New York Moves Regulate Limited Benefit Plans

Posted by Merrill Matthews in Insurance Regulation, New York on Oct 27th, 2009 | no responses

In New York, the Paterson administration is moving against companies that sell limited benefit plans (LBPs), accusing them of misleading marketing practices. The Insurance Department fined one company, American Medical and Life Insurance Company (AMLI), $700,000 for numerous violations, and imposed new restrictions on the company. AMLI can no longer sell its limited benefit products in New York, and has been forced to pull its nationwide television commercial. The actions against AMLI were triggered by an Insurance Department investigation begun after consumers complained to the department. The investigation revealed that AMLI violated numerous New York insurance law provisions in its sales and marketing of the LBPs from the fall of 2006 through the fall of 2008.

Governor Paterson announced further Insurance Department action:

Another insurer has agreed to suspend sales of a similar product nationally while the Insurance Department investigates its marketing practices.
The department will consider whether to propose new regulations to guarantee consumers are properly informed about just how restricted limited benefit health insurance plans may be.
The department directed insurance companies to provide information about any limited benefit health plans they sell in New York.
And the state held three public hearings to determine if the proper course is tighter regulation or an outright ban on the product.

The Insurance Department contends that many LBP sales are completed via the Internet or telephone without the benefit of a written application, circumventing specific disclosures required by governing New York law. Investigations also have revealed that some policies are sold through telemarketing firms using unlicensed agents, which also allegedly runs afoul of state insurance laws. The Department also has found that some insurers issue LBPs as group coverage through unauthorized associations. While state law permits the issuance of group insurance to valid associations, some associations are formed or maintained for the primary purpose of obtaining insurance, which is not permitted in New York.

If the Department moves to regulate LBPs, New York would become the first state to adopt comprehensive regulations specifically directed at this line of coverage.