Office of Insurance Regulation Public Hearing re Discount Medical Plan Organizations 8/26/06

The Florida Office of Insurance Regulation held a public hearing on Discount Medical Plan Organizations (DMPO) on August 25, 2006. The hearing was well-attended by consumers, DMPOs, health care providers and insurance companies.

Last year, DMPOs reported a total membership in Florida of 1.5 million and total revenues of $31 million. Of the 59 applications received by OIR in the last year, 37 ultimately were licensed as DMPOs authorized to operate in Florida.

In 2004, the Florida legislature enacted Chapter 636, Part II, Fla. Stat. In doing so, Florida became one of the only states in the country to require licensing of DMPOs. Chapter 69O-203, Fla. Admin. Code, implements Florida�s strict requirements, requiring inter alia annual audited financial reports and reimbursements to consumers who cancel their cards.

Since Florida�s DMPO laws went into effect in 2005, the Department of Financial Services (DFS) has observed a 90% decrease in complaints involving DMPOs. According to Insurance Commissioner Kevin McCarty, that decrease is linked directly to Florida�s stringent “regulatory framework.” Commissioner McCarty stated that at a minimum, OIR intends to maintain the regulatory framework and resist efforts to weaken or loosen Florida�s restrictions on DMPOs.

Consumer Input

Professor Mila Kofman of Georgetown University presented findings from her 2004 study of DMPOs in the Washington, D.C. area. She observed that the most significant problems with DMPOs and the discount cards they offer are that (1) consumers mistakenly believe that DMPOs are insurers and (2) there are a myriad of “bad actors” who clog the market and perpetrate fraud on consumers. Kofman noted that Florida has been able to eliminate most of the bad actors due to its strict licensing requirements. Kofman also observed that Florida�s disclosure requirements help consumers understand that they are not purchasing an insurance product when they apply with a DMPO.

Other consumer representatives pointed out that the people who are most likely to purchase products from DMPOs are also the most vulnerable members of society. Discount cards can be very helpful when they are provided by legitimate DMPOs. However, illegitimate DMPOs and the consumer�s own mistaken belief that he has purchased an insurance product can lead to disappointment and financial problems for consumers.

DMPO Input

Representatives of the DMPO industry also testified at the hearing. Nick Iaorossi of the Consumers Health Alliance, which represents several DMPOs, testified that the industry appreciates Florida�s high standards because they drive out the bad actors that cast a shadow over legitimate providers. Mr. Iaorossi expressed concern that some of Florida�s requirements � such as annual audited financial reports � were financially burdensome for DMPOs and unnecessary.

Vince DiBenedetto of Best Benefits, Inc. testified that there are over 25 million DMPO participants nationwide. He emphasized that it is important for consumers to understand that DMPOs are not insurance companies.

Robert Morfin of New Benefits addressed the specific issue of rates. Currently, Florida prohibits the charging of rates in excess of $30 per month unless the DMPO can provide justification for higher rates. Mr. Morfin suggested that the lack of standards regarding what constitutes adequate “justification” effectively creates a rate cap for DMPOs. Mr. Morfin urged OIR to consider establishing guidelines to remedy this problem.

Provider Input

Dr. Jose Garcia of Miami testified that Florida�s regulations have had a dramatic impact on the complaints he receives from patients regarding discount cards and DMPOs. He urged OIR to undertake studies to compare the quality of care received by HMO participants versus DMPO participants.

Dr. Allen Okie testified that DMPOs are good for providers. The use of discount cards removes the intermediary from the process, leaving decisions about health care up to the patient and his doctor. The cards also reduce overhead and increase efficiency.

Insurance Company Input

The insurance industry was adamant that OIR continue to enforce its regulations governing DMPOs and even suggested that stronger measures be undertaken.

Seth Phelps of Blue Cross Blue Shield emphasized that DMPOS, while helpful, can never serve as an adequate substitute for health insurance.

Gladys Fernandez of Preferred Medical Plans expressed concern over the bundling of regulated and non-regulated products. Ms. Fernandez noted that some DMPOs combine discount cards, which are regulated by Florida law, with various unregulated products in order to circumvent the $30 per month rate limit. Ms. Fernandez encouraged OIR to take steps to address this increasingly common practice.

Kerri Mansberg of Aetna described Aetna�s discount card program and emphasized that the company takes steps to ensure that consumers understand that DMPOs are not insurers. However, Ms. Mansberg cautioned the OIR against overregulation. She noted that needless regulation could drive legitimate DMPOs out of the state and into less heavily regulated states.

Bob Wychulis of the Florida Association of Health Plans supported Ms. Mansberg�s comments and expressed concern that overregulation of DMPOs could hurt legitimate providers as well as inhibit competition and innovation.

Interested Party Input

Joan Galletta of the Florida Association of Health Underwriters pointed out that many mainstream health insurers already provide discount cards. Ms. Galletta indicated that DMPOs provide no coverage for consumers and offer them no financial protections. She acknowledged that DMPOs can benefit some people but urged OIR to consider requiring that sellers of DMPO products be licensed as agents.

James Bracher of the Florida Health Reinsurance Program expressed his approval of Florida�s regulations and stated that his organization opposes any attempt to undermine those regulations. Mr. Bracher also addressed his concern that DMPOs can “bundle” regulated and non-regulated products and drive prices up to as much as $100 per month in violation of the intent of Florida�s laws. Finally, Mr. Bracher pointed out that while legitimate discount cards can be beneficial for prescription drugs or doctor�s visits, massive expenses � such as surgeries � still require the maintenance of traditional health insurance.

OIR concluded the hearing by thanking everyone for their comments and stating that the general consensus seemed to be that Florida�s regulations regarding DMPOs were working.

No additional discussions are planned as of now, but this office will follow developments in this area and keep you informed.

If you have any questions, please feel free to contact this office.

Rich Fidei