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Health Care Reform Primer: State Flexibility With Exchanges, Program to Grow New Carriers

For those of you keeping score of our review of the Patient Protection and Affordable Care Act at home, we are now in Title I, Subtitle D, Part III--State Flexibility Relating To Exchanges. Part III has three sections:

• State Flexibility in Operation and Enforcement of Exchanges and Related Requirements
• Federal Program to Assist Establishment and Operation of Nonprofit, Member-Run Health Insurance Issuers
• Level Playing Field

State Flexibility

The federal Department of Health and Human Services was required to issue regulations as soon as possible after March 23, 2010 that would set standards for:

• Establishment and operation of exchanges, including SHOP exchanges
• Offering of qualified health plans through the exchanges
• Establishment of reinsurance and risk adjustment programs (to be discussed when we get to Part V)
• Other requirements as determined by HHS.

The law required HHS to consult with the NAIC and its members, health insurance carriers, consumer groups and other individuals selected in a manner "designed to ensure balanced representation among interested parties." Every state that chooses to meet the requirements for the exchanges must adopt and have in effect the federal standards issued by HHS or a law or regulation that HHS approves as implementing the standards. The states must do this by the beginning of 2014.

If a state chooses not to create an exchange, or if HHS determines by 2013 that a state will not have its exchange operational by 2014 or has not taken the necessary actions to get it operational, HHS must establish and operate the exchange for that state. HHS can create the exchange directly or it can contract with a not-for-profit entity to do it. The states have authority to enforce the federal standards, but HHS can enforce them where a state does not. However, the law explicitly states that it does not preempt any state laws that do not prevent application of the PPACA's provisions.

HHS will presume that a state exchange operating prior to 2010 meets the federal standards if it insures a percentage of the state's population at least as large as the percentage that the exchanges are projected to insure nationally. HHS must create a process to help a state's existing exchange achieve compliance.

Consumer Operated and Oriented Plan (CO-OP) Program

HHS must create the "Consumer Operated and Oriented Plan (CO-OP) Program to encourage the creation of new nonprofit health insurance carriers to offer individual and small group coverage. The program will make available grants for the new carriers to meet state solvency requirements and loans to help meet start-up costs. An advisory board, comprised of 15 unpaid members appointed by the Government Accounting Office, may recommend individuals and entities to HHS for grants and loans. Members of the board must meet "ethics and conflict of interest standards protecting against insurance industry involvement and interference." Members are unpaid but can receive reimbursements for travel expenses. The board will dissolve no later than the end of 2015.

HHS must give priority to applicants that will offer qualified plans statewide, use integrated care models, and have "significant" private support. The department must ensure that there is enough funding for at least one new nonprofit carrier; if there are enough funds, HHS may fund more than one. If no one applies in a given state, the department can use the state's funds to encourage the creation of a new nonprofit carrier or to attract an existing one from out of state.

Grant and loan recipients must agree to meet all requirements for becoming a qualified nonprofit carrier and any requirements in the grant or loan agreement. The recipients may not use the funds for propaganda, legislative lobbying or for marketing. A carrier that fails to meet the requirements (and that fails to take corrective action within a reasonable time) must repay 110 percent of the grant or loan plus interest on the aggregate amount received.

HHS must make the CO-OP program awards and begin distributing them by July 1, 2013. Before awarding them, the department must issue regulations governing the repayment of the grants and loans in manners consistent with state solvency regulations  and similar state laws. Carriers will have five years to repay loans and 15 years to repay grants. Before HHS can award the grants and loans, the state must construct repayment terms must consider state reserve requirements, solvency regulations, and surplus note arrangements.

Health insurance carriers that existed on July 16, 2009 and carriers sponsored by a state or local governmental entity are ineligible for the CO-OP program. Qualified nonprofit carriers must be subject to governance by majority vote of their members; must have governing documents incorporating ethics and conflict of interest standards protecting against insurance industry involvement and interference; and must have a strong consumer focus, including timeliness, responsiveness and accountability to members. HHS will issue regulations to implement this last requirement.

The nonprofit carriers must use their profits to lower premiums, improve benefits, or for other programs intended to improve the quality of health care delivered to members. They must meet the requirements of the insurance laws in the states where they operate, including sovlency standards, licensing requirements, rules on payments to providers, rate and form filing rules, and others. To maintain eligibility, a nonprofit carrier cannot offer a health plan in a state that has not implemented the PPACA's coverage reforms.

That's more than enough for a Friday. We'll reconvene next week to look at the "private purchasing councils" that these new nonprofit carriers may create.

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Health Care Reform Primer: Exchange Financial Integrity

We wrap up our look at Part II of the section in the Patient Protection and Affordable Care Act that creates the exchanges by reviewing the provisions on exchange financial integrity.

Every year, exchanges will have to submit to the federal Department of Health and Human Services reports on their activities, receipts and expenditures. HHS has the authority to investigate exchanges and examine their properties and records; exchanges must fully cooperate with investigations. In addition, exchanges are subject to annual audits by HHS.

HHS can rescind up to one percent of the payments due to the state for an exchange if it finds that the exchange or state has engaged in "serious misconduct" regarding compliance with PPACA requirements or in performing the activities required by the PPACA. The department can withhold the funds until the state or exchange takes adequate corrective actions. HHS must provide for the efficient and non-discriminatory administration of exchange activities. It must also implement measures and procedures that it determines are appropriate to reduce fraud and abuse in administration of the exchanges and that it has legal authority to perform.

By the end of 2018, the federal Government Accounting Office must conduct a study of exchange activities and people enrolled in exchange plans. The study must look at:

• The operations and administration of exchanges. This includes surveys and reports of exchange plans; plan data on enrollees through the exchanges and individuals who buy coverage outside the exchange; exchange expenses; claims and complaint data; and the manner in which exchanges meet their goals.
• Significant observations about the use and adoption of the exchanges
• Recommendations for improvements in exchange policies and operations, if appropriate
• A survey of the cost and affordability of exchange plans for small business owners and employees, including data on plan enrollees and purchasers of individual policies
• The number of physicians, by area and specialty, who are not accepting new patients enrolled in federal health insurance programs (Medicare, Medicaid, etc.), and how adequate provider networks are for those programs.

And that's all for Part II, Consumer Choices and Insurance Competition Through Health Benefit Exchanges.The next posts will attempt to answer the question: How much flexibility do states have when they create and run their exchanges? Given that the New York State Senate held a roundtable discussion (featuring IIABNY director Jack Smith) today, this discussion couldn't be more timely.

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Health Care Reform Primer: Consumer Choice

Picking up our examination of the forthcoming health insurance exchanges, let's look at the provisions on consumer choice.

Qualified individuals may enroll in any available exchange-offered plan for which that person is eligible. Qualified employers may select any coverage level to offer employees. If an employer specifies a coverage level, its employees may enroll in any available plan that offers coverage at that level. The covered person may pay any applicable premium to the health insurance carrier.

Single Risk Pools

A health insurance carrier must consider everyone enrolled in its individual health plan to be members of a single risk pool. This pool includes both people who buy from an exchange and those who buy outside the exchange. The same applies to everyone enrolled in plans the carrier offers in the small group market. If they decide it's appropriate, states have the authority to require carriers to merge the two markets.

The law clarifies that carriers can offer plans to individuals and employers outside the exchanges, and individuals and employers are free to choose non-exchange plans. It also states that it does not override any state laws governing required benefits for plans offered outside an exchange. Individuals are free to enroll or to not enroll in exchange plans, and the government cannot compel them to enroll in them. Qualified individuals (see below) may enroll in any available exchange plan, but they must be eligible to enroll in a catastrophic plan before they can choose one. The federal government will be able to offer to members of Congress and congressional staff (both in Washington and in district offices) only plans created under the health care reform law or plans offered through an exchange. Individuals can cancel their enrollment in an exchange plan without penalty if they become eligible for coverage elsewhere or if that coverage becomes affordable to them mid-term.

Agents and Brokers

The federal Department of Health and Human Services must create procedures for states to allow agents and brokers to:

• Enroll individuals and employers in exchange plans as soon as they become available through the exchanges in their states
• Help individuals in applying for premium tax credits and cost-sharing reductions for exchange plans.

Qualified Individuals and Employers

Individuals must be residents of the state that established an exchange in order to seek individual coverage from it. They are not eligible if they are incarcerated and not awaiting the disposition of charges. Small employers are initially eligible to buy coverage through the exchanges, but states may allow carriers to offer large group plans through the exchanges starting in 2017. Carriers will not be required to offer large group plans through the exchanges. If a state elects to do this, large employers will then become eligible. Exchange plans will not be available to non-citizens who are not "lawfully present" in the U.S.

Next time: Financial integrity provisions.

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No-Fault: Are 'Lack of Coverage' and 'Policy Exclusions' the Same Thing?

Question from an IIABNY member: My daughter is studying for the New York bar exam and asked me the following question: Regarding New York no-fault insurance law, what’s the difference between an insurance company asserting lack of coverage and the insurance company saying the policy specifically excludes coverage…or is it the same thing?

Answer: I think the two are very similar but with subtle differences. Lack of coverage could mean an exclusion, but it could also mean an expense that the endorsement does not cover or an incident that does not fall under the insuring agreement. The PIP insuring agreement (from ISO endorsement PP 05 87 07 02) states, “The company will pay first-party benefits to reimburse for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use or operation of a motor vehicle or a motorcycle during the policy period and within the United States of America, its territories or possessions, or Canada.” (defined terms are in bold.) Examples of losses that do not fall within that agreement:

• The named insured rear-ends another car while he is vacationing in the Bahamas, causing him to suffer cuts to his head. The endorsement will not cover this because the accident took place outside of the U.S. and Canada.
• Because the insured is unable to work and is growing bored sitting at home, he buys a NetFlix subscription and submits the invoices for it to the insurance company. The endorsement defines “first-party benefits” as payments (other than death benefits) equal to basic economic loss reduced by certain amounts. “Basic economic loss” is medical expense, work loss and other expense. “Other expense” is “all reasonable and necessary expenses, other than medical expense and work loss, up to $25 per day…” The insurance company could reasonably argue that a NetFlix subscription is not a necessary expense resulting from the accident, so there would be no coverage.
• The endorsement defines “eligible injured person” in part as “any…person (other than the named insured and any relative) who sustains personal injury arising out of the use or operation of the insured motor vehicle in the State of New York while not occupying another motor vehicle.” If I’m driving my car through Pennsylvania with my friend Bob riding along, we get in an accident and Bob needs stitches, my No-Fault coverage will not apply to Bob because he does not meet the definition of “eligible injured person.” Bob has his own New York auto policy, so his policy should cover his injuries.

These are all examples of no-coverage situations that do not involve exclusions. The endorsement has a whole host of exclusions for things such as:

• Injuries sustained while riding a motorcycle
• Intentionally caused self-inflicted injuries
• Injuries a person sustains while operating a vehicle while drunk or on drugs (note: intoxicated passengers still have coverage)
• Injuries sustained while a person is committing a felony or evading arrest
• Injuries sustained while racing
• Injuries sustained while operating or occupying a vehicle the person knows is stolen. 

There are several others. The point is “lack of coverage” can include exclusions, but it can mean other policy provisions.

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Can't We Waive the Auto Photo Inspection?

Question from an IIABNY member: A carrier advises that when we submit new business that has a prior automobile photo inspection, they are prohibited from accessing the information that is in the inspection company's database, and in most cases we need to do a new photo inspection. The exception is if the insured has a copy of their inspection or if the agent has one. 

Now they are telling me that the law changed and under Regulation 79 they are not permitted to accept the Bill of Sale and window sticker that we had on file for another carrier when we first added a new unused vehicle. My understanding was the agency has the ability (not required), at their discretion, to waive photo inspection when coverage is transferred, in an independent agency, from one of our carriers to another. Which is correct?

Answer: The waiver section of Reg 79 has not changed since 1997. Here’s the relevant text:

(b) An insurer may waive or dispense with a mandatory inspection under any of the following circumstances:…

(2) Where a new, unused automobile is purchased or leased from a franchised automobile dealership and the insurer is provided with either a copy of the bill of sale which contains a full description of such automobile, including all options and accessories, or a copy of the lease or MV-50 form, provided by the Department of Motor Vehicles, which establishes transfer of ownership from the dealer to the customer and a copy of the window sticker or advanced dealer shipping notice (invoice) showing the itemized options and equipment in addition to the total retail price of the vehicle on which will be added any dealer installed options installed on the vehicle at the time of sale or lease. The physical damage coverage on such new, unused automobile shall not be suspended during the term of the policy due to the insured's failure to provide the required document(s). Payment of a claim shall be conditioned upon receipt by the insurer of such document(s) and no physical damage loss occurring after the effective date of coverage shall be payable until the document(s) are provided to the insurer. If the above document(s) are not submitted by the insured 60 days prior to the annual renewal date, the insurer upon renewal of the automobile physical damage insurance must require a physical inspection, pursuant to the provisions of section 67.7 of this Part…

(6) Where a producer is transferring a book of business from one insurer to other insurer(s).

(7) When an individual insured's coverage is being transferred by an independent insurance agent (as defined in section 2101(b) of the Insurance Law) to a new insurer and said agent provides the new insurer with a copy of the inspection report completed on behalf of the previous insurer, provided the independent agent represents both insurers, and the insured vehicle was physically inspected by the previous insurer.

Based on paragraph (7), I’d say that the new insurer cannot waive the physical inspection if the prior insurer only had the bill of sale and sticker and did not inspect.

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Health Care Reform Primer: Quality Improvement and 'Navigators'

Now that I'm done with a month of frequent travel (and have partially caught up with the work I couldn't do while on the road,) I hope to return to frequent posts in the ongoing analysis of the health care reform law. The last few posts have looked at the health insurance exchanges and how they will certify health plans as "qualified." Now let's look at how exchanges will work with health plans to improve quality.

Starting in 2015, a qualified health plan may contract with a hospital that has 51 or more beds only if the hospital uses a patient safety evaluation system and if it ensures that each patient receives a comprehensive hospital discharge program. This program must include patient-centered education and counseling, comprehensive discharge planning, and post-discharge follow up from a health care professional. The plan may contract with other types of health care providers that implement health care quality improvement measures as may be required by the federal Department of Health and Human Services. HHS has the ability to make exceptions to these requirements, including adjusting the threshold number of hospital beds.

The exchanges must create programs to award grants (funded by the exchanges, not the federal government) to entities to act as "navigators." These navigators will:

• Conduct public education activities to raise awareness that qualified health plans are available
• Distribute "fair and impartial" information about plan enrollment and the availability of tax credits and cost-sharing reductions to lower the cost of health coverage
• Facilitate enrollment in plans
• Provide referrals to the appropriate public authorities for consumers with grievances, complaints, or questions regarding their plans, coverages, or claim handling
• Provide this information in a manner "culturally and linguistically appropriate" for the populations the exchanges are serving.

The navigators will be entities such as:

• Trade, industry and professional associations
• Commercial fishing industry organizations
• Ranching and farming organizations
• Community and consumer-focused non-profit groups
• Chambers of commerce
• Unions
• Resource partners of the U.S. Small Business Administration
• Licensed insurance agents and brokers (emphasis added)
• Other entities that are capable of performing navigators' duties and that meet other standards (I'll get to them below.)

To be eligible for a navigator grant, the entity must demonstrate to the exchange that it has existing relationships or could readily establish relationships with employers, employees, consumers or self-insured individuals who are likely qualified to enroll in an exchange plan. HHS must set standards for navigators to ensure that they are qualified and licensed (if appropriate) to perform the duties and to avoid conflicts of interest. A navigator cannot:

• Be a health insurance carrier
• Receive any consideration directly or indirectly from a health insurance carrier in connection with the enrollment of qualified individuals or employees in an exchange plan.

HHS must work with the states to set standards to ensure that the information navigators provide is fair, accurate and impartial.

Lastly, exchange plans must abide by the same mental health coverage parity rules that apply to other plans and health insurance policies. Exchanges may not create rules that conflict with other provisions of the health care reform law or regulations that HHS issues under the law.

That brings us to the end of Section 1311. Next time, we'll get into Section 1312, Consumer Choice.

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Courts: Agents and Brokers Have No Duty To Advise Insureds About Coverage

Interesting article by Peter Biging at Property-Casualty360.com.

It follows then, as a general rule, that absent special circumstances, an insurance agent or broker has no special duty to advise customers what coverage to obtain, or to provide continuing advice or guidance with regard to coverage procured.

An insurance agent or broker’s basic duty of care is simply to obtain the coverage that has been requested. If the agent or broker cannot procure the requested coverage within a reasonable timeframe, then the producer must tell the customer that he or she cannot do so. But that’s it.

The rationale that guides this general principle is that the agent or broker should not be placed in the position of being the guarantor of the sufficiency of the customer’s coverages. (See related textbox, “Becoming Special.”) While insureds are making efforts to get courts to read the basic duty of care more expansively, recent decisions indicate courts are not taking the bait.

via www.propertycasualty360.com

The Murphy v. Kuhn precedent in New York holds that an insurance producer's legal obligation is to obtain the coverage requested by the client or to advise the client of the inability to do so. This appears to be the rule in many other states as well. This should give New York agents and brokers some sense of security when they write business in other states.

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If You Don't Have a Job, Don't Apply For One With Us

I'm going to take a short break from the usual insurance geeky discussion to talk about employment practices. Specifically, stupid, cruel, lazy employment practices (in a minute, I'll tell you how I really feel.) National Underwriter's Mark Ruquet writes about a practice among some employers that dumps a little more salt in the wounds of the millions of jobless Americans:

Helen Norton, associate professor at the University of Colorado School of Law, said both employers and staffing agencies have advertised publicly that only currently employed candidates may apply for a job. These positions range the professional field from electronic engineers to restaurant and grocery managers to mortgage underwriters, she said.

“Some employers may use current employment as a signal of quality job performance,” Norton testified. “But such a correlation is decidedly weak. A blanket reliance on current employment serves as a poor proxy for successful job performance.”

Fatima Goss Graves, vice president for education and employment of the National Women’s Law Center, called it a “troubling development in the labor market.”...

The (federal Equal Employment Opportunity Commission) did not indicate how pervasive the practice is, and I have seen no statistics that speak to the frequency of it, but the fact that it exists at all should make us wonder what is motivating people to discriminate in this way.

Is it a prejudice that if you’re not working, there must be something wrong with you as a worker? Or are employers just looking for a way to control a flood of resumes from coming their way?

While the EEOC is seeking to understand if this practice is motivated by prejudice, I would like to think that what’s really motivating these employers is a desire to avoid having to wade through a huge stack of resumes.

Ruquet goes on to encourage insurance producers, who as a group need an infusion of new talent, to offer opportunities to candidates who are ignored by other employers because they are unemployed. I wholeheartedly support and echo his point. Agencies and brokerages can give themselves huge competitive advantages by snapping up some high-quality people eager for opportunities.

I have to say that reading about this attitude among some employers (Ruquet admits that the data does not show how pervasive it is) makes my blood boil. During my career, I've endured two lengthy bouts of unemployment. The first was when the major insurance carrier for whom I worked eliminated my department in the name of profit improvement. The second was when a technology company for whom I worked as a trainer got into severe financial trouble following the dot-com crash and the 9/11 attacks. I lost my job five weeks after 9/11; the company went into bankruptcy six months later. I was out of work again for many months before IIABNY offered me the job that I now have.

This just in: Unemployment sucks. Unless you've had someone sit you down and tell you that the value you bring to a company no longer exceeds the cost of keeping you around, you have no idea how it feels. Add to that the pressure of being the primary breadwinner in a family with young children, throw in a pinch of disbelief because you've received glowing performance reviews, and toss in a dash of despair because you've just turned 40, and it adds up to a soup of anxiety and plummeting self-esteem. Every day, job seekers get rejection: The phone calls that no one returns, the e-mails that go unanswered, the employer who never contacts you again after that job interview that appeared to go so well. It is awful. I've met a lot of people in my life that I don't like. I would not wish unemployment on any of them.

So when I read that some employers screen candidates out because they're currently jobless, it makes me want to scream. Our society (certainly our politicians) send the message, "You have to take care of you. Don't look to (government, charities, friends, family, etc. -- fill in the blank) to take care of you. Get to work and support yourself." And the thing is, that's really all the unemployed want to do. They want good opportunities where they can show their stuff. When an employer says, "Only employed candidates need apply," they're saying, "If you're unemployed, you're not good enough for us." And that is an outrage.

Mark Ruquet may be correct -- this may just be a way for employers to wade through piles of resumes. I call that a lazy human resources practice. Part of the HR function is to keep the company's talent pipeline filled with good prospects. Is eliminating candidates who lost jobs during a horrible recession caused by a meltdown in the housing market really the best way to fill that pipeline? I don't think so.

I won't wish ill fortune on these employers whom Ruquet charitably calls "shortsighted." Rather, I'll wish bountiful success on those employers who don't take the lazy way out, who know that a lot of talent has been involuntarily forced off the playing field in the last three years, and who give the unemployed a chance to prove themselves. And I sincerely hope that insurance agencies and brokerages make up a large share of that group of employers.

My blood pressure should recede to normal levels in a few minutes. The next post will be about insurance, I promise.

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Is There Liability Coverage For After-School Zumba?

Question from an IIABNY member: Our insured, a school, is thinking of offering a Zumba (fitness class) for all staff at the school after work hours.  The instructor operates independently; the insured would be paying her directly. How would this fall as far as liability insurance on the school?  I hope it does not fall under Workers Compensation.

Answer: If one of the teachers were to suffer an injury during a fitness class, I don’t think the school's Commercial General Liability policy will provide coverage because of the Workers’ Compensation and Employer’s Liability exclusions. I also think it's questionable as to whether Workers’ Comp would apply since it’s unclear as to whether the injury would arise out of the claimant’s employment (a Workers' Comp law judge might have to rule on that one.) The most likely source of coverage might be the Employers Liability section of the WC policy. If the injured person is considered to be an employee at the time of the injury, then this is the coverage that should apply. Otherwise, the CGL should apply (the person is either an “employee” at the time of injury or not; if not, then the CGL applies.)

The CGL should apply to the fitness instructor’s injury or property damage she may suffer while on your insured’s premises.

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Does a Condo With Paid Parking Need Garagekeeper's Coverage?

Question from an IIABNY member: If I have a co-op or condo building that has a parking garage or lot that is gated and/or there is a charge for the parking spot, does that constitute care, custody and control by the association so that a Garagekeepers Legal Liability policy is needed, since the General Liability policy excludes CCC?

Answer: This turned out to be a pretty interesting question, and my usual reference materials have proven to be not much help with it. The best answer I can give you is that this is a gray area, particularly because the insured is charging drivers to park in the lot or garage. A reasonable person could make a case that charging for parking spots puts the insured in the business of parking cars, which is a garage operation. On the other hand, parking cars is an ancillary operation, not the insured’s primary one. 

I think it would be worth having a discussion with the underwriter about adding to the Business Auto Policy endorsement CA 99 37 03 06, Garagekeepers Coverage. This gives Garagekeepers coverage to an insured who does not qualify for a Garage policy. It defines “garage operations” as “the ownership, maintenance or use of locations for the purpose of a business of selling, servicing, repairing, parking or storing ‘customer's autos’…” “Customer’s auto” is “a land motor vehicle, ‘trailer’ or semitrailer lawfully within your possession for service, repair, storage or safekeeping, with or without the vehicle owner's knowledge or consent.” This appears to fit the situation you described. The open question is whether the CGL insurer views the paid parking lot as a garage operation. If yes, then your insured needs to buy this endorsement.

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