New York Bans Health And Disability Discretionary Clauses

New York state insurance regulators have joined their California colleagues in trying to get discretionary clauses out of health and disability insurance policies and subscriber contracts.

Charles Rapacciuolo, chief of the Health Bureau at the New York Insurance Department, declared in Circular Letter Number 8 (2006) that the department will no longer approve any health insurance policies or contracts, including disability insurance policies or contracts, that include discretionary clause provisions.

The New York department also is ordering insurers and health maintenance organizations to remove discretionary clauses from existing policies and contracts within 30 days.

Carriers must give the department a list of all affected policies and contracts that include discretionary clauses along with plans for revising the clauses, Rapacciuolo writes.

If carriers fail to revise policies and contracts voluntarily, the New York department will withdraw approval of the affected policies and contracts, and it may seek a court injunction to enjoin use of policy forms containing discretionary clauses, Rapacciuolo writes.

California insurance regulators are in court to defend similar efforts to ban use of discretionary clauses in health and disability policies.

Discretionary clauses are contract provisions that grant a carrier the unrestricted authority to determine eligibility for benefits and to interpret terms and provisions of the policy or contract.

“Historically, such provisions were permitted as a recapitulation of the insurer’s…or HMO’s rights subject to independent judicial review,” Rapacciuolo writes. But recent federal cases seem to limit the scope of judicial review and let carriers interpret discretionary clauses in such a way that the clauses would nullify the carriers’ responsibility to pay valid claims, he adds.