From the April 2010 issue of Investment Advisor • Subscribe!

April 1, 2010

Insurance Update: Implementing Healthcare

NAIC is closely watching the debate to see how it will affect insurers and insured

As arguments rage about healthcare, we spoke with the National Association of Insurance Commissioners (NAIC) about the effects of reform.

Sandy Praeger, Kansas insurance commissioner and NAIC chair of the Health Insurance and Managed Care Committee, said one of her biggest concerns is oversight at the federal level. You might remember that Senator Dianne Feinstein (D-California) intends to propose legislation to prevent insurance companies from raising rates all across the country without approval of the Health and Human Services Secretary and a federal oversight panel. "That just won't work," she says, although she admits that some states do not have much authority over rates.

California (site of the notorious up-to-39% increase sought by Anthem Blue Cross on individual health plans) is one such state, she says, that doesn't have much authority to deny a rate increase if it can be justified actuarially. However, she points out, "You'd never deny [an increase] that's actuarially sound and needed, or you'd put the company in financial jeopardy."

Federal Mandates

There's also the question of mandates. During a recent conference call hosted by NAIC, Kim Holland, NAIC's secretary-treasurer and commissioner of Oklahoma, pointed out that mandates are not the only reason that insurance costs more in some states than others (other factors include the cost of living, housing prices, and income levels). But mandates are frequently put into place by state legislatures for early detection or preventative measures. Kansas, says Praeger, has mandates for prostate cancer screening; childhood immunizations up to the age of three; and mental health parity coverage. All these requirements add to the cost of coverage and result in some people being priced out of affordability, yet preventative care is seen as a way to help lower the cost of medical care in the long run by improving state residents' overall health.

Holland adds that mandates are often emotional issues, brought by "very vocal small groups" before the legislature to show how their financial security is jeopardized by an uncovered illness or situation. In Oklahoma a year ago, she says, it was decided that any benefit mandate must be subject to a clinical review and a cost benefit analysis. Each mandate that's added raises the cost of insurance and causes people to drop coverage, even if it is the right thing to do. This then feeds into the push to sell coverage across state lines--allowing companies to offer policies not approved within a particular state because they lack the mandates and benefits the state requires, yet offering lower-cost coverage to people who might otherwise forgo purchasing a policy.

During NAIC's conference call, NAIC president and West Virginia insurance commissioner Jane Cline, Holland, and Praeger discussed selling across state lines and additional issues. Selling across state lines is something NAIC is opposed to; Praeger says it will lead to companies seeking out the states with the least consumer protection to be licensed, and then going to other states to sell policies with few benefits and low cost while those who need more comprehensive coverage will need to buy from state-regulated plans. "It will destabilize the market," she asserts.


Marlene Y. Satter, a freelance business writer who can be reached at harpwriter@verizon.net.
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