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Health and Life Insurance Advisory Council

Insurance Regulation Law Update

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

Commissioner Ted Nickel welcomed everyone to the new, combined Council, and said he hoped it would provide value and cross-sharing of information. He said he had been thinking about the Councils and decided to reconstitute them, as well as provide some new faces and a fresh look. Finally, he welcomed feedback on the efficacy of the new Council.

Deputy Commissioner Dan Schwartzer thanked the Council members for their time, and said it was up to them to determine how often to meet. He said OCI had been spending a considerable amount of time on health care, and that they are "almost there" with the governor in deciding how to approach the exchange. The State will "absolutely" seek stakeholder input in that process, starting with the just-announced online survey by the Office of Free Market Health Care, and will engage in additional outreach once the high-level direction is set. OCI wants any exchange to be valuable to consumers.

Life Co-Chair Sharon Brosnan of Thrivent Financial for Lutherans noted that she had been chair of the Life Advisory Council and was asked to stay on with the combined Council. Health Co-Chair Wendy Arnone of UHC said she had not been on the Health Advisory Council, but looked forward to the exchange of information on the combined Council.

Life Insurance

Life Settlement Rule Update. OCI Life and Health Unit Chief Mike Honeck reported that the statute requiring regulation of life settlements has been in force for a while, and OCI is working on the rule. There was a hearing on the proposed rule last month, and OCI is looking to tweak the language in response to comments. There are eight licensed life settlement providers and a number of brokers. However, training is required, and there wasn't a vendor available in Wisconsin until recently. OCI will be able to continue processing applications, but there probably won't be a great deal of life settlement activity in Wisconsin.

The Northwestern Mutual representative on the Council said her company is interested in the notice provisions of the rule. OCI Legislative Liaison Jim Guidry said OCI is looking to change the notice requirements for insurers and some language relating to lapse provisions. The next step is to send the rule to the legislature, with a copy to the Council.

NAIC STOA Bulletin. Bureau of Market Regulation Director Sue Ezalarab that the NAIC finalized the Stranger-Oriented Annuity Transactions sample bulletin - a copy of which is available upon request - to give insurers suggestions for avoiding liability in these transactions. The commissioner and deputy commissioner are looking at whether OCI should issue this bulletin.

NAIC Annuity Disclosure Model Regulation. Sue Ezalarab reported that the NAIC is revising its buyer's guide to annuities this year. There is a conference call in May on revisions to the technical details on illustrations. OCI will look at the revisions, but generally wants to move Wisconsin's buyer's guide closer to the NAIC version. Mike Honeck noted that the main issue is consumer understanding of the guide; the current version is fairly old (e.g., it doesn't address indexed annuities). He said OCI adopted the NAIC buyer's guide to life insurance several years ago. Sue Ezalarab noted that most problems arise regarding what the buyer was told during the sale.

Health Insurance

Federal Health Care Technical Legislation. OCI Policy Initiatives Advisor Jennifer Stegall said the agency is working on a Wisconsin technical bill - a copy of which is available upon request - to adopt federal health care reform and thus give OCI clear enforcement authority. Sen. Leah Vukmir (R-Wauwatosa), chair of the Health Committee, has agreed to introduce the measure, hopefully some time in May.

The bill would change the small group definition from 2-50 to 1-100 for medical loss ratio ("MLR") purposes. Council member Sheila Jenkins of Network Health Plan noted that this will be a big change for small plans, which have never tracked the 51-100 groups. OCI Examiner Stephanie Cook noted that MLR reporting will be based on the location of the employer, even for association policies. OCI consultant Guenther Ruch added that the reporting is policy and company specific. Agent member Jerry Frye suggested that OCI guidance in this area would help.

The bill also includes a new requirement for filing of rates for small groups (1-50), which is needed to avoid federal rate review. Sheila Jenkins asked whether the effective date will recognize the fact that insurers implement rate changes well in advance. Jennifer Stegall stated that OCI hesitates to provide any transition guidance at this point because everything is in flux.

In response to a question, Jennifer Stegall also noted that the bill conforms Wisconsin law to the federal adult child coverage mandate. She also said OCI is wondering if companies are looking at calculating the actuarial levels for exchange plans in 2014 (e.g., bronze plan is 60 percent, silver plan is 70 percent); what happens if Wisconsin gets a waiver; and whether companies plan to offer plans below the bronze plan. Sheila Jenkins said Network has not started looking at this yet, and Wendy Arnone said UHC has just taken a preliminary look. Guenther Ruch added that OCI is looking for input on how to calculate the actuarial value, as their preliminary look has raised questions about that process.

Jerry Frye noted that he is concerned about the "Cadillac tax" in 2018, and doesn't want to reduce the actuarial value of the plans he offers in order to avoid it.

Rate Review Regulation and Grant. Sue Ezalarab reminded the Council that OCI received a planning grant to enhance consumer protection and set up a framework for rate review. During the first three months, OCI hired examiners and an attorney, and retained an actuarial consultant (Milliman). OCI is now looking at the historical rate information it has collected, and trying to determine the new data elements it will need for effective rate review (OCI will share its conclusions with and seek feedback from the industry). OCI is also looking at how to get the information it needs if the technical bill does not pass in time; how to enhance its website to make filings more accessible and understandable (e.g., how rates affect premium), and to allow comments; how to handle hearings for any rate disapprovals; possibly collecting information to understand the market better (OCI has not done a lot of review in the past, and has seen that filings vary a great deal, including in terms of completeness); and the resources needed to monitor rates on an ongoing basis. Guenther Ruch said he wanted to make it clear that there is no thought of moving to prior approval − OCI is working with use and file.

Draft Bulletin: Rate Increase and Disclosure Review. Guenther Ruch noted that the Department of Health and Human Services' draft regulation on rate filings (45 CFR Part 154) provides for federal certification of the effectiveness of each state's rate review program and, if the program is not effective, then DHHS will decide if a rate increase in that state is unreasonable. The rule has a July 1, 2011 effective date, though that is "super squishy" and may even end up being September 1. Under the regulation, if a filing crosses the 10 percent increase threshold, then the insurer has to file a justification with DHHS (and with the state if the state accepts such filings, and OCI takes the position that it does accept them). The effective date is different for states that require rate filings and those that don't: The rule first applies to rates that take effect on July 1 (or whatever the effective date turns out to be) in states without rate filing, and it first applies to filings on July 1 in states with rate filing. The regulation has a 12-month look-back for determining whether there is a 10 percent increase. These are the kinds of things OCI will put in a bulletin, along with Wisconsin-specific rate filing requirements, but it can't issue the bulletin until the effective dates firm up and the future of the technical bill is clearer. In response to a question from Sheila Jenkins, who noted that the draft justification form is not one any insurer would want to file, Guenther Ruch said OCI will try to provide guidance on calculation of the 10 percent threshold, but the agency hesitates to interpret federal law.

Council member Bill Smith, from the National Federation of Independent Business, asked how rates affect the cost of insurance (which has been hammering his members, who are mainly small businesses). Guenther Ruch said the primary function of health insurance is to finance care, and rates are supposed to estimate the cost of care and delivery of insurance. The theory behind health care reform is to encourage insurers to negotiate better rates with providers; reform is supposed to balance consumers, insurers, and providers with guaranteed issue by 2014. Therefore, consumers in a competitive market should be able to shop around for a better deal if their current insurer increases rates. OCI hopes to provide information with the exchange to help consumers shop around, but they are awaiting guidance from leadership on where Wisconsin's exchange should fall on the continuum - from provider of insurance to facilitator for insurance shopping. Jennifer Stegall noted that OCI has worked backward from the July 1, 2013 deadline for demonstrating readiness to implement an exchange. OCI knows what is required in order to be ready, but the agency has nothing to share until the direction solidifies.

Administrative Rule Update

OCI counsel Julie Walsh noted that OCI issued the mental health parity and colorectal cancer screening rules as emergency rules, and extended those rules, but expects to promulgate the final rules in the next couple of weeks and publish them effective July 1, 2011. With respect to the retraction of the readability rule, there will be a hearing on May 3 with a comment period through May 13.

Next Meeting

Council member Jim Enright from Trilogy Health Insurance wondered if monthly meetings would be too extreme given all the activity on health care reform. The Council agreed to meet every other month. As a result, the Council will set up another meeting for late June once it looks at members' schedules. In response to a question from Council member Mat Dew of National Guardian Life, Jennifer Stegall said OCI would report on the survey results and stakeholder input at the next meeting.

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