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Health Care Reform Primer: Independent Payment Advisory Board (Part 1)

It has been months since I added anything new to the health care reform primer. I covered virtually all of the insurance-related provisions last year, and the remainder of the Patient Protection and Affordable Care Act, while still important, is less relevant to IIABNY members. However, one of my original reasons for doing this series of posts was to combat the spread of misinformation about the law. I still feel that, while reasonable people may support it or despise it, they should take those positions based on what is actually in the law's text, not on what talk radio or letters to the editor say.

One provision that has been the source of frequent criticism is the creation of an Independent Payment Advisory Board (IPAB). The IPAB has been referred to as "the real death panel, the true seat of rationing, and the royal road to health-care socialism." Others have called it "the most promising cost control in the Affordable Care Act..." The rapid rise of health care costs is one of the problems the PPACA is supposed to address. So, is the IPAB part of the solution, or is it the first slide down the slippery slope of health care rationing? 

In this series of blog posts, I will summarize what the law says and leave it to you to decide whether this is good or bad. I expect that readers will differ on their conclusions, but at least you will know what the facts (as reflected in the law's text) are. For reference, all provisions relating to IPAB are in Title 42 of the United States Code, Section 1395kkk. 

What is the IPAB?

The IPAB is an independent board within the federal government charged with developing and submitting proposals containing recommendations to reduce the growth rate in per capita Medicare costs in any year in which the projected growth rate exceeds a target rate. (see subsection (b))

Who will sit on the IPAB?

The IPAB will have 15 members, nominated by the president and subject to confirmation by the Senate. The secretary of Health and Human Services, the administrator of the Center for Medicare & Medicaid Services, and the adminstrator of the Health Resources and Services Administration will be non-voting members. The members must have national recognition for their expertise in:

• Health finance and economics
• Actuarial science
• Health facility management
• Health plans and integrated delivery systems
• Reimbursement of health facilities

Other qualified individuals include allopathic and osteopathic physicians, other health service providers, those in related fields, "who provide a mix of different professionals, broad geographic representation, and a balance between urban and rural representatives." Health service providers cannot make up the majority of the board members.

Members will serve six-year terms and may serve up to two consecutive full terms. The chair of the board is also subject to confirmation by the Senate. (All of this is in subsection (g))

What power does the IPAB actually have? That's the subject of tomorrow's post.

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Employers Liability Coverage is Unlimited in New York, Except When It's Not

Question from an IIABNY member: When a certificate lists employers liability at :

• 100,000 each accident
• 500,000 policy limit
• 100,000 each employee

I always tell insured that in New York Employers liability is unlimited per the statute. Do you have something that proves this?

Answer: This is actually a little complicated because there isn’t a statute that mandates this. It’s more of a longstanding tradition. Also, the EL limits on the dec page may actually apply in certain circumstances. 

There is a 1988 New York Insurance Department advisory legal opinion on this topic. The last opinion the department issued on this was in 1990, and I think the 1988 opinion provides a better explanation. The attorney wrote in part: 

The workers' compensation carrier must "pay all sums" that the insured employer is legally obligated to pay third parties with respect to an employee's injuries which arose out of and in the course of employment, provided that, both the insured employer and the employee are subject to the New York State Workers' Compensation Law. [EMPHASIS ADDED]

The workers' compensation carrier may not impose any limit of liability for compensable injuries. The unlimited liability language of the New York Workers' Compensation Policy has been in effect for more than 40 years. The New York State Department of Insurance has never approved a workers' compensation policy form that would impose a limit on a carrier's liability for a compensable injury which includes the employer's liability. It is interesting to note that, the unlimited coverage for liability contained within Coverage B is a continuation of the coverage prevalent at the time the standard compensation policy was revised in New York in 1954. The concept of unlimited liability coverage originated in the insurance industry and was accepted by the Insurance Department when workers' compensation policy forms were submitted to the Superintendent of Insurance for approval.

Therefore, EL coverage is unlimited with regard to injuries and employments that are subject to the New York Workers’ Compensation Law. For example, a worker is in a scissor lift installing overhead piping when the lift collapses. He collects WC benefits but also sues the lift’s manufacturer, who in turn sues the employer, alleging improper use or maintenance. The employer’s EL coverage is unlimited for this loss because the injury and employment are compensable under the New YorkWC law.

In contrast, a worker borrows a power saw without permission from his employer because the motor burned out on his own saw. While at home on a weekend, he amputates a finger when the guard on the saw falls off. He sues the saw’s manufacturer, who sues the employer, again alleging faulty maintenance. Because this injury is probably not compensable under the New York WC law, the EL coverage is subject to the limits shown on the dec page.

Another example: Recently, a public school teacher near here got burned when his science experiment in the classroom went wrong. Put him in private school. If he sued the manufacturers of the equipment and supplies used in the experiment, and those entities in turn sued the private school, the EL limits on the school's WC policy would apply, because “people engaged in a teaching capacity in or for a nonprofit…educational institution” are not covered by the NY WC law while “performing teaching duties.” 

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When Is a Home 'Unoccupied' Under a Homeowners Policy?

Question from an IIABNY member: In a strict reading on the homeowners policy, after a period of the home not being occupied, coverage becomes limited. The question came up on clients who leave their summer homes in New York to go to their winter residence, such as in Florida. We have a disagreement in our office as to whether the summer home would be considered unoccupied under the policy. Is there a clear answer to this?

Answer: I found a 1999 New York appellate court decision that appears to address your question. In McCabe v. Allstate, which pertained to a seasonal home located in Saratoga County, the judge wrote: 

We next review Allstate's contention that it was entitled to summary judgment due to the following loss exclusion: "Freezing of plumbing, fire protective sprinkler systems, heating or air conditioning systems or household appliances, or discharge, leakage or overflow from within the systems or appliances caused by freezing, while the building structure is vacant, unoccupied or being constructed unless you have used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply and drain the system and appliances." We find plaintiffs' assertion that their house was not "unoccupied" in light of their continuing, albeit seasonal use of the premises, to be unavailing. Inasmuch as plaintiffs' primary residence was in Virginia and they concede that no one resided at or visited the house in Edinburg from September 1995 until March 1996, their claim falls squarely within the exclusion provision. This Court has previously determined that use of the word "unoccupied" in an insurance policy carries its ordinarily accepted meaning and that "[i]t is the regular presence of inhabitants that makes occupancy" (Coutu v Exchange Ins. Co., 174 AD2d 241, 244; see, Page v Nationwide Mut. Fire Ins. Co., 15 AD2d 306, 306-307). [EMPHASIS ADDED]

This decision has been cited by a federal court as recently as 2009, so it appears to still be a valid precedent. Consequently, it appears that the coverage limitations do apply to a home in New York that is unoccupied during the winter months.

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When a Carrier Terminates an Agency: Personal Lines Policies

Question from an IIABNY member: Can you please indicate where it is stated that an insured can request a one more year renewal for an automobile insurance policy after the required three successive one year policy periods, and if it also applies to personal lines insurance policies?

Answer: That’s not exactly what the law says. New York Insurance Law Section 3425(j)(1) states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:…

(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account;

As a side note: 

• Subsection (b) permits the insurer to cancel a policy for any reason in the first 60 days.
• Subsection (c) permits the insurer to cancel after day 60 and on renewals for non-payment of premium; suspension or revocation during the required policy period of the driver's license of the named insured or any other person who customarily operates an auto insured under the policy; and discovery of fraud or material misrepresentation in obtaining the policy or in making a claim under it.
• Subsection (f) permits the insurer to non-renew up to two percent of its auto policies in a given rating territory per calendar year.

What the above provision of the law is saying is that the insurer must offer to finish the auto policy’s required policy period (which is one year – see subsection (a)(8),) and, if the insured requests, offer to renew the policy through the terminated agent for three consecutive one-year policy periods. Here’s an example to illustrate:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Personal Auto Policy finishes the one-year required policy period on March 1, 2012

The carrier must offer to continue coverage under the policy until March 1, 2012. In addition, if the insured requests, it must offer to renew the policy through the terminated agent in 2012, 2013 and 2014. Effective March 1, 2015, it no longer has any obligation to offer a renewal.

With non-auto personal policies, it’s a bit different. The law states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period … and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period …

Here are two illustrations (in more understandable English) to show what this means. First:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2009, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2012.

The carrier must offer to continue coverage under the policy until March 1, 2012, it must offer to renew the policy through the terminated agent for the 2012-13 policy period, and, if the insured requests, must offer to renew the policy through the terminated agent for 2013 and 2014. Effective March 1, 2015, it has no obligation to offer a renewal.

Second scenario:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2010, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2013.

The carrier must offer to continue coverage under the policy until March 1, 2013, but it has no obligation to offer to renew the policy through the terminated agent after that. This is because the three-year required policy period ends more than a year after the carrier notified the agent of termination.

The rules surrounding a carrier's obligations to insureds when it terminates an agent are complex, but they boil down to when the carrier notifies the agent and when a policy expires.

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