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Industry Groups Sue to Block California Crackdown on Disability Insurance

Posted on: Friday, 2 December 2005, 00:00 CST

By Andrew McIntosh, The Sacramento Bee, Calif.

Dec. 2--As Insurance Commissioner John Garamendi jetted to Los Angeles Thursday for a hearing on health insurers' profits, three industry groups announced they had sued him in Sacramento Superior Court to block a crackdown on disability insurance.

In a complaint filed Wednesday, the Association of California Life and Health Insurance Companies, America's Health Insurance Plans and the American Council of Life Insurers seek a restraining order to stop Garamendi from unilaterally imposing changes to disability policies.

Lawyers representing the insurance groups, backed by the powerful California Chamber of Commerce, contend that the measures outlined by state officials in a detailed October memo will boost disability insurance rates by between 33 percent and 46 percent statewide.

The lawyers also claim Garamendi's unilateral changes will limit the range of disability insurance products California consumers can buy, court documents state.

"Fewer Californians will be able to protect themselves from financial ruin if Commissioner Garamendi's requirements go forward," said Brad Wenger, the president of the Association of California Life and Health Insurance Companies.

The Sacramento-based association has 35 member companies that provide more than $2 trillion worth of insurance coverage to Californians.

"California employers already pay some of the highest disability insurance rates in the country," Wenger added. "This is one more example of how excessive regulation adds to the cost of doing business."

Norman Williams, a spokesman for the Insurance Commissioner, said Garamendi and the department will vigorously contest the lawsuit.

He said the insurers' allegations about potential cost increases were misleading, saying an actuarial study the insurers commissioned to support their claims of higher costs used extreme examples.

Williams said past state studies of disability insurance products found many didn't offer real benefits to workers who paid costly premiums but later had to stop working because of a disability.

Companies and employees in California contribute to a state disability insurance program and social security, most through payroll deductions. Many employers offer workers additional coverage to supplement benefits.

This extra coverage is at the heart of the court battle.

In an Oct. 3 letter to the insurers, Gary M. Cohen, the Department of Insurance's general gounsel, wrote that his department was concerned that many existing disability insurance products would not be approved if they were submitted today.

He said some policy provisions have not been approved for many years but are nevertheless contained in policy forms the department approved in the past and are found in policies being sold to people and employers.

To ensure that forms are lawful and appropriate, Cohen wrote, officials were considering withdrawing approvals for all previously approved policy forms containing any illegal or inappropriate language.

Cohen's letter included a separate attachment listing seven examples of technical language in insurance policies that officials consider legally questionable.

One suggested that policies with clauses giving the insurer discretionary authority to determine eligibility for disability benefits and to interpet the terms and provisions of the policy were fraudulent.

Lawyers for the insurers suggest the list showed that Garamendi and Insurance Department officials were "engaging in a pattern and practice of enforcing seven underground regulations against all disability insurers."

America's Health Plans, a national association based in Washington, D.C., representing nearly 1,300 health insurers, also wants the court to order Garamendi to organize a public review and comment session about the measures described in Cohen's letter, saying it is required under state administrative laws.

Williams denied both sets of allegations, saying Cohen's letter sought the insurance industry's input.

"These are not underground regulations. We're not issuing any new regulations, statutes or laws," William said. "We simply want to enforce the existing rules so that if people are paying for disability insurance, they will actually get benefits if they get ill."

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Copyright (c) 2005, The Sacramento Bee, Calif.

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Source: The Sacramento Bee

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