In what federal officials called “a bold move,” New York Gov. David A. Paterson has signed a series of health insurance reforms into law.

David Paterson

On June 9, Paterson signed Governor’s Program Bill No. 278, reinstating the authority of the New York State Insurance Department to review and approve health insurance premium increases prior to the rates taking effect. For the last decade, the state has operated under a “file and use” law, seen as limiting regulators’ ability to disapprove insurer premium increases.

In a statement, Paterson said that deregulation of health insurance premiums “is a failed experiment leading to unjustified premium increases and more people losing their health insurance coverage.

“Health care is a right, not a privilege, and requires sound, balanced regulation to make sure insurance premiums are fair and justified,” he said. “I am pleased to sign into law my program bill, which will help make coverage more affordable and allow more small businesses and individuals to keep their coverage.”

Under the new law, set to take effect Oct. 1, health insurers and HMOs must apply to the NYSID to implement rate increases, with regulators reviewing the justification of the proposed rates and the ability to approve, modify or disapprove the rate regulation.

Policyholders and the public will also be allowed to weigh in on the proposed rate hike.

The new legislation also immediately requires both groups of providers to spend more premium dollars on medical claims, by setting new requirements on medical loss ratios – the percentage of money spend on actual medical care. The new law moves the medical loss ratio from 75% to 82% for small businesses and from 80% to 82% for individuals, in what the governor’s office said is a move to ensure a greater percentage of premiums are returned to consumers in the form of benefits.

Link to federal reform

“Not only will stronger oversight of rate increases benefit New York’s individuals and small businesses, but prior approval will also provide us with the tools necessary to make sure federal health care reform is implemented in a fair and efficient manner,” Paterson said.

New federal reform sets the medical loss ratio at 85% for the large group market and 80% for the small group and individual markets, beginning next year through the Patient Protection and Affordable Care Act.

U.S. Health and Human Services Secretary Kathleen Sebelius applauded New York “on its bold move” to hold insurers accountable, “and prevent the kind of unreasonable rate increases that have made health insurance unaffordable for many American families.

“This is the kind of action that, together with the Affordable Care Act, is shifting power back to consumers,” she said in a statement.

Calling the signing of the law, “the culmination of years of battling for more affordable quality health care, James J. Wrynn, the state’s insurance superintendent, also applauded Paterson’s action.

“Prior approval will work in tandem with President Obama’s health care reform to make sure insurers’ premium rates are transparent and their reporting is correct,” he said. “Prior approval will also ensure that insurers comply with the requirements of the health insurance exchanges that will be developed under federal reform.”