the individual market and it worked well for a couple of years. However, it has not been fully funded since 2003, and since then the market has resumed its historic death spiral while successive Governors, Superintendents, and Legislatures all ignored this problem.

The one step that was taken back in the mid-90s, which was modest in scope, was that prior approval of health insurance rates was kept in place for a relatively short period of time, with a public hearing held when proposed annual rate increases exceeded 10%.  This system worked well in that it generally kept annual increases below double-digits during a period when annual general economic inflation was generally half or more less than that rate. Insurers made modest profits and consumers were protected from unaffordable rate increases.

The Current Situation

As Superintendent Dinallo has shown, when prior approval was phased out at the beginning of this decade and replaced by a system known as “file and use”, all bets were off, and a successful social contract, if you will, between the public, insurers, and the state as overseer was ended.  The result has been skyrocketing insurance premiums compared to either overall inflation or the growth in median wages.  Consumers have been overcharged, insurers have increased profits and excessive reserves, and insurance markets have lost participation and dramatically shrunk, leaving tens of thousands of more New Yorkers unnecessarily uninsured.

The one saving grace in this scenario has been that New York’s robust public insurance programs have often proven vital safety nets for many newly-uninsured people to fall into, but at a significant cost to the state budget, now severely strained by the growing cost of these programs during a time of economic recession when many New Yorkers are losing their employer-sponsored coverage.  Also, to qualify for these public insurance, newly-uninsured New Yorkers must downgrade their lifestyles to live at, near or below poverty, and/or settle for inadequate insurance coverage such as the state’s “Healthy New York” program, thereby becoming underinsured.

In short, New York’s individual and small group markets are now unstable because they each function, in essence, as a one-legged stool. There is no countervailing force to balance out the desires of insurers to maximize profits and returns to shareholders, and/or accrue unnecessary reserves beyond state requirements so as to be able to enter capital markets to either expand their market share by purchasing or merging with other insurers or to pursue possible new, unrelated lines of business. Such moves could be considered fair game were the consequences such that they did not harm the health and well-being of New Yorkers. However, health insurers in particular must be held to a higher standard whereby they fulfill a social contract on behalf of the state to enhance the health and well-being of New Yorkers by providing affordable, comprehensive insurance products to all comers.  In addition, to fully balance a two-legged stool once prior approval is restored, a third leg is needed to assure stability, and that leg is the voice of consumers manifested in public hearings, a provision the Governor’s bill still lacks and we call for the Legislature to include.

Steps to be Taken

While the downward spiral of our state’s small group and individual insurance markets during the decade may all be water under the bridge by now, this situation can be rectified, or at least mitigated if not halted, by the restoration of prior approval and public hearings. Doing so will improve or maintain the individual health of many New Yorkers who will be able to obtain and/or retain affordable coverage.  Restoration will also thereby enhance the public health of all New Yorkers, in an era when we are seeing the emergence of new threats such as the H1N1 (swine flu) virus because people with insurance coverage are much more likely to access needed services than those without. Unfortunately, those who have been forced to already drop their coverage because of unnecessarily overpriced premiums, many of whom have serious health conditions and turned to the individual market out of desperation, will still be left out in the cold even with restoration of prior approval.

Restore “Prior Approval”

We therefore call on the Assembly to join with the Governor and your colleagues in the Senate to restore a system of prior approval of health insurance premium rate increases in New York. It’s the right thing to do, and it’s the fair thing to do for consumers and working people and their families so that they can purchase and keep good health coverage. 

Further, we can assure you that everyday New Yorkers are absolutely on the Governor’s and the Superintendent’s side on this issue.   The public does not like or trust the insurance industry at all, and very much wants and is calling on government to play a vital watchdog role over the industry given their history. Don’t just listen to the usual stakeholders on this matter.  If you reach out and engage the public on this issue, their response will be loud and clear: do it!

Reinstitute a public hearing process

In that vein, to assure complete fairness, restoration of public hearings is also essential within this bill.  Hearings may not necessarily be required in all cases if adequate criteria are identified to trigger the holding of hearings, and reasonable processing standards set.  The Superintendent can also be given appropriate discretion so as to minimize barriers to the Insurance Department’s timely consideration and ruling on a rate increase.

In addition to fairness, there is another important benefit to restoring public hearings.  When public hearings are held, they not only give consumers a chance to raise questions about premium increases and testify to the effects on their lives, they also provide insurers a chance to explain and justify why rate increases are necessary.  As a consequence, everything becomes transparent and both the insurers and regulators can be held accountable for their actions.  Without hearings, everything is instead completely opaque and secretive, engendering mistrust, and there is no accountability.  In short, the system of file-and-use is bad government and incentivizes bad industry practices.

In the past, public hearings often brought to light a variety of nefarious industry practices beyond just unjustified rate increases, such as double-sets of books kept by Empire Blue Cross and Blue Shield.  Public hearings also revealed larger public policy issues that needed to be addressed by the Insurance Department and the Legislature, such as the need for guaranteed issue, community rating, and standardized products, and public hearings help build and solidify public support for these landmark reforms.

We also want to note the irony of this Committee holding a public hearing to take testimony on, among other issues, whether or not to restore a public hearing option as part of a restored prior approval process, and then it developing a recommendation for the full Assembly based on its holding of a public hearing. As this present hearing itself demonstrates, public hearings are good government, and we thank the Committee for convening it today. Accordingly, we urge you to allow the Superintendent the same ability to convene hearings when necessary so that he or she can also conduct the Department’s affairs properly.

Raise “medical-loss ratios”

We also support the Governor’s proposal in this bill to increase required medical-loss ratios in the small group and individual markets.  Doing so will also create incentives to mitigate premium increases, and for insurers to husband and use their premium income wisely.  That said, we recommend the Legislature go beyond what the Governor has proposed to a level of 90% (vs. 85%.)  We also recommend that whatever ratio is set, that it apply across the board to include the Medicare Supplemental market, and that there be no exceptions allowed in any of these markets for any reason.  Finally, we recommend that language allowing insurers to “aggregate policy forms” be eliminated from the bill so as to not disadvantage the premium rates of those who need fully-comprehensive coverage.

Rebuttals

Finally, we want to share with you some of our perspectives on arguments being made in some quarters against moving forward with this bill and/or our recommendations to improve it.

•    Wait for the next Superintendent – Obtaining affordable, comprehensive health insurance is already a much long-too-unaddressed crisis here in New York, for almost a decade now.  It cannot be delayed for another year or more.  While the Governor’s “Partnership for Coverage” initiative is developing longer-term and broader recommendations, restoration of prior approval and public hearings will simply restore markets to a stable status quo long beneficial to our state, and will keep many from dropping coverage altogether.  Many states have prior approval and it has not adversely affected their insurance markets.  Besides, these steps need to be taken on the policy merits alone, regardless of who is the Superintendent. Finally, these restorations would be a fitting tribute to and legacy for Superintendent Dinallo’s tenure, as he departs to pursue new professional endeavors.

•    The bill will harm insurers, given the current economic climate – Insurers are not the only parties struggling because of the current economic recession.  Consumers and working families are also suffering greatly, and many are having to either drop health coverage or forego purchasing it because of unaffordable prices.  And we dare say, everyday New Yorkers lack the financial resources to weather the storm that large health insurers have at their disposal, given the profits and reserves they have accumulated this decade.  We all have to tighten our belts a bit, including insurers.  Besides the merits of having New Yorkers with good insurance coverage far outweigh the merits of insurers accruing even further excess profits and reserves.

In all candor, we must say that, to the vast majority of New Yorkers, the health insurance industry crying poverty is nothing short of preposterous. In general, it is not an industry held in high regard by the public, but rather is considered on par with big tobacco and big pharma as nothing more than rapacious profiteers. Any arguments they put forward to protect their ability to turn a profit is looked on with extreme skepticism by the public, with considerable justification.  Indeed, many regard such arguments as further proof as to exactly why strong regulation and the limiting of profits is needed.

•    The bill will threaten insurers’ solvency – This bill does not in any way threaten to undermine the Insurance Department’s ability to assure proper insolvency measures are taken. Insolvency concerns will continue to be considered in any ruling the Department may make with regard to premium rate increases, provided they are justified, so as to assure proper reserves, among other criteria.  In fact, the Department has shown that reserves to protect against insolvency actually increased significantly beyond state requirements after prior approval was abandoned during this decade, so the industry seems to be crying wolf by making such an argument.

•    This bill will harm the insurers’ ability to innovate new products – If the financial meltdowns of the past year or so have demonstrated nothing else, it is that strong regulation by government of the financial services industry and their products, including health insurers, is fundamental to preventing the very situations which have led to our current economic recession, and to protect consumers against the adverse consequences of the financial industry’s avaricious practices. Further, strong regulation by government will be absolutely necessary to restoring our economy for the benefit of everyday New Yorkers (vs. Wall St.) and keeping it on an even, and fair, keel.  Adequate regulation need not necessarily preclude the introduction of new products to markets, but will protect consumers and the markets from speculative and greedy business practices.

•    This bill will hinder the Insurance Department’s timely rulings on rate increases – There are ways to address this concern, by setting rational time standards for the Department’s disposition of proposals.  However, such a time period must be sufficient and not be so limited so as to in effect preclude anything more than a cursory consideration by the Department or any necessary public hearing.  Health Care for All New York has suggested a 90-day timeframe once all necessary application materials are submitted, an idea we too support. Such a period should be more than sufficient, even if and when a public hearing might be necessary.

In closing, we want to thank the Committee for holding this hearing today and allowing us to share our views with you.  You are addressing a very important matter for the people of New York: making and keeping health insurance affordable.  For many, it is not only a matter of health and well being, but potentially life and death for some. 

Please feel free to call on us if we can be of any further assistance with this matter.  We stand ready to work with you and your Assembly colleagues, the Governor, and the Senate to guarantee comprehensive, quality affordable health care for all New Yorkers. Restoration of prior approval and a public hearing process, along with raising medical-loss ratios in the ways we have recommended, will continue New York’s proud tradition of striving for toward that noble and just goal.