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Life Health > Health Insurance

Agent Groups Fight NAIC Proposals

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NU Online News Service, March 15, 4:15 p.m. – Agent groups have been rallying against two proposed model regulations up for discussion this week at the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

The NAIC has little direct regulatory authority of its own, but the model acts it promulgates often play a major rule in guiding state legislatures and insurance regulators.

State insurance officials will be meeting from today until Monday in Reno, Nev., to discuss dozens of insurance-related issues and proposed model acts.

The National Association of Health Underwriters, Arlington, Va., has been asking its members to call 19 state insurance commissioners and directors to protest a proposed model act that would prohibit use of “discretionary clauses” in health plans.

Discretionary clauses in health plan contracts give plan administrators the freedom to interpret ambiguous terms in plan contracts.

A proposed NAIC model act, the Prohibition on the Use of Discretionary Clauses Model Act, would forbid carriers from giving themselves discretionary authority over the plans that they insure or administer, or from providing standards of interpretation that were inconsistent with state laws.

The proposed act also states that, “Nothing in this Act shall be construed as imposing any requirement or duty on any person other than a health carrier,” suggesting that plans could still give brokers, third-party administrators, independent review organizations and other parties discretion to interpret contract terms.

Advocates of the proposed model say it would eliminate an obvious conflict of interest that gives health carriers a mechanism for offering less coverage than their contracts appear to promise.

NAHU argues that discretionary authority comes into play only when a dispute goes to court and has nothing to do with consumer protections such as appeal rights and external review rights.

The proposed NAIC model act “would encourage more cases to be brought to court rather than using normal appeals and external review mechanisms available through the plan,” NAHU says in a legislative alert.

Many other employer and insurance groups are also opposing the effort to ban discretionary clauses.

Donna Horoschak, deputy director of the American Assocation of Health Plans, Washington, says state laws based on the model act would probably violate the federal Employee Retirement Income Security Act, the law preempts most state efforts to regulate employer-sponsored health plans.

In any case, parties responsible for administering health plans already have a fiduciary obligation to represent the best interests of plan members, Horoschak says.

Moreover, Horoschak says, “we don’t need yet more regulation that will further increase the cost of coverage.”

Meanwhile, the National Association of Independent Life Brokerage Agencies, McLean, Va., says it has taken a public position against a proposed actuarial guideline called XYZ.

The existing Universal Life Insurance Model Regulation sets forth the current rules for calculating universal life policy cash values. Insurers find the cash value by determining the “basis” ? the policy account value less any surrender charge.

Guideline XYZ proposes that, in addition to finding the basis, the insurer perform a second calculation.

The second calculation would use interest rates, cost of insurance factors and expense allowances prescribed by the guideline, NAILBA says.

Under XYZ, the consumer would receive a cash surrender value equal to the greater of the two calculations.

Advocates say the proposed guideline is needed because current methods of calculating cash values fail to take into consideration the effects of no-lapse provisions and other “secondary guarantees” might have on cash surrender values.

But NAILBA Chairman Ed Murray predicts in a statement that administration of the guideline would be a nightmare, and that most insurers would have to make expensive computer modifications to follow it.

The proposal is “based on the assumption that universal life insurance policyowners will benefit from yet another complex calculation of policy values,” Murray says. “They won’t.”

Consumers want secondary guarantee features such as no-lapse options and level premiums for the comfort they provide, not necessarily for the effects they have on policy cash values, Murray argues.


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