Testimony Delivered on
January 29, 2008 at the New York State Insurance Department Hearing on Proposed For-Proft Conversion of HIP/GHI
Thank you for the opportunity
to testify on the application of HIP/GHI, merged entities under the umbrella name Emblem Health, to convert to for-profit
status. New Yorkers for Accessible Health Coverage (“NYFAHC”), a coalition of
over 50 voluntary health and allied organizations representing the interests of the seriously and chronically ill, disabled
and elderly in the insurance system, opposes granting the current application. While
we will set forth at length the reasons for our opposition, we recognize that the Department has itself invested considerable
time in making the application one it can approve. For that reason, we will also
discuss in this testimony some essential consumer protection mechanisms should the application be approved.
One of the statutory criteria
you must consider in judging this application is whether it serves the interest of the public in delivery of health care benefits
and services. NYFAHC believes that interest is best protected when there exists a strong non-profit sector providing coverage
for such services, and when the public has faith that resources committed to nonprofit health care institutions will remain
committed to the institution’s nonprofit mission. Therefore, the Superintendent
should only approve the conversion of non-profit organizations to for-profit corporations as a last resort, only when the
non-profit is no longer able to carry out its mission.
Another statutory criterion
you must consider is whether granting the conversion application will lead to continued or increased access to health coverage.
We believe that the Department should apply this criterion from the perspective of the Governor’s initiative, recently begun,
to expand coverage health coverage universally to all New Yorkers. It should only authorize those changes in the structure
of our health insurance market which contribute to increasing access to more affordable health coverage.
The burden should be on HIP and
GHI to show that conversion would meet these two tests. In this case, we do not
believe that either test has been met.
I. The conversion has not been shown to be necessary
The reasons for conversion
posited by HIP, a company enjoying considerable financial health, and GHI, a company still building its reserves but nevertheless
currently able to operate on a financially sound basis, seem to be based on entrepreneurial hopes rather than a demonstration
that conversion is the only way they can fulfill their non-profit missions. The
conversion plan is stated, truthfully, in tentative and speculative terms, expressing fear that the companies could be relegated
to second tier status, that they might be unable to devote sufficient resources to development if they cannot get financing
from equity markets, and similar possibilities.
Taking a page from Empire
Blue Cross’s book, the applicants have projected the same benefits from conversion that Empire Blue Cross predicted five years
ago. Those promised benefits for Empire and the State (that Empire would raise money for its competitive improvements
through stock offerings, and that it would remain a locally controlled, responsive insurer) were never realized. Empire
neither relied on public stock offerings to raise capital nor did it remain a local company, being acquired by a national
for profit Blue Cross behemoth.
Emblem Health would in some
ways be an easier acquisition target than Empire. It is smaller, and no barriers
of the sort associated with retention of the Blue Cross trademark restrict the universe of potential buyers. New York should learn from experience, and experience tells us that conversion may simply
facilitate a more concentrated insurance market dominated by an oligopoly of national commercial insurers.
HIP/GHI have suggested some
alternative rationales supporting the conversion. They say that conversion to
an equity company would facilitate re-entry into the New Jersey market, a necessary step for a credible regional insurer,
because they can issue stock when acquiring a New Jersey operation instead of coming up with cash. It is hard to imagine, however, that they would be unable to make such acquisitions only in that way. HIP has been on a buying spree in recent years, acquiring other health plans, including
for-profit plans, on Long Island and in New Jersey and Massachusetts. It has
over $400 million in excess reserves and could surely use the stock of some of its more far flung existing operations, including
its for-profit subsidiaries in other states, as a means of payment right now.
HIP/GHI have also asserted
that conversion would enable them to enter into closely associated lines of business, such as life insurance and sale of health
savings accounts, which are off limits to them now as Article 43 corporations. While
the statement is technically true, it requires a great leap of faith to assume that enabling such diversification will somehow
encourage or facilitate broader offering of affordable health coverage. HIP’s
previous adventures in other states, including New Jersey and Florida, do not suggest that diversion from core mission necessarily helps the financial
picture.
In short, HIP/GHI have suggested
some advantages that might be gained from the conversion, but have shown neither a compelling need to convert nor that the
speculated advantages outweigh the negative effects of further eroding the nonprofit health sector, in fact depriving downstate
New York of any significant nonprofit health insurers at all.
II. The conversion will not promote access to
affordable coverage.
For the past four months,
the Department has been one of lead agencies in the Governor’s Partnership 4 Coverage process.
In hearings around the state, broadly representative consumer and provider groups have repeatedly testified about the
ways in which commercial insurers stand as obstacles to decent coverage or access to care.
Many pointed the finger at currently low medical loss ratios as contributing to a lack of affordable of coverage, and
thus as an obstacle to expanding coverage.
Unfortunately, it appears highly
likely that premium increases will result from the proposed conversion. HIP/GHI
state in their conversion plan that one of the key advantages to conversion will be that they will no longer be subject to
a 15% cap on administrative expenses, allowing them to invest resources in more aggressive medical management. Being free to decrease the percentage of premium revenue spent on benefits and increase administrative
expenses in fact frees revenue for a wide variety of purposes, including dividends
to investors and high executive salaries. What it does not do is contribute to
maintaining lower premiums. Intuitively, higher premiums appear likely, especially
in those markets, such as among New York City municipal employees,
where GHI and HIP have been each others’ chief competitors.
Our prediction is, of course,
speculative. There is insufficient information in the current conversion plan
for the Department to assess the likely effects on premiums for consumers. We
asked GHI whether its consulting actuaries had studied the likely effects, and were advised that they “do not have a comparative
premium study comparing products and premiums by line-of-business for periods before and after conversion.” While they noted that such a study would not be able to be publicized, under SEC regulations, the same
restrictions would not seem to prevent the Department from examining and evaluating such a study.
Before deciding whether to approve this application, the state should require an actuarial study, broken down by line
of business, of likely effects on premiums. If that study finds that premiums are likely to increase as a result of
the conversion, the application should certainly be denied, as it will undercut the state's effort in the coming year to make
coverage universally accessible at an affordable price.\1\ Any one-shot infusion of conversion dollars
into state coffers will not offset the additional long term costs the state will have to bear when it tries to bring coverage
to all New Yorkers if it changes the structure of the market in a way that makes coverage more expensive.
III. If conversion is authorized, consumer protections must be strengthened.
The correspondence between the
Department and Emblem Health posted on the website demonstrates that the Department has raised serious and important questions
regarding the effect on consumers of the merger of the two companies which is being realized simultaneously with and as part
of the proposed conversion. In at least four respects, vulnerable consumers are
at risk:
A. Differences in clinical care standards: GHI and HIP,
while determining that they have few differences in utilization review and other clinical standards, have identified about
10% of standards which differ to some degree. They have offered that consumers
affected by a merging of clinical care standards should be able to continue current courses of treatment for some limited
time. However, consumers who have been maintained on therapies that are working
for them, approved by their insurer, whether those be particular drugs on a formulary or other therapies recommended by their
doctors, should not be forced to switch therapy simply because the insurer has assigned its contract to another entity. While Emblem Health should be free to impose its unitary medical review criteria on
new claims for treatment, those who have set their treatment course under earlier medical review criteria of one of the entities
should be able to maintain that course of treatment in perpetuity unless the new insurer can show that the treatment has become
contraindicated for their condition.
B. Network changes: While the merged companies apparently
plan to offer all current providers in each entity’s networks the opportunity to participate in Emblem Health’s networks,
the possibility exists that the new entity will not offer sufficiently attractive deals to the providers, and there could
be much wider disruption of networks than is typical in times of transition. Consumers
with ongoing treatment needs related to chronic conditions should be protected from potentially broad disruption to the care
networks they have taken years to establish. The continuity of care provisions
of the Managed Care Bill of Rights may be insufficient to enable these consumers to change all their providers in the allotted
time. They should be able to continue seeing their old providers for up to a
year if those providers are willing to continue with the level of reimbursement previously earned under their contracts with
the companies.
C. Premium levels: Premium disruption is as much
a potential problem as provider disruption as risk pools are merged. One can
see wide variation in premiums between GHI and HIP. In the direct pay market,
for example, GHI currently charges about $1,000 more per month for a standardized individual
contract in New York City than HIP ($1600 vs. $600). The carriers’ small group products may well evidence similar discrepancies.
In the
case of the individual market, GHI has assured us that its pool is tiny compared with HIP’s, so that the merger of the two
risk pools will have minimal effect on HIP’s subscribers’ premiums while providing substantial reduction to GHI’s. The Department should insure that the positive effect of that pooling is spread across GHI’s entire
direct pay population, so that the tiny number of subscribers in some upstate counties outside HIP’s current service area
are folded into a single direct pay risk pool with thousands of others rather than isolated into a tiny unsustainable risk
pool of their own.
In the merging
of group insurance pools, where the disparities may not be so great and some groups may as a result experience significant
dramatic adverse rate effects from merger, the Department should limit the effects of those increases, if necessary limiting
the percentage of increase permissible in any given year as a consequence of the merger.
D. Safety net programs: While Emblem Health states its
intention to continue participating in the state programs, such as Family Health Plus, in which both GHI and HIP currently
participate, any national company that acquires Emblem Health a few months after its conversion may not be so disposed. The conversion plan as ultimately approved should mandate such continued participation
for a period of years – five years would be a reasonable minimum -- and be binding upon any successor or acquirer.
NYFAHC stands
ready to work with the Department in promoting affordable coverage for all New Yorkers.
We hope it will do so by denying the current conversion application. If
it does not deny the application, it must strengthen consumer protections for the most vulnerable consumers to avoid severe
adverse impacts from the proposed merger and conversion.
\1\ This is not the only respect
in which the conversion plan is too incomplete to enable evaluation of the public interest.
No details of the shareholder agreements under which the Public Asset Fund and the New York State Health Foundation
would hold Emblem Health stock are provided in the plan. They have apparently
not even begun to be negotiated. Without a review of those provisions, it is
impossible to know whether even the state will be realizing the full value of the charitable assets which are slated for conversion.
Post submitted by Mark Scherzer
New York State Attorney General Andrew Cuomo has launched an investigation
of health insurance companies' use of "usual, customary, and reasonable" charge (commonly referred to as "UCR")
provisions to improperly and fraudulently reduce the amount paid to policyholders for their medical claims. We believe
the Attorney General's investigation is timely and appropriate. We urge policyholders with UCR disputes to contact the
Attorney General's office and to consider seeking attorney representation, where appropriate, to defend their rights.
Most insurance plans and policies contain a UCR provision, stating that
while the plan will cover medically necessary care and treatment, the amount paid will be limited to the "usual, customary
and reasonable" charge for the care or treatment. In HMOs or the in-network portion of Point-of-Service ("POS")
plans (plans with in- and out-of-network benefits), the UCR provision is generally inapplicable because the plan has privately
contracted with network provider to pay at a pre-arranged rate. The patient makes his or her nominal co-payment,
and usually hears nothing further.
However, the UCR provision somes into play when treatment is sought
out-of-network in a POS plan or pursuant to a traditional "fee-for-service" indemnity insurance policy (an increasingly
rare policy under which the patient is free to select any physician or treatment, which is paid out of pocket, subject
to later submission of the claim, and reimbursement by the insurer). In such cases, the insurance company may determine
that the care or treatment is covered, but refuses to pay any amount in excess of the purported UCR.
Although New York law gives subscribers the right, on written request, to
know the fee the insurer will approve for a particular elective surgical procedure or treatment, most people are unaware of
this right and only learn that a reduction will be applied after the medical charges have been incurred. Having obeyed the
plan's preauthorization and coverage requirements, policyholders may be shocked to discover that their health care providers
(and their collection agents) are suddenly pursuing them to personally pay substantial unpaid balances.
Indeed, a recurrent problem is that the purported UCR rates are far below what health care providers charge
for their services in the real world. Moreover, because health insurers jealously guard the data and methodologies used
to determine what is a "reasonable" charge, such determinations remain shrouded in mystery - making it extremely difficult
for policyholders to evaluate or challenge the fairness of these decisions. Worse, policyholders may discover that their
employer has elected an 80%, 90% or other percentage-of-UCR reimbursement formula, so that the already low UCR rate may be
reduced even further.
Based on the number of UCR disputes brought to us by our clients, it
appears that health insurers are increasingly relying on UCR provisions to shirk their payment obligations. Here
is an illustrative example (the facts have been somewhat changed and simplified to protect the anonymity of our client):
The patient, a covered dependent child with developmental problems,
had a series of specialized and expensive surgeries over the course of a 2-year period. Because of the specialized care
required, the family elected to have the child treated by out-of-network providers. The family's health plan provided
out-of-network coverage at 80% of UCR (with the family responsible for a 20% co-pay), but also provided that the family
must first pay an annual $1,000 deductible, and that additional out-of-pocket costs would be capped annually
at a $2,500 maximum. The family reasonably understood the plan to have an annual $3,500 cap for out-of-pocket
costs (the $1,000 deductible, plus 20% of out-of-network charges up to, but no more than, an additional $2,500).
After that, the plan would pay 100% of all out-of-network charges for the remainder of the year. Plan payments
were made more or less in accordance with the family's expectations.
A year or two later, however, the family was shocked to receive a letter
from the insurance company notifying them that it had previously failed to apply the UCR rate and that now, having done
so, the family was liable for nearly $60,000 which the insurance company had allegedly "overpaid." When the $3,500
annual maximum (which would seem to limit the family exposure, at most, to $7,000 for a two year period) was pointed out to
the insurance company, it argued that its obligation to pay 80% of out-of-network charges at first, and 100% of
such charges after the $3,500 out-of-pocket maximum, was limited to its very low UCR. Consequently, the additional $60,000
constituted "excessive" fees, for which the family would have been expected - under normal circumstances - to haggle over
with their physicians and hospital.
In this case, the situation was further complicated because
the insurance company had not made its UCR determination at the time it originally processed the claims, so that it had already
paid the physicians and hospital. Instead of going after the health care providers and asking them to repay their
purportedly "excessive" fees, the insurance company, as noted above, instead sought reimbursement directly from the family. Worse,
in addition to requesting reimbursement immediately, the insurance company began withholding payment on current medical claims
as a way of recouping the purported overpayment.
This example illustrates the "gotcha" nature of UCR determinations.
Despite reasonably understanding their plan to cap their out-of-pocket liability at $3,500, and despite obeying all plan provisions in
terms of pre-authorization, etc., this family found themselves faced with $60,000 in medical charges.
New York does provide some limited protections, but few people are aware
of these protections, and insurers frequently flout their legal obligations. For example, New York Insurance Law, §3217
provides: “information [shall] be furnished to insureds regarding the method upon which the usual and customary or reasonable
charge is determined and the percentile of charges upon which the schedule is based.” As previously noted, policyholders
can use this law to request UCR rates for particular procedures or treatments in advance of receiving them. In our experience,
insurance companies have sometimes resisted providing such information on the grounds that it is "proprietary," or have otherwise
provided the information in such an excerpted or redacted manner as to make the information unintelligible and difficult to
evaluate.
For all the reasons set forth above, we believe that the health insurance industry's
use of UCR provisions is ripe for Attorney General investigation. As reported in a press release, the Attorney
General has, inter alia, filed a notice of intent to sue against UnitedHealth Group, whose subsidiaries include
United Healthcare Insurance Company of New York, Inc., and United Healthcare of New York, Inc.:
The Attorney General’s investigation found that by distorting the “reasonable
and customary” rate, the United insurers were able to keep their reimbursements artificially low and force patients to absorb
a higher share of the costs.
....Cuomo’s investigation also found a clear example of the scheme: United
insurers knew most simple doctor visits cost $200, but claimed to their members the typical rate was only $77. The insurers
then applied the contractual reimbursement rate of 80%, covering only $62 for a $200 bill, and leaving the patient to cover
the $138 balance.
The United insurers and many other health insurance companies relied on the
Ingenix database to determine their “reasonable and customary” rates. The Ingenix database used the insurers’ billing
information to calculate a “reasonable and customary” rate for individual claims by assessing how much a similar type of medical
service would typically cost, generally taking into account the type of service, physician, and geographical location.
However, the investigation showed that the “reasonable and customary” rates produced by Ingenix were remarkably lower than
the actual cost of typical medical expenses.
The United insurers and Ingenix are owned by the same parent corporation,
United HealthGroup. When members complained their medical costs were unfairly high, the United insurers hid their connection
to Ingenix by claiming the rate was the product of “independent research.” The Attorney General’s notice to United expressed
concern that the company’s ownership of Ingenix created a clear conflict of interest because their relationship gave Ingenix
an incentive to set rates that benefited United and its subsidiaries.
....Cuomo continued, “The lack of accuracy, transparency, and independence
surrounding United’s process for setting a ‘reasonable and customary rate’ is astounding. United’s ownership of Ingenix
coupled with the inherent problems with the data it is using clearly demonstrate a broken reimbursement system designed to
rip off patients and steer them towards in-network-doctors that cost the insurer less money.”
We hope that the Attorney General's actions will lead to greater transparency
and fairness with regard to the health insurance industry's use of UCR provisions. Persons with UCR disputes should be
aware that in addition to the steps being taken by the Attorney General, there may be other contractual provisions in their
own insurance policies, as well as other available legal defenses, on which they can rely to successfully challenge their
health insurance company. We are happy to report that based on just such defenses, we were able to reach a satisfactory
resolution for our client.
If you would like to read more about the Attorney General's investigation
of the health insurance industry's improper use of UCR provisions, please click on the following links:
Post submitted by Mark Scherzer and A. Christopher Wieber
