Health Insurance Rates and Prior Approval Consumer FAQs
What is “prior approval”?
The New York State Department of Financial Services reviews premium adjustments requested by health insurers before the insurers can apply the rates. Under prior approval, the Department has the authority to review the actuarial assumptions behind insurer’s proposed rates and to review the financial condition of the insurer to make certain proposed rates are fair and appropriate. The Department may approve, reject or modify the insurer’s proposed rates.
What types of policies are subject to prior approval?
Prior approval applies to community rated policies issued by commercial health insurers (both for-profit and not-for-profit) and Health Maintenance Organizations (HMOs) in New York State. Specifically, prior approval applies to the following types of policies:
- Individual, direct pay
- Small groups (between 2 and 50 members)
- Community rated large groups (50 or more members)
- Healthy New York
- Medicare Supplemental (Medigap)
Prior approval does not apply to experience rated large group policies or self insured plans.
Prior approval also does not apply to Medicare Advantage plans or Medicare Part D Drug plans. Rates and benefits for these plans are handled by the Center for Medicare and Medicaid Services division of the Federal Department of Health and Human Services. Further information can be obtained at www.cms.gov. Additionally, the following telephone numbers are available:
- Medicare Service Center: (800) MEDICARE (800-633-4227)
- Medicare Service Center TTY: (877) 486-2048
- Report Medicare Fraud & Abuse: (800) HHS-TIPS (800-447-8477)
How does the Department decide whether to approve a rate increase?
Under the prior approval statute, the Department may disapprove or modify an insurer’s request for a premium rate increase if it is unreasonable, excessive, inadequate or unfairly discriminatory. Many factors are considered in making this determination. The Department reviews the Medical Loss Ratio (MLR), or past claims experience under the policy. The MLR reflects the cost of medical care and prescription drugs used by the policyholders in the previous year (the Department often reviews claims history more than one year back). The Department also reviews “utilization,” which is how often policyholders use medical services and prescription drugs, and how the insurer “trends” that claims experience and utilization into the future. The Department will also look at the insurer’s history of rate changes, its financial condition, administrative costs, profits and other sources of revenue, and any other factor the insurer uses to calculate its premium increase.
What is “medical loss ratio” or “MLR” and why does it matter?
The MLR is a comparison of how much of your premium goes towards paying medical claims compared to how much the insurer pays for administrative costs and keeps as profits. For example, an 82% MLR would mean that 82% of the total premiums paid by policyholders was going towards paying claims, and the other 18% was kept by the insurer for administrative expenses and profits.
The MLR is important because it is used as a measure of the reasonableness of premiums. Under New York’s prior approval law, insurer’s requested premium increase must meet a minimum MLR of 82%*. (The MLR is not the only factor the Department looks at determine whether a proposed premium is reasonable.)
The MLR is also important because if, at the end of the year, the MLR is below the minimum (i.e. the premium was excessive), the Department has the authority to order corrective action, including refunds to policyholders.
How often can an insurance company ask for a premium increase?
Current law does not specify how often an insurer may submit a prior approval application, but many policies have a “guaranteed” rate, which means that the rate cannot be changed until its annual renewal date. Policies often allow for exceptions to this “guarantee,” for instance if a new law is passed that would have an impact on premiums.
Can a rate increase take effect during my current enrollment period or will it become effective upon renewal?
Generally, rates increases take effect upon policy renewal. Your policy may include an exception allowing an “off-anniversary” rate increase if, for instance, a new law is passed that has an impact on premiums.
Why do my premiums increase every year?
Medical costs are driven by everything from increases in hospital charges and doctor salaries to greater use of medical care to new technologies and prescription drugs. These all drive your premiums. As noted above, in New York, a minimum of 82* cents of every premium dollar in the small group employer and individual insurance markets must go to pay medical claims costs.
The Medical Consumer Price Index rose only a small percent (usually 3-4%) yet my premiums increased at a much higher percentage. Why?
Many factors go into pricing a health care policy. Among them are actual losses paid, administrative expenses, and overall financial condition of the insurer. The CPI measures the increase in cost of services but not actual utilization, which would vary by company. It is possible that premiums will rise at a much higher rate than the CPI if medical services are utilized at a high rate, if the number of high priced diagnostics such as MRIs are utilized more often, if there is a high number of lengthy hospital stays, etc. If your employer contributed part of the premium each month, any change in that contribution can also affect how much you pay.
Does the Department consider affordability when deciding on rate requests?
Yes, the Department’s goal is to approve the lowest rates possible while preserving the financial solvency of the health insurer. Approving rates that are inadequate could lead to an insurer being unable to pay claims altogether.
Do consumers have an opportunity to comment on premium increases?
Yes, New York permits consumers to submit comment on premium increases online or by mail.
What can I do to keep my premiums reasonable?
It should be noted that your insurer may be able to offer more affordable options than your current coverage. You can also visit the New York State of Health Marketplace to review your option for coverage.
The Department requires your insurer to make available all options, including less expensive options, to its small group members when they call to discuss their coverage. Should you choose to communicate with your insurer to discuss less expensive options and your insurer fails to fully divulge such options, you may file a complaint with the Department.
Many associations offer health insurance at group rates. Examples of associations include the Chamber of Commerce, NYS Nurses Association, and the American Bar Association.
How do I know that the rates I am being charged are correct?
Contact DFS. We will check the rates being charged and inform you of our review.
* The minimum MLR for Medicare Supplement (Medigap) insurance differs. Commercial for-profit insurers must meet a minimum MLR of 75% for Group insurance and 65% for Individual insurance. Not-for-profit insurers must meet a minimum MLR of 80% for Group and Individual insurance.