California Department of Insurance officials say the agency can act “unilaterally” to revoke approval of policies that fail to meet new specifications.[@@]
Insurance industry groups are protesting, saying the California department has no authority to revoke policy approvals without giving notice or opening a formal comment process.
California recently claimed the unilateral approval revocation powers in an effort to impose new standards on disability insurers. The new standards would require disability insurers to use more generous definitions of key terms, such as “total disability,” and eliminate some common benefits eligibility requirements, such as mandatory rehabilitation requirements.
America’s Health Insurance Plans, Washington, one group that represents disability insurers, is talking to members and other trade groups about its response, AHIP spokesman Larry Akey says.
“All options remain on the table, including legal action,.” Akey says.
“We remain concerned about the unintended consequences arising from the department’s unprecedented action,” Akey says.
AHIP has commissioned an actuarial study that suggests that implementing the proposed California disability policy standards could lead to a big increase in rates.
Disability industry executives met with California regulators earlier this month.
Gary Cohen, general counsel for the California department, described the meeting as “helpful.”
“We’re going to go back and take another look at what we had discussed and see if want to do anything differently,” Cohen says.
Cohen says the California department will hold similar meetings with employers and with plaintiffs’ lawyers.
Although the meetings are “less formal” than the formal rulemaking process, “in many ways more helpful,” Cohen says.
Written statements submitted in connection with a formal process tend to be legalistic, and the current round of informal meetings seems to be doing a better job of helping California regulators understand the full effects of the proposed changes in disability policy standards, Cohen says.
The insurance industry is “acting like we are changing the law or making new law, and we’re not,” Cohen says.
Court decisions have changed some aspects of the disability insurance market, such as the definition of “total disability,” and old policies may not take the changes into account, Cohen says.
“We want to bring everybody up to a level playing field,” he says.
Withdrawing approvals is the “most efficient” way of leveling the playing field, Cohen says.
The California department believes it always has had the authority to act unilaterally to revoke policy approvals, Cohen says.
“There’s a provision in the law that allows for the commissioner to issue a ‘withdrawal of approval’ for products,” Cohen says. “The department has found various provisions in filed policies that it no longer approves of.”
Although the commissioner can deny approval for new policies, “we have in existence a large number of [disability] policies approved in the past, in the early ’90s, the ’80s and even the ’70s in some cases,” Cohen says.
In these cases, Cohen says, the commissioner can issue a notice of withdrawal of approval.
The insurer affected has the right to a hearing, and, eventually, can appeal to the courts, Cohen says.
“The due process of going through a regulation is served,” Cohen says.
One insurer already is protesting a policy revocation in court, Cohen says.