OGC Opinion No. 07-10-06

The Office of General Counsel issued the following opinion on October 16, 2007 representing the position of the New York State Insurance Department.

RE: Bad faith denials of long-term insurance claims

Questions Presented:

1. Does the Department collect any data/statistics about insurer denial rates? If so, is such data broken down by the reason for denial offered by the company?

2. What procedures does the Department have in place to investigate potentially incorrect, abusive, or fraudulent denials of insurance claims by insurance companies for customers who reside in New York State?

3. How many insurance companies are based in New York State? Does New York have authority to regulate or investigate insurance companies that are domiciled in other states?

4. Does the Department have any investigations currently pending with respect either to the general practices or the specific conduct of any long-term care insurers?

Conclusion:

1. Yes. The Department collects data and statistics about insurer denial rates, which are broken down by the reason for denial offered by the company.

2. The Department has procedures in place to investigate potentially incorrect, abusive, or fraudulent denials of long-term insurance claims by insurance companies for customers who reside in New York State. The details of the procedures are set forth below.

3. There are 16 foreign and domestic insurers of individual long-term care insurance and seven foreign and domestic insurers of group long-term care insurance authorized to do business in New York. The names of these companies are set forth on the Department’s website. New York has authority to regulate and investigate any insurer doing business in New York.

4. No. The Department does not have any specific investigation currently pending with respect either to the general practice or the specific conduct of any long-term care insurer. But the Department regularly conducts examinations of all authorized insurers, which includes a review of their market practices.

Facts:

The inquirer reports that media have recently publicized instances where insurers have denied claims under long-term care insurance policies for other than valid reasons. As a legislator with jurisdiction over such issues, the inquirer seeks factual data to support or refute such reports, and to clarify the possible need for legislation.

Analysis:

1. The first question asks about data that the Department collects pertaining to insurers’ claims denial practices. Specifically, the Department receives annual claims denial reports required by the federal Internal Revenue Code (“I.R.C.”) for each insurer authorized to issue long-term care insurance (even if that insurer is no longer actively seeking new business). See N.Y. Ins. Law § 308 (McKinney 2007); I.R.C. §§ 7702B(g)(2), 4980C(c)(1)(A)(ii). Those reports elicit the number and percentage of claims denied -- both for New York policies and nationwide. Claims not paid due to a pre-existing condition exclusion or a filing made within the waiting period are required to be listed, but do not affect the percentage of denials.

The report form requires that the reason for denial be placed into one of four categories: (a) long-term care services not covered under the policy (e.g., a home health care claim filed under a nursing home only policy); (b) provider or facility not qualified under the policy (e.g., a facility that does not meet the minimum level of care requirements or the licensing requirements as outlined in the policy); (c) benefit eligibility criteria not met (e.g., a benefit trigger not met, certification by a licensed health care practitioner not provided or no plan of care); and (d) a “catch-all” for other reasons for denial.

This data, once collected, is available to the public upon request. It can be sorted by particular company, and in the aggregate.

2. The second question asks about the Department’s investigative practices. The Department investigates complaints or inquiries from insureds under long-term care contracts, and has established procedures for handling them individually and monitoring them on a collective basis.

Every complaint received is forwarded by the Department to the appropriate insurer for response. When the insurer answers, the complaint is assigned to an insurance examiner for investigation. The examiner reviews the complaint and ascertains if the insurer's position complies with applicable policy provisions, regulations and other sources of pertinent law. The Department also has an elaborate case coding system, which allows the agency to review complaints to identify patterns of unfair claims practices. In addition, the Department reviews its complaint database prior to the start of any field examination. This data check allows the examiners to focus on a particular pattern or trend that may have been shown, even to a small degree, in the database.

Many of the complaints received by the Department relate to premium rate issues (either correction of charges or accuracy of rate increases), or contract language interpretations. Any indications of possible misconduct or improper claim denial are handled by the Department’s Consumer Services Bureau, either through contact with the insurer about the specific matter, or by the Department’s Health Bureau through an examination of the insurer for systemic problems. The Department at all times stands alert to possible patterns of unfair claim practices, and conducts regular examinations of these insurers, including their market practices and conduct.

3. The third question asks about the number of long-term care insurers domiciled in New York. There are 16 (eight foreign and eight domestic) insurers of individual long-term care insurance and seven (three foreign and four domestic) insurers of group long-term care insurance authorized to do business in New York. Of these companies, four domestic and one foreign insurer write both individual and group long-term care policies. The names of these companies are set forth on the Department’s website.

Up-to-date lists of the specific insurers that are authorized to offer individual or group long-term care coverage in New York can be found at our website at http://www.ins.state.ny.us/lntmcare.htm#lntm12 (insurers marketing individual long-term care policies) and http://www.ins.state.ny.us/lntmcare.htm#lntm13.

The website also has a wide range of material that may be of interest, all of which is designed to provide consumers with information that may be helpful to them in choosing an insurer and understanding the coverage. I draw particular attention to:

4. The fourth question inquires about the state of any investigations by the Department into the practices of long-term care insurers. The Department does not have any investigations currently pending with respect to either the general practices or the specific conduct of any long-term care insurer. However, as noted above, the Department routinely conducts, on a regular basis, examinations of each insurer’s market practices and conduct. Moreover, the Department would not hesitate to conduct an inquiry into the practices of any New York-domiciled insurer if the Department had reason to question the insurer’s claims denial practices.

Although this letter contains answers to the questions posed, the Department will gladly respond to any further or follow-up questions that may arise. For further information, contact Ann H. Logan, Associate Tax Counsel, at the New York City office.