BILL NUMBER: S7587A

SPONSOR: HANNON
 
TITLE OF BILL:  An act to amend the insurance law, in relation to
returning to policy holders any money an insurer realizes due to the tax
cuts and jobs act of 2017

 
PURPOSE OR GENERAL IDEA OF BILL:

To ensure revenue gained by for-profit health insurance companies
resulting from the federal Tax Cuts and Jobs Act of 2017 is returned to
consumers and taxpayers.

 
SUMMARY OF SPECIFIC PROVISIONS:

This bill amends Insurance Law §§ 3231 and 4308 to require that any
revenue realized by for-profit insurance plans as a direct result of the
Tax Cuts and Jobs Act of 2017 is returned to consumers in the form of
rate reductions while ensuring the policies remain actuarially sound.

 
              

JUSTIFICATION:

The federal government recently enacted the Tax Cuts and Jobs Act of
2017, reducing the federal corporate tax rate applicable to for-profit
health insurance companies. As a result, health insurance companies
earnings will rise by approximately 14 percent.

New York State's prior approval law requires health insurers to make an
application to the Department of Financial Services to evaluate their
proposed rate changes. The Department reviews the rate applications and
underlying calculations to ensure the rate increases are justified and
not excessive. The Department announced in 2017 that it had approved
rate increases for 2018 by 14.6 percent for large the group market and
9.3 percent for the small group market.  The approved 2018 rate
increases included an adjustment to account for the loss of cost-sharing
reduction (CSR) payments, which are payments made directly to insurance
companies by the federal government to help offset the added cost of
reducing patient cost-sharing, a requirement under the Affordable Care
Act. However, the final rates were approved prior to the enactment of
the Tax Cuts and Jobs Act of 2017.

The medical loss ratios (MLR) require health insurers to spend so much
of premium dollars (minus taxes) on medical care or expenditures for
activities that improve health care quality. In New York, companies have
to spend at least 85 percent of premiums on patient care in the large
group market and 82 percent in the small and individual group market,
and the remainder can go towards administrative expenses, salaries and
profits. Health insurers must issue rebates back to consumers if they
fail to meet the required MLR. The windfall to health insurers from the
Tax Cuts and Jobs Act would effectively lower the ratio and could trig-
ger rebates to consumers in the form of lower premiums, credits or a
future reduction in rates. Because of this, consumers in New York could
see some of their money back.

However, under the Executive's SFY 2019 Budget Proposal, rebates would
not pass to the consumer as they normally would according to current
law. Instead, under the Executive's proposal, the State would use the
rebates to "help close the State budget gap," effectively keeping funds
that would otherwise go back to consumers.
This bill is necessary to ensure that despite health insurance rate
increases, the rebates to consumers intended by the law will not be used
to balance the state budget. If enacted, it will ensure that any wind-
fall from the federal tax cuts felt by for-profit commercial and managed
care health plans goes directly to lowering health care costs for
consumers and taxpayers.

 
PRIOR LEGISLATIVE HISTORY:

n/a

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately and shall apply to rate filings submitted for coverage in
effect on or after January 1, 2019.