NY Gov. David Paterson Signs Bill Limited Health Insurance Premiums

Published: Thu 10 Jun 2010

Wendy Blair

NY Governor David Paterson Signs Law Capping Health Insurance Rates

New York Governor David Paterson signed a bill into law yesterday that empowers the state to deny what it considers unreasonably large health insurance rate increases for the state's millions of residents.

The law, which extends to roughly three million people with small-employer-sponsored coverage or individually purchased policies, forces insurers to petition the New York Insurance Department before they may increase health insurance premiums. The state will then determine within 60 days if the rate increase is warranted.

Gov. Paterson and proponents of the law believe it will curtail rampant health insurance rate increases that have compelled many individual policyholders and small businesses to drop their coverage, pushing prices even higher as expenses are then spread over a smaller customer pool with relatively significant healthcare needs. Of all the states in the U.S., New York has the highest annual average premiums for policies purchased individually--$6,630 for individuals and $13,296 for families as of 2009, which is over twice the national average, according to industry estimates.

Advocates of the new law hope it will become a framework for other states as they oversee health insurance rates in the newly created insurance exchanges, also known as marketplaces, called for by the health care reform law.

Saving New Yorkers Money

Over the past ten years, "New York HMOs made outlandish profits," said Mark P. Sherzer, an insurance attorney and policyholder advocate, on Wednesday. "What this is really going to do is save consumers money."

The new law also forces health insurers to spend at least 82 percent of premiums on health care instead of administrative expenses and profits, an increase from 80 percent for individual policies and 75 percent for small-business health plans.

The law brings back a prior-approval system that the state eliminated between 1996 and 2000. Under the former system, the state evaluated health insurance rate increases retroactively and gave refunds accordingly. Insurers argued that empowering the state with prior approval would make the rate-setting process more political.

The president of Empire BlueCross BlueShield, Mark L. Wagar, said the new law answered that concern by providing automatic approval to a rate-increase proposal if the state does not respond within 60 days, and by requiring the insurance department to offer an actuarial basis for stopping a proposed premium increase.

The state does not regulate many large-group health insurance plans in the same way, allowing employers to negotiate premiums, a spokesperson for the New York Insurance Department said.