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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:

Health Insurance

Health Insurance Exchange. In light of Governor Walker's recent decisions to delay implementation of an exchange under the federal health insurance reform law ("ACA") and to turn down the federal Early Innovator Grant (the "Grant") for exchange development, Deputy Commissioner Dan Schwartzer thanked all of those who helped with exchange research and development to this point. He noted that the governor has always thought that the ACA would not work, which was confirmed by the Gruber study. To implement the law, Wisconsin needed flexibility from the federal Department of Health and Human Services ("DHHS"), which was not forthcoming (though DHHS said it would be flexible).

Most believe the U.S. Supreme Court's upcoming decision on the ACA will not be all or nothing, which also makes it difficult to know how to implement the law. Thus, the governor decided to stop drawing down the Grant funds (the funds had not actually come into the state yet or been budgeted for OCI operations). If it turns out that an exchange is needed, which is up to the legislature, one can be put in place quickly with the work that's been done.  OCI legislative liaison and public information officer J.P. Wieske estimated that only about $2 million of the $37 million Grant had been drawn down - most of it by the Wisconsin Department of Health Services - which would not have to be repaid.

Risk Adjustment Working Group. The deputy commissioner noted that this exchange-related working group had completed most of its work and had gotten to a point where it needs further guidance from DHHS. Risk adjustment is an important part of the ACA, especially in Wisconsin, which has a competitive market and which will have to deal with about 20,000 Health Insurance Risk Sharing Plan ("HIRSP") enrollees on the exchange. He said research and development by the working group will be vital if the individual mandate and guaranteed issue elements of ACA survive; therefore, it will be reactivated (like other working groups) if it is needed. J.P. Wieske said DHHS might end up leaving a lot for the states to decide in this area, like they did with essential health benefits.

OCI consultant Guenther Ruch reminded the Council that the ACA includes three risk adjustment mechanisms: (1) a transitional reinsurance mechanism to spread risk in the individual market for the first 3 years of the exchange, so that the costs of high-risk enrollees, such as those from HIRSP, are spread among all insurers; (2) temporary risk corridors, also during the first 3 years of the exchange, to even out the experience of health insurers that have higher than expected losses with those that have lower than expected losses; and (3) permanent risk adjusters based on the risk score of each person in the state (as updated annually). These mechanisms do not involve tax dollars; instead, they redistribute private health care financing funds.

Guenther Ruch said there is a lot of work required by the states to implement the transitional reinsurance mechanism and the permanent risk adjusters, which the states will run with a great deal of flexibility but under federal guidance (the temporary risk corridors will be administered by the federal government, with states only providing input). The working group has been engaged in this highly technical research and development, including a review of the proposed federal rules, providing comments on those rules and looking at how they would work in Wisconsin. The working group, with a diverse membership, met 10 times since August and now is in a position to advise the commissioner. Guenther Ruch is working on a preliminary report. Going forward, the working group will meet monthly, at most. OCI is also monitoring activity of the National Association of Insurance Commissioners in implementing these risk adjustment mechanisms.

In response to a question, Guenther Ruch said it is not clear how the federal government will create a risk score for each person, let alone have that score follow the person from insurer to insurer, in light of confidentiality laws on health information.

Medical Loss Ratio ("MLR"). OCI attorney Julie Walsh said OCI submitted an October 25, 2011 request for a federal waiver for MLR restrictions in Wisconsin in the individual market, which the Center for Consumer Information and Insurance Oversight ("CCIIO") declared to be complete on January 9. That declaration started the clock running on the 30 days CCIIO has to rule on the application (though that 30 days may be extended for another 30 days). J.P. Wieske reported that the 1-100 small group size for MLR purposes is set in the annual statement instructions for 2011, which were published in late December and will synchronize with federal rebate forms.

Federal Health Care Technical Legislation. J.P. Wieske said that AB 210, which would have brought state law in line with ACA market reforms, did not pass; however, most of it is in place by rule.

External Review. Julie Walsh said it has been an exciting fall as OCI works to assist insurers with external review compliance. The repeal of the emergency rule took effect December 29, with a hearing scheduled for January 26. OCI is continuing to work with CCIIO, which is promising to provide some Wisconsin-specific guidance for insurers in preparing for the March 1, 2012 implementation of federal standards. OCI expects insurers to follow the federal law but also to follow Wisconsin law unless it clearly conflicts with or inhibits federal law (there are only a few bright line conflicts, such as the $250 threshold for external review). OCI will continue to certify independent review organizations but cannot require their exclusive use. Questions in this area should be directed to her or the market regulation bureau.

Coverage of Dependents Bulletin. Market Regulation Bureau Director Sue Ezalarab reported that, since AB 210 will not change the coverage of dependents mandate to mirror federal law completely, OCI is issuing a bulletin today to describe the last change in the law, which brought state law in line with the federal requirement of coverage to age 26 (but which retained the special Wisconsin rule for dependents in the military). The number one consumer inquiry on the change is complaints regarding the reduction of the mandate from age 27 to age 26.

Life Insurance

Life Settlement Rule Update. J.P. Wieske reported that the rule implementing the statute requiring regulation of life settlements was just printed and will go out soon. The rule does not apply to term life insurance. The required notice on OCI's website will maintain the same web address so insurers can use that address indefinitely. A separate notice for each policy is not required; rather, the notice requirement applies by policyholder. A representative of the Wisconsin Council of Life Insurers noted that the final rule has the same notices but makes compliance easier and is more efficient than prior versions of the rule.

Other Issues

OCI Consumer Complaint System. Sue Ezalarab reported that OCI is upgrading this system to allow electronic submission of complaints (though OCI will still take them by other means) and require electronic processing by insurers by 2014 (e.g., insurers can correct complaint coding and otherwise communicate with OCI online). Prudential provided some information about how other states process complaints electronically, and OCI is hoping that this will shorten complaint resolution times. OCI is looking for insurers to test the system, and volunteers should contact OCI Policy Advisor Roger Frings.

Stakeholder Outreach. J.P. Wieske reported that examiner Ashley Natysin is OCI's tribal outreach coordinator, and that she has been working with the tribes on member issues such as health plans, property and casualty insurance, and availability of insurance. The commissioner and deputy commissioner have visited all of Wisconsin's tribes.

Financial Literacy. J.P. Wieske reported that OCI has been working to facilitate insurance education, including at the high school level and job training for workers in the industry. OCI is also working with the Department of Financial Institutions on financial literacy initiatives, including Money Smart Week, and is considering use of condensed versions of long publications to make them more accessible.

Read to Lead. J.P. Wieske said that OCI is participating in this initiative by Governor Walker, which seeks to ensure that Wisconsin students learn to read by the fourth grade. OCI will be reaching out to the industry for assistance with that effort.

Dental Service Fee Restrictions. In response to a question about proposals by Rep. Evan Wynn (R-Whitewater), J.P. Wieske said that OCI hasn't seen the governor's position, and that enactment is up to the legislature; OCI's job is to implement the law.

Next Meeting

J.P. Wieske said the Council's next meeting will be next quarter if there are issues to discuss and a desire to meet.

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