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Prior Approval Helps Hold Down Health Insurance Rate Increases

Originally Posted: October 21, 2010

New York City - The Insurance Department's new authority to review health insurance rate requests before they go into effect is helping to reduce increases in the rates consumers will have to pay, said Superintendent James Wrynn. Wrynn announced the Department's first set of rate decisions under the new system, known as 'prior approval.' Before prior approval, health insurers could simply file rates with the Department and then begin to use them, a system known as 'file and use.'

"Because of prior approval, we were able to reduce some rate increase requests significantly - including reductions of about 16 percent," Wrynn said. "We certainly are not happy with even the reduced increases, and we will keep working to keep costs down. But at least we could make sure these increases were justified by the rising cost of health care in New York. We reduced every rate increase request that we found excessive or unreasonable."

Under prior approval, insurers have to notify their customers they are asking for a rate increase from the Insurance Department. Before an increase can be granted, consumers have the chance to send comments to the Department. Whatever increase is granted by the Department has to reflect the recommendation of the Department's actuaries. They make sure the premiums are sufficient to enable the companies to pay their claims, but are not excessive.

"We projected that prior approval would have a two to three percent impact on rates, and on average we reduced the rate increase requests by 2.5 percent," Wrynn said. "Every percentage point we cut from a rate increase request represents dollars in the pockets of New Yorkers. And every one of those dollars we were able to save for New Yorkers would have gone to their insurance companies instead if it were not for prior approval. Unfortunately, some consumers will still see huge increases where companies hiked rates before the law went into effect."

Recently, Wrynn forced some health insurers who were sending out inaccurate notices on the reasons for various sizable increases to resend these notices, showing just how much of those increases were put into place before the law went into effect and the Department gained prior approval authority.

"For some health insurers to raise rates 50 percent or more before the law went into effect and then to imply we approved that increase shows why we needed prior approval," Wrynn said. "Some companies were telling their subscribers they were asking us to approve a rate increase of about 70 percent, when they had already put in place the vast majority of that increase. Fortunately, with prior approval, going forward we have the ability to restrain insurers and protect New Yorkers."

"With prior approval, we are able to look at each application and make a decision on the merits," Wrynn said. "We made cuts where it was justified. We understand the pain any rate increase causes in these difficult times, and we did all we could to hold these increases down, while ensuring companies had the resources to pay their claims.

"More than a quarter of New Yorkers in community-rated plans will see their rates drop, hold steady or increase less than five percent even with the file-and-use increases imposed by the health plans included. For more than two-thirds of New Yorkers in these plans, rates will increase less than 10 percent even after the increases companies imposed under file-and-use are included," Wrynn added.

The Insurance Department reduced rate increase requests between one and 16 percent for various companies. The rates announced will go into effect for consumers with health plans that have requested rate increases beginning on or after January 2011. The rates approved include the full amounts subject to the new prior approval law, but do not account for any benefit changes, including any additions contained in the federal health reform law. Consumers have the right to shop around if they do not like the final approved rate increase. The new prior approval law increases the time for consumers to shop around to 60 days (up from 30 days under the old law).

"With prior approval, we have taken one step toward cost containment," Wrynn said. "But all stakeholders need to cooperate in order to keep health insurance affordable. The health of our State and its citizens depends on it."

For more information, contact the Department's Consumer Services Bureau at 800-342-3736.

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