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IN THIS EDITION:
- Introduction
- Long-Term Care Insurance (B/E) Task Force
- Receivership and Insolvency Task Force (RITF)
- Health Insurance and Managed Care (B) Committee
Introduction
Bill O’Sullivan and Joni Forsythe attended the NAIC’s Summer National meeting in Boston on August 4–5, 2018. During the meeting, NOLHGA and the National Conference of Insurance Guaranty Funds (NCIGF) hosted a luncheon on August 5 for guaranty association representatives and other invited guests to discuss relevant NAIC activities.
Highlights of the meetings attended are summarized below.
Long-Term Care Insurance (B/E) Task Force
The Long-Term Care Insurance (B/E) Task Force met to discuss and consider a proposal for a multistate long-term care (LTC) rate approval process and to receive status updates concerning the NAIC’s various LTC-related workstreams.
Following introductory remarks and approval of its Spring meeting minutes, the task force heard a regulator presentation introducing a proposal for the establishment of an NAIC subgroup to develop, implement, and oversee a multistate coordinated process for LTC rate increase review examinations. Details concerning the proposal were included in a written submission circulated with the task force meeting materials. (The presentation slides and proposal are available on the Long-Term Care Insurance (B/E) Task Force page on the NAIC website).
The proposal calls for the creation of a new NAIC subgroup that would establish and oversee a multistate rate approval process. Following an insurer’s request for a multistate rate increase exam, states affected by the rate increase would decide whether to participate for purposes of the multistate rate review exam.
A Lead State would be selected to conduct the rate review exam based on the amount of LTC business the insurer issued in the state, actuarial expertise, and available resources. In addition, a Regulatory Oversight Group would be established from among the Participating States to engage in and oversee the details of the examination process. Participating States would be subject to a memorandum of understanding concerning the process and the respective roles of the Lead State, the Regulatory Oversight Group, and the Participating States.
The Lead State, in consultation with the Regulatory Oversight Group, would select an actuary to conduct the examination. Following completion of the exam, the Regulatory Oversight Group would submit a preliminary report of findings and recommendations, from which the Lead State would produce an Advisory Findings Report detailing key considerations, a determination regarding the reasonableness of the proposed increase, and recommendations concerning the amount of increase that should be approved and a timeline for implementation of rate increases. The insurer would file their rate increase request in each of the Participating States, along with the Advisory Findings Report and related supporting materials. Participating States would then review and decide whether to approve the recommended rate increases.
Proponents of this approach argue that it maximizes efficient use of regulator and company resources by providing for one single review process per company, rather than requiring separate examinations and reviews for each state, and that it allows regulators to leverage expertise and resources across state insurance departments. They also argue that the process would result in greater consistency and uniformity with respect to rate increases for LTC business, further noting that rate increase recommendations could “enhance equivalence” by factoring in the past increase approval percentages and the timing of implementation of rate increases in Participating States.
A question was raised as to whether a new subgroup was necessary given the existence of the NAIC’s Long-Term Care Pricing Subgroup. In response, it was noted that the pricing subgroup is preparing recommendations concerning best approaches for rate reviews, but does not actually conduct the reviews, and only 10 states are represented on that subgroup. Several regulators voiced support for the concept but noted that the proposal needed further consideration.
The task force then opened the discussion for comment by interested parties. Birny Birnbaum (Center for Economic Justice) urged against further consideration of the proposal, arguing that this approach would usurp state authority and would constitute an improper delegation of state authority to the NAIC. Charles Piacentini (ACLI) noted that industry has not yet taken a position on this proposal, but that it is generally consistent with the direction that industry would like to go. He further noted that the ACLI would like to see a process developed and exposed for comment.
Following discussion, a decision was made to take the proposal under advisement. Task force members were asked to submit comments concerning the proposal. If a majority of task force members indicate interest in proceeding, a formal motion will be developed for consideration on an interim task force call.
The task force next turned its attention to status reports concerning multiple NAIC LTC workstreams. The Senior Issues Task Force reported that the Shopper’s Guide for Long-Term Care Insurance is nearly complete and will be finished by the NAIC’s Fall National Meeting. The Long-Term Care Actuarial Working Group reported on the progress of work being done by its Long-Term Care Pricing and Long-Term Care Valuation Subgroups. The Pricing Subgroup has been working, in response to an industry request, to develop a more predictable process for LTC rate review. They have identified two methods that states are using to conduct these reviews and have studied actual rate filings that were approved or pending to determine how well these processes have worked. Based on this review, the subgroup has developed a guidance document, which was exposed for comment until August 17. The subgroup anticipates finalizing their guidance document in advance of the Fall National Meeting.
The Long-Term Care Valuation Subgroup has been reviewing LTC pricing and reserve deficiencies, noting that deficiency impacts, by company, depend on multiple factors, such as the size of the LTC block, the richness of the products, prior price increases, and the morbidity assumptions used. The subgroup believes that many companies are still relying on future rate increases to sustain their LTC business, and for some, those increases will be critical. The subgroup also believes that industry-wide reserves are understated and should be increased, but noted that the increases needed may be less than previously reported in the trade press. The subgroup is working to develop a guidance document and will continue to assess morbidity improvement assumptions to determine whether they are still too conservative.
The task force noted that each of the LTC subgroups has been asked to establish time frames and target end dates for the completion of all current LTC work streams.
Receivership and Insolvency Task Force (RITF)
Following adoption of the minutes for its May 1 teleconference and proposed revisions to its 2019 charges, the task force heard updates from the three drafting groups established to address and respond to each of the three workstreams undertaken by RITF in response to the Macroprudential Initiative referral received from the Financial Stability Task Force concerning recovery and resolution issues.
The first workstream calls for an evaluation of current recovery and resolution tools to assess whether they incorporate best practices in areas relevant to financial stability. This drafting group is being led by Kristine Maurer (New Jersey) and includes representatives from Colorado, the District of Columbia, Illinois, Texas, and Washington. Drafting group members have been reviewing relevant IAIS Insurance Core Principles and the recent discussion paper on national insurance guarantee schemes released by the European Insurance and Occupational Pensions Authority (EIOPA) to identify issues for consideration in connection with this workstream. The drafting group held its first open call to begin discussion of these issues on August 22.
The second workstream calls for a review of processes applicable in other jurisdictions that may be valuable for state insurance regulators to consider in the context of large cross-border groups. This drafting group will be led by Doug Hartz (Washington) and includes representatives from Colorado, Illinois, Kansas, Massachusetts, New Jersey, New Mexico, and Texas. This drafting group has been reviewing the EIOPA discussion paper, the Financial Stability Board’s Key Attributes of Effective Resolution Regimes, and relevant IAIS Insurance Core Principles as a starting point for identifying processes for consideration. It was also noted that IAIS is working on a recovery and resolution planning paper, and the drafting group plans to review that when it becomes available. This group held its first open call on August 20 for preliminary discussion of the processes and information that should be considered for purposes of enhancing U.S. recovery and resolution processes.
The third workstream calls for an evaluation of any potential misalignments between state and federal laws that could present obstacles to recovery and resolution. This drafting group will be led by James Kennedy (Texas) and includes representatives from Michigan, New Jersey, Pennsylvania, Washington, and Wisconsin. This drafting group has been considering, among other things, the issue of temporary stays on termination of Qualified Financial Contracts under §711 of the NAIC’s Insurance Receivership Model Act and recently adopted NAIC guidance on the issue. This drafting group plans to schedule an open call sometime after August 22.
In addition to NOLHGA, interested parties that have volunteered to participate in these workstreams include the ACLI, Cantilo and Bennett, DLA Piper, Faegre Baker Daniels, the National Association of Mutual Insurance Companies (NAMIC), and the NCIGF.
Following discussion of the macroprudential workstreams, the task force turned its attention to its working group reports. The receivership model laws working group report was provided by James Kennedy. Mr. Kennedy reported on developments with respect to state enactment of the 2017 amendments to the NAIC’s Life and Health Insurance Guaranty Association Model Act, noting that 12 states have already adopted the model act amendments, and the amendments are awaiting signature by the Governor in one additional state (Illinois). (Update: Amendments to the Illinois Guaranty Association Statute were signed by the Governor on August 4.)
The task force then heard a brief update concerning international resolution activity. Ms. Maurer reported that the Financial Stability Board’s Resolution Working Group (RWG) has been working on revisions to the recovery and resolution portions of the Common Framework for the Supervision of Internationally Active Insurance Groups (ICPs 12 and 16) based on comments that were received. She also noted that the RWG has begun drafting an application paper addressing the details raised in the recovery and resolution sections and will be meeting in Basel in September to continue working on the draft. She also reported that, although the NAIC does not have a seat at the Financial Stability Board table, they have been able to provide input to the RWG through the Federal Insurance Office (FIO).
Finally, the task force turned its attention to a proposal for updating the NAIC Guideline For Notice Of Protection Provided By State Life And Health Insurance Guaranty Associations to incorporate recent changes to the Life and Health Insurance Guaranty Association Model Act. The proposal was developed by the ACLI in consultation with NOLHGA and health industry representatives. A redlined draft was included with the task force meeting materials. The task force accepted the proposal and exposed the draft revisions for a 30-day comment period. Comments are due on or before September 5.
Health Insurance and Managed Care (B) Committee
The committee heard presentations concerning short-term limited duration health plans (STLDHPs), the market implications of non-ACA-compliant health plans, and pending constitutional challenges to the ACA following repeal of the individual mandate tax penalty.
Sarah Lueck (Center on Budget and Policy Priorities) presented an issue paper developed by the Center entitled “Non-ACA-Compliant Plans and the Risk of Market Segmentation.” She explained that the issue paper is intended to serve as a warning about the expansion of non-ACA-compliant health plans, including STLDHPs, Association Health Plans, and transitional plans that do not provide ACA-level consumer protections. She stated that the expansion of the three-month federal limit on STLDHPs causes healthier individuals to leave the ACA marketplace and creates a parallel market that operates outside of the ACA.
Ms. Lueck added that these plans often include preexisting condition exclusions, gaps in the scope of coverage, higher deductibles, skimpy benefits, and higher claim denials, and that they lead to higher premiums for those participating in the ACA market because healthier individuals are lured away, leaving the more expensive insureds behind in the ACA market. As premiums in the ACA markets increase, subsidies and premium tax credits will similarly increase, creating added costs for the federal government. She also stated that the marketing of these STLDHPs creates consumer confusion because they are aggressively marketed during ACA open enrollment periods. Faced with competing plans, consumers might not find their way to the more comprehensive coverage they need.
The task force next heard a report from William Brady, Associate Deputy Secretary of the U.S. Department of Health and Human Services (HHS) concerning the expansion of STLDHPs and other actions taken by HHS to provide more affordable options for consumers. According to Mr. Brady, the ACA sent prices in the individual health insurance market soaring. While the uninsured population dropped after the ACA was implemented, Mr. Brady stated that most of the gains were made within the Medicaid population. He went on to state that the ACA split health insurance into two separate markets—subsidized and unsubsidized. Insureds within the subsidized markets pay only about one-fourth of their health insurance premiums, while non-subsidized insureds bear the full cost.
According to Mr. Brady, the individual health insurance market is now shrinking because unsubsidized individuals are forced to choose between skyrocketing premiums and no coverage at all. He went on to state that STLDHPs are not new in the health insurance market. The permissible duration for these plans was reduced to only 90 days under the last administration as a way to force individuals into the ACA markets. New HHS regulations will extend the permissible terms. He further noted that disclosure warnings about potential coverage gaps with STLDHPs are more robust than the warnings provided in connection with ACA health plans.
Next was a panel discussion on STLDHPs by several providers of those plans; participants included Gavin Southwell (Health Insurance Innovations), Brad Burd (GoHealth), Cameron Girouard (Simple Health Plans), and Jan Dubauskas (IHC Carrier Solutions, Inc.). The slides that were presented in conjunction with the panel discussion are available on the Health Insurance and Managed Care (B) Committee page of the NAIC website. Mr. Southwell began the discussion, noting that approximately 83% of the ACA policies are subsidized, and that STLDHP providers are focused primarily on the unsubsidized individual market as a means of providing an affordable alternative. He also noted that STLDHPs can be customized for consumers and can be designed to provide mental health benefits and other coverages sometimes excluded from these plans.
Ms. Dubauskas concurred, noting that short-term medical coverage is now the subject of much greater regulatory scrutiny than in the past, and that states can require these plans to include a broad variety of coverages, including coverage for preexisting conditions. She stressed that these plans are essential for bridging the gap that can occur outside of open enrollment. Mr. Burd spoke about technology platforms and enhanced website interfaces that can be used to help ensure that consumers are appropriately informed prior to purchasing these products.
A representative from New York commented that STLDHPs are substandard products, and that they are banned in New York.
Finally, the committee heard a briefing concerning the implications of a recent Department of Justice determination not to defend the constitutionality of key ACA provisions in litigation pending in Federal District Court in Texas. The briefing was provided by Anthony Shelley of Miller & Chevalier. Mr. Shelley provided a brief background on the case, explaining that 20 states sued to challenge the constitutionality of the ACA. Additional defendants intervened out of concern that the current administration would not defend the case going forward. In recent filings, the Department of Justice conceded that key portions of the ACA would become unconstitutional when the repeal of the individual mandate tax penalty goes into effect in January 2019.
Mr. Shelley noted that the plaintiffs in this case had requested a preliminary injunction. The Department of Justice, however, has consented to entry of partial judgment against the government. Mr. Shelley predicted that the District Court will likely rule in this case before year-end. However, the matter will likely go up to the Court of Appeals and then on to the Supreme Court. Final resolution will not be reached by year-end, and while the litigation runs its course, there will be uncertainty and confusion concerning enforcement authority.
The final agenda item was to be a discussion of various market approaches and state actions related to market stabilization. That discussion was deferred until the Fall National Meeting due to time limitations.