Health Insurers Told To Provide More Details On Proposed Rate Increases

NEW YORK, NY (09/23/2010)(readMedia)-- Health insurers must be specific in letters to policyholders about the impact of different factors that they claim are causing increases in premium rate increases, according to a letter sent to the companies today by the New York State Insurance Department. Specifically, insurers should state exactly how much they claim federal health care reform and other legislative changes add to costs and how much is from other causes.

"New York's new prior approval law requires insurers to send written notice of proposed rate increases, including the specific change requested, to insureds so they can understand the rate increase and ask questions or provide comments to the insurer or the Insurance Department. But if insureds do not have accurate information, they cannot make informed comments," said Insurance Superintendent James J. Wrynn. "We have no objection to insurers noting the cost of federal health reform, but just listing it can create the inaccurate impression that reform is the major cause of increases."

The text of the letter follows:

Dear CEO

The Insurance Department has received complaints regarding notices of proposed premium rate increases that health insurers have recently sent to insureds. The Insurance Department has found that these notices vary in form and content. Moreover, a number of the notices are deficient, if not misleading, and in violation of the new prior approval law.

New York's new prior approval law requires insurers to send written notice of proposed rate increases, including the specific change requested, to insureds on or before the date the insurer submits an application for a premium rate increase to the Insurance Department. The intent of the law is to require insurers to provide insureds with a meaningful notice of proposed rate increases so insureds can understand the rate increase and ask questions or provide comments to the insurer or the Insurance Department. Indeed, the new prior approval law requires that the notice to insureds include mailing and website addresses of the insurer and the Insurance Department through which the insured can contact the insurer or the Insurance Department to receive additional information or to submit written comments on the rate filing. The Department is required to post all relevant written comments on its website.

Specific deficiencies include the following. Some notices the Insurance Department received cited the new Federal health care reform law (the Patient Protection and Affordable Care Act , or PPACA) and the end of the subsidy program under the State's mental health parity law ("Timothy's Law") as reasons for a rate increase. We have found, however, that in some instances neither of these changes were included in the rate applications submitted to the Department. Also, some notices do not delineate how much of a particular rate increase is attributable to the underlying changes in the law. These type of misleading notices have the effect of confusing members and masking the underlying reasons that a rate adjustment is being requested. The Department has no issue with including references to the PPACA and Timothy's Law changes if the precise impact of each of those changes is fully disclosed.

Also, we have seen rate notices that do not contain any explanation that the rate increase is aggregated with previously filed, but as yet unbilled, rate increases. For instance, several insurers implemented significant rate increases under the "file and use" method during 2010 just before prior approval took effect, but subsequent to the first quarter of 2010. Those previous increases are now being added to the rates of members renewing in the beginning of 2011, along with the much smaller increase insurers are requesting in the rate application. This type of aggregation may be allowed, but without any delineation of the different components of the increase or any explanation about the aggregation, insureds cannot determine the basis of the increase and do not have the ability to comment on the validity of the rate increase.

Also, some insurers have not clearly informed insureds that they can submit comments and questions about the rate increase to the insurer in addition to the Insurance Department.

These types of deficiencies contravene the statute's intent of providing insureds the opportunity to understand their rate increase, provide meaningful comments, ask informed questions and receive pertinent information about their rates. The notices should clearly explain the different components of the rate increase and the percentage attributable to each component, and should clearly inform insureds that they can contact both the insurer and the Insurance Department with comments or questions.

The Department will contact individual companies about their specific deficiencies and required remediation. The Department will also be issuing guidance on the required format of notices going forward.

# # #