HD28 - Extraterritorial Authority Over Accident and Sickness Insurance Policies Issued Out-of-State
Executive Summary: Legislative Request The 1988 General Assembly passed House Joint Resolution 85 which requested the State Corporation Commission's Bureau of Insurance to determine if, and to what extent, group accident and sickness insurance policies issued for delivery in other states but covering Virginia residents should provide the same benefits that are required of policies issued in Virginia. Nature of the Problem Most Virginians who have health insurance are covered under group, as opposed to individual, accident and sickness insurance policies. Many of these policies are issued to groups located outside of the Commonwealth, and therefore, the policies do not fall under the jurisdiction of Virginia's insurance statutes and regulations. Some of these out-of-state policies do not contain provisions similar to those required of policies issued in the Commonwealth. Consequently, some Virginia residents are not receiving legislated health insurance benefits intended and designed by the General Assembly as consumer protection. This situation may be a cause of confusion and hardship for residents who find that they cannot be reimbursed for the same health care services that are being reimbursed for a friend or neighbor who is covered by a policy issued in Virginia. Background of Study Group accident and sickness insurance policies delivered or issued for delivery in Virginia are required to meet specific provisions of the insurance code. These provisions are determined and enacted into law by the Virginia General Assembly. Similar activity occurs in all states, with legislators responding to the needs of their citizens by passing laws that will offer consumers insurance protection deemed necessary in their respective states. Traditionally, group accident and sickness insurance policies are required to comply with the laws of the state in which the policy is to be issued or delivered to the policyowner. In the interest of consumer protection, however, some states have begun to extend their requirements to policies covering state residents, regardless of where the policy is issued. The 1988 Virginia General Assembly enacted legislation that extended the insurance code provision prohibiting subrogation to policies providing for payment of benefits to or on behalf of persons residing in or employed in this Commonwealth. Current Virginia law allows all other provisions and benefits in out-of-state policies to comply solely with the requirements of the state of issuance. Findings and Conclusions In determining whether out-of-state policies should be brought under Virginia regulatory authority, the insurance requirements of other states were reviewed. Many of Virginia's standard policy provisions and criteria for unfair trade practices and privacy protection are frequently included in the insurance statutes of other states. The inconsistencies between state laws became most apparent in relation to mandated benefits. Mandated benefits are those provisions requiring that reimbursement for certain services or coverage be included in the policy or offered to the policyowner. The results of the study revealed that no state has all of the same requirements that are mandated for accident and sickness insurance policies issued in Virginia. Over half of the states, however, require mandated benefits that are not found in Virginia's insurance statutes. This means that Virginia residents covered by out-of-state group policies may not receive all of the benefits deemed important as consumer protection by the Virginia General Assembly, but some Virginia residents covered by these policies may receive more or different benefits depending on the state of issuance. A second area reviewed was the type of groups that are being issued insurance. Traditionally, group accident and sickness insurance policies have been less heavily regulated by state insurance departments than individual policies. There is a presumption that large groups are able to negotiate with insurance companies for their group insurance coverage and have the necessary insurance knowledge and sophistication to obtain appropriate coverage at competitive rates. Given the increasing variety of "groups" that have developed over the years, however, that presumption does not hold true in all cases. Virginia insurance statutes do not define the specific types of groups that may be issued insurance. Some other states do. Because policies issued to groups out-of-state are not required to be filed in Virginia, little is known about the types of groups that are providing insurance to Virginia residents. During the course of the study, almost 300 consumer complaint files from the Bureau of Insurance's Consumer Services Division were reviewed in an attempt to locate copies of policies issued to groups out-of-state. Three such policies, covering more than 12,000 Virginians, were located and examined. Between a review of these policies and the current literature on group insurance generally, several scenarios-were established illustrating the many different types of groups that are providing insurance to Virginia residents. "True" groups, such as employer groups, frequently provide the Virginia group member with a buffer between the insurer and the insured by negotiating terms for the group to lessen any arbitrary provisions in the master contract. Other groups have been created, however, for the sole purpose of selling insurance. These groups not only offer policies that would not be approved for issuance in Virginia but they also appear to offer little direct service and assistance to the Virginia group member. Implications of Extraterritorial Authority Many states claim some type of extraterritorial authority over accident and sickness insurance policies issued out-of-state but covering residents of their state. This authority ranges along a continuum from requiring any policy covering residents of the state to meet the same statutory provisions as required of policies issued in-state to limiting the extraterritorial authority to certain specified provisions. Requiring all accident and sickness insurance policies covering Virginia residents to meet all Virginia regulatory requirements would have the positive effect of: 1) providing all Virginia residents with the same benefits. (The General Assembly specifically mandated certain benefits for the protection of Virginia residents but current law only provides those benefits to "some"). 2) protecting Virginia consumers against "fictitious" groups. (Many of these groups are formed only to market insurance; they sometimes are of questionable reputation and they have been known to forum shop for the state with the least stringent requirements; their products would not be approved under Virginia requirements.) 3) avoiding substantial confusion for Virginia resident beneficiaries as well as Virginia health care 'providers with regard to scope of coverage questions. On the negative side, mandating that all policies covering Virginia residents meet all Virginia requirements would have the effect of: 1) increasing the cost of coverage. (The increase in levels of contractual benefits as well as administrative support by companies may increase the cost of the affected health plans.) 2) hindering multi-state employers' efforts to contain costs. (Many employee health benefit plans are established through collective bargaining; such attempts would be impeded if Virginia employees were to be treated differently than the rest.) 3) expanding the number of self-insured plans. (The increase in cost of health insurance has led to an exodus from the traditional market which means that more individuals are being covered under plans that are exempt from state regulation through ERISA. Instead of protecting Virginia citizens, the effect could be to place more of them beyond our regulatory oversight.) Recommendation The study concluded that it does not appear to be either necessary or prudent for the Commonwealth to exert extraterritorial jurisdiction over all out-of-state issued group policies. There does, however, appear to be a need to extend state authority to include certain groups where the potential for abuse is greater. In effect, the issuance of a group accident and sickness insurance policy providing coverage to Virginia residents should be prohibited unless the master policy: (i) complies with all Virginia requirements; (ii) is issued to a Virginia group; or (iii) is issued to an out-of-state group that is specifically exempted because it has been determined that the rights of Virginia residents will be adequately protected. The State Corporation Commission's Bureau of Insurance would work with the insurance industry to draft an appropriate bill that would provide a workable solution to the problems outlined in the study, and would present the final proposal to the 1990 General Assembly for consideration. |
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