Group Ins. - Health Ins. Regulation

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Goals of Insurance Regulation

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 prevent inadequate/overadequate premiums
 prevent Ins Cpy insolvency
 by requiring reserves to be held
 to prevent ph from being left without coverage
 promote fairness in competition among competing companies
 raise tax money (from State premium taxes)
 Social goals:
 Disclosure to policyholders
This involves:
 a summary of key features of the product
 clear wording; readability requirements
 illustrations of benefits
 educating the consumer
 prevent misleading marketing materials
 Reasonableness of Premiums and Benefits
 state mandated benefits
 premiums must be reasonable in relation to the benefits
 this is accomplished through Loss Ratio requirements.

 Fairness
 Prevent discrimination by age, sex, race, handicaps, etc.

 HI Reform
HI Reform goals include making Health Insurance more affordable and more secure (that is, less susceptible to huge rate hikes if the insured gets sick).

Front 2

How to Regulate Insurance

Back 2

following

Front 3

1. Legal Basis

Back 3

Simple Laws vs. Complex Laws
Complex laws are expensive to administer and analyze, but hopefully more precise.
 Simple laws are usable if the State has other overriding standards that govern.
 Complex laws are needed:
 in complex markets
 because removing existing laws is difficult

Front 4

2. Regulatory Enforcement – this includes:

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 required State Licensing of a company before the company can sell insurance in that State
To get licensed, the Ins Cpy must provide:
 proof that its Agents are licensed
 proof that a minimum level of capital (RBC) is held
 its list of insurance products
 its corporate by-laws
 biographies of major company officers
 description of a sound financial plan.

 Information gathering (by the State government)
 on cpy’s financial soundness
 to confirm Ins Cpy’s compliance with regulatory standards

 required Prior Approval of policy forms, before the ins cpy can issue them.
 Language,
 new premium rate schedules, and
 diividend schedules
must all be approved by the State Department of Insurance.

 Enforcement of the rules
 investigations often rely on consumer complaints
 there is an Appeals/Legal system

 Receivership (when necessary)
 e.g. the government taking over an insolvent company.

Front 5

The Regulations Governing Insurance in the U.S.

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Federal Regulations
State Regulations

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Federal Regulations

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 ADA (Americans with Disabilities Act)
 COBRA



 ERISA
 Specifies the rights of participants in pension plans
 Applies only to self-insured plans.
 ERISA (a Federal law) preempts any State-specific laws.
This is reasonable, since most self-insurers are large companies which would have trouble conforming to the different laws in all the states they write business in.
 HIPAA
 Applies to insured and to self-insured plans
 Protects individual and small-group health care policyholders by guaranteeing access, portability, renewability, nondiscrimination, and limits on exclusions.

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State Regulations

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 Capital Requirements
 Risk-based capital (RBC)

 Guaranty Funds
 all Ins Cpys have to pay monthly premiums into a Guaranty Fund.
The Guaranty Fund:
 Guarantees the payment of current claims
 Guarantees continuing coverage to ph’s (even if their Ins Cpy goes bankrupt — this is vital to Health Insurance policyholders)

 HMO’s and self-insuring employers are exempt from participation.

 Reserve requirements
 Active Life reserves
 Contract reserves
 Claim reserves (includes capitation pmts still owed to providers)
 Provider liability reserves (risk-sharing obligations to providers)
also called “Outcome-based contractual reserves”
 Premium Deficiency reserves

See SN 305 for detailed definitions of these types of reserves.

 Consumer Protection (same list as “Goals Of Insurance Regulation”, above)

Done.