The Patient Protection and Affordable Care Act (PPACA) does not apply to “accident only” insurance. (See 42 USC 300gg-91(c)(1)(A).) As a result, insurers writing “accident only” insurance do not have to comply with the mandates imposed by the PPACA, including but not limited to the Medical Loss Ratio (MLR) rule. In substance, the MLR rule requires insurers to disclose the amount of premium being spent on health care as well as the amount of premium being allocated to administrative expenses, including agent compensation and marketing. Where the insurance company spends less than 80 percent of its premiums on medical care (or less than 85 percent for large groups), the company must refund the applicable portion of premium to the insured.
In recognition of this exception, New York–licensed insurance carriers have been designing Accidental Death and Dismemberment (AD&D) policies to include certain limited medical benefits. Although New York has its own minimum loss ratio requirements, the premium thresholds are lower than that imposed by the PPACA. While the minimum loss ratio in New York varies depending on whether the policy is individual or group and whether it is sold to traditional groups or association-type groups, the percentage is generally 65 percent or less.
The New York Department of Financial Services (Department) has recently developed “desk drawer” rules (rules that while not regulations are applied by the Department with the same force and effect) concerning the filing and approval of AD&D products containing limited medical benefits. These new rules require in part that certain disclosures be made to the insured and that the insured have underlying medical coverage in force. Since these rules may not come to the attention of the insurer until the AD&D product has been developed and filed, insurers may experience delays in product approval and, depending on the particular circumstances, carriers may be required to redesign their products.
Additionally, where the AD&D product is written on a group basis and the administration of the group policy is performed by the policyholder or other third-party administrator, these new rules may require these entities to make significant changes in their administrative procedures. Where such changes are not practical or possible, it may be necessary for the insurer to eliminate certain of the limited medical benefits from the product, which may impact the insurer’s ability to satisfy the required minimum loss ratios.