NY DFS Re-adopts Emergency Risk Adjustment Pool for COVID-19-Related Sick Leave

On Aug. 25, NYS Superintendent of Financial Services Linda A. Lacewell re-adopted, as an emergency regulation, a risk adjustment pool to stabilize the state workers’ compensation market in the aftermath of the COVID-19 pandemic.

The regulation’s enabling legislation, signed by Gov. Andrew Cuomo in March, had provided paid and unpaid sick leave for employees affected by quarantines related to the coronavirus outbreak. Such enabling legislation was intended, among other things, to protect insurers from disproportionate adverse risks associated with the fact that the relevant policies were priced without foreknowledge of the pandemic.

The new regulation, codified at 11 NYCRR 365 (Insurance Reg. 271), had originally been adopted on an emergency basis on June 1, as authorized by the March bill. The Aug. 25 regulation re-adopts the risk adjustment pool as a “second” emergency measure, with the Department of Financial Services (DFS) intending to adopt the provisions as a permanent rule (treating the June 1 emergency rule, in effect, as a proposed rulemaking). This second emergency rule expires on Sept. 9.

The August emergency rulemaking, like DFS’ June emergency regulation, comprises two main measures.

First, it offers immediate payments, from the pool described below, to any insurer “with actual COVID-19 disability or family leave claims experience equal to or greater than 20 percent of” the surplus that applies for such relief and is approved. The superintendent may require any insurer covered by the regulation to make a payment into the pool to cover these immediate relief payments, subject to parameters set forth in the regulation, but must first seek to fund such immediate payments from the State Insurance Fund (the state’s workers’ compensation provider). Insurers receiving immediate relief payments may be required to pay interest to the insurers whose contributions funded such relief.

Second, it provides for the recoupment of 100 percent of COVID-19 disability and family leave claims paid through an adjustment to family leave benefits premiums in plan years 2021 and beyond. The superintendent may determine a number of years over which recoupment will occur, which should not exceed three years unless she determines that a longer period is necessary to avoid market disruption. To facilitate the recoupment, the superintendent will assess each applicable insurer a yearly amount equal to a portion, determined in accordance with the regulation, of the premium it collected on such coverages. These amounts will be pooled and maintained in the superintendent’s custody. Amounts will then be redistributed from the pool to insurers, including the State Insurance Fund, on an annual basis proportionately based on actual COVID-19 claims experience.

Each insurer participating in the mechanism will be entitled to payment from the pool until it has received an amount equal to 100 percent of COVID-19 claims paid. Disbursements to an insurer that had received an immediate relief payment as described above will be reduced proportionately. All insurers, including the State Insurance Fund, that issued policies covering disability benefits or family leave benefits for any portion of calendar year 2020 are members of the risk pooling program. The regulation states that the superintendent, beginning in plan year 2021, may adjust premiums for family leave benefits in a manner necessary to enable the funding of the recoupment mechanism, using statistical methodologies set out in the regulation.