Insurance changes advance in Colorado Legislature

Denver Business Journal – by Bob Mook

Proposals for fundamental changes in the state’s insurance market advanced in the Colorado Legislature Tuesday as lawmakers lunged toward adjournment on May 7.

If approved and signed by the Governor, the bills would create new insurance products for Coloradans who are currently uninsured, give the Division of Insurance (DOI) prior approval for rate hikes and allow the DOI to dramatically raise fines and penalties on insurers that act in “bad faith” in denying claims.

But amid a legislative session that has targeted the insurance industry, at least one type of insurer can claim victory: On Tuesday, the House Judiciary Committee killed a proposal to raise claims on medical malpractice claims — a win for doctors and medical malpractice insurers who opposed the bill.

On Monday, the House Health and Human Services Committee approved Senate Bill 217 in a 11-1 vote. Sponsored in the House by Rep. Tom Massey, R-Pagosa Springs and Rep. Anne McGihon, D-Denver, SB 217 would establish a request for proposal (RFP) for insurance carriers to submit low-cost health plans that the state would evaluate and endorse.

The bill calls for the creation of a panel of actuaries to determine how to make those plans available to individuals who otherwise couldn’t afford them through government subsidies.

Branded “Centennial Care Choices” by its Senate sponsor, Sen. Bob Hagedorn, the proposal is aimed at Coloradans who earn too much to receive Medicaid but who aren’t covered by private insurance.

Originally, the proposal set a framework for a complicated, multi-phased process that would establish an individual mandate to require all Coloradans to obtain minimum insurance coverage. The mandate was dropped when the Senate approved the bill last week.

A time frame that would ask voters to possibly create a dedicated state revenue source to fund the program in the November 2010 election also was eliminated from the bill.

During Monday’s committee hearing, several changes were added to SB 217.

Some legislators on the committee raised questions about whether SB 217 would survive in the House Appropriations Committee or the House of Representatives because of its complex nature and questions about whether it would actually do much to improve Colorado’s insurance market.

On Tuesday, the Senate Finance Committee approved House Bill 1389, sponsored in the Senate by Sen. Paula Sandoval, D-Denver, in a party-line 4-2 vote.

Dubbed the Fair & Accountable Insurance Rates (FAIR) Act, by its House sponsor, Rep. Morgan Carroll, D-Aurora, the proposal would allow the Colorado Division of Insurance to deny insurance premium hikes when an insurer’s administrative costs are deemed to be too high, it has set aside excessive reserves against future claims, has excessive profit or denies too many claims.

Carroll has said the bill is intended to help small businesses beset with skyrocketing premiums by requiring insurers to justify their rate increases to Colorado’s insurance commissioner before the hikes take effect.

Insurers objected to the bill, saying it unfairly singles them out for rising health care costs. They also maintain it imposes an administrative burden that could drive up rates and prevent insurers from responding to market trends.

But while insurers haven’t endorsed the proposal, they supported some of the proposed changes that would moderate it, including a provision to remove the loss ratio –the amount of money an insurer pays out in claims — as a standard in which the insurance commissioner would use to deny a rate hike.

Michael Huotari, executive director of the Colorado Association of Health Plans, said under the proposed amendment the loss ratio would become “more of a process issue and less of a substance issue.”

Originally, HB 1389 compelled the insurance commissioner to scrutinize any insurer with a loss ratio lower than 85 percent.

Also on Tuesday, the House gave preliminary approval House Bill 1407, which dramatically raises fines and penalties the state Division of Insurance can impose on insurers that “unreasonably” deny claims.

Sponsored by Rep. Andrew Romanoff, D-Denver, the bill applies to all forms of insurance including health, life and auto. It increases maximum penalties by up to 500 percent against insurers who unfairly deny claims. It also allows people whose claims are denied to collect up to two times the actual damages sustained.

Romanoff, who is the House Speaker, said the bill gives individuals a chance to recover their losses without resorting to costly and time-consuming litigation.

In earlier testimony, representatives of the insurance industry argued that the bill establishes a lower standard of guilt and forces insurers to pay more claims — resulting in higher premiums. That opinion was echoed by Republicans in the House.

The bill, which excludes workers’ compensation insurance, will go the Senate Business Affairs and Labor Committee if given final approval in the House.

Earlier on Tuesday, the House gave preliminary approval to House Bill 1410, which requires health insurance plans to cover more colorectal cancer screening tests, by a vote of 40-22. A fiscal note to the bill said the requirement would add $97 a year to the average insurance policy.

Rep. Spencer Swalm, R-Centennial, an insurance broker, said would “pile additional straws on the camel.”

“Every time rates go up, people drop out,” Swalm said. “And the people who drop out are those who don’t need health insurance.” Removing healthy people from the risk pool would also likely increase premiums.

But Rep. Michael Merrifield, D-Colorado Springs, a cancer survivor, said that roughly $100 is a small price to pay compared to the hundred of thousands of dollars it would cost to treat the cancer if not detected early.

One of the most controversial bills in this session, Senate Bill 164, sponsored by Sen. Peter Groff, D-Denver, and Rep. Terrance Carroll, D-Denver, was effectively killed on Monday when the committee moved to postpone consideration of the measure until May 9 — two days after the session ends.

SB 164 would have raised the caps for non-economic damages (such as pain and suffering) in medical malpractice cases to match those in other types of liability cases.

But SB 164 faced fierce opposition from doctors and insurers who fear that raising the caps would increase the cost of medical malpractice insurance and drive many physicians out of Colorado. They even ran ads on TV urging constituents to ask their representatives to vote against the legislation.

The bill was narrowly approved in the Senate in early March after a contentious floor debate. It was repeatedly postponed in the House Judiciary Committee — which Carroll chairs — raising speculation that the bill didn’t have enough votes to get out of committee.

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