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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 the periodic 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:

Life Insurance

Life Claims Settlement Working Group. Robin Jacobs, an OCI attorney, reported that this group just met to discuss a draft legislative proposal, though the existence of a draft does not mean OCI has decided legislation is necessary. The draft would require insurers to review Social Security's death master file and follow up on any matches with their insured lives. The draft would not change proof of death requirements. The sometimes lively discussion at the meeting included how often an insurer must search; how close a match is required; whether a match in one line of business carries over to other lines of business; the timeline for and effort required in following up; whether the insurer must review all its policies or only those issued after the law takes effect; whether the law ought to be phased in to avoid disruption; what happens if the insurer can't find the beneficiaries; and the importance of uniformity among states.

Long-Term Care Commissions Working Group. J.P. Wieske, OCI's Legislative Liaison and Public Information Officer, reported that this group has not met in a while, but is working on draft changes to the commission limits found in Section Ins 3.46(13) of the Wisconsin Administrative Code. Once the draft is ready, the group will schedule a meeting to discuss it.

Legislation. OCI is in the early stage of adapting the Own Risk Assessment and Solvency model law and changes to the holding company model law for Wisconsin, so no action is anticipated until next year. OCI expects that adoption will be required to maintain accreditation by the National Association of Insurance Commissioners ("NAIC"), and is aware of issues like confidentiality of insurer filings. OCI is also considering legislative proposals to allow proxy voting for mutual insurers and clarify the law requiring insurers to recover indicia of agency from terminated agents.

NAIC. The Contingent Deferred Annuity ("CDA") Working Group has had several regulator-only meetings to consider the financial and consumer issues raised by CDAs. The group has issued draft recommendations on items such as defining CDAs and regulating their marketing; is getting feedback from the industry and actuaries; and is debating whether CDAs are too different to be regulated like other annuities. The recommendations may be approved at the NAIC's April meeting, amid concern by the industry about delays on the financial side - some states are holding their review of CDAs until the group's work is complete.

The NAIC is also working on implementing the principles-based reserving it has adopted, and looking at how it will work in the real world. Because of the complexity involved, this approach to reserving probably will not go national this year.

Health Insurance

Health Insurance Issues. J.P. Wieske reported that his staff, working with the market regulation bureau, has put together frequently asked questions on the federal health insurance reform law ("ACA") for both consumers and agents, which will form the basis for an OCI web page on the ACA. He is looking for comments and feedback on whether these cover the questions that are coming up.

New guidance from the federal government has changed the small employer ("SHOP") part of Wisconsin's federally-facilitated exchange ("FFE"), due to premium aggregation issues, from a model that allows employees to choose a health plan to one that leaves that choice with the employer. Also, the tying provision that required small employer insurer participation in a SHOP in order for the insurer to participate in the individual exchange has been changed so that it only applies to insurers with at least a 20 percent share of the small employer market. In response to a question about who would be determining market share, Mr. Wieske said OCI does not track that data so the federal government would have to do it somehow.

OCI has also had discussions with the federal government about OCI remaining the primary regulator of health insurers, and they have gotten more comfortable with this approach. The state won't certify qualified health plans, but can continue to regulate matters underneath that determination.

Essential Health Benefits ("EHB"). J.P. Wieske said that the final rule is out, and the UnitedHealthcare plan is the benchmark for Wisconsin. This benchmark is supplemented for pediatric vision and dental by benefits in the Federal Employees Vision and Dental Insurance Program ("FEDVIP"). The benchmark plan does not include habilitative services, so it is up to insurers to offer parity with rehabilitative services or report coverage to the federal Department of Health and Human Services. However, consumer groups wanted a minimum requirement.

There were also some changes in the pediatric dental EHB. Exchange plans were not required to cover pediatric dental if there was a stand-alone dental plan offered on the exchange. Now, non-exchange plans can also forego pediatric dental coverage if they are reasonably assured that its insured has purchased an exchange-certified stand-alone dental plan, whether it was purchased on or off the exchange. OCI is looking at whether this change is appropriate and is concerned about how "reasonably assured" will be determined.

External Review. OCI attorney Julie Walsh said she is hearing that the Center for Consumer Information and Insurance Oversight ("CCIIO") will provide some guidance allowing states with their own external review laws to retain some authority. With such guidance, OCI will know what its role should be in this area.

Rates and Rating Areas. J.P. Wieske noted that OCI just issued a bulletin clarifying that Wisconsin is an effective rate review state for association group policies, which will avoid the need for duplicative filings with the federal government and possibly conflicting results. OCI may need to correct the reference to "bona fide" associations.

He said rate and form filings for exchange products will be complete by July and, at that point, they will be locked in for the exchange.  OCI examiner Stephanie Cook noted that individual and small group rates for non-grandfathered products offered on or off the exchange must be based on a single risk pool. Filings for exchange products are due by the end of April, and OCI will release them when it has closed its work on all of them, which should be by the beginning of July. Filings for off-exchange products are due at least 30 days before the open enrollment window. Details are posted on OCI's web site.

Mr. Wieske also reported that, after CCIIO swiftly rejected OCI's initial proposal for rating areas (having each county set its own areas), the backup proposal should fly. Stephanie Cook explained that Wisconsin was allowed to have 16 rating areas and, in setting those areas, OCI tried to group together counties rated together by most insurers (and thus minimize changes and line up with networks). OCI understands that the assignments are not perfect, but needs to proceed with them to be ready for April rate filings. In response to a question, Mr. Wieske confirmed that small group rates apply to groups of 2-50 (noting that the federal 1-50 is about the same as Wisconsin's 2-50), and that insurers assign their rating factors to the rating areas.

NAIC. J.P. Wieske reported that there has been a lot of discussion on accounting for the ACA tax on health insurers that will amount to $8 billion in 2014. Some believe it should be booked in 2014 because it is to be paid in September of that year, while others argue that insurers should take the charge in 2013 since it's based on 2013 premium figures. There are concerns about the effect on rates and risk-based capital requirements, so the NAIC is proposing a three-year phase-in, which OCI supports. The exposure draft issued by the Statutory Accounting Principles Working Group still has to go through the entire NAIC process, so it's difficult to tell where a controversial proposal like this will end up (it may also change with further federal guidance).

OCI has a leadership role in the Health Care Reform Regulatory Alternatives Working Group, which will be issuing another draft of its State Decisions on FFEs in a week or two. This outline gives states details on FFE issues they have to resolve. The legal subgroup is looking what pre-emption leaves to the states and will report in the same timeframe. The NAIC is also looking at changes in model laws that may be necessary due to the ACA.

Finally, the ERISA Working Group may issue a white paper on the small group self-funded market, but there is no agreement on what stop-loss attachment points are appropriate, and there is no timetable. OCI is opposed to higher attachment points due to concerns about compromising state regulation and allowing small employers to provide insurance. There is some feeling that states will have to watch the migration to self-funding as the ACA rolls out.

Legislation. J.P. Wieske reported that OCI is working on a draft of legislation to regulate ACA exchange navigators to protect consumers and ensure that Wisconsin's good agent system is not compromised. The draft includes some educational and financial responsibility requirements. With respect to the latter, OCI cannot require navigators to carry errors and omissions insurance, but it can allow it as an alternative to other protection. This proposal will go into the budget bill, because it needs to be in place when navigators go to work in October. In response to questions, Mr. Wieske said that OCI is also looking at assisters, but in a more limited way (such as disclosing biases); and that it is difficult to coordinate with federal navigator grant programs because the federal government will not share any information until the grants are awarded.

Mr. Wieske also noted that OCI is working with the Health Insurance Risk Sharing Plan ("HIRSP") on legislation to prepare for HIRSP to shut down at year end. In response to a question, he said that HIRSP enrollees will be notified as soon as possible after the legislation passes, and HIRSP CEO Amie Goldman said they have a comprehensive communication plan. In response to a question about rate shock for HIRSP enrollees, Mr. Wieske said Wisconsin doesn't fund its plan like other states, so it is stuck with this situation under the ACA - we will have to assume all 24,000 HIRSP enrollees will hit the market on January 1, 2014 and hope the ACA risk mitigation will work. Ms. Goldman said transitioning to the private market during the ACA's first year is the best bet for HIRSP enrollees.

J.P. Wieske said OCI is still working on a list of other necessary legislation or rulemaking, and reaches out to individual stakeholders in that regard and is always willing to hear from others. In response to a question, he said revising or eliminating the uniform small employer application is on that list.

Other Issues

Small Business Regulatory Review Board. Mr. Wieske said that this group has issued its report on the impact of old, current, and new regulations and statutes on small business. The Assembly is looking at these laws line by line, and OCI is open to their suggestions.

Service Fee and Billing and Collection Agreements. OCI attorney Julie Walsh said OCI has received inquiries on whether service fees under contracts among brokers, insurers, and large groups is premium. The answer is "no" for groups of more than 50. In response to a question, Ms. Walsh said OCI is not considering similar treatment for small groups at this time.

Publications. Mr. Wieske noted that OCI is constantly revising its publications and is open to suggestions in that regard.

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

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