Insurance Regulators are Funded by the Insurance Industry Itself: Calling Out Conflicts of Interest

It does not come as a surprise to many Americans that the relationships between government agencies, healthcare providers, healthcare insurers, pharmaceutical companies, and other stakeholders sometimes are conflicts of interest that do not align with quality patient care, and only end up adding costs to beneficiaries and taxpayers.

These relationships and the conflicts of interest they sometimes create, also create barriers to reform the US healthcare system. Those barriers are deeply entrenched.

For example, the regulators who control the fully insured insurance industry are funded by the insurance industry itself. 

The National Association of Insurance Commissioners (NAIC), established in 1871, is the crucial regulatory body that establishes standards for the state-regulated, fully insured insurance industry and supports state regulators. Often, even federal law references NAIC standards for these insurance plans. 

The NAIC plays a significant role in influencing policy by:

• Setting standards and model laws

• Developing model regulations

• Running the accreditation program

• Collaborating with federal entities

• Serving in an advisory role and sometimes standard-setting role to federal entities and

Performing consumer protection and education

For years, concerns have been raised that this non-profit association, funded by the insurance companies, themselves, to oversee the insurance industry, undermines democratic accountability and transparency in the regulatory process.

NAIC’s total operating budget for 2024 is $158 million in expenses (supported by $150 million in new revenues).

It is the NAIC that sets the standards, through its model legislation, for insurance appeals processes. Patients must first exhaust an appeal with the insurance provider that denied the claim before seeking an appeal through an independent third party, a biased, unfair process.

CAMI recommends federal legislation to reform the appeals process to provide the minimum of unbiased adjudication of patient complaints. Patients would no longer go back to the insurance provider to challenge a claim that has been denied. Instead, a denied claim would automatically escalate to a contractor/independent entity to perform the appeals process.

There is ample precedent for this new approach. Currently, the appeals processes for some government-run healthcare programs work similarly:

• Medicare

• The Traditional Medicare appeals process starts with a redetermination by the claims processor/Medicare Administrative Contractor but automatically escalates to an independent external review by a “qualified independent contractor provided by Medicare contractors

• Large employer self-insured plans:

• These plans, which insure most workers, are required to provide an independent review by an “independent review organization” or contractor certified by the federal government

Health insurance claims appeals must be independent and transparent to give American patients a fair chance.