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Health and Life Insurance Advisory Council

Insurance Regulation Law Update William J. Toman

The business and regulatory environment for insurance is constantly changing, and part of our client service involves staying on top of those changes. One way we do this is to attend quarterly meetings of the industry-regulator-consumer liaison committees sponsored by the Wisconsin Office of the Commissioner of Insurance ("OCI") for life, health, and property and casualty insurance. Following is our report from the most recent meeting of the Health and Life Insurance Advisory Council:

Welcome and Introductions

Health Co-Chair Wendy Arnone of United Healthcare ("UHC") introduced Gina Frank, who has been named as Administrator of the Division of Regulation and Enforcement (Guenther Ruch's former position). Gina Frank said she had been in the position for only two weeks. However, she had been at the Wisconsin Office of the Commissioner of Insurance ("OCI") for a year as Administrator of Funds and Program Management and had been working for the state for 25 years.

Health Insurance

Federal Health Care Technical Legislation. OCI Policy Initiatives Advisor Jennifer Stegall said that AB 210, a copy of which is available from Quarles & Brady upon request, would bring state law in line with Affordable Care Act ("ACA") market reforms (but not ACA guaranteed issue or community rating that goes into effect in 2014). OCI is hoping that the bill will have a committee hearing soon, and that the legislature will act on it during the September session.

The federal Center for Consumer Information and Insurance Oversight ("CCIIO") has determined that Wisconsin is not in compliance with ACA market reforms. OCI counsel Julie Walsh said OCI will ask for reconsideration within the allowed 30-day period based on AB 210 changes as summarized in a crosswalk that is available upon request. CCIIO will have to make a final determination on compliance by October 1, but both OCI and CCIIO would rather have OCI enforcing the market reforms (so OCI can always ask for reconsideration). If the bill is delayed, OCI's backup plan is to use a bulletin and emergency rule to allow it to enforce the market reforms.

Working Groups. The Office of Free Market Health Care and OCI are putting together seven working groups on exchanges: (1) the exchange for individuals; (2) the Small Business Health Options ("SHOP")-employer exchange; (3) exchange eligibility screening; (4) customer relationship management (web portal issues); (5) program integrity and verification (of consumer information input into the web portal); (6) technology management (a highly technical working group); and (7) user-friendly web portals. There is no meeting schedule yet, but the groups will probably meet in a year or so.

Medical Loss Ratio ("MLR"). OCI is pursuing a federal waiver for MLR restrictions in Wisconsin in the individual market (and in the small group market if the data supports a waiver). OCI will finish gather the data it needs by the end of the month and will submit the waiver request(s) in 6-8 weeks.

Rate Review Regulation and Grant. Market Regulation Bureau Director Sue Ezalarab reported that OCI just finished the third quarter of a Cycle I planning grant to enhance consumer protection and set up a framework for rate review. CCIIO has certified OCI as having an effective rate review program so that the feds will not be reviewing Wisconsin rates. As part of that program, OCI is requesting additional data from insurers, providing links to rate filings, and providing a consumer-friendly mechanism for input on them (OCI has been getting a lot of inquiries about rate increases). Insurer training is ongoing, and OCI is working one-on-one with insurers on small group filings (which are new). OCI is also working with Milliman, its actuarial consultant, on rate review criteria (such as when to refer filings outside the agency), and it has gotten comments from the industry. Per OCI's July 18 bulletin, rate filings must be made beginning September 1.

Last week OCI applied for a $3.96 million Cycle II grant. The main goal of the grant is to enhance consumer protection as well as the capacity to review rates over the next three years. A copy of the project abstract is available upon request.

Finally, OCI will enhance the rate portion of market conduct exams. OCI will probably use other outside actuaries in those exams, and will audit filings to see if they match what the insurer does in the market (e.g., that the insurer is applying its rate tables correctly). This is how OCI handles exams in the property and casualty sector, and it has done a bit of this with small group rates.

Risk Adjustment Working Group. OCI consultant Guenther Ruch noted that the ACA includes three risk adjustment mechanisms - two that are temporary and a permanent one: (1) a temporary reinsurance mechanism for health insurers and self-funded groups to pay a reinsurer for individual claims in excess of a certain attachment point (which was designed to spread the costs of a possible influx of insureds from high-risk pools); (2) temporary high-risk corridors to even out experience of health insurers with higher than expected losses with those that have lower than expected losses; and (3) permanent risk adjusters based on the risk profile of each insurer's set of insureds. In mid-July, the feds issued proposed rules on these mechanisms and requested comments. OCI may provide comments.

OCI has set up a working group from this Advisory Council to consider these mechanisms. A list of the members is available upon request. The working group had its first meeting last week with an open forum at which anyone could be heard and considered the proposed rules (which will continue at the meeting next week). The next phase is for the working group to advise OCI on how Wisconsin should implement the risk adjustment mechanisms (e.g., whether the risk adjustment entity should be a state agency, HIRSP or a nonprofit). The state runs the temporary reinsurance and permanent risk adjustment mechanisms, while the feds run the temporary high-risk corridors. There is a lot of flexibility in implementation, and OCI wants a Wisconsin-specific approach that works here and preserves our competitive marketplace.

In response to a question, Guenther Ruch noted that these mechanisms resulted from the individual mandate in the ACA, but that OCI cannot wait until that mandate is upheld before working on implementing the mechanisms. He also noted that the idea for these mechanisms came from Medicare Parts C and D; however, the population at issue here is a bit different.

A National Association of Insurance Commissioners ("NAIC") group will also comment on the proposed rules, and OCI is a member of that group. The group includes an actuary from New York, where they have experience with risk adjustment arising due to guaranteed issue and community rating.

OCI Consumer Complaint System

Sue Ezalarab reported that OCI is upgrading this system to allow electronic submission of complaints and responses to reduce the average of 44 days it currently takes to process complaints. OCI is looking for consumer industry input (which should go to OCI Policy Advisor Roger Frings) and will have an industry focus group. OCI is meeting with legislators tomorrow to talk about the upgrade and especially how it will affect constituent complaints.

At the Property and Casualty Advisory Council meeting last month, Assistant Deputy Commissioner Eileen Mallow added that OCI also hopes to improve its ability to analyze and retrieve complaint data and to improve the process generally (e.g., to continue to reduce the number of complaints by separating out contacts that only seek information as opposed to complaints).

Life Insurance

Life Settlement Rule Update. OCI Legislative Liaison Jim Guidry reported that the rule implementing the statute requiring regulation of life settlements will go to the legislature in the next few days. That rule is similar to the one that was the subject of the public hearing, but now defines term life insurance; defers the required education until there are providers; exempts term life from the policyholder notice; requires notice of alternatives and notice of how to contact OCI. There is additional information on OCI's website.

Other Issues

NAIC Market Analysis Working Group. This group has a conference call this afternoon to discuss changes to the market conduct annual statement, including changing the ratios for scoring market conduct and adding new lines. The group just received a joint letter from the American Council of Life Insurers and America's Health Insurance Plans on adding long-term care insurance.

Medicare Supplement. Part of the national debate over the debt ceiling and deficit reduction has been the idea that first dollar coverage under Medicare supplement insurance might encourage overutilization, especially under Part B (physician services) and should be prohibited. Some have even talked about prohibiting first dollar coverage with existing Medicare supplement policies, which would have constitutional implications. Guenther Ruch is chair of the NAIC group that is studying this matter as required by the ACA, and the Advisory Council should consider how required cost sharing might affect Medicare beneficiaries. Changes in this area will have a different impact in Wisconsin, which is a waiver state, and thus does not utilize the standard national policy forms.

Next Meeting

The Council's next meeting will be on November 17.

For more information on the Insurance Regulation Group, please contact William Toman at (608) 283-2434 / william.toman@quarles.com or your Quarles & Brady attorney.