No-Fault System Needs To Be Fixed To Restore Its Original Purpose

By Superintendent James Wrynn

New York’s no-fault system is broken and needs to be fixed. Flaws in the system encourage unscrupulous individuals to engage in fraud and undermine the system’s intended purpose of restoring accident victims to health and productivity as swiftly as possible.

The problem stems from court decisions that changed the way insurers processed no-fault claims. The decisions established that an insurer may not lawfully deny a claim when it does not issue its denial within 30 days, even if it is subsequently revealed that a health care provider billed the insurer for services never provided.

Those decisions created fertile ground for fraud and abuse. They incentivized some providers to flood insurers with bills, hoping that insurers cannot meet claim-processing timeframes, thereby making the bills payable whether or not legitimate.

Suspected no-fault fraud now constitutes more than half of all fraud referrals sent to the Insurance Department for investigation. Last year, insurers reported more than 12,000 referrals of suspected no-fault fraud. Investigations have uncovered organized networks of corrupt health care providers gaming the system for dishonest profit.

The Insurance Department has already taken action. No-fault arrests are up by 52 percent, and last month, after more than a year of consulting with interested parties, the Department proposed the first revisions since 2002 to Regulation 68, which governs the filing and processing of no-fault claims.

The proposal is aimed at curtailing fraudulent claims and over-billing. Among other things, it proposes authorizing insurers to challenge health services that are not provided or are not billed in compliance with applicable fee schedules. The proposal would modify statutory forms to require more and better information regarding claims submissions. This is intended to reduce the need for insurers to request additional verification, thereby speeding claims processing for consumers.

Further, the proposal establishes a 90-day time limit for responses to an insurer’s requests for verification, and gives insurers the option to issue a denial if the time period expires without a response. This should encourage the submission of necessary information in a timely manner for the insurer to process claim payments that are warranted.

The department’s efforts to revise Regulation 68, while significant, will not alleviate all of the ills that pervade the no-fault system. The Legislature must act, too. Among the issues the Legislature should consider:

• Whether or not it is sound public policy to preclude an insurer from defending a claim on the merits when it fails to issue a good faith denial within 30 days of receipt of the claim. This is particularly important because unscrupulous individuals and health service providers have often swamped insurers with multiple claims, knowing that any claims not denied within 30 days will have to be paid.

• Giving the department better tools to combat corrupt providers. For example, the department should be able to suspend a health provider’s ability to be paid under the no-fault system if, after an investigation and hearing, the provider is found to be engaged in illegal misconduct.

Implementing reforms like these will restore the original intent of the no-fault system. They will ensure the prompt payment of uncontested benefits in a timely fashion to deserving accident victims, discourage fraud and abuse and, in the process, help restrain the cost of the auto insurance premiums paid by New Yorkers.

James Wrynn is the superintendent of the New York State Insurance Department.

Getting Closer To Universal Coverage, While Overhauling Managed-Care System

By Assembly Member Joseph Morelle

In the midst of the worst economy in generations and a difficult national debate on health care reform, I am pleased to report that New York State this year took important steps toward universal medical coverage for our citizens and overdue overhaul of our managed-care system.

In pursuit of those goals, I sponsored a bill to reform New York’s approach to managed care, which has been costly and excessively bureaucratic for patients and providers alike. Changes include prohibiting insurers from treating an in-network provider as out-of-network only because the referring provider was out of network; extending current protections for consumers in HMOs to consumers in “HMO look-alike” plans; reducing the time insurers have to review requests for post-hospital home health care; and improving protections for doctors and hospitals when health insurers seek to recover alleged overpayments.

In addition, I sponsored legislation providing group health rates to dependent children through age 29 under their parents’ policies, a change that recognizes and addresses the significant gap in health care coverage experienced by many younger workers whose employers don’t offer medical plans.

In light of the ongoing effects of the recession, I cosponsored an extension of COBRA health benefits, allowing more unemployed New Yorkers to apply for this critical assistance in order to avoid potentially catastrophic medical bills at a time when they are already facing hardship.

These bills, signed by Gov. David Paterson in July, represent milestones in the effort to improve access to health care for New Yorkers while reining in the spiraling cost of medical insurance that kills job growth and places a heavy burden on individual and household finances.

In 2009 I was also the sponsor of new regulations, now signed into law, requiring licensing of life-settlement companies and brokers through the State Insurance Department and the disclosure of relevant personal information by those involved in life-settlement transactions. These and other measures will result in a greater degree of transparency and fraud prevention in a market that has previously fallen outside the purview of prudent public oversight.

In the area of derivatives regulation, the National Conference of Insurance Legislators in November adopted my draft legislation for the regulation of credit default swaps, an acknowledgement that CDS should be classified as a form of insurance in need of state-level supervision, and that excesses within that vast market contributed greatly to the nation’s financial crisis.

I will submit this bill in the Assembly in the 2010 session because I believe it will help build a foundation for financial stability and fiscal health for New York, the state perhaps most burdened by the collapse of Wall Street institutions and loss of invested wealth.

Looking ahead to 2010, the Assembly’s Insurance Committee will focus on several critical areas, for instance issues relating to the solvency of New York’s medical malpractice providers. This is a crisis that has been brewing for many years and has been exacerbated by the financial meltdown that began in 2008. For patients, physicians and carriers alike, current conditions are unsustainable, and we will work to find a mutually beneficial solution.

As always, my goal as insurance committee chairman is to ensure that New York remains a vital nexus for the insurance industry, and that the rights of consumers and policyholders are protected and upheld at all times.

Joseph Morelle, a Democrat representing parts of Rochester, is the chair of the Assembly Insurance Committee.

Landmark Consumer Protection Bill Regulates ‘Death Market’

By Sen. Neil Breslin

Recently, legislation that I sponsored, which will regulate the life settlement industry, passed the Senate and was signed into law by Gov. Paterson. With the enactment of this legislation, New York will have one of the most comprehensive and effective laws in the country for regulating the life settlement industry.

A “life settlement” is created when a person sells his or her life insurance policy to an investor. The seller gets less money than the death benefit of the policy (but gets it before he or she dies), while the investor pays the premium on the policy and gets the payout when the insured person dies.

Life settlements are becoming increasingly more common. It is estimated that the life settlement industry, nationally, is a billion-dollar industry and growing. Therefore, it is likely that someone you know, or perhaps even yourself, will enter into a life settlement transaction in the future.

The first widespread use of life settlements was by AIDS patients in the 1980s who sold their life insurance policies to offset the high cost of treatment. A life settlement by an individual with a terminal illness (formally known as a viatical settlement) is currently regulated under the New York State Insurance Law. However, the sale of policies where the person insured under the policy is not terminally ill fell outside the scope of this regulation.

As a result, there were few rules and too much fraud and abuse. For example, life insurance policies contain private personal information, including the health history of the person insured and lifestyle habits.

But current laws did not protect the confidentiality of this information even though once sold the policies could switch hands between strangers several times. In addition, those entering into a life settlement transaction might not recognize that selling a policy may have negative tax consequences or might prevent them from purchasing additional life insurance to provide for their families.

The legislation that I sponsored imposes much-needed reform and common-sense regulation on the life settlement industry: brokers are required to be licensed, consumers must be informed of risks, and the private medical and other personal information of those entering into a life settlement transaction will be protected.

My bill also specifically outlaws a type of fraudulent life settlement transaction known as “stranger-originated life insurance” or STOLI. In a STOLI transaction, individuals, often senior citizens, are targets of high-pressure sales tactics to purchase a life insurance policy for the sole purpose of re-selling or “flipping” the policy within a few years to investors or “spectators”.

However, while the life settlement legislation that was enacted is significant, there may be more work to do. The New York Times recently reported that Wall Street investment banks plan to “securitize” life settlements by packaging hundreds or thousands of life settlements together into bonds that they will resell to investors. Investors would receive a payout when the insured person dies. Investors would receive a greater payout if the insured died earlier than expected but could lose money if the insured lived longer than expected. Wagering on human life on such a large scale presents obvious concerns. I will continue to monitor this issue to determine if legislation or other action is needed at the state level to ensure the protection of consumers.

Neil Breslin, a Democrat representing Albany County, is the chair of the Senate Insurance Committee.