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Just when consumers are finally getting a look at how health insurance companies conduct their business, the industry is racing to shut and lock the door. Buried deep in a “model law” for states to update health insurance regulation is a clause that would keep secret the companies’ justification for exorbitant rate increases.
Photo: 401k 2012 / Flickr.
Why’s this so bad? Because one of the few ways patients and consumer groups can tell whether a rate increase is justified is to closely examine the data-heavy actuarial reports that insurers use as their defense. In states with consumer-friendly insurance commissioners, some have found gross math errors in favor of the companies. (Simple mistakes? Maybe.) Without access to actuarial and other related data, consumers can’t even hold an unfriendly insurance regulator to account, much less force the company to back down.
The “model law” is being drafted by the National Association of Insurance Commissioners, a private body of state insurance commissioners. It has long been criticized for being too cozy with the industry. The NAIC, however, has also drafted a lot of the regulations governing health insurance reform nationally, with the explicit approval of the Department of Health and Human Services. So what the NAIC says and does matters to every insurance policyholder.
Here’s the industry-friendly secrecy clause tucked into the NAIC’s model law, which most states would closely follow in drafting their own laws:
Each health carrier shall file with the commissioner annually on or before March 15, an actuarial certification certifying that the carrier is in compliance with this Act and that the rating methods of the carrier are actuarially sound. The certification shall be in a form and manner, and shall contain such information, as specified by the commissioner. A copy of the certification shall be retained by the carrier at its principal place of business.
(3) (a) A health carrier shall make the information and documentation described in paragraph (1) available to the commissioner upon request.
(b) Except in cases of violations of this Act, the information shall be considered proprietary and trade secret information and shall not be subject to disclosure by the commissioner to persons outside of the Department of Insurance except as agreed to by the health carrier or as ordered by a court of competent jurisdiction.
There is a lot of room for mischief in an actuarial certification, especially when the actuarial company depends on the insurance company for its pay. The insurance industry primarily uses the certifications as a shield against state oversight, especially any attempt to lower rates.
Under this clause, a state insurance commissioner could have trouble even telling the public why an insurance rate is unjustified, turning protective oversight into a he said-she said catfight. Given tens of millions in lobbying money employed on the insurance industry side, it wouldn’t be an even battle Consumers couldn’t fight back against rates without data to back their argument.
If the secrecy clause stays in, states that already make such data public. like California, will find their legislatures swarming with insurance lobbyists pushing to put the data back in a closet, because the NAIC model law says to do it. The insurance lobby has repeatedly blocked state authority to deny or modify rate increases, so for a $35-million annual lobby, a little secrecy looks easy.
There is almost no such thing as a “trade secret” in a service industry like insurance. The companies don’t need to keep their actuarial reports secret from other insurers–they just need to keep the data away from outraged consumers.
The NAIC’s own consumer representatives oppose the industry secrecy clause. We hope the Department of Health and Human Services, which has strongly favored disclosure and transparency, will also weigh in. Otherwise, it will be up to the states to understand that this clause is a model of nothing except the lobbying might of the health insurance industry.
Consumers who’d like to fight back, at least in California, can start by learning more about the Consumer Watchdog Campaign’s November ballot initiative. It would make insurance companies justify their rates before they go into effect, and reduce or retract rates if they’re unjustified.
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Posted by Judy Dugan, research director for Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.
4 Comments
The US Legislature knew that the health insurance industry did not accurately report their medical loss ratio, and yet they saw fit to put the proverbial wolves in the henhouse by forcing all Americans to utilize these companies, forever cementing them as part and parcel of the American healthcare system.
This new law will only make their dealings even more secret. I’m inclined to believe that it would make violating MLR easier than ever. And isn’t the MLR minimum regulation something democratic loyalists love to brag about? They love pointing out the MLR minimum regulation as PROOF that this health insurance bailout law will WORK! Yeah right.
Interesting take but a little off base
the NAIC does model laws that state legislatures can enact if they wish, and for some reason it offers HHS advice, as requested by HHS, on rules for implementing the loss ration rules in the ACA. It is indeed too close to the insurers, just as state legislatures are too close to corporations. The ACA was given by the NAIC a suggested loss ratio calculation that allowed for claims paid to health care providers to be a good bit less that cash premiums paid – this was not the laws intent. This is the way – the only way – the NAIC is going to screw us – and it will be with the consent of Obama and his HHS.
But the not telling the world your loss ratio is nothing to get upset about – you are assuming the actuaries would violate their own ethics rules – thereby risk losing their license to practice – and that you need to have consumer groups to dig into the books of companies and recalculate those ratios, then file with HHS to get action on those better loss ratios. If Obama is willing to screw us on the method of loss ratio calculation, do you think a letter about a consumer group audit is going to set off regulatory action?
Plus there is the practical – in any accounting the allocation of expenses are buried deep and no consumer group has the money to do a review – nor would they get permission to review the companies cash books. nor would they have the funds to finance such fishing expeditions. At best you will be able to look at the filed GAAP report and hope FASB has required all the needed info to be included (hint – the FASB – which does not have the actuaries ethics rules problem – does not require at this time that such data be published).
“There is a lot of room for mischief in an actuarial certification, especially when the actuarial company depends on the insurance company for its pay” is a slur which you have no reason to make. The Society of Actuaries and the Academy of Actuaries have no history of any member ever violating the ethics rules in the manner you suggest (there are violations – mostly inadequate disclosure of what you did – and in one case, outright fraud in presenting reserves – that got the individuals banned from the profession – but no loss ratio report falsification). The reason actuaries are in the law is because of those ethics rules – and their specialized training. The reason those laws permit the state to accept reports from non-actuaries is the corruption of state legislators. Of course overtime folks have learned that when a report is signed by a non-actuary they should not trust it. The difference can be seen in the actuary designed Vermont single payer, compared to the economist designed Romney care in Mass.
There are no loss ratio reports signed by a consulting firm or company. They are signed by a person who puts his livelihood on the line when he signs. Implying this is a likely point for fraud was just showing your lack of understanding of the system in the US for the last 75 years. At a state level the screwing of the customer occurs via state legislatures not requiring minimum loss ration for companies in their state – indeed this is why “business across state lines” is a GOP push – to make nationwide regulation as weak as the weakest state.
People do unethical things in this country all the time. And it doesn’t matter if they’re rich or poor, professional or otherwise. Occasionally, they’ll take the fall when they get carried away, but most of the time, they get away with it. And the simple reason is because nobody cares!
It’s been documented that the health insurance industry reclassifies administrative expenses as medical expenses. How many actuaries, etc. got disciplined for that? I’d be surprised if the number was more than 0.
The rules are laid down by law – the actuary follows the law.
Which is why the give away is at the HHS regulations via the NAIC level – and not at the level of the actuary. Many Actuaries (not all of course) submitted comments objecting to the reclass of expenses as “claims paid” by the NAIC – but the accountants sold it as fair and the NAIC bought into that position.
The actuaries ABCD discipline results are published each year. There has been fraud by a actuary and he was were removed from the profession – and other lesser ethics violation (misinforming about what you are providing as a work product) has led to discipline – but there have been legal rules written by corporations that screw folks, and that is were the focus must be.
The post implied that individuals called actuaries were likely to risk their livelihood so as to increase their firms profits. It has not happened as yet and given the 170 years it could have happen the history would suggest it is unlikely (noting the one reserve case that was indeed a fraud to increase the value of his company’s stock).