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New York Insurance Department to Scrutinize Health Insurance Rates

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The New York Insurance Department is stepping up its scrutiny of health insurance premium rates, saying it has launched a broad probe into the accuracy of the data used by insurers and health maintenance organizations to request rate increases.

The on-site audits will be of health insurers and HMOs selling health insurance plans regulated by the state. These include health plans sold to small businesses and directly to individuals.

Benjamin M. Lawsky, state Superintendent of Financial Services, said the audits will review selected rate requests that have already been filed.

Insurers will not know beforehand whether their proposals will be the subject of an audit, Lawsky said.

Data regarding claims, insurer administrative expenses, premiums and claims reserves will be examined. The Department will hire a private accounting firm to assist DFS personnel in conducting the audits.

The audit is being financed through a $4.4 million grant won by the DFS in September from the U.S. Department of Health and Human Services.

The grant was among those issued to a number of states to enhance premium rate review, improve public access and lend more transparency to the processes used to establish health insurance premiums.

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Lawsky said the audits will allow the DFS “to drill down underneath the numbers” to make sure they are accurate.

For example, he said, the DFS will examine whether insurers are accurately allocating administrative costs and broker commissions.

“The audits also will help ensure that insurers have proper controls and oversight in place to make certain that data are reliable and accurate,” Lawsky said, adding that the audits “may also help us identify areas where we can take measures to help control costs.”

Under a law recently passed the New York state legislature, health insurers must submit their proposals to increase their premiums to the DFS for “prior approval.”

The DFS has the authority to approve, reduce or reject those requests. The Department has only 60 days for those reviews and must respond to many complicated requests from many insurers during the same short time period.

Before prior approval, health insurance premium increases were averaging about 14 percent a year, Lawsky said.

For contracts which started on or after Jan. 1, health insurers requested weighted average increases of 12.7 percent, but the Department granted increases of only 8.2 percent, Lawsky said. The lower increase will save consumers more than $400 million in 2012, he said.