Gov. David A. Paterson would like to dust off and reinstate “prior approval,” a long-abandoned law that would give his superintendent of insurance control over health insurance rate increases. When prior approval was in place, insurers needed the State Insurance Department’s authorization before instituting price increases. Insurers were called to appear at public hearings where they’d present data to support their proposed new premiums.

The Amherst Chamber of Commerce opposes the governor’s plan. We remember the negative impact prior approval had on business owners.

Prior approval hearings were always political. In election years, the department would keep premium increases minimal despite being presented data on the rising cost and increased usage of health care goods and services. The following year, the department would be forced to deal with the consequences of its artificially suppressed rates by approving drastic increases to cover the insurer’s needs for the coming year and shortfall from the current year.

Keep in mind that the department mandates that health insurers maintain minimum levels of reserves in order to weather catastrophic health care events (such as flu pandemics). When prior approval was law, artificially low rates forced many insurers to dip into their reserves, driving some toward the department’s own financial designation of “impaired.” It was regulation run amok.

For business owners, the arbitrary and erratic system of prior approval resulted in roller-coaster rates that made budgeting impossible. The cost of offering employee health insurance was based not on market forces that could be predicted and planned for, but on the political self interests of elected officials and their appointees.

Our nation’s experience with price controls shows us that they don’t ultimately change the trends in prices; at best they delay price increases that are inevitable when costs are rising.

A decade and a half ago, then-Gov. George E. Pataki and the State Legislature shelved prior approval with the blessing of the then superintendent of insurance. A process called “file and use” replaced prior approval. It’s a process the Amherst Chamber of Commerce continues to support as a fair and equitable means of determining health insurance premiums.

Under file and use, rate adjustments are “deemed approved” if the insurer meets certain requirements. Insurers are audited to ensure they comply. Those that fail to meet requirements must issue refunds to policyholders who the department feels have been overcharged.

We know that “file and use” works. We also know from history that “prior approval” doesn’t work and actually has a negative impact on business owners. It is for that reason the Amherst Chamber of Commerce encourages Paterson to scrap his plan to reinstate prior approval and leave that flawed process on the shelf where it belongs.

Colleen C. DiPirro is president and CEO if the Amherst Chamber of Commerce.