NAIC Adopts Model Controlling Use Of Discretionary Clauses
By

Philadelphia

A model act that would control an insurers ability to use discretionary clauses in health insurance contracts was adopted after a final round of heated arguments among state insurance commissioners.

The contentious Prohibition on the Use of Discretionary Clauses Model Act was fully adopted by the National Association of Insurance Commissioners at its summer meeting here.

Earlier debate had pitted health insurers against consumer advocates. Lobbying prior to the debate had included letters to state governors and legislators, according to an interview.

The newly adopted model act prohibits the use of discretionary clauses in health insurance contracts that would allow insurers to deny claims. The model act affects fully insured employer sponsored health plans, not self-insured employer sponsored health plans.

The model barely got out of executive session and required a roll call vote before being adopted in plenary by the full NAIC body. A motion to delay a vote on the model was defeated in executive by a scant 7-6 vote. In a vote to move it out of executive session, the motion carried unanimously with Ohio abstaining. In a plenary vote, the model was passed 44-5 with one abstention from Texas.

In presenting the work of the ERISA working group, Maryland Commissioner Steve Larsen, who chairs the parent Health Insurance and Managed Care Committee, noted that the model will not conflict with ERISA and should not increase litigation because health insurance carriers will be making the best decisions.

There has been no evidence to suggest that prohibiting discretionary clauses will increase costs, Larsen said.

Costs are a “standard issue of concern that they [industry] raise,” he said of insurers. “There is not one shred of evidence of how it will increase costs. The industry is a good lobbyist and knows that there is a hot button called health care costs.”

Discretionary clauses put the burden on consumers to prove that a denial was based on an arbitrary or capricious standard, he told commissioners.

California insurance commissioner Harry Low called it an issue of “fairness.” He said there would be a very high standard to show [a decision] was arbitrary and capricious.

Montana Commissioner John Morrison urged that the model be adopted given the “extensive input” from interested parties.

“I have never seen a model with so much input,” Morrison said. “Now is the time to deal with this model.”

The issue of deferring models was raised as a cause of concern among some commissioners given a delay on a vote of the Property and Casualty Model Rating Law a few minutes before the debate on discretionary clauses.

“Were going backward. Were heading backward if we defer everything and dont trust [working groups],” said Indiana Commissioner Sally McCarty.

But NAIC Secretary Treasurer Nat Shapo said there needs to be balance because, conversely, the executive vote could become a “rubber stamp for committees.”

Mike Pickens, NAIC vice president and Arkansas insurance commissioner, said he is hearing from employers, not the health insurance lobby.

They are saying that prohibiting discretionary clauses would hurt their businesses and make it more difficult for them to offer health insurance, according to Pickens. Seventy percent of employers in Arkansas have between 7-10 employees, he added.


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 17, 2002. Copyright 2002 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.