NAIC Amends Its Model Unfair Trade Practices Act

At a Glance

• Ten states are currently considering legislation adopting the NAIC’s amendments to Section 4(H)(2)(e). Of the ten states, only four states are considering pieces of legislation that are near-verbatim to the model amendments. Several states are considering omitting or altering key provisions of the amendments.
• States are considering the adoption of Model Law 880-1 in varying forms, including modifications to the scope, duration and applicability of the pilot program provision. The ongoing adoption of the updated Model Law will continue to pave the way for insurers to provide policyholders with interventions that are aimed at keeping them healthier longer, and at home for as long as possible if they develop a chronic illness. That should be a win-win for policyholders and insurers.

On December 9, 2020, the National Association of Insurance Commissioners (NAIC) enacted amendments to its Unfair Trade Practices Act, Model Law 880-1, Section 4(H)(2)(e). The amendments are aimed at severely loosening restrictions on rebating for product offerings and services that fit certain criteria.

Since the NAIC enacted its model amendments, there has been substantial progress across jurisdictions in adopting those amendments. This was a significant development for long-term care insurers because, in the states that adopt the model, it significantly reduces rebating concerns around ancillary products and services that insurers may make available to policyholders to improve their health and functional capacity. Below is an update on the current state of play on state adoption of the model act amendments.

Ten states are currently considering legislation adopting the NAIC’s amendments to Section 4(H)(2)(e). Of the ten states, only four states are considering pieces of legislation that are near-verbatim to the model amendments. Several states are considering omitting or altering key provisions of the amendments.

The main factor upon which states differ is whether to adopt the pilot program provision of the model amendments. Model Law 880-1, Section 4(H)(2)(e)(vii), provides that an “insurer or producer may provide the [ancillary] product or service in a manner that is not unfairly discriminatory as part of a pilot or testing program for no more than one year” (emphasis added). However, three states (Michigan, Massachusetts and Texas) propose the model amendments without adopting the pilot program provision at all. Other states propose to retain the pilot program as described by the model amendments.

States also differ on whether to adopt a modified version of the amendments’ pilot program provision. For instance, Illinois’ proposed statute limits the applicability of its pilot program to life insurance policies. Alaska’s proposed statute authorizes the pilot program to continue for three years, as opposed to the one-year duration specified in the NAIC Model Law. Kansas’ proposed statute allows for an extension of the testing period beyond one year “as necessary” to determine if the product or service meets the specified criteria. The Kansas House Committee has commented that the option to extend the duration of the pilot program allows the Department of Insurance to obtain evidence pertaining to value-added products or services to mitigate loss.

In conclusion, states are considering the adoption of Model Law 880-1 in varying forms, including modifications to the scope, duration and applicability of the pilot program provision. The ongoing adoption of the updated Model Law will continue to pave the way for insurers to provide policyholders with interventions that are aimed at keeping them healthier longer, and at home for as long as possible if they develop a chronic illness. That should be a win-win for policyholders and insurers.