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Gallagher Applauds Lawmakers for Passing Legislation That Will Put an End to Predatory Rating Practices


CONTACT: Tami Torres
(850) 413-2842

TALLAHASSEE – Florida's Chief Financial Officer Tom Gallagher applauded state lawmakers for passing legislation that will put an end to predatory rating practices used by out-of-state insurance companies and will help thousands of Floridians who are trapped in death spirals. SB 2264, sponsored by Senator Jeff Atwater, unanimously passed both the Florida Senate and House of Representatives today. Representative Joe Negron sponsored the House version.

"Representative Negron and Senator Atwater worked incredibly hard to get this bill passed and deserve tremendous credit for standing firm and championing good public policy on behalf of Florida's consumers," Gallagher said.

Gallagher says "death spirals" are created when companies low-ball insurance premiums for healthy people only to substantially raise their rates when they become ill and use their coverage. Once ill, consumers are forced to pay escalating premiums because they are unable to qualify for coverage with another company due to a pre-existing condition.

Death spirals have occurred because of a loophole in Florida law that has allowed insurance companies to sell health insurance policies to Floridians through out-of-state associations and avoid state regulation of their rates. Under the legislation passed today, rating practices that cause death spirals will be considered predatory pricing and constitute unfair discrimination under the Unfair Trade and Deceptive Practices Act. According to Kevin McCarty, Director of the Office of Insurance Regulation, violators would be subject to fines and penalties, including revocation of license.

"Consumers who responsibly purchase health insurance coverage will no longer be unfairly targeted when they become ill and need coverage the most," Negron said.

Atwater agreed. "We have effectively eliminated predatory rating practices in the individual health insurance market," he said.

SB 2264 also specifically prohibits predatory and unfair rating practices, which include:

§ Periodic closing of blocks of business – A common tactic used to segment the healthy from the sick by shutting down entry into one block of business while simultaneously opening a new block of business. Healthy policyholders from the old block migrate to the new block and leave the sick policyholders behind.

§ Tier rating – Companies move policyholders who become ill from the class in which they were issued coverage to one that is of a lesser standard and subject to higher renewal rates.

"This legislation will also help thousands of Floridians who are trapped in death spirals by ensuring that out-of-state insurance companies offer them a conversion policy," Gallagher said.

A conversion policy is an individual policy, with rates capped at twice the standard rate for a healthy person seeking individual coverage. A conversion policy would provide major medical benefits at a premium significantly lower than what Floridians caught in the death spiral are currently paying, Gallagher added.

"This is a well-crafted piece of legislation that protects consumers from predatory rating practices while ensuring competition and stability in the individual health market," McCarty said.