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Study disputes savings of proposed new state health insurance oversight (with documents)

Wednesday, March 24, 2010
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— A new report commissioned by the Business Council of New York State takes aim at the amount of savings the state says it would achieve if given regulatory authority over health insurers.

Gov. David Paterson’s budget proposal includes a law that would require health insurers to get prior approval from the state before increasing premiums. Other components of the proposal would require public hearings and more of an effort to notify consumers and employers of premium increases and make insurance companies pay more of each premium dollar toward medical claims.

View documents

View Milliman's report by clicking HERE.

For the state Department of Insurance’s follow-up testimony on prior approval, click HERE.

The state says it will save consumers an estimated $70 million in the first fiscal year the measures take effect by reducing the indirect cost to the state of rising premiums. As premium growth is lowered, the state says the number of people losing employer-sponsored health insurance and subsequently moving into state health insurance programs like Medicaid, Family Health Plus, Child Health Plus and Healthy New York will be reduced.

Tuesday’s report — “Actuarial Review of the Proposed Medicaid Cost Savings through the Regulation of Health Insurance Premium Rates” — was written by New York City-based actuarial consultant firm Milliman Inc.

The Business Council says prior approval is a throwback to the late 1980s and early 1990s that didn’t work well for the state when it was in place.

“Price controls don’t work — in health care or any other market. New York found this out the hard way years ago when prior approval failed miserably. It was because of this failure that in 1995 the Legislature unanimously voted to eliminate prior approval. Health plans simply could not afford to deliver care at the rates mandated by the state,” the council said in a news release.

Kenneth Adams, president and CEO of the Business Council of New York State, said the report confirms the state’s estimated savings are “outrageously exaggerated.

“The Milliman report clearly concludes that the savings to the state are nominal and, at best, speculative,” said Adams. “Relying on these savings in balancing the state budget would be another classic example of the budget gimmicks which have placed the state in a financial crisis.”

The Milliman report estimates that under the changes, the state would save only about $3 million in fiscal year 2010-11 from the avoidance of thousands of consumers who would otherwise enroll in programs like Medicaid. The state’s estimate is $70 million. For fiscal year 2011-12 the state says it will save $150 million, but Milliman puts the savings at $13.7 million.

The state Department of Insurance said Tuesday it is still delving into the details and figures used in Milliman’s 21-page report, but there is some agreement.

“It confirmed that there are in fact savings attributable to prior approval in the state budget,” said Troy Oechsner, state Department of Insurance deputy superintendent of insurance for health. “They agreed with us that in fact the basic premise is correct, that prior approval will result in lower rates ... what they disagree on is how much.”

Oechsner said page 7 of the report, where Milliman lists the five main underlying assumptions it based its report on, shows how the state’s prior approval proposal was misinterpreted. The state Department of Insurance disagrees with many of the assumptions used in Milliman’s report.

“The governor’s proposal does include large group community rated products; Milliman didn’t. By doing that you lop off more than a third of the affected people, so of course it’s going to be a lower estimate,” Oechsner said.

“Whether they are flat-out wrong or not, we think our estimates are reasonable and conservative. We worked with Department of Health and the Division of Budget, which administers the Medicaid program. We used national studies that show when rates go up and some employers drop coverage, there’s a certain take up of public programs,” Oechsner added.

Currently there are 25 other states that require insurers to obtain prior approval before health insurance premiums are increased.

The state Department of Insurance said prior approval is also a key feature of the federal health reform bill. At the federal level, an 85 percent minimum medical loss ratio — the portion of a premium that pays for medical services — is also proposed.

“It would not infringe upon our right as a state to fully regulate health insurers. Because there’s going to be such huge changes going on in the market, having the regulatory oversight is going to be continually important to prevent health insurers from engaging in tactics that could be problematic for the market,” Oechsner said.

The state said it is monitoring federal health reform as the final details are being worked out.

 
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