Health Insurance Rate Review in New York State (Prior Approval Law)

NEW! Rate increase applications now posted!

The DFS is proud to announce the latest addition to its prior approval website: insurers’ rate increase applications.  One of the main goals of Governor Cuomo and DFS is to increase transparency and give consumers more information about their health insurance, their premiums and why premiums are increasing.  Posting insurers’ rate applications goes a long way to achieving this goal by providing consumers with information to see how insurers calculate their rate increases.  Also, access to insurers’ rate applications will give consumers a better basis to make comments to DFS on pending rate applications, which is an important part of the rate review process.

Summary of Actions on Health Insurance Premium Requests First Quarter 2012

The following table has the weighted average requested increase and approved increase by company for requests for changes in health insurance premiums that will take effect starting on January 1, 2012. The second table has the same information by line of business. The weighted average medical trend--that is the expected increase in medical costs -- is 10.9% for 2012.

Background:

On June 8, 2010, New York State enacted a new law known as the “Prior Approval” law.  This legislation gave the New York State Insurance Department, now the New York State Department of Financial Services, the authority to review and approve health insurance premium rate increases before any changes take effect.  Previously, New York had regulated health insurance premiums under a “file and use” law, which allowed insurers to increase premium rates with little, if any, control or oversight. 

The Prior Approval law will not completely solve the problems of costly health care expenses and high premiums, but it will allow the Department to make sure rate increases are justified and supported by actuarial data.  Health insurers and HMOs will be required to spend more of every premium dollar they collect on medical claim costs, ensuring that a greater percentage of premiums is returned to consumers in the form of benefits.  And the Department is working to increase transparency as to what goes into a premium rate increase to allow consumers to better understand their health insurance and its costs. 

A copy of the Prior Approval law in PDF format can be found by selecting this link.

Key provisions of the Prior Approval law:

• Applicable Plans – Prior approval is used for community rated policies.  Specifically prior approval must be obtained by insurers and HMOs adjusting (either increasing or decreasing) premium rates of individual, small group, large group community rated, Healthy NY and Medicare Supplemental (Medigap) policies.  Prior approval does not apply to experience rated large groups or self-insured health plans.

  “Community rating” means that the premiums for everyone covered under the same policy must be the same regardless of age, sex, health status or occupation.  Insurers are required to combine all policies with substantially similar benefits into a “community rated pool.”  Rates within a community rated pool may vary based on other factors, such as geographic region and benefit choices.  The purpose of community rating is to help spread the insurance risk.

• Medical Loss Ratio (MLR) Requirement –  “Medical loss ratio” or MLR helps gauge the reasonableness of premiums.  It is basically the percentage of premiums actually spent on medical services.  For example, if a policy had an MLR of 88%, this would mean that 88 cents of every premium dollar collected for that particular policy went toward paying claims.  The other 12 cents went towards the insurer’s administrative expenses and profits.

  Under the Prior Approval law, the expected MLR for a particular policy must be at least 82%.  The Department can require insurers to meet a higher MLR if required by the underlying data.  If, at the end of the year, the expected MLR is not met (i.e. it is lower than 82%), the Department has the authority to order corrective action, including refunds to policyholders. 

• 120-Day Notice of Proposed Rate Adjustment to Policyholders – Insurers must give policyholders notice of the proposed premium rate at least 120 days prior to the rate’s effective date.  This notice may not tell the policyholder the actual rate because the Department has not yet reviewed the rate application and may adjust the rate as part of its prior approval review.  The Department must post these notices on its website.  The purpose of this notice is to give policyholders basic information about potential rate increases and allow them to request more information or send comments to the Department (see “30-Day Comment Period” below).  Insurers’ initial notices can be found via Additional Rate Changes Details.
• 30-Day Comment Period - Policyholders or the public have 30 days from the date the insurer submits the rate application to the Department to send comments to the insurer or the Department.  The Department must post the comments on its website.  The purpose of this 30-day period is to allow policyholders and the public to comment on the pending rate application, the impact of the proposed rate increase or any other matter related to the rate application before the Department makes its decision whether to approve, reject or modify the rate application.  Comments can be found at: Additional Rate Changes Details
• Department’s Review – The Department must approve, reject or modify the rate application between 30 days and 60 days from the date the insurer submits the rate application (this time period allows for the 30-day comment period).  The Department may extend that time if it needs more information.  The Department’s determination must be supported by sound actuarial assumptions and methods.  Many factors are considered before approving, disapproving, or modifying a rate adjustment request.  Among these factors are the insurer’s recent and future costs of medical care and prescription drugs, the company’s history of rate changes, and its financial strength, premiums, administrative costs and other sources of revenue.
• Final Notice to Policyholders of Approved Rates – Insurers must give at least 60 days notice of the final premium rate approved by the Department to each policyholder prior to the effective date of the increase.  The Prior Approval law extended this notice period from 30 to 60 days to give policyholders more time to shop for other insurance coverage before the new rate became effective.

Prior Approval Process

• Application.  The Prior Approval law requires health insurers and HMOs to make an application to the Department of Financial Services to evaluate their proposed rate changes.  Guidelines for the rate application are posted on the Department’s website.
• Initial notice to policyholders.  Insurers must send policyholders notice of the proposed rate adjustment 120 days before the adjustment goes into effect.
• 30-day comment period.  Policyholders or the public have 30 days to request information or submit comments to the insurer or the Department.  The Department must post the comments on its website.
• Department Review.  The Department reviews the rate applications along with the insurer’s underlying calculations to ensure that any premium rate increases are justified and not excessive.  During its review, the Department may request more information from the insurer.  The Department will also consider comments from policyholders or the public.
• Department’s Decision.  Between 30 and 60 days from the date of submission of the rate application, the Department may approve, modify or disapprove an insurer’s rate application.  The Department may modify or disapprove of the premiums that are unreasonable, excessive, inadequate or unfairly discriminatory, and the Department may consider the insurer’s financial condition in making that decision.  
• Final notice to policyholders.  Insurers must give at least 60 days notice of the final approved premium rate to policyholders. 

Federal Health Care Reform and Premium Rates

The Federal Patient Protection and Affordable Care Act (the ACA), enacted on March 23, 2010, contains various provisions affecting premium rates, MLRs and premium rate review. 

• MLRs and Rebates.  The ACA requires health insurers to issue rebates to policyholders if their policies do not meet an 80% MLR for small group and individual policyholders or 85% MLR for large groups.  This law will go into effect for 2011 premiums. If required, rebates will be paid in the year following that for which the premiums were paid. For calendar year 2011, rebates would be issued during 2012.

  State law may exceed the Federal minimum MLR contained in the ACA.  Therefore, individual and small group policies in New York State will have to meet the 82% minimum MLR requirement under prior approval instead of the 80% required under the ACA.

• New! Preliminary Justifications. For rate applications submitted on or after September 1, 2011, the ACA requires health insurers to file with Centers for Medicare & Medicaid Services (CMS) a copy of their Preliminary Justification for all (non-Grandfathered) Individual and Small Group rate applications for increases of 10% or greater. CMS will then post the document at the websites healthcare.gov and CMS.gov. Insurers are also required to post their final justification at their own websites. The Department’s website will also provide access to this document, which can be found under "Additional Rate Change Details" when you search for a particular company. The Preliminary Justification is intended to provide consumers with a summary of the proposed rate increase and a breakdown of how premiums are spent. The Preliminary Justification contains two parts:
  
  • Part I: Standardized, summary level rate data
    
  • Part II: Brief, non-technical explanation of the rate increase

Learn more about health insurance

You may find more information regarding health insurance and health care reform at the following websites:

• NEW! Comparison Shop Insurance Rates / Benefits Where You Live!
  The federal government now makes available a website where you can compare the costs and benefits of health plans available to you where you live. The site includes the names of insurers that offer coverage in your zip code and the rates they charge. You can connect to the website here: http://finder.healthcare.gov/
  
• http://www.healthcarereform.ny.gov/
• http://www.healthcare.gov/

Updated 03/21/2012