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New Insurance Regulation Will Ensure Fairness and Accuracy in Consumer Reimbursement System

Governor David A. Paterson today announced reforms to correct a troubled system for determining reimbursement from health insurers for patients who seek out-of-network medical care. Governor Paterson announced a new Insurance Department regulation that will codify the Attorney General’s recent settlements with health insurers and ensure they become the industry standard. The reforms will allow patients to know beforehand the actual amount health insurers will pay for out-of-network treatment so they can make informed decisions about where to seek care.

“For too long, health insurers have not fairly represented the coverage amounts they will pay for out-of-network medical services. These reforms will make sure consumers can make informed decisions about health care knowing beforehand what it will cost them,” said Governor Paterson. “Attorney General Cuomo has effectively required health insurers to live up to the promises they make. But we must ensure that companies do not drop this essential reform when their five-year agreement with the Attorney General ends. In these difficult times, when consumers are stretched, we cannot permit them to have expensive surprises in the cost of the necessary health care.”

Attorney General Andrew Cuomo said, "Our six-month investigation led to reform agreements with the largest health insurers in New York and transformed this conflict-ridden industry by ending the manipulation of reimbursement rates at the expense of patients. The new regulation issued by Governor Paterson will codify these reforms that the entire health insurance industry has now embraced. It will eliminate the conflicts of interest that infected the industry in the past, and replace them with fairness, accuracy and transparency. I thank the Governor and his Insurance Superintendent Eric Dinallo for their efforts in partnering with us to help ensure that healthcare consumers are never subjected to these kind of abuses again.”

Attorney General Cuomo has secured agreements with health insurers, including the three largest insurers in the nation, along with the largest national and regional insurers operating in New York State. His reforms have transformed a conflict-of-interest-ridden system that was used by health companies to manipulate rates and underpay patients who went out of network for health care.

Governor Paterson’s new regulation will govern health and accident insurers, as well as health maintenance organizations (“HMOs”) that promise to reimburse consumers who go out of network based on the usual and customary rate of the service provided. By requiring, among other things, that health insurers and HMOs must use an independent source for establishing usual and customary rates, the regulation eliminates conflicts of interest, ensures fairness and accuracy, and brings much needed transparency to the consumer reimbursement system. The Insurance Department will seek public comment before the regulation is adopted.

Superintendent Dinallo said, "Consumers have the right to accurate information about what it will cost them to seek care out of network before they decide where they want to be treated. Our new regulation will ensure that insurance companies use accurate data about out-of-network costs and that consumers know how much their health insurance will pay if they prefer out-of-network care. Attorney General Cuomo and his staff's work has changed how usual and customary rates for out of network service are set. Our regulation will ensure that these reforms are permanent."

In order to eliminate the any potential conflicts of interest, the new regulation will require that insurers use an independent source for determining usual and customary rate. This means that the insurer can no longer use an entity that is owned or controlled by or otherwise affiliated with an insurer, HMO, medical association, or health care provider.

To ensure fairness and accuracy industry-wide, the insurer must make certain that a “usual and customary” rate schedule fairly and accurately reflects market rates, including that it:

  • fairly and accurately reflects geographic differences in costs;
  • is based on sufficient data, to the extent available, to constitute a representative and statistically valid sample of charge data for the same or comparable service and type of provider;
  • is credible in methodology, data and relationships;
  • includes input from a diverse group of relevant companies, groups, health care providers, and market researchers; and independent research conducted by the source of the data for the UCR schedule to confirm the accuracy of all data submitted; and
  • is updated periodically to reflect changes in health care provider charges, but no less frequently than once in any consecutive twelve-month period.

With respect to transparency, the insurer must disclose the specific amount of reimbursement for a particular procedure or treatment within three business days of a request by the member. It must also post a copy of the usual, customary and reasonable schedule of reimbursement on a website accessible to members.

Similarly, the insurer must prominently disclose in its written materials its method of determining usual and customary rate, the source of its data, and the name of the entity that the insurer relies upon to calculate the usual and customary rate. The insurer must also explain the financial impact of going out of network, in that the member may have to pay the balance of the bill and other cost sharing amounts such as co-payments and deductibles under the policy.

A health plan that uses a set fee schedule instead of a “usual and customary rate” for out-of-network benefits must fully “disclose the specific amount of reimbursement for a particular procedure” upon request by the consumer. In addition, the health plan must post a copy of the fee schedule on the health plan’s website.

Attorney General Cuomo’s investigation into the out-of-network reimbursement system concerned allegations that as a subsidiary of UnitedHealth, Ingenix, the database used by health insurers across the country to set out-of-network reimbursement rates, had a vested interest in helping set rates low, so companies could underpay patients for out-of-network services. The investigation revealed that the database intentionally skewed “usual and customary” rates downward through faulty data collection, poor pooling procedures, and the lack of audits, meaning consumers were forced to pay more than they should have. The investigation found the rate of underpayment by insurers ranged from ten to twenty-eight percent for various medical services across the state. The Attorney General found that having a health insurer determine the “usual and customary” rate - a large portion of which the insurer then reimburses - creates an incentive for the insurer to manipulate the rate downward. The establishment of a new database, independently owned and operated by a nonprofit organization, is designed to remove this conflict of interest.


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