Home > ADVOCACY > Where We Stand > Prior Approval Opposition Testimony

Testimony submitted to
the Assembly Standing Committee on Insurance
June 8, 2009

Presented by: Craig W. Turner, Public Policy Director
Buffalo Niagara Partnership

Good afternoon –

My name is Craig Turner. I am Public Policy Director for the Buffalo Niagara Partnership. Our organization represents over 2,500 Western New York employers. I would like to thank the committee for allowing me to testify here today regarding the regulatory approval of health insurance rates, commonly known as “prior approval.”   Year after year, New York’s businesses identify the high cost of providing health coverage to workers as their top concern and the most significant obstacle to economic growth, competitiveness and job development. Today, approximately half of New York’s small businesses do not offer coverage to their employees because coverage is too expensive. Consequently our membership is opposed to the prior approval of health insurance rates in favor of targeted reforms that address the actual drivers of health care costs. 

Clearly, making health insurance more accessible and affordable is of great importance to our membership. Nevertheless, while the Buffalo Niagara Partnership believes that much can be done to improve our current delivery system, we strongly oppose enactment of Governor's Program bill #15 - A.8280 (Morelle) / S.5470 (Breslin). As demonstrated in various insurance markets nationwide, this proposal could lead to artificially suppressed health insurance premium rates and cause myriad other detrimental consequences not only for our member businesses but all New Yorkers.

As you are aware, this bill would grant the Superintendent of Insurance unparalleled discretion and authority to approve, modify or disapprove rate applications; in effect implementing government-imposed price controls over individual and small group health insurance rates. While the short term effect could result in artificial rate stabilization, inhibiting an insurer’s ability to charge an appropriate premium based on actual costs and utilization will make New York vulnerable to undesirable consequences, including wide fluctuations of rates from year to year, potential plan insolvency and forced reductions in investments in technology. Potentially, this could perversely lead to a greater numbers of uninsured, reduced quality of medical care, and a decreased incentive for employer cost controls.

Price Controls Don’t Work
Historically when costs have been high in certain insurance markets, states inevitably consider forms of rate regulation. However, time and time again, the implementation of price controls has backfired as such regulation does not address the core issues in what really drives the cost – often it only serves to compound the problem it sought to address.  Plainly, price controls simply don’t work – in health care or any other industry. Lower premiums don’t automatically benefit consumers. Suppressing premium growth could force insurers to sell coverage at a price below its true cost. In the long run, this practice is unsustainable. In response, insurers may offer lower quality products, refuse to insure high-risk consumers, or exit the industry.

Premium Cost Drivers
A long standing position of the Buffalo Niagara Partnership is that New York needs to address the true costs of coverage. And this bill fails to take into consideration the multiple factors attributable to the rising costs of health insurance premiums, which include: higher pharmaceutical expenses, technological changes in medical procedures and products, tight labor markets for nurses and physicians, expansion of insurance coverage, changes in New York's aging population, hidden taxes and mandated benefits. 

Taxes:
Currently, on top of what are considered to be uncompetitive broad-based tax rates, businesses in New York have the cost of “hidden taxes” on health insurance and health care in the form of surcharges passed on to them. These surcharges, which stand at an estimated $4.2 Billion, are used to help finance hospital and clinic bad debt and charity care, graduate medical education and other public goods programs. In fact, since October 2007, these hidden taxes and fees have more than doubled.

The following chart provides a more in depth analysis of what taxes and hidden fees are placed upon New York’s privately insured. Again, when all of the “hidden taxes” are factored in, New Yorker’s who voluntarily purchase private health insurance coverage pay more than $4.2 billion in state health taxes. [Source: New York State departments of Health and Insurance]

Mandates:
While mandates make health insurance more comprehensive, they also make it more expensive because mandates require insurers to pay for care consumers funded out of their own pockets. The Council for Affordable Health Insurance estimates that mandated benefits currently increase the cost of basic health coverage from a little less than 20 percent all the way to perhaps 50 percent depending on the number of mandates, the benefit design and the cost of the initial premium.

In New York, our ever-growing number of mandated benefits placed on coverage has increased premiums by an estimated 12.2 percent. That’s a $445 per year increase in single coverage and a $1,066 per year additional cost in family premiums.

With tight profit margins and an ever increasing cost of doing business here, New York’s businesses, particularly small business, are extremely vulnerable to the increase cost of health insurance. Mandates and hidden taxes just add fuel to the fire.

Regrettably all this bill does is establish rate setting which, if enacted, would have a significant adverse effect on businesses. For example, when rates are not objectively calculated based on actual healthcare costs, politics and public popularity dictate the rates. Subsequently, artificially suppressed rates force health plans to reduce administrative costs relating to investments in new technology and reductions in workforce.  New investments in technology are a primary source of job creation across the State – particularly given the growth of the life sciences industry in the Buffalo Niagara region and statewide.

There is no question, reducing the cost of health care is critical for the viability of New York State’s fragile economy and has increasingly become one of the greatest impediments to business growth and opportunity across the state. However, artificially suppressing premiums through price controls is not the correct course of action.

Instead, efforts should be undertaken to control the rapidly increasing costs of care.  Rather than a Band-Aid approach that has proven ineffective time and time again, attention must be given to what really drives health care costs. A good start would be action on Unshackle Upstate’s recommendations: (1) to roll back the over $850 million in health care assessments that were included in this year’s Deficit Reduction Package and the 09/10 enacted state budget; and (2) to implement a broad-based, non-partisan Medicaid Commission to undertake a rational, independent review of the services offered in our Medicaid system and how they are delivered. Addressing the causes of high health insurance rates and then providing actual relief through policy change is a preferable, and more effective, solution than artificial price controls.

As you, New York State lawmakers, work to stimulate opportunities for economic development, we believe that it is vital to maintain the file and use system of setting health insurance rates. Without it, there will be just one more government-related reason not to do business here, and, particularly in Upstate, we can ill-afford any further impediments to job creation.

Thank you for providing this opportunity to submit testimony on this important matter facing businesses across New York State.