Illinois insurance regulators say health and disability insurers in the state are continuing to use expired discretionary clauses.
Discretionary clauses are insurance policy provisions that give the insurer the discretion, or freedom, to interpret the rest of the policy provisions.
Critics say the provisions appear to give insurers the ability to interpret policies in absurd ways; insurers and others say insurance laws and regulations permit insurers to interpret policies only in a reasonable fashion, even when discretionary clauses are in place.
Illinois Insurance Director Michael McRaith writes in Company Bulletin 2010-05 that Illinois has banned use of discretionary clauses in the health and disability arrangements it regulates since July 1, 2005.
The Illinois Insurance Department has discovered that some insurers are continuing to enforce discretionary clauses included in health and disability policies issued before July 1, 2005, McRaith says.
“Typically this is done under the theory that the regulation has no retroactive application,” McRaith says.
In reality, McRaith says, most health and disability policies are renewed every year, or at least every 2 years.
“It is therefore unlikely that there are any policies in existence that have not been either renewed or issued subsequent to the effective date of the regulation,” McRaith says.
When an insurer renews a health or disability policy, it must incorporate any updated statutes, administrative rules and regulations in the renewed policy, McRaith says.
“Insurers who do not comply with the absolute prohibition on discretionary clauses … will be held accountable and subject to regulatory action,” McRaith says.