Consumer Protection in Private Health Insurance: The Role of Consumer Complaints. 1. Jurisdiction over health insurance complaints varies across states, with responsibility for indemnity health insurance, HMOs and quality complaints often split within or between state agencies.


Table 10.1 indicates that in three states (Oregon, Texas and Vermont) a single government agency has the major regulatory responsibility for health insurance complaints management. However in the other three states (California, Maryland and New York), responsibility for indemnity health insurance, HMOs and quality complaints is split across two government agencies.

In attempting to determine what might be the optimal regulatory split, it is instructional to examine the evolution of regulatory authority for health insurance and hence, complaints management. Historically, health insurance regulation has focused on financial solvency, co- existing with regulation of other insurance business lines in state insurance departments.

The long history of financial solvency regulation is illustrated by Texas, which created a Department of Insurance in 1876, the same year as the State Constitution was adopted. The Department's establishment was spurred by the growth of wildcat insurance schemes and bankruptcies during a period of economic and population growth. In the 1950s the Texas legislature, confronted by the collapse of 23 insurance companies, passed at least 16 insurance- related bills.

In an environment of indemnity health insurance, regulation tended to focus on rates or premiums, contracts and other solvency measures (e.g. minimum reserves). Quality regulation through professional and facility licensing was historically the responsibility of state health agencies, with little need for co-ordination between state insurance and health agencies.

The emergence of managed care organizations which combined financing and delivery of health care exposed a need for new regulatory skills and powers. While state insurance departments tended to have a broad spectrum of enforcement powers, they lacked health- specific skills in quality assurance and improvement. In California, as early as 1975, this prompted the complete separation of responsibility for indemnity health insurance and managed care under the Departments of Insurance and Corporations respectively.

California is continuing this focus on ever-more targeted regulation with the recent establishment of the Department of Managed Care.

Table 10.1: Jurisdiction and Responsibility for Health Insurance Complaints

Features California Maryland Oregon New York Texas Vermont NAIC
Major responsibility for indemnity health insurance complaints Department of Insurance Insurance Administration Department of Consumer and Business Services (DCBS), Insurance Division Consumer Assistance Unit Department of Insurance, Bureau of Consumer Services Department of Insurance, Consumer Protection Program Department of Banking, Insurance, Securities and Health Care Administration (BISHCA), Division of Health Care Administration Insurance Departments should establish protocols such as a Memorandum of Understanding if there is shared jurisdiction
Major responsibility for managed care health insurance complaints (non quality) Department of Corporations (see below) Insurance Administration DCBS Insurance Division Consumer Assistance Unit Department of Insurance, Bureau of Consumer Services Department of Insurance – Life, Health & Licensing Program BISHCA Division of Health Care Administration As above
Major responsibility for quality of care complaints Department of Corporations (see below) Department of Health and Mental Hygiene DCBS Insurance Division Consumer Assistance Unit Department of Health Office of Managed Care Department of Insurance – Life, Health and Licensing Program BISHCA Division of Health Care Administration As above
Recent changes in responsibility Department of Managed Care is due to take over responsibility for managed care including quality complaints by no later than July 2000 Since January 1999 the Health Education and Advocacy Unit has had an expanded role in helping consumers under the new Appeals & Grievances law None None Until 1996 Department of Health was responsible for HMO quality Until 1996 the independent Health Care Authority was responsible for quality oversight of HMOs, with all other insurance regulation the responsibility of the Department of Banking, Insurance and Securities Not applicable

While it would be tempting to view the Californian experience as a possible evolutionary path along which other states will move, the evidence is mixed. California's population size and unusually high penetration rate for managed care have allowed the emergence of a new regulatory agency, midway between traditional state insurance and health agencies. Of the two other more populous states in this study, Texas has gone furthest down the Californian model, separating responsibility for indemnity insurance and managed care in different divisions of the state insurance agency.

However it is questionable whether splitting regulatory responsibility and complaints management by plan type is sensible given the fluidity of the health insurance market and the potential for the market to evolve in response to different regulatory incentives. Consumers are also unlikely to find the structure and regulation of the health insurance market intuitive. In California, for example, consumers with a complaint may not even know whether they are enrolled in a PPO or a POS plan, much less that the former is regulated by the Department of Insurance and the latter by the Department of Corporations (shortly to fall under the Department of Managed Care).

Interestingly, in none of the states in this study have health agencies taken the major role in health insurance regulation. In Maryland and New York health agencies have a limited role mainly regarding quality issues around health insurance. Moreover, in two states, Texas and Vermont, there has been a diminution of the role of health agencies. In 1996 the Texas Department of Health ceded responsibility for HMO quality complaints to the Texas Department of Insurance, while the Vermont Health Care Authority was merged into a larger government agency that had responsibility for insurance regulation.

The dominant role for state health agencies has generally been in complaints management for the Medicaid program and in professional licensing and oversight of physicians and hospitals. However the growth of managed care has blurred the historical distinction between insurance regulation and provider regulation, creating a need for improved communication across state health and insurance regulatory agencies. This has been brought into sharp relief in California with the financial collapse of several physician groups which assumed financial risk from HMOs. While California has experienced probably the highest level of integration of medical groups, state insurance regulators in New York, Oregon and Texas in this study also expressed concern about the delegation by insurance plans to medical groups and other intermediaries of certain functions, and some confusion about the consequential regulatory authority. Once again, consumers are unlikely to appreciate the implications of new contractual relationships between their insurance plan and providers. Many consumers will be uncertain about who has regulatory jurisdiction and to whom they can turn if they have a complaint.

Policy implications and recommendations

There is no coherent system or universal model of health insurance complaints management across the states. While this study has focused on state complaints management largely relating to commercial health insurance, many other federal, state and private agencies are also involved in oversight of health insurance plans or complaints management. These include the U.S. Department of Labor, the federal Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)) (HCFA(now known as CMS)), state Medicaid agencies, the federally funded SHIP program providing counseling and assistance to seniors on health insurance and many private assistance programs targeted at condition-specific populations.

The multiplicity of agencies involved in oversight of health insurance plans makes it difficult to develop a comprehensive picture of how well insurance plans are performing on consumer complaints. Several states have developed strategies to meet this challenge of overlapping responsibilities.

Given the multiplicity of existing regulatory models, each with their own history and inertia, the pursuit of uniform models of health insurance complaints management is not recommended at this time. However, it is recommended that strategies be developed which clarify responsibility, facilitate communication and enhance the knowledge and experience of regulators in complaints management.

It is recommended that the following examples of best practice may be of value in improving regulatory oversight of complaints management:

  • A Memorandum of Understanding could help clarify responsibility where there is shared authority for health insurance complaints across several government agencies, including federal and state agencies. One state-based example is the Memorandum of Understanding instituted in Maryland to clarify responsibilities between the state Department of Health and Mental Hygiene and the Maryland Insurance Administration (Maryland, Attachment 1). This strategy is supported by the NAIC.
  • Periodic meetings of state and federal regulators involved in health insurance oversight should occur to identify emerging issues across the sector and plan-specific issues. For example, California established an Interagency Connection in 1999 involving the state Departments of Insurance and Corporations, the U.S. Department of Labor and HCFA(now known as CMS), with the taskforce meeting quarterly.
  • Regulators at both federal and state level, including those in health agencies and insurance agencies, could consider developing a single entry point for consumer complaints related to health insurance. For example, the Maryland Insurance Administration is now designated as the central entry point for health insurance consumer complaints with referrals to other agencies as relevant. This may help overcome problems of consumer confusion about regulatory jurisdiction associated with the rapidly changing health insurance market, including the blurring of plan and provider roles. Under this proposal there would still need to be specialized depth in complaints management within agencies, supported by clear referral protocols