Insurance and Real Estate Committee

JOINT FAVORABLE REPORT

Bill No.:

SB-194

Title:

AN ACT CONCERNING RATE APPROVALS FOR INDIVIDUAL HEALTH INSURANCE POLICIES.

Vote Date:

3/16/2010

Vote Action:

Joint Favorable Substitute

PH Date:

2/25/2010

File No.:

SPONSORS OF BILL:

Insurance and Real Estate Committee and requested by Rep. Susan M. Johnson, 49th Dist. Rep. Roberta B. Willis, 64th Dist.

REASONS FOR BILL:

Residents of Connecticut are requesting transparency and accountability in health insurance premium rates.

SUBSTITUTE LANGUAGE:

Line 1-3 delete entirely and insert

“Section 1. Subsections (a) to (c), inclusive, of section 38a-481 of the 2010 supplement to the general statutes are repealed and the following is substituted in lieu thereof (Effective July 1, 2010):”

Line 14 after the word “commissioner” insert “or the commissioner's designee”

Line 17 after the word “ordering” insert “communicating”

Line 20 after the word “orders” insert “notifications of disapprovals”

Line 21 insert

“(2) The commissioner may prescribe requirements for disclosure notices, illustration or other explanatory materials said commissioner deems necessary to protect policyholders.”

Line 27 after the word “subsection” insert “as set forth in sections 2 and 4 of this act”

Line 30 after the word “insure” insert “ensure”

Line 31 after the word “discriminatory” insert “as defined in section 2 of this act”

Lines 31-37 delete entirely starting with the word “Except”

Lines 53-198 delete entirely and insert Lines 52-179 found in

PROPOSED SUBSTITUTE LANGUAGE BILL NO. 194, LCO NO. 2567

Line 223-246 delete entirely

Line 249-250 delete the words “and such decision is no longer subject to any appeal”

Line 208, 209, 211 and 213 change the word “policyholder” to “insured's”

Line 210 insert the words “policy or agreement”

Line 253 delete the words “or contract”

Line 262 change the year “2011” to “2010”

Line 268-278 delete entirely and insert Lines 225-234 found in

PROPOSED SUBSTITUTE LANGUAGE BILL NO. 194, LCO NO. 2567

Line 297 change the year (2011” to 2010”

Line 241-249 delete entirely and insert Lines 285-295 found in

PROPOSED SUBSTITUTE LANGUAGE BILL NO. 194, LCO NO. 2567

RESPONSE FROM ADMINISTRATION/AGENCY:

Thomas Sullivan, Insurance Commissioner, Insurance Department, State of Connecticut opposes Raised Bill 194 and believes that it is severely flawed and threatens to leave consumers with less health insurance choices than they have now.

The Insurance Commissioner and his senior staff spent considerable time and effort with this issue. They feel that the current rate review process which is based on actuarial science is fair, objective, and without bias. Connecticut needs a robust competitive individual health insurance market and this bill may have an opposite effect.

“The Insurance Department reviews rates today carefully and thoroughly to ensure they are not “excessive, inadequate, or unfairly discriminatory” as specified in current law. The Department's actuaries perform the review consistent with the objective principles of actuarial science. The current claim losses and project claim losses, as well as the expenses of the halt insurer, are carefully evaluated. Probing questions are asked, and frequently the Department actuaries request more information from the health insurer, to be sure we have all the necessary relevant information. When appropriate, the Department actuaries will reject the assumption and trend factors used by the health insurer in developing the requested premium rates, and therefore reject the proposed rate filing.”

“In summary, this bill would make Connecticut the first in the country to implement a rate approval process that moves from defined and well-understood standards of sound actuarial science to subjective social standards.”

“Despite our opposition to this proposal, the Department recognizes there is always room for improvement and is happy to work with the Committee on alternative approaches.”

Attorney General Richard Blumenthal and Healthcare Advocate Kevin Lembo, State of Connecticut “This proposal requires Insurance Department affirmative approval of individual health insurance products rather than the Department simply not disapproving them within 30 days of filing. Although the Insurance Department has the power to hold a hearing and allow individuals to become parties to the proceeding, this is not standard practice. Few, if any individual insureds are made aware of their insurer filing for increased rates until after new rates have been approved. The overwhelming majority of health insurer rate filings are simply approved as requested.”

“Last year, Anthem filed rate increases of between 22 and 30 percent for several individual health insurance policies. Even with our intervention – which was restricted by the Insurance Department – the Insurance Commissioner approved a crippling 13 to 20 percent increase for Anthem's individual policyholders. The huge increase comes after significant increases the previous year, meaning many of Anthem's individual policy holders have absorbed more than a 25 percent increase in less than two years – making their health insurance unaffordable and in accessible.”

“No facts, no evidence, no financial data justified Anthem's excessive rate increase – demonstrating that the current de facto “file and use” system of insurance rate review is flawed and failed. The Anthem situation is symptomatic of the need for an over haul in the rate review process. Individuals and businesses must have power to change the outcome, a voice in the process.”

“Further, Anthem is not an isolated case. Another large individual health insurer – Golden Rule, owned by UnitedHealthcare – has escaped administrative scrutiny of its rates by offering a loss ratio guarantee. Under this loophole, insurance rates can be shy-high as long as its medical loss ratio at the end of the year is at or above its guaranteed loss ratio. We know of at least one occasion where Golden Rule has had to refund money to its policyholders for not reaching the guaranteed loss ratio. This refund did not occur for almost a year, providing Golden Rule with the free use of money owed to consumers for many months. Senate Bill 194 closes this loophole.”

“As a result of the lack of effective, public regulatory oversight, health insurers – according to the attached recent Insurance Commissioner report on mandated benefits – spend between 17% and 24% of each premium dollar on administrative costs and receive another 3% to 10% in profits. Further, Connecticut was also highlighted in a national report on skyrocketing individual health insurance rates.”

“Senate Bill 194 requires that regulators really regulate – assess consumer ability to pay, hold open hearings, provide appeal rights and make rate decisions openly and accountably. Consumers must be empowered to stop chronic, colossal rate hikes.”

NATURE AND SOURCES OF SUPPORT:

Christopher G. Donovan, Speaker of the House, State of Connecticut The Speaker's testimony covers, and is in agreement with, the Attorney General and Healthcare Advocate's letter. In addition, the Speaker believes that – “If we do not take action to rein in health insurance companies, provide more affordable options, and protect consumers from abusive insurance company practices, families and businesses will continue to be crushed by rising health care costs. Keeping health care cost affordable will save Connecticut jobs.”

“Senate Bill 194 offers Connecticut the opportunity to be a leader in the fight against anti-consumer and anti-small business tactics of the insurance companies.”

“Specifically, this legislation:

○ Eliminates the Insurance Department's ability to allow rate hikes to take effect without a public hearing.

○ Requires insurance companies to notify all policyholders of requests for rate increases, and the date, place, and time of the public hearing.

○ Requires insurers to disclose documentation in support of rate increases for public scrutiny.

○ Limits reasons for rate increase, and then puts the burden of proving that an increase is “reasonable” on the insurer.

○ Empowers the Attorney General and the State Healthcare Advocate to intervene in rate cases and appeal rate decisions to the Superior Court.”

Jim Shapiro, Representative of the 144th District, State of Connecticut After listening to a constituent's story about astronomical insurance rate increases and limited insurance access due to pre-existing conditions, he did some investigating and requested an OLR report concerning our state's five largest insurers and their requested and received rate increases over the past few years. He expected the report to be a bit grim, but was shocked when he read the following:

● 22 of 26 rate increase requests were granted wholesale by the Department

● The other four only revised downward slightly

● For some insurers the Department granted rated increases 100% of the time

● One insurer's Individual Plans went up 53% over the brief period studied, another was 52.6%

“Anyone looking at this Report had to think: If this is what adequately protecting the consumer looks like, I'd hate to see what inadequately protecting the consumer looks like.”

Representative Shapiro respectfully disagrees with the Insurance Commissioner that he has all the tools he needs to deal with this situation. Insurers may use “actuarial science”, but:

● if you had ten actuaries, you could get twelve different numbers

● massive, international, financially sophisticated institutions do not have their actuaries come in with their lowest number

“To be sure, there is a balance that needs to be struck between keeping rates low for consumers and not driving companies out of business so we keep a number of insurance choices for our resident. It is a delicate balance, and I do not fault the Department for trying their best to manage it. But it is clear the pendulum has swung too closely – some would say cozily – to the insurance companies, and too far from our constituents. I am grateful that through this bill, the Insurance Committee is trying to draw the pendulum back.”

“In particular, I support Section 2 of the bill, which provides for public hearings, notification to policyholders of proposed increases, and a new reasonableness standard to replace the old, and unwieldy (how would one, for example, “fairly discriminate) standard. It is important in maintaining the balance that the new definition of reasonable includes a fair rate of return for the insurer as measured against its own past performance and that of its peer group.”

In addition Representative Shapiro suggests that the Insurance Department be required to retain records of the rate approval process for more than two years.

The following people and organizations believe that:

1. This bill will provide better oversight for insurance rate requests.

2. Without strong procedures and consumer protections, the insurance industry can impose sudden and drastic increases for individual insurance policies, making them unaffordable to many more, older adults.

3. It is critical to establish procedures for public hearing prior to any rate approval for individual health insurance policies.

4. A hearing process that formally includes patient advocates, as well as the Attorney General and Healthcare Advocate, will ensure that the proper questions are asked and that they are answered by health insurers in a public forum prior to the approval of yet another unreasonable hike in health insurance rates.

5. Connecticut residents are asking for more transparency and accountability within the healthcare industry.

6. The State of Connecticut should exercise control over these excessive increases.

7. For the insurers it always is about profit margins.

8. It is scandalous that so many people are in such need and the insurance companies continue their greedy work – forcing doctors and patients to make decisions based on finances rather than need.

9. Those without health insurance, due to increasing premiums, are likely to delay going to the doctor or filling a prescription until they are in crisis and end up in the emergency room, at a much greater cost.

AARP

Barbara Edinberg, Assistant Director, Bridgepor Child Advocacy Coalition

Karen Schuessler, Director, Citizens for Economic Opportunity

Matthew Katz, Executive Vice President, Connecticut State Medical Society

Mark Waxenberg, Director of Government Relations, Connecticut Education Association

Courtney V. Carney

Gerald Guarino, President, Seniors In Action

Marlyn B. Schwartz

Michael V. Brown

Robyn Brown Surdel, Nybor, LLC

Tessa Marquis

Insurance Association of Connecticut “It is my understanding that the intent of SB 194 is to amend the rate approval procedures as they apply to pure medical type coverage. However, as drafted SB 194 fails to provide clarity as to the scope of the application of its provisions. The Insurance Association of Connecticut would like the opportunity to work with the committee to amend the language contained in SB 194 to provide such clarity by removing coverage like long term care, disability, Medicare Supplement and specified disease from the new rate approval process, so that they continue to be governed by existing rate regulation provisions in section 38a-481.”

NATURE AND SOURCES OF OPPOSITION:

Aetna, Inc. “We urge regulators and policymakers to work together to address underlying cost issues, as opposed to superficially addressing the symptom of rising medical prices and utilization. Prior approval will result in less competition, insurance products that don't meet consumer needs and will make it exceptionally challenging for companies like Aetna to stay in our home market.”

“Aetna supports health care reform that addresses the most urgent issue for Americans – the need to address the core underlying drivers of health care costs. We look forward to working with state and federal legislators to support reform that improves access, as well as addresses rising medical prices, cost shifting from public programs, escalating taxes and unhealthy lifestyle choices. In addition, we think it is important for states to avoid problematic reforms such as prior approval that could lead to solvency and choice problems for consumers. “

“While we advocate health care reform, we are not waiting for the states or the federal government to act. We already are partnering with providers and others to drive positive change in this voluntary environment, including administrative simplification and payment reform efforts, among others. We look forward to continuing to working with all stakeholders to further improvement in this critical area for Connecticut and the United States.”

Anthem Blue Cross and Blue Shield “Anthem Blue Cross and Blue Shield in Connecticut cares deeply about our Connecticut customers and our community and we share concerns about the rising costs of health care services and the corresponding increases in the cost of health insurance coverage, especially in this challenging economy.”

“Anthem is committed to finding and implementing solutions that deliver better health care to our members and help to reduce costs. However, we feel strongly that politicizing the rate regulation process will decrease access to coverage by reducing choice and competition in the individual insurance market while not addressing the main drivers of increasing health insurance premiums: the ever increasing cost and utilization of healthcare in Connecticut and across the country. Experience in other states has shown that increased rate regulation is a means of price control that is not only unsustainable, but that also ultimately harms consumers. As such, Anthem opposes SB 194.”

Kevin Grozio, ASA, MAAA, VP Actuarial Services, ConnectiCare Inc. & Affiliates Mr. Grozio writes in length what this bill doesn't do – provide cost reduction and accessibility of care. He believes that “lengthening the time period for rate approval has the following impacts:

● It increases the time frame between the experience period and the policy period adding to the number of months of trend used in the rates.

● This decreases accuracy of the rate development (more recent experience is always better)

● It creates more volatility in future rates, because any “miss” on the trend in this policy period will get reflected in future policy periods, since that experience will be used as the base

● It creates additional uncertainty, as fewer of our contracted provider rates will be certain during the filing and approval period”

Mr. Grozio believes that the following will result in significant administrative cost increases:

1. Notification to policy holders and “potential” policy holders of their potential increases

2. Create mock renewal package for our policy holders

3. Duplicate work (these rates may never be approved)

4. Multiple mailings to policy holders

5. Broker would have to meet potentially meet with their clients multiple times

6. A hearing process with the Attorney General and Healthcare Advocate

7. The public hearing process alone will create additional costs

“Moving this review to a public forum creates significant risks. One key is that information contained in a rate filing is sensitive from a competitive standpoint. There is a potential for adverse consequences to the individual market if all rate filing information is made public. For example, if every carrier's trend information is public information for everyone to see, it is possible that higher trends will predominate.”

“Today, the Insurance Department can review all the facts and make an informed decision in a professional and responsible environment. If the rating process is moved into a public setting, emotion, feelings, and passion can muddy the waters of logic, process, Actuarial Standards of Practice, and financial adequacy.”

“Political pressure may push some rate lower temporarily, but without addressing the real issue – the rising cost of health care being paid for by health insurers – rates will simply rise again to the level needed to pay physicians and hospitals in an expensive health care environment and a competitive marketplace will be put in jeopardy.”

Tarren Bragdon, Chief Executive Officer, The Maine Heritage Policy Center Mr. Bragdon believes that SB 194 is a flawed response giving Maine's experience. “Maine has a very politicized “file and approve” process. However, Maine's process is not as politicized as the one being proposed by SB 194. Yet, Maine's “file and approve” process has had a very negative impact on patients:

1. It has resulted in carriers leaving the market leaving less choice for consumers.

2. It has been a factor in shrinking individual market

3. It has eliminated all HSA-eligible plans for new subscribers

4. It limits the ability of new products and lower cost plans

5. It is a very long process, creating a lot of uncertainty for consumers with little impact on overall premiums

In 2006 Mr. Bragdon “also provided analysis on the impact of a “file and approve” proposal for NewYork, which has not passed despite being discussed every year.”

Individual Health Insurances Plans Available to a 34-year old Male

February 2010

 

All Traditional Insurance Plans*

 

$1k deductible, with drug coverage

 

# plans

# carriers

Lowest Cost

Highest Cost

 

Lowest Cost

Highest Cost

CT - Hartford

81

6

$48

$349

 

$194

$269

MA – Boston

6

1

$300

$396

 

$372

$372

ME – Portland

14

1

$152

$1,450

 

$655

$763

NY – NYC

3

4

$561

$1,228

 

Not allowed

 

PA - Philadelphia

87

5

$42

$335

 

$137

$297

*does not include state-subsidized plans or one only available to the self-employed (NY)

Sources: ehealth.com for CT, MA, NY, PA; Anthem.com for ME (not available on ehealth

“In summary, based on my understanding of SB 194 and the experience of New York with “file and use” and the experience of Maine with a politicized “file and approve” process, I recommend you keep the current effective process.”

Jason C. Martiesian, Vice President, State Government Affairs, UnitedHealthcare “While we appreciate the bill sponsors' concern … as drafted, this legislation could have significant unintended consequences for the State's individual health insurance marketplace. In its current form, the proposed legislation will make it difficult for the Insurance Department to conduct an objective, independent and fact-based analysis of rates (per current law). Moreover, while we support transparency of rates, it is difficult for individuals to assess the actuarial validity of proposed rate increases. As a result, the process contemplated by this legislation could result in the artificial suppression of rates to levels that are financially unsustainable over the long term. The unintended consequence of this legislation could be, therefore to force plans out of the market.”

“As you seek ways to address the issue of affordability of coverage options in the individual market, we would be pleased to work with you and members of your committee to develop a set of comprehensive insurance reforms designed to make individual coverage more affordable and accessible, regardless of health status. Such provisions include a “guaranteed issue” requirement, a prohibition on pre-existing limitation, and ban on use of health status as a rating factor, supported by a strong, enforceable individual coverage mandate. All of these provisions are included in both the U.S. House and Senate-passed versions of Federal health care reform and are broadly supported by the insurance industry.”

“Today, the individual health insurance market in the State of Connecticut is a vibrant, healthy market that allows residents who do not have access to employer or government-sponsored coverage to choose from a number of competing health insurance plans. This is not the case in neighboring states where legislative and regulatory action have cause carriers selling individual policies to exit the market, leaving few, if any, choices. We believe that the Insurance Department already has sufficient authority to review individual plan rates for financial adequacy and appropriateness, requiring plans to modify their rate request when the increases are deemed excessive and can disapprove rates if they fail to meet the standard for adequacy, excessiveness and/or discrimination. To date, this has served the State well and provided appropriate protection to residents in the individual market.

“It is important to note that rising medical costs are the main factor driving health care premium increases. We continue to implement innovative cost containment strategies to address the issue of continually rising medical costs.”

“In closing, we understand the concern relative to the premium increase in the individual market. We welcome the opportunity to discuss ways in which we can work to reduce the medical costs that are driving these increases and bring more affordable health care coverage to Connecticut's residents.

Reported by: Anne Ramsey

Date: March 19, 2010