Insurance Legal News - May/June 2011

Governor Appoints New Insurance Commissioner

On April 16, 2011, Michigan Governor Rick Snyder appointed Kevin Clinton as the new Commissioner of the Office of Financial and Insurance Regulation ("OFIR"). The appointment comes after former Commissioner Ken Ross announced his resignation on April 12. Mr. Ross had served as commissioner for just over three years of a four-year term.

Prior to his appointment, Mr. Clinton served as the president and CEO of American Physicians Capital, Inc., an East Lansing-based medical professional liability insurer. Mr. Clinton had also served as a special advisor to OFIR, and earlier in his career had worked for the Michigan Insurance Bureau, which is now part of OFIR.

In a press release,1 the Governor stated that "[a]s the new insurance and banking commissioner, Kevin Clinton's first priority is to make sure consumers are protected by making sure financial institutions are sound. He will also lead our effort to eliminate burdensome regulations that are preventing the industry from growing."

HHS Finalizes Rules On Health Insurance Rate Review Process

by Cynthia A. Moore

On May 19, 2011, the United States Department of Health and Human Services ("HHS") released its final rule regarding the disclosure and review of unreasonable premium increases for health insurance issuers under Section 2794 of the Public Health Service Act ("PHS Act"), one of the changes made by the Patient Protection and Affordable Care Act. The final rule largely follows the proposed rule published on December 23, 2010.

Under the final rule,2 any rate increase of 10% or more in the individual or small group health insurance market is subject to review. "Individual market" and "small group market" are each defined by reference to state law. If state law does not define these markets, then the PHS Act definitions will apply, except that a small group means an employer with 50 or fewer employees. The rate review process does not apply to grandfathered health plans or to "excepted benefits," such as limited scope dental or vision plans. HHS is requesting comments on whether individual and small group coverage sold through an association plan should be subject to the rate review process.

The Department of Health and Human Services is expected to release lengthy regulations related to the operation of the state health insurance exchanges in June. In addition to addressing IT systems and infrastructure requirements, it is anticipated that the regulations will clarify administrative obligations of states as they make preparations in advance of implementation of the exchanges in 2014.

Centers for Medicare & Medicaid Services ("CMS") to have an effective rate review process. If CMS determines that a state does not have an effective rate review process, then CMS will conduct the rate review process. CMS will decide whether each state has an effective rate review process by July 1, 2011.

The initial threshold amount for triggering a rate review is an increase of 10% or more for the 12-month period beginning September 1, 2011, and applies to rate increases filed in a state on or after September 1, 2011, or effective on or after September 1, 2011, in a state that does not require a rate increase to be filed. In future years, CMS will determine a state-specific threshold which will be announced on June 1 and apply for the 12-month period beginning on the following September 1. If a health insurance rate increase exceeds the 10% threshold, the insurer must file a Preliminary Justification with CMS and the state prior to implementing the rate increase. CMS will post portions of the Preliminary Justification on its website. The website will contain a disclaimer explaining the purpose and role of the Preliminary Justification and a process for accepting comments from the public on rates that CMS will review.

If CMS conducts the rate review, it will determine if the rate increase is unreasonable because the rate is excessive, unjustified, or unfairly discriminatory. If CMS determines that a rate increase is unreasonable, CMS will notify the insurer and, if the insurer implements the rate increase, the insurer must provide a Final Justification to CMS and prominently post information on its website relating to the rate increase, including the Final Justification. The Final Justification will also be posted on the CMS website.

If the state conducts the rate review, the insurer must follow state guidelines on when the proposed rate increase must be filed with the state. The state will determine whether the rate increase is unreasonable under its statutory and regulatory rules, and CMS will accept the state's determination. If the state determines that the rate increase is unreasonable, the insurer may implement the rate increase if allowed by applicable state law.

According to a fact sheet issued by HHS simultaneously with the final rule, the rate review process under PHS Act Section 2794 and the final rule is intended to bring greater scrutiny and transparency to the health insurance rate review process. Consumers will be able to review the factors driving increases in health care costs, which will allow them to understand why they are paying the rates that they are, and thus ultimately may help bring down costs for consumers.

RECENT CASE LAW SUMMARIES

Conservator's Fees Are Compensable As "Allowable Expenses" Under The Michigan No Fault Act

by Ryan M. Shannon

In May v Auto Club Ins Ass'n, 2011 Mich App LEXIS 746 (April 26, 2011), the Michigan Court of Appeals held that a conservator's fees were compensable as "allowable expenses" under the Michigan No Fault Act. MCL 500.3107(1)(a).

Alan May was appointed as conservator for Edward Carroll in December of 2008. Mr. Carroll had suffered a closed head injury in a 1982 automobile accident which left him debilitated and unable to care for himself. For the next two and a half decades, Carroll's insurer, Auto Club Insurance Association ("Auto Club"), compensated Carroll's wife for his care. After the death of his wife in late 2008, Carroll's daughter placed him in an adult foster care home and sought a formal guardianship. May was appointed as Carroll's conservator in subsequent proceedings.

When May filed a petition seeking fees in March of 2009, Auto Club refused to pay his conservator fee, which approached $7,000, and argued that conservator fees were not "allowable expenses" under the...