Spiro acknowledged the need for lawmakers to address the high costs of health insurance, but he cautioned that requiring prior approval of health insurance rates would create an even larger problem for the state’s residents. “In an attempt to control rising health coverage costs for New Yorkers, this bill will jeopardize the solvency of health carriers and risk leaving our residents with few health coverage options or with no coverage at all,” Spiro testified.
Spiro pointed to New York’s past experience with prior approval as proof that it does not work. Prior to 1996, New York required prior approval of health insurance rates. The practice led to a rate approval process that was highly politicized. Yielding to the pressure to keep rates low, the Insurance Department failed to approve justified rate increases and created a system of artificially suppressed rates which contributed to the near insolvency of one of the state’s largest health insurers at the time.
Spiro also referenced the current problems in the medical malpractice insurance market where rates have been suppressed for years, despite increasing costs for insurers. As a result, there are only two private health insurers that insure all of the state’s practicing physicians and one of those insurers recently was found to be insolvent. Spiro cautioned that consumers would be faced with the same coverage availability problem for health insurance if the bill were enacted.
Spiro told lawmakers that even if political pressures could be kept out of the rate approval process, insurers would still face substantial delays in obtaining rate approval from the insurance department. “The department simply does not have a sufficient number of staff to review rate submissions from all of the state’s health plans.”
Spiro remarked that that the bill is even more disastrous than the previous prior approval system because it couples an increase in insurers’ medical loss ratio (MLR) requirements with a prior approval requirement—an unprecedented approach. “Currently, insurers must use a certain percentage of premiums for the payment of medical care--known as medical loss ratio requirements or MLR. These MLR requirements provide the safeguard in the current system to ensure that rates not submitted for prior approval are appropriate and that the premiums being paid by policyholders are used primarily for their medical care,” Spiro testified.
This bill would increase the current MLR requirements for small group health and individual policies from 75 and 80 percent respectively to 85 percent. If enacted, this would be the highest MLR percentage of any state in the nation. Spiro told lawmakers that the rationale for increasing the percentage was not supported by data, which shows that health plans continue to spend more on medical expenses while their bottom lines have been declining.
He also stressed that an increase in the MLR would be even more unmanageable because health plans would be required to pay out more in medical costs and at the same time find the funds to pay the state $850 million in new taxes that were imposed upon them as a result of the recent state budget.
“The numbers will simply not add up,” said Spiro. “Lawmakers cannot expect health insurers to pay out more in medical benefits, pay more in taxes, and receive less in premium, without seriously compromising the financial viability of these companies and affecting the quality of care and service to their policyholders. The ultimate loser of such a deadly combination of factors will be the consumer.”
“While the bill’s intent is commendable, the focus is misguided and will have disastrous results for New York’s residents. Instead of keeping health premiums low, the bill will compromise the availability and quality of health coverage for all New Yorkers,” added Spiro.