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IN THIS EDITION:

• Introduction
• Receivership and Insolvency Task Force (RITF)
• Financial Stability (EX) Task Force
• Health Insurance and Managed Care (B) Committee

Introduction

Peter Gallanis and Joni Forsythe attended the NAIC’s Fall National meeting in San Francisco on November 15–17, 2018. During the meeting, NOLHGA and the National Conference of Insurance Guaranty Funds (NCIGF) jointly hosted a luncheon on November 16 for guaranty association representatives and other invited guests to discuss relevant NAIC activities.

Highlights of the meetings attended are summarized below.

Receivership and Insolvency Task Force (RITF)

Following adoption of the minutes for its October 1 teleconference, the task force heard updates from its working groups.

David Wilson (California) provided a brief report on behalf of the Receivership Financial Analysis (E) Working Group (RFAWG). He noted that the NOLHGA and NCIGF Presidents have been attending RFAWG meetings in accordance with agreed-upon terms of confidentiality, and that the Presidents of both organizations were similarly invited to attend the meeting of the Financial Analysis Working Group (FAWG) earlier in the week. He cited this as a positive development that furthers the goal of enhancing coordination and communication between regulators, receivers, and the guaranty system.

James Mills (Oklahoma) provided the report for the Receivership Large Deductible Workers’ Compensation (E) Working Group. The group has completed its study of receivership laws and practices and recommends that states be encouraged to adopt statutory authority clarifying the rights and responsibilities of the parties with respect to the collection of large deductibles in receiverships, and that guidance be developed for inclusion in the NAIC’s Receiver’s Handbook concerning best practices for handling large deductibles in receiverships.

The task force next heard an update from Kristine Maurer (New Jersey) on International Resolution Activity. Ms. Maurer noted that the IAIS Resolution Working Group has finalized drafting of its initial Application Paper on Recovery Planning and has published the draft for comments, which are due by January 7, 2019. A copy of the Application Paper on Recovery Planning is available here.

Ms. Maurer also discussed the IAIS’s draft “Holistic Framework for Systemic Risk in the Insurance Sector,” which was recently released for public consultation through January 25. A copy of the draft is available on the IAIS website. The Framework incorporates a focus on activities-based risk assessment, which, according to the Financial Stability Board (FSB), may have important implications for the assessment of systemic risk in the insurance sector and the identification of G-SIIs (Global Systemically Important Insurers). As such, the FSB has decided against publishing an updated listing of G-SIIs at this time but will continue to collect information and monitor the IAIS’s work on the Holistic Framework.

Ms. Maurer next provided an update concerning the efforts of the Macroprudential Initiative Drafting Groups. Drafting Group One is focused on best practices for recovery and resolution. The group has held two calls (August 22 and September 26), during which it has undertaken a review of the NAIC’s Insurance Receivership Model Act in support of its efforts to determine whether the principles addressed in the IAIS Insurance Core Principles (ICPs), and the recent discussion paper on national insurance guarantee schemes released by the European Insurance and Occupational Pensions Authority (EIOPA), are appropriately addressed in U.S. receivership laws and practices. This group expects to schedule another call before year-end and will begin looking at prior NAIC receivership models, as well as additional provisions within the ICPs unrelated to receivership, to determine whether there are other factors related to financial stability that should be taken into consideration.

Drafting Group Two was asked to consider processes for resolution and recovery planning in other jurisdictions that might be valuable for state insurance regulators to consider in the context of cross-jurisdictional proceedings. Doug Hartz reported that this group met via phone on August 20 to review and begin discussion of resolution and recovery guidance. He also noted that, now that the IAIS Application Paper on Recovery Planning is available, this group will plan to schedule one or two additional calls before year-end to continue its work.

The third drafting group, led by James Kennedy, is focused on potential misalignments between state and federal laws that could impede resolutions. In particular, this group is focused on the handling of qualified financial contracts and master netting agreements in receivership. Thus far, the group has held regulator-only calls to discuss these issues with the federal authorities. However, they expect to schedule an open call before year-end to discuss their findings and consider next steps.

The task force next turned its attention to comments received concerning the Warrantech decision in Pennsylvania. Comment letters were received from Arkansas, Michigan, the ACLI, Chris Peterson (Arbor Strategies), and Patrick Cantilo (Cantilo & Bennett). Wayne Mehlman (ACLI) provided a brief background and history concerning the Warrantech case and stated ACLI’s objection to applying that decision in the context of a life, health, or annuity insolvency to preclude estate assets from being used to compensate policyholders for claims in excess of guaranty association statutory limits. Following discussion, the task force decided that they would monitor the litigation for now and could consider amicus support at an appropriate time if it appears that the case might result in a decision with precedential impact. In addition, the task force will survey the states to determine whether the language at issue in Warrantech is unique to Pennsylvania or is present in other states’ statutes.

Financial Stability (EX) Task Force

In her opening remarks, Commissioner Wade (Connecticut) commented on the newly released IAIS “Holistic Framework” and the FSB’s decision, in response, not to publish an updated list of G-SIIs at this time. The task force next considered and adopted the minutes of its Summer National Meeting, as well as the November 8 minutes of the Liquidity Assessment Subgroup, which were included with the materials for the meeting.

The task force next heard an update concerning developments with respect to the Financial Stability Oversight Council (FSOC) and the appointment of NAIC President-elect Superintendent Cioppa (Maine) to serve as the Insurance Commissioner representative on FSOC beginning in September 2018. There was also discussion of FSOC’s October 17 decision to rescind the designation of Prudential Financial, Inc., as a non-bank Systemically Important Financial Institution (SIFI). Details concerning the designation and rescission can be found on the FSOC page of www.Treasury.gov.

The task force then turned its attention to the report from the Liquidity Assessment Subgroup on the group’s proposed scope criteria for liquidity stress testing, which was revised following an initial exposure and comment period. A copy of the Revised Scope Criteria was included as attachment three to the meeting agenda. Following discussion, the task force agreed to expose the revised Scope Criteria for a 30-day comment period. Comments are due by December 17.

Finally, the task force received a report concerning the work being done by the Receivership and Insolvency Task Force (RITF) to address the referral concerning the NAIC’s Macroprudential Initiative. Ms. Maurer reported on the progress of each of the three RITF drafting groups engaged in that effort.

Health Insurance and Managed Care (B) Committee

The Health Insurance and Managed Care (B) Committee held two two-hour sessions focused on market developments and premium stabilization activity in the states.

During the morning session, designated as Part One, the committee adopted the minutes from its October teleconferences. It also adopted, without individual presentations, the reports of its various working groups, which are posted to the NAIC’s website on the (B) Committee page. The committee then went on to hear a series of five presentations. Slides and other materials related to the presentations are also available on the (B) Committee page of the NAIC website.

Federal Initiatives: CCIIO Director Randy Pate, on behalf of the CMS, spoke about ongoing federal efforts to boost competition and lower costs for consumers in the individual market by increasing options for coverage, through expansion of waiver programs and loosening of the restrictions on Association Health Plans (AHPs) and Short Term Limited Benefit Plans. He also spoke about recent federal regulatory actions providing more favorable tax treatment for healthcare reimbursement arrangements, which allow small employers to reimburse healthcare costs on a tax-preferred basis.

Healthcare Cost Drivers: Dr. Jack Resnick of the American Medical Association spoke about healthcare cost drivers. Dr. Resnick addressed concerns from the physician's perspective, noting that getting access to covered benefits and the problems encountered in getting insurer approvals are tying up a significant amount of physicians’ time. According to Dr. Resnick, for every hour doctors spend with a patient, they may spend two more hours coordinating with insurance carriers to assist the patient in getting covered benefits. The biggest problem in this regard has been the vast expansion of prior authorization requirements. According to Dr. Resnick, these problems result in increased costs, depleted physician resources, and a greater rate of patient non-adherence to recommended treatments due to problems and delays in accessing coverage, which in turn results in increased hospitalizations and greater health problems. In response, the AMA has developed principles around prior authorization requirements, network adequacy and accuracy, and pricing transparency, which they will be taking to state legislatures in the coming year.

Prescription Drug Costs: Carl Schmid of the AIDS Institute spoke about prescription drug cost sharing. Speaking from the patient’s perspective, he focused on what states are and can be doing to make sure that prescription drugs are affordable for consumers. He noted that more drugs are being moved into specialty tiers, which causes patients to abandon care as it becomes too expensive. A few states have responded by requiring that co-pays for specialty drugs remain on par with non-specialty drugs. He also mentioned the Administration’s recently released Blueprint To Lower Drug Prices, and he encouraged state insurance departments to consider additional steps to make prescription drugs more affordable.

Direct Primary Care: A presentation on Direct Primary Care arrangements on behalf of the Direct Primary Care Coalition featured presenters Dr. Julie Gunther (Nextera Healthcare) and Dr. Clint Flanagan. Dr. Gunther owns a direct primary care practice, and Dr. Flanagan is a practicing physician in private practice. Dr. Gunther explained that under the direct primary care structure, patients pay a monthly or annual fee to the doctor, who then provides all the patients’ primary care. The average cost for Nextera membership is $79 per individual per month for those over 21 years of age and $10 per month for those under 21 years of age. These entities do not accept or bill any insurance, and they negotiate directly with pharmaceutical providers so that they can provide prescription medications on site.

Dr. Gunther stated that the primary care doctors can take care of 90% of their members’ healthcare needs. She added that, freed from the pressures and controls imposed by insurers and network systems, primary care doctors can take the time needed with patients for holistic care and can provide the best and most effective treatments and medications, rather than only those most likely to be approved by insurance providers. She did note, however, that most members do carry either PPO or high deductible plans to cover catastrophic illness or injury.

Dr. Gunther indicated that there is roughly a 20% savings overall on total healthcare spending for consumers going through direct primary care providers, and she believes there is reasonably good bipartisan support for this approach. Several states have recently issued guidance on direct primary care arrangements. A question was raised as to why, if cost savings are so significant, industry has not incorporated direct primary care into traditional health plans. In response, Dr. Gunther explained that direct primary care cannot be put under the control, infrastructure, bureaucracy, and procedural requirements of insurance companies or contracted networks and still retain the value and savings of direct primary care arrangements.

Healthcare Sharing Ministries: A panel on healthcare sharing ministries (on behalf of a trade group called the Alliance for Health Care Sharing Ministries) featured JoAnn Volk (Georgetown University’s Center for Health Insurance Reforms) and Brad Hahn (Solidarity Healthshare). The speakers noted that while some healthcare sharing ministries may appear similar to insurance—offering varying levels of coverage, providing network contracts, or providing defined benefits and a cost sharing schedule—they are not insurance and do not provide any guaranty of payment.

These ministries are typically organized around religious affiliations and may require a commitment to avoid certain activities to be approved as a member. The cost of these programs can be tied to age and health, and there is no coverage for preexisting conditions. There may be limits on the number of doctor visits or caps on shareable bills. Preventive care is typically excluded, as is mental health, behavioral health, and drug abuse treatment.

These programs do not meet ACA standards for minimum essential coverage, and more than 30 states, referred to as the “safe harbor” states, exempt these entities from insurance licensing and regulation. These programs are typically marketed through websites, and sponsors may pay brokers to enroll members.

The second session of B Committee was similarly focused on market developments and shifting rules governing non-compliant ACA products. The session also included an update on pending litigation concerning renewed constitutional challenges to the ACA.

State Regulation of Non-ACA Compliant Plans: A presentation by Ms. Volk addressed a Georgetown University Center on Health Insurance Reforms paper titled Coverage Options Outside of the Affordable Care Act: Limiting Risk to the Individual Market. The presentation focused on Short Term Limited Benefit Health Plans and Association Health Plans (AHPs), both of which (according to the paper) are segmenting state insurance markets by offering cheaper, skimpier plans that siphon off individuals from state individual and small group markets at a time when individual markets in the states need more individual participation. According to Ms. Volk, more than 20 states regulate these plans more conservatively than federal standards require, and in some states, these plans are required to meet ACA standards for minimum essential coverage.

Association Health Plans: The committee heard a presentation offering a different perspective on AHPs from a panel including Christopher Condeluci (Coalition to Protect and Promote AHPs), Clinton Wolf (Restaurant and Hospitality Association Benefit Trust – RHA Trust), and David Chase (Small Business Majority). Mr. Condeluci spoke first, providing some background on the Coalition, a national trade association focused on developing AHPs for its members. Mr. Condeluci does not view AHPs as weakening ACA standards, but rather as an opportunity for leveling the playing field. Large employers can offer health plans to attract talented employees. Small employers need to be able to do this as well, and the ability to sponsor these plans as part of an association achieves that goal. He stated that plans offered through the Coalition program will offer comprehensive coverages, giving small employers the needed scale to drive down costs. He noted that AHPs are currently experiencing slow growth due to legal uncertainty and the complexity of start-up, but he said that interest remains high.

Mr. Wolf focused his remarks on the need for AHPs. He said that 80% to 85% of restaurants are small employers in need of affordable small group coverage. The Restaurant and Hospitality Association has a fully insured PPO health plan through UnitedHealthcare (UHC) and is leveraging UHC’s network. They offer 120 plan designs, and a member company can choose up to three plans for its employees. According to Mr. Wolf, this is not skinny insurance or junk coverage. Mr. Wolf asked the NAIC to help promote AHPs as a quality option and to support simple and transparent standards for disclosures to distinguish AHPs from ACA coverages. He also supports increased funding to penalize those who might use AHPs for fraudulent purposes.

Finally, Mr. Chase offered his perspectives on how AHPs hurt small businesses by disrupting and segmenting small group markets and providing fewer consumer protections. While the Coalition and the Restaurant Association may offer comprehensive AHP plans, Mr. Chase is concerned that these types of plans are not required to meet ACA standards, and most will not.

ACA Constitutional Challenges: The committee then turned its attention to receiving an update from Attorney William Schiffbauer concerning litigation and constitutional challenges surrounding the ACA. The primary focus was pending litigation in the federal district court in Texas concerning repeal of the individual mandate penalty, an action being litigated by 21 plaintiff states and 17 intervenor defendant states. The plaintiffs in this case argue that repeal of the individual mandate penalty takes the ACA outside of Congressional taxing authority and therefore renders it unconstitutional once the individual mandate penalty repeal takes effect on January 1, 2019. The federal defendants in this case have consented to judgment, conceding that three core parts of the ACA are unconstitutional and cannot be severed from the balance of the statute. The intervening state defendants have argued, alternatively, that the penalty was reduced to zero, but not technically repealed, and that the tax act itself was unconstitutional because Congress cannot amend a law to make it unconstitutional. A hearing was held on September 5, but the court has not yet ruled.

Mr. Schiffbauer also spoke briefly about two other constitutional challenges pending in Federal District Courts. One is focused on the 2018 AHP regulations, the other on the 2018 rules expanding the duration of Short Term Limited Benefit Plans. The NAIC will continue to monitor developments in each of these cases.

State Responses to New Federal Rules: The last item on the agenda was a discussion of state actions concerning Short Term Plans and AHPs, as well as new §1332 waiver standards. Several states shared comments concerning their perspectives on these plans. While the commentators noted concerns about skimpy benefits and the need for strong disclosure and education, most did not perceive these plans as having a disruptive impact on state markets. The Alaska representative noted that subsidized individuals do not leave ACA plans. Unsubsidized individuals also seem to be staying in the ACA market due to preexisting conditions that are not covered under these alternative plans. In regard to the new §1332 waiver guidance, it was noted that a resurgence of waiver requests is anticipated on the part of states looking to take advantage of the new, more flexible standards. States that previously had waiver requests denied were encouraged to consider reapplying under the new standards.