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NAIC Comments On Limited Benefit Market

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The National Association of Insurance Commissioners refers directly to various types of limited-benefit health insurance products in its comments on the new federal health insurance rate review law.

The Accident and Health Working Group at the NAIC, Kansas City, Mo., took charge of developing an NAIC response to a request for information about state rate review programs and NAIC rate review rules and views issued by federal agencies in April.

The agencies are responsible for implementing rate review provisions in the Affordable Care Act, the legislative package that includes the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act.

The provisions require federal agencies to work with states to impose tighter limits on health insurance rate increases.

“PPACA addresses only health insurance that covers medical services provided by physicians, hospitals and other medical providers,” the NAIC notes in general comments on rate review programs.

“The PPACA requires removal of limitations on annual benefits, and eventually coverage of ‘essential benefits,’” the NAIC writes. “The PPACA does not specifically prohibit “mini-medical” insurance that covers medical services in a limited way, but the issuers of these plans may withdraw from offering these plans, because they are specifically designed to be low-cost limited coverage plans.”

Similarly, issuers of student “blanket” comprehensive medical coverage might drop out of the market, “because students will either be covered on their parents’ plans or will be required to purchase individual comprehensive coverage,” the NAIC writes.

But the NAIC says it expects insurers to continue to coverage other types of medical insurance policies that would not be classified as major medical policies.

“These include fixed indemnity, dread disease and accidental injury insurance, which are often designed to be purchased in addition to comprehensive medical coverage, because they pay fixed amounts to cover the non-medical expenses associated with illness or accidents,” the NAIC says.

The NAIC warns against forcing regulated health insurers to keep rates artificially low.

“Rates that produce a financial loss can affect consumers by impairing the financial soundness of the insurer, reducing the insurer’s incentive to provide good customer service, reducing the insurer’s incentive to continue providing coverage and shifting costs to other blocks of business,” the NAIC says.

A rate change could be unreasonable, for example, if it would create a “loss leader” product designed to force competitors from the market, the NAIC says.

Once the competitors are gone, the surviving company might impose large rate increases, the NAIC says.

“Stringent review of rate increases might lead to greater variability,” the NAIC says. “Carriers often try to keep their rate increases stable over time, even though that means losing money in bad years and making more money in good years. If a rate increase is categorized as unreasonable, carriers might reduce it to meet the standard of reasonableness, resulting in the need for a higher increase the next year than would have been the case.”


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