Medicare Supplement Insurer Must Use Community Rating On Its Guaranteed Renewals Risks.


A life insurance company which has been in the business of issuing Medicare supplemental insurance policies lost its appeal in the N.Y. Appellate Division, Third Department, and now has the choice of revising the rates on its guaranteed renewable policies to reflect the community rating requirements or, in the alternative, ceasing to continue writing policies by withdrawing from the market and permitting the guaranteed renewable contracts to phase out through arbitration.

First United American Life Insurance Company Albany County, initially brought the action in Supreme Court, Albany County, under Article 78 of the CPLR challenging the Superintendent of Insurance on the implementation of the 1992 law (Chapter 501) through two regulations. The courts however, converted the law suit into an action for declaratory judgment by the Superintendent of Insurance. The Supreme Court ruled in favor of the Superintendent and that ruling was affirmed by the Third Department.

Under the 1992 law, all individual and small group health insurance policies, on and after July 17, 1992, had to comply with the community rating statute. The law and the regulations also required the shift to community rating for existing policies under a stated time schedule.

It was First United American Life's contention in bringing the suit that by requiring the application of the community rating law to existing guaranteed renewable policies, the law and regulations impermissibly impaired existing contract rights.

Another argument made by the company was that the law's attempt to distinguish between insurers who are willing to stop issuing policies, are irrational and violative of legislative intent and equal protection.

In agreeing with the Supreme Court that the regulations as they applied to the insurer's existing guaranteed renewable Medicare supplemental policies do not violate the Equal Protections Due Process of Contract Clauses of the federal Constitution and are neither arbitrary nor capricious, the Appellate Division, in the unanimous decision, indicated there was no impairment because only the pricing formula was changed.

The Appellate Division decision contrasted the medicare supplement case before it with premium decisions mandating coverage changes. In one instance, where the Health Insurance Association of America brought suit against the Insurance Department the issue was the mandatory inclusion of maternity coverage in existing health and accident insurance...

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