Prior Approval Helps Hold Down Health Insurance Rate Increases

Wrynn Blasts Insurers Who Took Advantage of the Period Before the Law Went into Effect to Raise Rates Without Oversight

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NEW YORK, NY (10/21/2010)(readMedia)-- The Insurance Department's new authority to review health insurance rate requests before they go into effect is helping to reduce increases in the rates consumers will have to pay, Superintendent James Wrynn said today. Wrynn announced the Department's first set of rate decisions under the new system, known as "prior approval."

Before prior approval, health insurers could simply file rates with the Department and then begin to use them, a system known as "file and use."

"Because of prior approval, we were able to reduce some rate increase requests significantly – including reductions of about 16%," Wrynn said. "We certainly are not happy with even the reduced increases, and we will keep working to keep costs down. But at least we could make sure these increases were justified by the rising cost of health care in New York. We reduced every rate increase request that we found excessive or unreasonable."

Under prior approval, insurers have to notify their customers they are asking for a rate increase from the Insurance Department. Before an increase can be granted, consumers have the chance to send comments to the Department. Whatever increase is granted by the Department has to reflect the recommendation of the Department's actuaries. They make sure the premiums are sufficient to enable the companies to pay their claims, but are not excessive.

"We projected that prior approval would have a 2-3% impact on rates, and on average we reduced the rate increase requests by 2.5%," Wrynn said. "Every percentage point we cut from a rate increase request represents dollars in the pockets of New Yorkers. And every one of those dollars we were able to save for New Yorkers would have gone to their insurance companies instead if it were not for prior approval. Unfortunately, some consumers will still see huge increases where companies hiked rates before the law went into effect."

Recently, Wrynn forced some health insurers who were sending out inaccurate notices on the reasons for various sizable increases to resend these notices, showing just how much of those increases were put into place before the law went into effect and the Department gained prior approval authority. (An example of a restated notice is attached.)

"For some health insurers to raise rates 50% or more before the law went into effect and then to imply we approved that increase shows why we needed prior approval," Wrynn said. "Some companies were telling their subscribers they were asking us to approve a rate increase of about 70%, when they had already put in place the vast majority of that increase. Fortunately, with prior approval, going forward we have the ability to restrain insurers and protect New Yorkers."

One health insurer, Oxford, filed new rates the day before the law was enacted, covering a whole year's worth of increases. As shown in an example from another company below, increases put in place this year under file-and-use and before prior approval made up a substantial portion of the increases requested by some plans:

Total Increase Requested (1Q 2011) Prior Approval Component File and Use Component
(Small group)

9.3 – 78.4%
6.1% 3 – 68.1%
(Small group)
11.4 -20.2% 6.1% 5 – 13.39%
(Small group)
3.1 – 39.4% 3% 0.1 – 35.3%
HIP Ins. Co.
(Small Group)
5.6 – 31.8% 3% 2.52 – 28%

"With prior approval, we are able to look at each application and make a decision on the merits," Wrynn said. "We made cuts where it was justified. We understand the pain any rate increase causes in these difficult times, and we did all we could to hold these increases down, while ensuring companies had the resources to pay their claims.

"More than a quarter of New Yorkers in community-rated plans will see their rates drop, hold steady or increase less than 5% even with the file-and-use increases imposed by the health plans included. For more than two-thirds of New Yorkers in these plans, rates will increase less than 10% even after the increases companies imposed under file-and-use are included," Wrynn added. (A chart providing a weighted impact of the rates according to enrollment is attached.)

The Insurance Department reduced rate increase requests between 1 and 16% for various companies. (A chart summarizing the rates requested and approved increases for each insurer is attached.)

The rates announced today will go into effect for consumers with health plans that have requested rate increases beginning on or after January 2011. The rates approved today include the full amounts subject to the new prior approval law, but do not account for any benefit changes, including any additions contained in the federal health reform law. Consumers have the right to shop around if they do not like the final approved rate increase. The new prior approval law increases the time for consumers to shop around to 60 days (up from 30 days under the old law). Consumers and businesses can look on the Insurance Department's website for health plan information (www.ins.state.ny).

"With prior approval, we have taken one step toward cost containment," Wrynn said. "But all stakeholders need to cooperate in order to keep health insurance affordable. The health of our State and its citizens depends on it."

"It's clear that our new prior approval law can work to bring down rate increases. It's also clear that some companies didn't want to play by the rules and moved to impose big last-minute rate increases on businesses and workers," said Sen. Neil Breslin, D-Delmar, chair of the New York State Senate's Insurance Committee. "That's something I intend to investigate and make clear to the public. Where companies play by the rules, we will get lower rates based on sound, actuarial judgments of medical costs – and that will help small businesses and families to meet their budgets and still keep good health coverage."

"The upward spiral in premium rates has heavily burdened working families and businesses trying to offer health plans to their employees," said Assemblyman Joseph D. Morelle, D-Irondequoit, chairman of the New York State Assembly's Committee on Insurance and sponsor of prior approval legislation. "Reinstatement of prior approval of health insurance rates means a return to prudent and necessary public oversight in an area with great ramifications for every sector of our economy. The cost of health care kills jobs and remains a leading cause of foreclosures and personal bankruptcy. At a time when New Yorkers are struggling, this is a step we can and must take."

"Family budgets can't withstand another year of double-digit rate increases," said Elisabeth Benjamin of Health Care for All New York and Vice President of Health Initiatives at the Community Service Society. "Today's rate decisions underscore how the new prior approval law can protect New York's families and small businesses; we urge the Department of Insurance to aggressively investigate the massive rate increases some insurers rushed to impose before the old file and use system expired."

"Today's announcement highlights one of the reasons why we supported the legislation to return the authority of the Superintendent of Insurance to review health plan premium rate requests, and increase minimum medical loss ratios," stated Leah McCormack, MD, President of the Medical Society of the State of New York. "We are hopeful that this new law will better assure that the health insurance industry does not extract excessive amounts of resources from New York State's health care system and divert such resources to company dividends and profits. Instead these resources will be committed to enhancing patient access to needed care."

"Given the choice between pressing providers to reduce waste and control costs, and dramatically increasing rates on small businesses, insurance companies have taken the easy path and exercised their market strength to hammer small business," said Ben Geyerhahn, Small Business Majority. "Small businesses are the engine of growth that can lead the New York economy back to health, and we are comforted that the Department of Insurance stood with us to limit the size of this unjustified increase. We hope that over the next three to five years DOI will continue to closely scrutinize rates."

Consumers with questions about their health insurance bills should contact their agent or broker, or the Department's Consumer Services Bureau at 1-800-342-3736.