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Life Health > Health Insurance

A Flawed but Diligent Watchdog

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National Underwriter’s reporting on the National Association of Insurance Commissioners this issue shows an organization devoted to the public interest but often torn by demands of the industry it regulates.

The NAIC is composed of 56 public officials, insurance commissioners variously elected or appointed to their positions. They hold few open meetings and their records do not have to be made public.

There are only a handful of people representing consumers and over 1,000 insurance lobbyists at a typical NAIC meeting. It must be a relief for those commissioners when they can go into a closed door session, and leave the press and lobbyists outside.

The problem is that these closed-door meetings are also shutting out the public.

Another concern I have with the NAIC is that the model laws and rules devised behind those closed doors often look impressive on paper but they have no force of law unless they are enacted by the individual states. In many instances, states have ignored NAIC models.

For instance, Congress recently passed a provision as part of financial reform assuring that equity indexed annuities (EIAs) would be regulated by states and not by the Securities and Exchange Commission. I may have missed something, but I am still waiting for a state to take charge of EIAs, beyond imposing some easy training obligations on agents who sell them.

The NAIC strengthened its model law in March, including a provision that requires agents to ensure the products are “suitable” for investors based on the client’s age, investment goals and other factors. But that’s not the fiduciary standard the SEC would have imposed.

A concern with EIAs is that they can earn fat commissions for agents, which can influence the producer in recommending these products to clients. If the SEC were watching, compensation for selling EIAs would have to be reasonable–and fully disclosed.

My problem with state regulation is that some states really stink at it.

New Mexico provides a recent case in point. The local Blue Cross Blue Shield was rewarded a 21% health care insurance rate hike, despite the fact, it turns out, that BCBS did not provide the state insurance division with a shred of documentation to justify its request for the increase.

An investigation by the state Attorney General’s office later found the company’s financial data did not justify the hike.

Then there’s former Connecticut Insurance Commissioner Thomas Sullivan, who rubber-stamped a rate increase for some health plans offered by Anthem Blue Cross and Blue Shield by as much as 47%.

Sullivan said at the time health care reform required insurers to provide richer benefits and so insurers needed to pass along those costs to consumers. He seems to have ignored federal estimates that the new requirements would increase the company’s costs by 1% or 2%.

Sullivan will not have to explain his decision any more. He just started a new job at PricewaterhouseCoopers’s Hartford office, where he will be an executive in the firm’s financial services regulatory practice. Among his duties: advising insurer clients how to comply with health care reform requirements.

That raises the other problem with insurance commissioners. Many come from the insurance industry and often go to the industry when they leave office. So the regulator becomes part of the regulated.

That may help explain why so many commissioners too readily accepted the steady march of many health insurance companies from not-for-profit organizations to public corporations. It used to be that most health insurers were nonprofits. To me, that is the right way to do health insurance.

I think health care should be motivated by a desire to relieve illness, pain, suffering, and the grief that goes with those realities. Putting shareholders and executive bonuses into the equation can result in corporate decisions based more on profit than on the common weal.

But I digress.

It certainly would be an oversight to ignore what the NAIC and the individual state commissioners do right.

A recent example was when Congress handed the NAIC the task of recommending to the U.S. Department of Health and Human Services (HHS) how the Affordable Care Act’s medical loss ratio (MLR) provision should be imposed. The commissioners’ final recommendations adopted some industry requests, but at the NAIC’s fall meeting in Orlando, largely reflected the advice of consumer reps.

The fact that the NAIC can and does listen to the public is gratifying.

Perhaps a federal system of insurance regulation would better serve America. But on balance, the NAIC and the individual commissioners who comprise it are trying to do right by the public.


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