Proponent Testimony
Senate Bill 223
Tuesday, October 20, 2015
Alan Berliner
Senate Insurance Committee
Chairman Hottinger, Ranking Member Brown and members of the Committee, my
name is Alan Berliner. I am a partner in the Columbus office of the Thompson Hine law
firm and outside legal counsel to the Ohio Life and Health Insurance Guaranty
Association. I am very pleased to provide proponent testimony in support of Senate Bill
223.
The provisions of Senate Bill 223 will benefit Ohio residents in a number of
different ways.
These changes to the Ohio Life and Health Insurance Guaranty
Association statutes have the support of the Ohio Department of Insurance and the Ohio
insurance industry as represented by the insurance company representatives on the Board
of Directors of the Guaranty Association as well as the trade associations, the Ohio
Association of Health Plans (OAHP) and the Association of Ohio Life Insurance
Companies (AOLIC). At the same time, we know of no opposition to these amendments.
As Senator Bacon discussed in his Sponsor Testimony last week, the Ohio Life and
Health Insurance Guaranty Association is a non-profit association created by statute
which provides a safety net to insurance company policyholders and third-party claimants
in the event an insurance company is unable to pay its claims. In the event of an
insurance company insolvency and order of liquidation by a court, the Guaranty
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Association steps into the shoes of the insurance company, paying claims and defending
lawsuits brought against insureds of the insurance company.
This legislation contains five (5) sets of changes to the protections provided to Ohio
residents who purchase health insurance. The main purpose of these changes is to
increase the protection for consumers. The secondary purpose is to bring Ohio more in
line with other states across the country and achieve what the National Organization of
Life and Health Insurance Guaranty Associations calls “functional consistency” with the
Model Act promulgated by the National Association of Insurance Commissioners.
The first set of changes is to the benefit provided to consumers. Current Ohio law
limits the benefits to $100,000 for any type of health insurance. Health insurance is
defined broadly to include major medical insurance, disability insurance, long-term care
insurance and specialty health insurance coverages such as for a particular disease. Every
other state in the country has, over the course of last several years, adopted a benefit limit
of at least $300,000. In fact, over forty (40) states have changed their laws to provide
different benefits based on the type of health insurance involved, but no state has a
benefit limit of less than $300,000, other than Ohio. Thus, it is clearly time to increase
the benefit limits in our law.
This legislation provides for three (3) tiers of benefits. The current benefit limit of
$100,000 would remain for specialty types of health insurance. For disability insurance
and long-term care insurance, the benefit limit would be raised to $300,000. For major
medical insurance, the benefit limit would be raised to $500,000. These new limits will
bring Ohio back into the mainstream and are consistent with Model Act that was passed
by the National Association of Insurance Commissioners in 2009.
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In many health insurance company insolvencies, consumers have been provided
continued coverage through the transfer of the business to solvent insurance companies
and have not suffered a monetary loss. However, in situations where consumers have
unpaid claims, the experience is that these benefit limits cover a very large percentage of
the claims. So, this legislation would increase the benefit limits from $100,000 to
$300,000 for Ohio residents with long-term care insurance and disability insurance and
also increase the benefit limits to $500,000 for major medical insurance.
The second change to benefit consumers in this legislation is to close a potential
loophole for Ohio residents living abroad. At this time, the law is not clear that citizens
living abroad would be covered by the Guaranty Association; the amendments would
clarify that foreign residents would be covered.
The third provision benefits consumers by requiring a court-order before the
coverage by the Guaranty Association is triggered due to an insolvent insurance
company. Current law does not necessary provide this protection and can lead to a
confusing and problematic situation for consumers in a situation where the insurance
company has not been ordered liquidated in its state of domicile. This change would be
consistent with the practice of the Ohio Department of Insurance to go to court to obtain a
liquidation order and thus trigger Guaranty Association coverage.
The fourth change in this legislation to the Guaranty Association statutes would
exclude Medicare Part C and D policies from Guaranty Association coverage. These
policies are issued by Medicare Advantage Plans and Medicare Drug Plans respectively.
Under the Medicare Program, these policies already provide protection to consumers in
the event of insurance company insolvency and thus the Guaranty Association coverage
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is not needed. At the same time, this change will bring the law in line with the purposes
of the Guaranty Association Act and eliminate payments to non-consumers.
The fifth and final amendment will benefit those consumers who are the payees of a
structured settlement annuity. Current Ohio law provides that the benefits payable in the
event of an insolvency of an insurance company which has written a structured settlement
annuity is determined by the law of the state of domicile of the owner of a policy, which
is typically an insurance company which has secured the policy for a settlement of its
obligations. In many instances, the annuity is written by an insurance company located in
a faraway state. Under this change, an Ohio resident who is a payee under a structured
settlement annuity will receive the benefits of the Guaranty Association of this state and
not some foreign state.
These changes will benefit consumers while at the same time bring Ohio law into
functional consistency with the Model Act. The concept is very important as it supports
continued regulation of the business of insurance by the states and not the federal
government.
I want to address a question Senator Beagle raised during sponsor testimony about
whether the benefit limits should be indexed to inflation or some other measure. While
the index concept has some initial appeal, we do not recommend including indexing in
this legislation. Our research indicates that only one other state, California, has included
any type of indexing aspect to their guaranty association laws. California adopted that
concept in its Guaranty Association statutes in 1991 and now, 25 years later, no other
state has such a provision.
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Including indexing would thus be inconsistent with the Model Act and be contrary
to one of the goals with this legislation. At the same time, decisions would need to be
made as to what index would be used – would it be the consumer price index calculated
by the federal government which has been criticized by many groups over the several
years as being inaccurate – or would it be a particular index for medical cost. If so,
which index? California uses the health care cost component of the CPI. Would the
index reflect the impact of Obamacare which is subject to considerable debate? Given
the questions and the additional complexity, we do not believe indexing the benefit limits
would ultimately be a good idea.
As Senator Bacon mentioned during his sponsored testimony, there is a company in
Pennsylvania, Penn Treaty Insurance Company, which is insolvent and has been the
subject of receivership proceedings. Penn Treaty wrote long-term care insurance across
the country.
There is a significant chance that Penn Treaty will be ordered into
liquidation next year, triggering Guaranty Association coverage. If our statutes are not
amended in time, Ohio consumers would be the only ones receiving only $100,000 in
maximum benefits, while the consumers of every other state would receive at least
$300,000. Thus, it is important that this legislation move relatively quickly and we
appreciate Chairman Hottinger’s efforts to do so.
We look forward to Ohio joining the other states across the country in providing
better benefits to consumers. Thank you for your time and attention. I will be happy to
answer any questions from Members of the Committee.
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