New York State
Insurance Department
 

STATE TO DISTRIBUTE $110 MILLION TO HELP ALLEVIATE HEALTH INSURANCE RATE INCREASES FOR INDIVIDUALS & SMALL GROUPS
Oxford & Empire Healthnet Rate Increases Denied


 New York, April 22, 1998 

Superintendent of Insurance Neil D. Levin today unveiled a comprehensive plan to distribute approximately $110 million to New York State health insurers to minimize or eliminate the need for significant health insurance rate increases in 1998 for individual and small group policyholders.

The most immediate and dramatic effect of this plan is to totally avoid rate increases, of up to 69 percent, proposed by Oxford Health Plans and Empire Blue Cross and Blue Shield Healthnet for their individual policyholders. In February, Governor George E. Pataki committed funds, held in escrow in two special health insurance pools contributed to by insurers over the past several years, to help ease the impact of rising statewide health insurance costs. 

"I am pleased that we were able to prevent substantial rate increases for Empire and Oxford members who could least afford them, rates which would have been highly disruptive to the market." said Superintendent Levin. 

"Governor Pataki clearly understood that individuals who buy insurance on their own, and often have chronic illnesses, could not afford such dramatic rate increases," the Superintendent said. "It’s thanks to the Governor’s leadership that surplus funds will be released and insurance companies and HMOs across the state will be directed to use them to help mitigate future rate increases for our most vulnerable citizens, including senior citizens, many of whom are on fixed incomes." 

This action is a result of Governor Pataki’s February directive to use all available surplus funds in the health insurance pools to stem health insurance costs and the rates that are charged by insurers. Specifically, the Governor’s plan is in response to the two large rate increase applications submitted to the Insurance Department by Oxford and Empire earlier this year. 

"Governor Pataki has an outstanding record of providing New Yorkers with affordable and high quality health care," said the Superintendent. "Among the Governor’s major accomplishments in health care include signing into law the HMO Point-of-Service legislation, the managed care bill of rights, the HMO prompt payment bill, the requirement that insurers must provide coverage for a minimum of 48 hours for maternity stays in hospitals, as well as expanding the Child Health Plus Program." 

"At both the Empire and Oxford public hearings, we heard very compelling testimony from policyholders who said they desperately needed to keep their health insurance coverage, but would have no choice but to drop the coverage if the rate increases were approved," said Superintendent Levin. "We were able to deny these rate increases, while at the same time telling Oxford’s and Empire’s senior management to better manage their administrative expenses." 

Approximately $110 million will be distributed to the state’s health insurance companies from the surplus funds accumulated over the past five years from assessments on these insurers. These monies, which do not include any taxpayer funds, are to be used by insurers and HMOs to offset increases in costs for individual and small group policyholders. Senior citizens with Medicare supplement policies will also receive the benefit of surplus monies that are to be applied to these policies. 

Under the Governor’s plan, $27.4 million will be distributed to Oxford and Empire. Both companies had asked for rate increases totaling $53 million. However, the Insurance Department carefully reviewed the rate increase applications submitted by these plans and determined that the full increases were not justified. The Insurance Department told both Oxford and Empire that their administrative costs were excessive given the financial condition and overall performance of their corporations. 

The remainder of the surplus, totaling about $82.6 million, will be distributed under two methodologies. $56.6 million will be directly distributed to health insurers and HMOs across New York State during the remainder of 1998. The Superintendent has directed that these funds be targeted to the rates charged for individual and small group contracts, and be used to help offset any future rate increases that might be required for these specific contracts. 

The remaining $26 million in surplus will be moved into a newly-defined Specified Medical Conditions Pool for distribution. A number of new diseases will be added to those claims that already qualify for payments from this pool, so more payments can be made from this pool to companies that provide coverage to policyholders with these diseases. This will help the pool better achieve its original goal by compensating companies that provide coverage to the chronically ill, thereby reducing the need for large rate increases on these policyholders. 

$8.4 million will be directly allocated to reduce rate increases for Medicare supplement contracts purchased by seniors. 

The distribution of funds to insurers and HMOs is largely based on the number of prior claims submitted to carriers and paid by the two health insurance pools, as well as monetary contributions by companies to the pools. 

In 1992, the state established two health insurance pools. The first, a Specified Medical Conditions (SMC) Pool was designed to help insurance companies and HMOs cover those with chronic diseases that are expensive to treat such as HIV, or those conditions that require organ transplants or other costly treatments. The other, a Demographic Pool was created to assist companies that insure an older population that tends to make use of their health insurance coverage more frequently. 

While these two pools have made, and continue to make payments to carriers, there has been a surplus in the pools for the years 1993 to 1996. In 1995, legislation was enacted phasing out the demographic pool and instead relying on the SMC pool to ensure a level playing field in the state’s health insurance marketplace. 

Oxford had requested rate increases of up to 69 percent, affecting 55,000 direct pay subscribers, while Empire asked for increases of up to 56 percent for their individual HMO and Point of Service (POS) contracts, affecting 15,000 subscribers. These increases would have taken effect on April 1. 


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