Regulatory News

States Decry Health Exchange Dilemma

November 7, 2011

In a letter to U.S. Health Secretary Kathleen Sebelius released late last week, state governors claim that some of the federal healthcare law’s requirements related to exchanges may have a negative effect on the autonomy of those states.

The decision to implement health insurance exchanges requires a number of complex policy decisions amid aggressive timelines," wrote the National Governors Association on Nov. 2.

"States can only make suitable decisions if provided with complete and timely information regarding the structure of a state-federal partnership, essential health benefits and the design of a federal exchange," it added.

Governors representing both parties signed the letter, including Iowa Governor Terry Branstad, a Republican, and Illinois Governor Pat Quinn, a Democrat. The governors represent the association's health committee.

The exchanges, called the Health Benefits Exchange and required by the nation’s health care overhaul signed into law by President Barack Obama give states the option of creating exchanges alone, joining with neighboring states or opting out entirely, which would result in the federal government establishing exchanges within their borders.

"States would be required to cede many operations that have been traditionally handled at the state level, such as Medicaid eligibility," the governors wrote about all three exchange versions.

States have invested taxpayer resources in state-based eligibility systems since the Medicaid program began and want to avoid duplication of effort," the letter added.

The federal government also would not send funding to states for establishing new exchange functions after 2012, which could lock them "into an all-or-nothing approach."

The governors wrote that this could hamper development of exchanges because currently "many states are undecided on implementation strategies because of various uncertainties, including the lack of final rules and regulations."

The law, signed in 2010, gives states great latitude in establishing exchanges, which has left many scrambling to build computer systems, hire staff and design exchanges from scratch.

In the letter, the governors asked the federal government to take over areas where they do not have current operations, such as facilitating advance payment of premium tax credits to insurers. They also sought help in certifying technology and software, such as a benefits calculator, that states could build upon for their exchange systems.

NAIC Amends Annuity Disclosure Model

October 13, 2011

Since the cancellation of its Summer National Meeting due to Hurricane Irene, members of the National Association of Insurance Commissioners (NAIC) have been scrambling to catch up on some unfinished business.

Yesterday via conference call, the NAIC Joint Executive/Plenary Session met to consider outstanding agenda items.

Among the actions taken on the call, the NAIC made determinations regarding the way annuities are sold. Specifically, NAIC adopted amendments to Annuity Disclosure Model Regulation (#245) intended to increase uniformity, improve disclosure and reduce consumer confusion with regard to the purchase of annuities. The rules provide insurers uniform guidance on developing disclosure information and also address the increasing use of annuity illustrations during the sales process.

Additionally, NAIC voted to adopt an insurer bulletin on Stranger-Originated Annuity (STOA) Transactions that encourages insurance companies to establish safeguards to prevent or limit exposure to STOA transactions.

Lastly, the NAIC adopted a new Consumer Guide to Earthquake Insurance that “promotes earthquake awareness and facilitates financial preparedness through the understanding of” earthquake insurance.

“I would like to thank the members and staff of the NAIC for working so hard to keep the organization on schedule despite the challenges of Hurricane Irene this summer,”  NAIC President and Iowa Insurance Commissioner Susan Voss said in a statement. “It is always best when we can convene as a group face-to-face, but when things do not go as planned, it is important to stay focused and flexible.”

Flood Insurance Bill Moves in Senate

September 7, 2011

With the clock ticking, the Senate Banking Committee will reconsider the fate of the National Flood Insurance Program tomorrow.

The committee will debate the Flood Insurance Reform and Modernization Act of 2011, which aims to extend financing of the NFIP until 2016. Unlike the temporary extensions passed over the past few years, the bill would significantly restructure the cash strapped program by expanding mandatory coverage areas and introducing actuarially sound rates by enabling the Federal Emergency Management Agency to increase premiums by 15 percent per year.  In addition to establishing a Technical Mapping Advisory Council to more accurately map flood plains, the act also grants FEMA additional authority to collect information on claims payments from private insurers participating in the Write Your Own program.

Though the bill passed the House by an overwhelming margin in July, it’s path through the Senate is less certain. Many hope the recent spate of flood events, including the damage seen from Hurricane Irene will impart a sense of urgency regarding the bill’s fate.

“As Irene brings more attention to the issue, we are hopeful that the Senate will take meaningful action on NFIP reform, rather than resorting to a short-term extension,” Jimi Grande, SVP of federal and political affairs for the National Association of Mutual Insurance Companies said in a statement. “Allowing the NFIP to expire, or returning to the ‘fits and starts’ of repeated short-term extensions often mixed with repeated lapses, would be a disaster. While the NFIP is set expire on Sept. 30, the hurricane season isn’t. Major storms could strike the U.S. well into November, and Congress must do its part to ensure that the NFIP will be there when the American people need it."

NAIC Concerned About Health Exchange Loophole

August 16, 2011

One of the primary features of the Affordable Care Act is the establishment of state-based health insurance exchanges.

The National Association of Insurance Commissioners (NAIC) is urging the U.S. Office of Personnel Management (OPM) to avoid opening a loophole that would disadvantage smaller insurers. In a letter to OPM,  NAIC President and Iowa Commissioner of Insurance Susan Voss said that the Multi-State Plan program envisioned for the exchanges could provide some of the nation’s largest insurers with significant market advantages.

“Insurance Commissioners and the NAIC have serious concerns about the potential for market disruption and adverse selection, and the resulting negative impact on consumers and health insurance markets which would arise if Multi-State Plans are allowed to operate under different rules than their competitors.” Voss wrote.

Beginning in 2014, OPM is charged with contracting with at least two health plans to be automatically sold on every state’s Exchange as “Multi-State Plans.”  NAIC’s concern is that language within the law could exempt Multi-State Plans from state consumer  protection laws and regulations, such as those governing unfair trade practices, unfair claims practices, network adequacy, external review and marketing. Voss said this would amount to separate sets of rules for large Multi-State Plans.

“One of the primary concerns raised by Multi-State Plans is that they have the potential to create an unlevel playing field within Health Insurance Exchanges,” the letter states. “If the standards imposed upon MultiState Plans are less stringent than those imposed upon others, Multi-State Plans will benefit from an advantage and will draw business away from those plans that are subject to state laws.  This could become particularly problematic if this unlevel playing field creates an opportunity for Multi-State Plans to attract healthier risk or avoid sicker risk than their competitors.”

Is Accounting Convergence Still Inevitable?

August 4, 2011

While the concept of unified global accounting standards enjoys broad appeal, the efforts of the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) to forge them have proven difficult.

Indeed, as the two boards have held joint meetings this year the disagreements over which accounting principles to embrace have proven to be profound. Last week Reuters published an account quoting CEOS and CFOs questioning the feasibility and desirability of moving the Generally Accepted Accounting Principles (GAAP) used in the U.S. toward the International Financial Reporting Standard (IFRS) championed by IASB.

Deloitte Touche Tohmatsu Ltd., (Deloitte) which issues monthly newsletter tracking the progress of the negotiations, titled its latest “Progress continues, divergence remains.” One of the primary sticking points is the methods used for accounting for the uncertainty of cash flows expected from short-term contracts.

As the boards work on the miniature of convergence, insurers and companies across all industries are awaiting a decision by the Securities and Exchange Commission whether or not it will approve the use of IFRS. Although the decision is expected sometime later this year, the SEC has published a roadmap for the potential use of IFRS.

Against this backdrop, Hans Hoogervorst newly minted Chairman of the IASB, spoke in China last week about the importance of converged financial reporting standards. “An important piece of the IFRS jigsaw is encouraging the United States to come on board,” Hoogervorst said, noting that IFRSs are already permitted for use by non-US companies listed on U.S. markets.

Hoogervorst said the SEC decision regarding incorporating IFRS into the U.S. financial reporting regime for US companies is of the utmost importance.

“The United States already has high quality, mature financial reporting standards,” he said. In fact, U.S. expertise has been a very positive influence on the development of IFRSs. So objections regarding the cost of transition and perceived loss of sovereignty must be handled in a sensitive manner. Difficult as the decision may be, it is hard to imagine the possibility of the United States not taking a positive decision. U.S. investors invest globally and U.S. companies seek international capital, and it is in the economic interest of the U.S. to adopt IFRSs.”

Hoogervorst noted that as a signatory to G20 communiqués, the U.S. has repeatedly expressed its support for global accounting standards.

“But the main thing is this: if you believe in a global language for financial reporting, then IFRSs are the only possibility,” he said. “I am convinced that the United States will want to maintain its position of leadership in international financial reporting, and therefore it is hard to fathom a negative decision on the part of the SEC.”

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