VB Voice - January 2023

Imagine for a moment a group supplemental benefits market where every single combination of benefits required its own unique prior approval from state government regulators In this regulatory landscape, if you’ve sold two groups essentially the same plan, with one group’s plan having a $5 richer Confinement benefit, both plans (and their underlying rates) would need to be approved by regulators before the policies could actually be issued Approvals that could take months, and in rare cases, even years to procure This is the practical nightmare lurking in the shadows of markets that do not permit variability in their group insurance products And if we’re not diligent, this nightmare will become our reality

Variability is, in essence, flexible plan design Instead of a fixed set of benefits, benefit amounts, and limitations, variable contracts provide the flexibility of moving benefits and contingencies in or out of a plan without the need to have any single benefit combination approved by regulators Instead, regulators approve “generic” contract forms and rates that explain which parts of the contract can be modified and how (typically through a “statement of variable language” document) As long as a variable generic version of the plan is approved by regulators, brokers and policyholders are free to negotiate any combination of benefits, benefit amounts, and limitations that are variable Variability, of course, is crucial in the group supplemental market, precisely because group insurance needs are inherently more complex than that of individual consumers

In order for the market to meet the diversity of group insurance demands, a certain degree of plan design flexibility is necessary Without the flexibility of variable plan designs, the value proposition of “vanilla” group products becomes watered down to the point of untenability

Because variability is such a crucial aspect of how the group supplemental market operates, it raises concerns when states adopt rules and policies that undermine the ability of carriers to market variable plan designs The most egregious recent instance of a state doing this is New Mexico, through their newly adopted supplemental insurance regulations The state has effectively destroyed variability in the contributory group market by requiring prior approval of non-variable Outlines of Coverage (ie specific benefit designs) as well as the approval of rate materials which support these benefit combinations Despite formal resistance from carriers and advocacy groups like the American Council of Life Insurers, New Mexico’s burdensome new policies were solidified by an Administrative Hearing Officer’s findings

When concerns were raised about the practical implications of New Mexico’s new variability rules, the Department candidly expressed that the new rules were indeed intended to curtail the supplemental market. Worse still, the rules don’t just impact New Mexico-based parties. Consider the additional extra-territorial issues posed when presenting options to a jumbo case policyholder, whose operations may include New Mexican residents Any ambiguity regarding ET implications in New Mexico were extinguished by the Hearing Officer’s commentary on the issue: “OSI staff recommends that compliance with this rule be applicable to out-of-state companies who employ 20 or more New Mexico residents at any time during the calendar year” (Response to Comments on Proposed Excepted Benefits Rule Docket 20210084, February 2022) For these cases, special casespecific-filings will have to be made in New Mexico, with fingers crossed that the Department will review and approve the filings before the plan is to become effective for the broader group

New Mexico is not alone in their skepticism towards variable plan design in group supplemental products States like Oregon and Washington have also consistently rejected plan designs that contain “too much variability” Though, we note that Oregon and Washington rely on broader discretionary powers to compel changes to contract variability, whereas New Mexico is the first jurisdiction in recent memory to codify the prohibition on variability in their insurance regulations

Given the recent trend of regulators against variability, we’ve had to develop both short and longer term strategies to assist carriers in retaining marketable plans. In the short term, Sydney has worked directly with regulatory bodies in pinpointing exactly which portions of the contract forms need to be non-variable (as opposed to overzealously removing variability at the first signs of regulatory resistance). A scalpel approach, as opposed to the hatchet. Also, we’ve found that some jurisdictions will permit the benefit design flexibility through riders, just not variable benefits in the base plan itself.

While administering a 25-30 rider plan is less than ideal, it is preferable to going to market with a single, or set of stock plans designs.

The longer term solutions are more challenging for the industry as they require diligent effort and buyin from a multitude of stakeholders (carriers, brokers, and policyholders all aligned)

Foremost, the industry should be more aggressive in eliciting support from government allies outside of the Department of Insurance Where a department isn’t amenable to the industry’s needs, other government stakeholders like legislators (especially those serving on influential committees) can be powerful allies Also, recall that Departments of Insurance are executive agencies of state governments, which means they implement the policy and vision of their Governor’s Office Industry stakeholders can and should call on their elected representatives to support them during these battles

Also, stakeholders should absolutely make their voices heard during Notice-and-Comment Rulemaking Regulators aren’t inherently lawmakers Their ability to create rules that carry the force of law are granted to them for narrow and specific purposes by their legislature and these rules are usually only effective when the regulatory body goes through the Notice-andComment Rulemaking procedure laid out in their state’s Administrative Procedures Act

Part of this process is informing the public about a proposed rule and permitting affected parties an opportunity to publicly comment on the proposed rule. Often times, if the comments are voluminous and persuasive enough, the regulatory body will modify the proposed rule to account for public outcry, and in rare cases, abandon the rule altogether.

In short, we all have a role to play in the fight for variable plan design. Steel your resolve friends, the battle is already upon us.

Hunter Sexton, Compliance Consultant with Sydney Consulting Group, LLC.

Hunter Sexton is a Compliance Consultant with Sydney Consulting Group, LLC. Hunter leads a best-in-class Regulatory Compliance Team that works with carriers and regulators to bring supplemental health and life products to market Hunter earned his Masters in Healthcare Administration from the University of South Florida’s College of Public Health and his Juris Doctorate from Stetson University’s College of Law Hunter came to Sydney Consulting after 12 years of industry experience with major medical carriers that included sales, marketing, plan operations, and finance