Oxford Health to Reimburse N.Y. Small Businesses

New York Gov. David Paterson and New York State Insurance Department Superintendent Eric Dinallo announced that Oxford Health Insurance Inc. has agreed to refund $50 million to approximately 37,000 small businesses in New York City, Long Island and the northern suburbs for overcharging on health insurance policies in 2006.

The refund highlights the need for legislation to reinstate the Insurance Department’s authority to approve rate increases before they go into effect, something the Insurance Department is pursuing this legislative session.

Prior to 1996, the New York State Insurance Department had the authority to pre-approve rate increases for health insurance, a process that helped keep rates relatively stable for decades. Since the law was changed to eliminate the Insurance Department’s prior approval authority, the Department has only been able to look at the rate increases a year after they take effect. For more than a decade the only consequence for excessive rate charges has been repayment in subsequent years.

“We must make New York a good place to do business by keeping costs competitive. We know that small businesses are the engine of growth in this State and the rising cost of health insurance is one of their major complaints,” said Gov. Paterson. “If it can help protect business and keep premium rates down for New Yorkers, we should update the laws to give the Insurance Department more oversight.”

Superintendent Dinallo said: “I am pleased that the Department was able to get these refunds for small businesses. But an after-the-fact settlement in 2008 does nothing for those businesses that may have had to drop coverage in 2006 because they could not afford a larger than necessary premium increase. These refunds would be unnecessary if the NYS Insurance Department had the authority to pre-approve rate increases for health insurance premiums. Requiring health plans to get approval from the Department before increasing rates would help keep New Yorkers insured. Lawmakers should restore to the Department the tools to better monitor and manage the marketplace for health insurance rates.”

The $50 million settlement will be paid to 36,746 small business policyholders with approximately 300,000 employees and family members. The refund will vary depending on the number of covered individuals. It amounts to an average of $1,360 per business, which is about 5.5 percent of the total average annual premium in 2006.

The Insurance Department initiated a review after Oxford reported to the Department that Oxford’s loss ratio for small group policies in 2006 was below the 75 percent minimum. Oxford paid benefits equal to 70.58 percent of its overall premiums in 2006.

The vast majority of health insurers, like Oxford in this case, raise premium rates without first getting approval from the Insurance Department by utilizing a “file and use” procedure. If a health insurer using this method does not pay benefits equal to at least 75 percent of overall premiums in a calendar year, the insurer must refund the excess premium to policyholders in the form of cash payments or credits against future premiums.

Dinallo also said: “Oxford did the right thing in working with the Insurance Department to make sure consumers got their money back. But it is unfortunate the Department lacks the legal authority to pre-approve health insurance premium rate increases and prevent premiums that turn out to be larger than the law allows.”

The settlement affects policyholders of Oxford’s small group Freedom Plan Direct, Freedom Plan Metro and Freedom Plan EPO products. It does not affect Oxford’s small group and direct pay HMO and “point of service” (HMO/POS) policyholders.