Nearly everyone agrees that a number of factors-from demographic trends and utilization rates to pharmaceutical and medical technology costs-explain the relentless rise in health insurance costs. Yet the solution, many people seem to think, is a simple one: tighter regulation of insurers.
That’s the idea behind Gov. David Paterson’s proposal to reinstate prior approval of health insurance premium hikes in the small-group and individual markets. Unlike last year, when it was drawn up as a stand-alone bill, this time he tucked the plan into his executive budget, substantially improving its chance of passage.
Prior approval was required in New York until 1996, when the state insurance law was changed to allow health insurers to "file and use" premium increases for community-rated contracts. After a four-year phase-in period, the file-and-use law took full effect.
The result, Insurance Department officials contend, has been excessive rate increases. While acknowledging that the current system has an insurer self-policing mechanism, they say it has been woefully deficient.
The evidence suggests that file-and-use is a system with flaws. However, officials should be working to improve the system, not return to an approach with even less to commend it.
Prior approval of health insurance premiums in the 1980s and 1990s was marked by large swings in rate hikes that, as Excellus BlueCross BlueShield chief David Klein noted at a joint legislative budget hearing, "had more to do with election cycles than underwriting cycles." Does anyone think that in the current Albany environment, regulatory control of insurance rates would be less politicized?
As for insurer surpluses, under prior approval from 1986 to 1995, Excellus’ annual operating margin averaged minus 1.4 percent per year. Under file-and-use, it has averaged 1.1 percent per year, producing an average 0.1 percent margin over the 24-year period.
None of these figures suggest rampant profiteering.
Yes, file-and-use needs more timely refunds to customers when premiums prove excessive. And other steps can be taken to forestall abuse.
A return to prior approval, however, is both unnecessary and unwise.
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