OLR Bill Analysis
AN ACT CONCERNING THE RATE APPROVAL PROCESS FOR CERTAIN HEALTH INSURANCE POLICIES.
This bill establishes a new rate approval process for individual and group health insurance companies, HMOs, and hospital and medical service corporations. The bill:
1. requires group health insurers to file risk classifications and premium rates with the insurance commissioner;
2. increases the amount of time required before a new rate can go into effect;
3. requires the Insurance Department to post rate filings on its website and provide a 30-day public comment period;
4. requires a public hearing on a proposed rate filing if specified criteria are met and allows the healthcare advocate and attorney general to be parties to such a hearing;
5. establishes disclosure and record retention requirements for rate filings; and
6. requires the insurance commissioner to adopt regulations to prescribe standards to ensure that group, HMO, and hospital and medical service corporation rates are not excessive, inadequate, or discriminatory (he must currently do this for individual health insurance rates).
The bill also makes minor, technical, and conforming changes.
EFFECTIVE DATE: July 1, 2011
RATE APPROVAL PROCESS
The bill applies to any rate filed by an HMO, hospital or medical service corporation, or an individual or group health insurer that issues policies covering (1) basic hospital expenses, (2) basic medical-surgical expenses, (3) major medical expenses, (4) hospital or medical services, or (5) long-term care.
Current law does not require group health insurers to obtain rate approval from the insurance commissioner (see BACKGROUND).
Starting July 1, 2011, the bill requires the above entities to file rates with the department within 120 days before their proposed effective date. The department must post the filing and supporting documents on its website within three business days of receiving it and update the file to include any correspondence between the department and the entity that filed it.
The department must provide a 30-day public comment period once the filing is posted on the website. The website posting must include the day the public comment period ends and how to submit written comments to the department.
Unless a hearing is required on the filing (see below), the commissioner must issue a written decision approving, modifying, or disapproving a rate filing within 45 days after receiving it. The decision must specify all factors used to reach it and be posted on the department's website within two business days after being issued.
Disclosure to Insureds or Subscribers
The bill requires each entity to disclose to its insureds or subscribers, on the date it submits a rate filing to the department, clearly and conspicuously, in writing, and in a form the commissioner prescribes:
1. the proposed general rate increase and the dollar amount by which a person's policy or agreement will increase, including any increase because of the person's age or change in age rating classification and the percentage increase or decrease of the proposed rate from the current rate;
2. a statement that the proposed rate or amount is subject to department review and approval; and
3. information on the person's right to submit public comment.
The entity must disclose in writing to a prospective customer the (1) fact that the department is reviewing the policy rates and (2) proposed rate increase or decrease.
If the insurance commissioner approves or modifies a rate filing, the entity must provide written notice to each insured or subscriber by first class mail that states:
1. the approved rate for the person's policy or agreement,
2. any increase in the rate due to the person's age or change in age rating classification, and
3. the percentage increase or decrease of the approved rate from the person's current rate.
The bill prohibits a new rate from taking effect until 30 days after the notice has been sent.
The entity's rate filing must include an actuarial memorandum certified by a qualified actuary (i. e. , a member in good standing with the American Academy of Actuaries who meets regulatory requirements in regulations that the commissioner may prescribe). The actuary must certify that, to the best of his or her knowledge, the rate filing complies with law and is not excessive.
Rate Filing Review Requirements
The bill requires the insurance commissioner, when reviewing a rate filing to determine that it is not excessive, inadequate, or unfairly discriminatory, to conduct his own actuarial review to determine if the methodology and assumptions used to develop the rate filing are actuarially sound and comply with the Actuarial Standards of Practice issued by the Actuarial Standards Board.
Excessive, Inadequate, Unfairly Discriminatory
By law, rates may not be excessive, inadequate, or unfairly discriminatory and the commissioner must adopt regulations to prescribe standards to ensure that individual health insurance rates comply with this requirement. The bill deletes a provision of current law that deemed rates “not excessive” if the insurer filed a loss ratio guarantee that the insurance commissioner approved. For this purpose, “loss ratio” meant the ratio of incurred claims to earned premiums.
Instead the bill defines an “excessive” rate as one that is unreasonably high for the insurance in relation to the underlying risks and costs after due consideration to:
1. the filer's experience;
2. the filer's past and projected costs, including amounts paid and to be paid for commissions;
3. any transfers of funds to the filer's holding or parent company, subsidiary, or affiliate;
4. the filer's rate of return on assets or profitability, as compared to similar filers;
5. a reasonable margin for profit and contingencies;
6. any public comments received related to the filing; and
7. other factors the commissioner deems relevant.
A rate is “inadequate” if it is unreasonably low in relation to the underlying risks and costs and continued use of the rate would endanger the filer's solvency. It is “unfairly discriminatory” if the premium charged for any classification is not reasonably related to the underlying risks and costs, such that different premiums result for insureds with similar risks and costs.
The bill expands the regulatory authority to include standards for group, HMO, and hospital and medical service corporation rates.
Public Hearing Required for Certain Rate Filings
Under the bill, the commissioner must hold a public hearing when any entity files a rate increase of more than 10%. The commissioner must, within five days of the rate filing's posting on the department's website, set a hearing date and conspicuously post on the department's website the date, place, and time of the hearing. The bill requires the hearing to be held (1) within 90 days before the proposed effective date of the rate filing at a place and time convenient for the public and (2) in accordance with law. The commissioner must immediately notify the filer of the hearing date, place, and time.
The commissioner must, within 30 days after the hearing, issue a written decision approving, modifying, or disapproving the rate filing. The decision must specify all factors used to reach it and be posted on the department's website within two business days after issuance.
Healthcare Advocate and Attorney General
The bill authorizes the healthcare advocate, the attorney general, or both, to be a party to any rate filing hearing.
It grants these officials access to the department's rate filing records. Department attorneys, actuaries, accountants, and other experts who review or assist in the determination of a rate filing must cooperate with the officials.
The officials may (1) summon and examine under oath witnesses either deems necessary to the rate filing review and (2) require the filer, or any holding or parent company or subsidiary, to produce books, vouchers, memoranda, papers, letters, contracts, and other documents. Such material must be limited to information or transactions between the filer and the holding or parent company or subsidiary that are reasonably related to the filing.
The bill requires each insurer, HMO, or hospital or medical service corporation to keep earned premiums and incurred benefits records by calendar year for each policy or agreement for which a rate filing was made under the bill. The records must be kept for at least seven years after the filing and must include records for any rider or endorsement used in connection with the policy or agreement.
The bill requires the Insurance Department to retain rate filing records for at least seven years from the date the department approved, modified, or disapproved the filing.
Rate Approval Process
The law requires individual health insurers (including those providing long-term care coverage), HMOs, and hospital and medical service corporations to file proposed premium rates with the insurance commissioner for review and approval. Rates may not be excessive, inadequate, or unfairly discriminatory. For individual health insurance, rates are deemed approved if not otherwise disapproved within 30 days of being filed with the department. For HMOs and hospital and medical service corporations, the commissioner has to approve or disapprove rates within a reasonable time. The law does not specify a time frame by which the commissioner has to approve individual long-term care insurance rates, but does require such insurance policies to maintain a 60% minimum loss ratio.
Insurance and Real Estate Committee
Joint Favorable Substitute