Health insurers and HMOs will have to put a larger share of the money they collect from consumers into medical care under a new medical loss ratio (MLR) law that goes into effect Jan. 1, one of 10 new California Department of Insurance (CDI) bills signed by the governor recently.
The MLR law, SB 51, reinforces what is required in the Patient Protection and Affordable Care Act, mandating that $0.85 of every premium dollar paid for group health insurance and $0.80 of every premium dollar paid for small group and individual health insurance goes toward actual medical costs, leaving the remainder to cover other costs, such as agent commissions.
SB 51 enables the insurance commissioner and the Department of Managed Health Care to enforce these new requirements in California. Currently, Insurance Commissioner Dave Jones is enforcing the MLR requirements in the individual market as the result of an emergency regulation he issued on Jan. 3, 2011. SB 51 provides a permanent and additional basis to enforce these new requirements.
Gov. Jerry Brown signed all 10 new insurance bills, nine of which were sponsored by Insurance Commissioner Jones. A tenth bill, mandating coverage for autism, was supported by the CDI. California often leads the way on consumer protection measures.
"Protecting consumers is at the heart of everything we do at the California Department of Insurance," Commissioner Jones stated.
The nine other bills, with all except the workers comp bill, S 684 and the autism coverage bill, going into effect at the start of the year, are:
1. AB 315, or "Surplus Lines Insurance Marketplace Reform," pertains to the surplus lines insurance marketplace and the state's surplus lines tax collection activities and conforms state law to mandatory changes mandated in the Nonadmitted and Reinsurance Reform Act provisions of the Dodd-Frank Act to avoid federal pre-emption.
2. AB 624, or the "California Organized Investment Network (COIN) Program Community Reinvestment Extension Act," extends the sunset date to January 1, 2015 on the COIN Tax Credit Program. "While California continues to pull itself out of the recession, programs like COIN are vital to facilitating that momentum by providing new capital for small businesses throughout the state, spurring growth in our neighborhoods, and, most importantly, creating more badly needed jobs for Californians," the CDI noted.
3. AB 689, or "Landmark Annuity Suitability Reform," addresses the need to sell annuity customers a product appropriate for their needs. Californians are spending $20.7 billion on annuities in 2010 alone, so this new law will requires insurers, agents and brokers to verify that an annuity purchase, exchange, or replacement is appropriate for the consumer based on an evaluation of his or her age, income, financial objectives, and other important factors. The bill also authorizes the Insurance Commissioner to revoke an insurance agent's license, impose fines, and restore money lost to the consumer when suitability standards are violated.
4. AB 793, or "Prohibition of Insurance Product Cross-Selling with Reverse Mortgage Lenders," limits insurance agents' and brokers' ability to "cross-sell" reverse equity mortgages and annuities. "The growth of the reverse mortgage business has been accompanied by aggressive marketing and predatory abuse, especially when reverse mortgages are marketed along with insurance products or financial investment vehicles," the CDI stated.
