State Insurance Commissioners Take Baton from Congress

batonNow that Congress has taken final action on its health care reform legislation, the reform debate has now shifted to, of all places, Denver.

The legislation that is now the law of the land was just the first step. Despite its size -- more than 2,000 pages -- the bill in many cases only lays out Congressional intent. In that sense, it is a framework for reform. The law requires that numerous new regulations be written to govern the way health insurers do business, a responsibility that Congress passed on not only to the U.S. Department of Health and Human Services but also to one very influential non-governmental organization: the National Association of Insurance Commissioners (NAIC). The bill mentions the NAIC -- an acronym most Americans probably only see once a year when they renew their cars' license plates -- at least 10 times, and it gives the organization some very important assignments.

Insurance Industry Executives Swarm Conference

The NAIC, which comprises the insurance commissioners from all 50 states, the District of Columbia and the U.S. territories, is having its spring meeting today through Sunday in Denver. The fact that more than 1,700 insurance industry executives are also at the meeting should give you an idea of how important the NAIC is to insurers. Just as members of Congress are far out-numbered by lobbyists on any given day in Washington, the commissioners are far, far outnumbered by insurance company executives who come to NAIC's conferences to try to influence everything the commissioners do.

The NAIC exists to help state insurance regulators achieve five primary goals: "protecting the public interest; promoting competitive markets; facilitating the fair and equitable treatment of insurance consumers; promoting the reliability, solvency and financial solidity of insurance institutions; and supporting and improving state regulation of insurance."

Every insurance company licensed to do business in the U.S. is regulated by state insurance departments and is assigned an NAIC code. (This is where your car's license tag comes in. The renewal forms you get from your state, if you live in one that requires you to buy auto insurance, as most do, ask for your insurance company's NAIC code.)

Congress gave the NAIC so much responsibility because the legislation it passed will largely be implemented at the state level, and states will have substantial flexibility to create new insurance marketplaces and set and enforce standards. To ensure that the marketplaces be as uniform as possible, Congress gave the NAIC the responsibility of developing specific standards pertaining to the creation of the health insurance "exchanges" created by the new law. Because insurance companies will want to sell their policies through the exchanges, they will be "advising" the NAIC as it goes about its work.

Expenditures on Policyholders Considered a "Loss"

The NAIC also will play a key role in making sure insurers spend at least 80% to 85% of what they collect in premiums on medical care for their policyholders, as the new law requires. The amount insurers pay for care is called the medical-loss ratio (MLR). (It's telling that insurers consider the amount of premium dollars they spend on medical care a loss.) The average medical-loss ratio was 95% in 1993, meaning that 95 cents of every premium dollar insurers collected was paid out in claims. By 2008, the average MLR had dropped to around 80%. At many insurers, the MLR often dips into the 70s or lower.

The Devil is in the Definitions

The insurance industry tried unsuccessfully to strip the minimum medical-loss ratio provision from the bill. It wanted to have the freedom to keep spending less and less on medical care because every dollar not paid out in claims is a dollar that can be used instead to increase profits and to pay CEOs millions of dollars every year. Having lost the battle on Capitol Hill, the insurers are now turning their attention to the NAIC, which Congress gave the responsibility of determining the nitty-gritty details of how insurers will have to comply with the law. Rest assured that the insurers will be pulling out all the stops to persuade the insurance commissioners to make it easy for them to meet the requirements of the new law by manipulating the definition of medical care. One of the things insurers will try to do, for example, is to get the NAIC to let them shift a lot of what insurers now count as administrative expenses into their medical expense category. If that happens, the insurers will look like they're suddenly spending more on medical care without changing anything at all.

The law also requires the NAIC to help the Department of Health and Human Services develop numerous other regulations, ranging from making sure that documents pertaining to benefits and coverage limitations be standard throughout the industry, to determining how health insurance can be sold across state lines while maintaining consumer protections.

Watching Out for the Consumer's Best Interests

To ensure that consumers' interests are at least taken into consideration as the NAIC fulfills its mission, the organization several years ago established a consumer liaison committee. This year the NAIC expanded the committee to include 29 consumer representatives from across the country. I am honored to be one of them, representing the Center for Media and Democracy. Like the commissioners, my colleagues and I are vastly outnumbered by the hundreds of insurance industry executives here at the Denver meeting, but at least we have seats at the table.

During the weeks and months ahead, I will try to keep you informed of how the NAIC fulfills its obligations under the new law. It doesn't have a lot of time to get everything done. In order to provide the states with enough time to prepare for implementation of health care reform, HHS has to have regulations and standards in place within the next 12 to 15 months, if not sooner, which means the NAIC will need to complete a tremendous amount of work in a short period of time.

At a meeting with the commissioners this afternoon (Friday, March 26), we stressed how essential it is that the consumer perspective not get lost as the NAIC rushes to get the work done. We asked specifically that the NAIC:

  • create a publicly-accessible "plan of action" developed with input from consumer representatives;
  • fully incorporate consumer advocates into the NAIC health reform work plan;
  • prioritize their tasks based on the needs of consumers; and
  • significantly expand consumer participation at NAIC proceedings.

Many of the commissioners -- in particular Mila Kofman of Maine, who once served as a consumer representative, and Joel Ario of my state of Pennsylvania -- expressed support for our requests. We're hopeful.

Others Who Are Helping

I am in very good company on the NAIC consumer liaison committee, by the way. I'm honored to be a part of the group and will do my best to make sure the regulations the NAIC develops are not skewed in the industry's favor. Here are the other members:

  • Elizabeth Abbott, Health Access (California)
  • Stephen Alexander, Insurance Consumer Advocate and Actuary (Florida)
  • Amy Bach, United Policyholders (California)
  • Deeia Beck, Office of Public Insurance Counsel (Texas)
  • Brendan Bridgeland, Center for Insurance Research
  • Bonnie Burns, California Health Advocates
  • Kimberly Calder, National Multiple Sclerosis Society
  • Sabrina Corlette, National Partnership for Women and Familes
  • Brenda Cude, University of Georgia
  • Stephen Finan, American Cancer Society Cancer Action Network
  • Evelyn DeCalos Gay (Langga), Georgia Legal Services Elder Rights Project
  • Howard Goldblatt, Coalition Against Insurance Fraud
  • Melvin Butch Hollowell, Michigan Insurance Consumer Advocate
  • Bonita Kallestad, Mid-Minnesota Legal Assistance, Western Minnesota Legal Services
  • Timothy Jost, Washington & Lee University
  • Karrol Kitt, The University of Texas at Austin
  • Peter Kochenburger, University of Connecticut School of Law
  • Sonja Larkin-Thorne, Consumer Advocate (Connecticut)
  • Kevin Lucia, Georgetown University Health Policy Institute
  • Georgia Maheras, Health Care for All (Massachusetts)
  • Stacey Pogue, Center for Public Policy Priorities (Texas)
  • Lynn Quigley, Consumers Union
  • Barbara Rea, Equality State Policy Center (Wyoming)
  • Mark Schoeberl, American Heart Association
  • Dan Schwarcz, University of Minnesota Law School
  • Naomi Senkeeto, American Diabetes Association
  • Barbara Yondorf, Colorado Health Care Institute


Dear Mr. Potter, Your combination of ethics and knowledge of the insurance industry is exactly what is needed in today's times. Please keep up the good work!

It looks like the various dept's of insurance have a herculean task of trying to figure out what this bill means and how to enforce it. Hopefully it will all make more sense soon.

Dear Mr. Potter, As the new legislation moves from framework to execution, ongoing creative ideas to increase access to healthcare and better service are essential. Since you know the insurance industry intimately, are well-connected and are passionate about this issue I want to plant the seeds of an idea past you and your community. Many of the problems with the system stem from the fact that insurance companies have a remit to be profitable and increase shareholder value. I don't begrudge them this because they never said they were charities. However, lacking a public option for competetion why not form a member-based, non-profit insurance company? It's mission would be different - providing healthcare insurance for anybody who joins and timely payment to the providers. At the end of the year any profits, less a small development or rainy day fund, would be refunded to its members. How? Assemble the right cast of characters to takeover a current for-profit insurance company, one that is undervalued and fledgling, in a private equity sort of deal. Is it feasible? I'd run with it if I came from the industry myself. Think member-based business league (501c6) not charity. J

...don't seem to operate much differently from for-profit insurance companies. My health insurance, for example, is with Rocky Mountain Health Plans, the company that denied health insurance coverage to a baby it deemed to be [ too fat]. It happened that the child's father worked as a reporter at the local NBC TV station, and he made a news story out of it. After that, RMHP quickly covered the child. Anne Landman

I think this is a great idea. I know there are a few companies out there but we need to create a non-profit to compete with the health insurance giants.

Many, many decades ago, before the age of McCarron/Ferguson, state insurance commissioners put into effect uniform regulations that provided a two year contestibility period (one year in Missouri and possibly other states) the made the law that a life insurance policy after which a policy cannot be yanked on the basis of minor errors on the application except in the case of gross fraud. Why, oh, why the same model of regulation have not be applied to health insurance products in which after a year or so contestibility period coverage could not be yanked. Also, state insurance commissioners did a splendid job many years later in cleaning up the fraud and confusion that permeated the Medicare supplement insurance products with the alphabet soup of standardized choices. As far as insurance companies delaying and denying coverage to the point of causing death, I believe that a national emergency adjudication board be instituted with the power to force coverage in the case of iminent death or permanent morbility and disability if the full extent of the treatmen is denied by insurance company bureaucrats. I would also like the board to have the power to petition the courts to have repeat offending companies placed into receivership as the ultimate "death penilty" (considering the the Supreme Court, packed with ideological 'crackpots' have ruled that a corporation is a 'person') with investor equity being canceled. This would change behavioral pressure that investors subject insurance company bureaucrats balance of placing bottom line returns ahead of life!

Dear Mr. Potter: I write this comment as a member of AWHLICWUHCS-ARAHCAWTACJ, meaning: Americans Who Have Lived In Countries With Universal Health Care Systems - And Regard American Health Care As Worse Than A Cruel Joke. I was disappointed not to find any executive from this organization named to the NAIC Consumer Liaison Committee. Our organization wishes to remind you of the 1995 novel by John Grisham entitled "The Rainmaker". Surely, you and everyone reading here has enjoyed reading that book about the health care insurance industry. One of our members who lives in Memphis comes up with the following suggestions. I think she has an excellent proposal. 1. Establish a new television channel called INS-SPAN. 2. Center a podium which contains nothing but a pitcher of water, a glass, and a Large Print copy of THE RAINMAKER. 3. When any health care insurance carrier has been found guilty of law breaking in effort to cheat those persons insured, and by extension the American public, the judicial sentence should oblige the appearance of that firm's CEO at the podium for a minimum of one eight-hour day, time increased by factors of calumny. 4. This CEO will pick up THE RAINMAKER and continue reading the book aloud to the American People from where the last-sentenced s.o.b. left off. If the end of the book is reached, it is started over from the beginning. The audience physically present for the reading should be limited to this executive's immediate family. Since we have no member on the committee, we ask you to champion this proposal with your colleagues. Thank you. Naturally, we wonder if any of those chosen have lived outside the United States and received health care under a =universal= system, but we do not demand the answer. --Trylon

Mr Potter, Thank you for your efforts and for finally coming 'out of the closet' last year, as it was. I was deeply touched by your speaking of going to the health care expedition in Virginia, and wit the pictures you took at it. You spoke of wishing you could take members of congress to one of these so they could get a first hand look at how bad it really is out here. How about this - can you take the lead on bringing one to Washington DC and hold it on the Mall? While making sure congress is in session? They would have no way to say they don't really know what is happening, and maybe we can give people like Dennis Kucinich the backing he needs to start a serious push for universal care from what we now have, which is better but still not what is needed. Is it possible? Could you be the one to help coordinate it?

Mr. Potter, After viewing a recent documentary on your "coming out of the closet" as Mr. Bates writes, I applaud you for having the strength and courage to do what is right and continue the fight for it. I wish I had the opportunity to attend one of your speaking events. I don't know if this is a reply that is properly directed towards Mr. Bates or to you. However, I respectfully ask the question, has it not been considered that congressional members really do know "what is happening" with regard to the health care crisis in this country? The 'town hall meetings' that most representatives had in their states should have provided the insight into part of the problem if the numerous calls and letters weren't enough. Is it possible that congressional members choose to say they don't know simply to retain the support of the constituents on both sides of the health care issue? Members look innocent by saying they don't really know what is going on but how is this possible? It's not new information that premiums continue to increase and insurance companies continue to report record profits while more people file bankruptcy or die because they can't afford insurance, treatment/care. People, insured and not, have been paying the price in an unfair and downright appalling insurance process for a long time. I have worked on both sides of the industry. It is more believable that nearly all congressional members are informed and possibly have found it difficult to turn down any money offered by controlling companies i.e, big insurance co, drug co,with powerful lobbyists that work to keep things the same, simply to further their own political careers while keeping money in the pockets of those big companies. With this process, it's a win- win for the politicians and the insurance companies. Just how does one ensure a congressional member is not being corrupted in a system that claims to represent the people? Perhaps if we solve this piece, 'we the people' can be sure the power struggle is no longer favoring of big insurance and is truly working for the people. Thank you for all that you are doing to make it right!

Thanks for a great informative story. It's good to know that you're part of this group and will watch out for the best interests of the public while creating the basis for this new plan. Will continue to follow your progress and comprehensive information.