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Prior approval redux

Not unlike the Gulf of Mexico oil spill, the impact of New York’s budget mess is spreading far and wide. Consider one example: reinstatement of prior approval of health insurance premium increases.

A year ago, when this was put forth as a stand-alone bill, it failed to win passage. This year Gov. David Paterson slid the plan into his executive budget.

Then he made it part of one of the budget extenders that lawmakers have needed to pass to avoid the prospect of a state government shutdown.

The result: Prior approval was OK’d by the Legislature and signed into law by the governor last week, with scant public attention.

Admittedly, polls suggest that a majority of New Yorkers favor giving the state Insurance Department authority to review and approve health insurance premium hikes before they take effect. The governor summed up this view when he said "deregulation of health insurance premiums is a failed experiment leading to unjustified premium increases and more people losing their health insurance coverage."

In fact, as noted here some months ago, the case for reinstatement of prior approval rests on shaky ground.

Under this system back in the 1980s and 1990s, New Yorkers saw large swings in rate hikes that reflected election cycles more than underwriting cycles. With Albany more politicized than ever, what is likely to happen now?

As for unjustified premium increases, Excellus BlueCross BlueShield’s annual surplus has averaged only 1.1 percent per year under the current file-and-use system. (Under prior approval from 1986 to 1995, Excellus’ annual operating margin averaged minus 1.4 percent.)

The governor’s bill is modestly better than it might have been. It calls for automatic approval of any proposed rate hike if the Insurance Department does not act within 60 days-although this provision gives regulators wiggle room-and requires an actuarial basis for denying a rate increase. Whether this amounts to more than words on paper remains to be seen.

Did the file-and-use system have flaws? Yes. But time is very likely to show that a return to prior approval was the wrong remedy.


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