) -- The National Association of Insurance Commissioners, made up of state regulators, proposed health-insurance reforms that would bring sweeping changes if legislation is passed as early as 2010.

State regulators are laying the groundwork for major market reforms, which would coincide with a health-insurance makeover led by Congress that may take effect in 2013.

The changes would directly impact insurers including





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UnitedHealth Group

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"States face a daunting challenge to update their existing models to conform to new federal regulations," said Sandy Praeger, Kansas' insurance commissioner. "Though we do not yet know what a final health-reform product from Washington will look like, states must begin now to gather input from consumers, insurers, health-care providers, producers and exchanges."

Legislation pending on Capitol Hill would prescribe how states must reformulate public policy affecting ratings rules, access to coverage, annual and lifetime limits, marketing, rate reviews, consumer protections and other areas of regulation. The changes and how they're implemented could radically change the health-insurance market, not just for consumers but also for insurers.

The National Association of Insurance Commissioners typically drafts model acts that are presented to state legislators for enactment. That allows for a degree of consistency from state to state for regulatory purposes, ensuring insurers, which often operate in more than one state, can more easily be compliant. An additional advantage is that state legislative bodies, which aren't insurance specialists, can have an act to consider that has been fully researched and discussed before being drafted.

Praeger expects that changes will be developed by the end of 2011. That will give insurers an idea of requirements, as legislation at a state level would be completed throughout 2012. By the end of 2013, insurers would be expected to have developed appropriate documentation and rates to comply with the new laws, and determine coverage to be offered in the reformed marketplace.

With profitability under extreme pressure for health insurers, with an average margin of a slim 1.9% for the first six months of the year, new legislation and how implementation would affect how insurers operate will be of significant interest to insurance companies.

The question remains whether legislative changes intended to benefit consumers can maintain profitability, even with the expected increase of policyholders. Perhaps health-care reform would provide incentives for insurers to reduce administrative costs, and the most efficient insurers will grow stronger and weaker ones will be forced to change or be taken over.

Reported by Gavin Magor in Jupiter, Fla.

Gavin Magor is the senior analyst responsible for assigning financial-strength ratings to insurance companies. He conducts industry analysis and supports consumer products. Magor has more than 22 years of international experience in operations and credit-risk management, commercial lending and analysis. His experience includes international assignments in Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.