Where Do Federal Charter Options Leave Health Insurers?
By Stephen Piontek
While a number of proposals for optional federal charters for insurers have been floated, all of them are either vague or silent on how health insurance companies would fare under such scenarios, said a speaker here.
Speaking at the annual meeting of the Health Insurance Association of America, Ted Scallet, principal with the Groom Law Group, in Washington, D.C., reviewed a number of major issues that health insurers should be aware of under an optional chartering scenario.
Three major proposals have been released so far, said Scallet. The American Council of Life Insurers’ draft covers companies that write life insurance, annuities, disability income and long-term care insurance. Health insurance is not mentioned in the ACLI’s proposal, Scallet said, but added that ACLI may consider a “place holder” for the product when legislation is introduced, meaning it would be considered two or three years down the line.
The draft of the American Insurance Association, a property-casualty trade group, also says nothing about health insurance, he said, while the proposal of the American Bankers Insurance Association covers “insurance,” which means health insurance could get some kind of coverage under the proposal.
Under these proposals, an insurer’s license would be issued by a new insurance regulator located in the Treasury Department, said Scallet.
One of the major problems for health insurers, Scallet said, is “what do you do if you’re a multi-line company and if a charter is made available by reference to specific products?”
If health insurance is not covered, he said, “does there need to be a separate health company licensed in a state?”
Additionally, he said that if coverage under a charter is defined by reference to specific products, how does one define health insurance? “Does it include dental, supplemental, specified disease?”
Scallet said that insurance companies have felt at a disadvantage in Washington vis ? vis banks because they have no federal insurance regulator. “Insurance companies want a cheerleader in Washington,” he said.
But he urged health insurers to think this through because the idea has its pluses and minuses. On the one hand, he said, “an insurance czar may have more visibility and standing.” And it could prove advantageous in some ways for health insurers to deal with one regulator rather than 50.
But on the other hand, he said, health insurers face a “regulatory overlap” problem since they “already have a substantial amount of federal involvement and regulation in their business.”
Furthermore, and potentially more dangerous, are “the political risks associated with health insurance,” he said, which could become especially problematic during election years.
Considering the “politics of health care cost inflation, can we keep the federal regulator out of rate regulation?” Scallet asked. This concern “makes a federal charter a dicier proposition for health insurers” than for those in other lines, he added.
And on the issue of one vs. 50, he said it was quite conceivable that instead of being a cheerleader, “the czar could be a consumer advocate type ? la Ralph Nader.”
In addition, he said, that while it is true insurers would only have to answer to one regulator, if that regulator said ‘jump’ higher than an insurer wanted, the insurer “couldn’t leave the U.S.” as health insurers have left states where they were unhappy with regulatory or legislative actions.
Regarding product regulation, Scallet said the ACLI and ABIA drafts have one-step file-and-use provisions. But what could be a concern to health insurers in this respect, he said, is the issue of “speed-to-market vs. the limitations of one-size-fits-all.”
Another issue for health insurers is that of statutory language vs. a broad grant of regulatory authority, according to Scallet. Statutory language, he said, would provide certainty and “certainty is good.”
But he questioned whether the language would provide certainty. These proposals “have to start from nothing, which requires hundreds and hundreds of pages of legislative language,” he said, “and this creates conflict.”
There is also a certain muddiness in the ACLI proposal regarding state involvement, even in a federal chartering option. Scallet said that in the ACLI draft state law governs the interpretation of policy terms.
This raises some questions for health insurers, he said. For one, they should consider whether “preemption is a realistic legislative possibility.” But on the other hand, he wondered whether “this is a fait accompli anyway” when federal involvement in such areas as Medicare supplement products, the Health Insurance Portability and Accountability Act and a Patients’ Bill of Rights is considered.
Another area concerning the states is that the ACLI proposal preserves the state guaranty system, Scallet said. “But if you allow states a role in solvency,” he said, “they can say ‘We’re responsible for solvency, but you’re not going to let us oversee market conduct or rate regulation.”
Finally, on the issue of agent registration, Scallet asked: “Is exclusive federal regulation worth restricting activities to sales of products from federally chartered insurers only?”
This could be pretty difficult for companies with big agency forces, he said.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 19, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.