Protecting Consumers Through Protecting Consumers Through Insurance RegulationInsurance Regulation

Commissioner Sandy PraegerCommissioner Sandy PraegerState of KansasState of Kansas

October 3, 2008October 3, 2008

2

State Regulation Plays a Number of Roles in Protecting Consumers

State oversight of insurers works to ensure:

• Licensure and fair marketing practices

• Insurer insolvency is avoided

• Products are described accurately and include certain benefits

• Premium rates are based on actuarial principles and comply with state laws

• Disputes between consumers and insurers receive fair hearings and quick resolution

3

Individual Market: While State Approaches Vary, Kansas’ Rules Are Typical

• Guaranteed Renewability: All policies are renewable at the option of the policyholder

• High Risk Pool: High risk persons unable are guaranteed access through a high risk pool

• Rate Approval: Carriers are required to submit requested rate increases that the insurance department then reviews

• Pooling: Carriers must pool the experience of all their products together, even if they are no longer selling certain products

• No Re-Underwriting: Policyholders cannot be singled out for premium increases because they got sick after buying coverage

4

Individual Market: All States but 7 Have an All States but 7 Have an Access Mechanism for High Risk IndividualsAccess Mechanism for High Risk Individuals

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJCT

RI

MA

ME

VTNH

AK

No Mechanism (7 states)

Guaranteed Issue (5 states)

High Risk Pool (32 states)

Blue Only GI (3 states)

Other (3 states)

Only AL, AZ, DE, GA, FL, HI, and NV lack high-risk mechanisms

5

Individual Market: High Risk Access High Risk Access Mechanism OverviewMechanism Overview

• High Risk Pools:High Risk Pools: Most states (32) use a high risk pool to ensure Most states (32) use a high risk pool to ensure high-risk individuals can obtain insurance coverage. The programs high-risk individuals can obtain insurance coverage. The programs provide subsidized coverage. Typically, the coverage is:provide subsidized coverage. Typically, the coverage is:

– 150% or less than the average premium150% or less than the average premium

– Comprehensive lifetime maximum of at least $1 millionComprehensive lifetime maximum of at least $1 million

– These pools are too often underfunded and provide limited, but very These pools are too often underfunded and provide limited, but very expensive options to high risk personexpensive options to high risk person

• Guaranteed Issue:Guaranteed Issue: Only Only 55 states use a pure GI approach where states use a pure GI approach where individuals cannot be denied due to health status.individuals cannot be denied due to health status.

• Other:Other: A small number of states (6) use other methods such as A small number of states (6) use other methods such as Blue Cross Blue Shield open enrollment, allocation among all Blue Cross Blue Shield open enrollment, allocation among all carriers, etc.carriers, etc.

6

Small Group Market: While State Approaches Vary, Kansas Reflects the Typical State

1. Kansas has implemented Federal HIPAA requirements for small group coverage:

– Guaranteed issue

– Guaranteed renewability

– Limits on pre-existing condition exclusions

2. Kansas, like other states, has adopted the NAIC small group premium rate model law

– Claim experience of all small employers pooled together

– Premium variations based on health status are limited

7

1.1. Guaranteed Issue:Guaranteed Issue: All small group carriers must –All small group carriers must – – Offer coverage to all small employers, regardless of their Offer coverage to all small employers, regardless of their

employees’ health statusemployees’ health status– Accept all eligible employeesAccept all eligible employees

2.2. Guaranteed Renewability: Guaranteed Renewability: – Insurers must allow all small employers to renew coverage, Insurers must allow all small employers to renew coverage,

including any of their employeesincluding any of their employees

3.3. Limits on Pre-Existing Condition Waiting Periods:Limits on Pre-Existing Condition Waiting Periods: – Insurers may impose a maximum 12-month waiting period for Insurers may impose a maximum 12-month waiting period for

employees with pre-existing health conditionsemployees with pre-existing health conditions– Insurers must credit prior coverage so continuously insured Insurers must credit prior coverage so continuously insured

employees will not face waiting periodsemployees will not face waiting periods

HIPAA RegulationHIPAA Regulation

8

NAIC Rating RulesNAIC Rating Rules

Most States (27) use rating rules similar to the 1993 NAIC modelMost States (27) use rating rules similar to the 1993 NAIC model

– NAIC rules ensure that claims are pooled across a broad pool of NAIC rules ensure that claims are pooled across a broad pool of small employers purchasing coveragesmall employers purchasing coverage

– Under the NAIC rules, insurers can only increase the average Under the NAIC rules, insurers can only increase the average premium by 25% for groups with very sick employees and can premium by 25% for groups with very sick employees and can decrease the average premium by 25% for very healthy groupsdecrease the average premium by 25% for very healthy groups

– At renewal, premiums cannot be increased more than 15% for At renewal, premiums cannot be increased more than 15% for declining health status of any groupdeclining health status of any group

– Combined with other rating characteristics (such as, age, Combined with other rating characteristics (such as, age, geography, class of business, industry) this can lead to a wide geography, class of business, industry) this can lead to a wide disparity in ratesdisparity in rates

The current NAIC model limits variation furtherThe current NAIC model limits variation further

– Rates may not vary based on health statusRates may not vary based on health status

– Other factors that can be used are age (limited to 2:1 ratio), geography Other factors that can be used are age (limited to 2:1 ratio), geography and family compositionand family composition

9

Variation in Rates Allowed by State Laws

25.1:1 or greater

13:1 or lessCommunity Rating

Adjusted Community Rating

Rating Band Variability:

No Rating Structure19.1:1 – 25:1

13.1:1 – 19:1

ME

RI

NY

PA

NH

CT

VT

MA

NJ

VA

NC

SC

GA

FL

WV

KY

TN

ALMS

MIWI

MN

IA

HI

AK

KS

NE

ND

SD

MO

IL IN

TX

MT

ID

NVUT

WY

CO

NMAZ

CA

OR

WA

LA

AROK

OH

MD

DE

DC

10

Helpful Resources

Contacts at the NAIC

Brian Webb Josh GoldbergManager Health Policy and Legislation Health Legislative Analystbwebb@naic.org jgoldberg@naic.org202-471-3978 202-471-3984

Website

NAIC Health Innovations Working Group Web Pagehttp://www.naic.org/committees_b_state_innovations.htm

– Includes NAIC catalog of State health innovations and presentations from health reform hearings