Legislature(2001 - 2002)
04/22/2002 01:43 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 246 - OMNIBUS INSURANCE BILL Number 1900 CHAIR ROKEBERG announced that the next order of business would be HOUSE BILL NO. 246, "An Act relating to confidentiality of records and to cease and desist orders of the division of insurance, to insurance company investments, to unauthorized insurers, to surplus lines insurance, to health insurance, to life insurance, to annuity insurance, to consumer credit insurance, to title insurance, and to hospital and medical service corporations; and providing for an effective date." [Before the committee was CSHB 246(L&C).] Number 1889 AMY ERICKSON, Staff to Representative Lisa Murkowski, House Labor and Commerce Standing Committee, Alaska State Legislature, said, on behalf of the sponsor, the House Labor and Commerce Standing Committee, that HB 246 makes corrections and clarifications to the insurance statutes. She elaborated: The main areas addressed are: regulatory structure of multiple [employer] welfare arrangements [MEWAs]; confidentiality of records; late payments for premium taxes; annual fees to operate joint insurance arrangements; revisions to property-casualty guaranty fund assessments; and stop-loss insurance standards. This is non-controversial; we've had no opposition in the process, and the Division of Insurance can testify to that as well. CHAIR ROKEBERG noted that there is a proposed amendment, hereafter known as Amendment 1, which read [original punctuation provided]: Page 9, Line 6: Insert a new bill section to read: *SEC. 23. AS 21.27.330(b) is amended to read: (b) If a licensee that is a firm transacts business at more than one place of business, [IN THIS STATE], the licensee shall pay a license fee or each place of business that transacts business in this state or relative to a subject resident, located or to be performed in this state. Number 1849 KATIE CAMPBELL, Actuary L/H, Central Office, Division of Insurance, Department of Community & Economic Development (DCED), said that [Amendment 1] corrects a drafting error in legislation passed last year, clarifying that any branch office that is actually transacting business in Alaska shall pay a licensing fee. CHAIR ROKEBERG noted that [Amendment 1] will affect the statute related to the Gramm-Leach-Bliley Act (GLBA). MS. CAMPBELL confirmed this, adding that last year's bill changed the provision so that instead of every single branch location being licensed, it would just be the main office that receives a license, and then the branch offices would pay a fee. The intent was to not change the fee structure, but the words "in this state" were mistakenly added, and this created some interpretation problems; [Amendment 1] removes that language. CHAIR ROKEBERG asked Ms. Campbell to explain to the committee what a MEWA is and why there is substantial language pertaining to MEWAs. MS. CAMPBELL said: A multiple employer welfare arrangement [MEWA] is ... defined under ... federal ERISA [Employee Retirement and Income Security Act of 1974] laws, and it's basically [when] two or more employers can get together and form a pool for purposes of issuing or offering health insurance coverage to their employees. And under our current regulatory structure, those [MEWAs] would have to be licensed as insurance companies, and there's quite onerous standards there: they'd have to have $2 million in capital and surplus, which is quite high; there's financial reporting requirements; reserving requirements; and things that just don't make sense for that entity. And so what this bill does is it sets up an appropriate regulatory structure for them, to encourage them to operate in the state and provide a little bit of competition and ability for the employers to pool for health insurance purposes. Number 1729 REPRESENTATIVE JAMES asked Ms. Campbell if she is saying that these employers come together and become the insurer. MS. CAMPBELL said that if [employers] self fund, that is true; they form these arrangements and they become an insurer. She noted that some employers actually go out and purchase an insurance policy to cover the plan. REPRESENTATIVE JAMES opined that being an insurer is a lot different than purchasing something from a licensed insurer. She asked why these employers that become insurers don't need a license, since [regular] insurers must be licensed. MS. CAMPBELL said: "They would need a license, and that's what this is setting up; it's a separate chapter that deals with that specific type of business that they're engaging in." CHAIR ROKEBERG mentioned that there is a MEWA being formed in Fairbanks now. What this is, he added, is a group of businesses getting together and becoming, basically, an underwriter, and "we would like to be able to encourage that"; thus these provisions have been included in HB 246. Unfortunately, the division currently has to look at this group as if it were a full-blown insurance underwriter, which requires meeting very high solvency standards. He asked whether the Division of Insurance is going to be promulgating regulations, or if HB 246 contains the standards. MS. CAMPBELL said that the standards would be in the bill. CHAIR ROKEBERG mentioned that the solvency standard will be lowered to $200,000, which is a huge difference, with the intent of encouraging MEWAs to form and essentially become their own underwriters. REPRESENTATIVE JAMES mentioned that she would like to encourage that as well; "we have a real struggle with people not even being insured at all." However, she remarked, she doesn't know where the controls are for the financial requirements that determine whether a group can function as a MEWA. She opined that there ought to be some requirement that a group show it can follow through with the plan it engages in. Number 1618 MS. CAMPBELL said that the provisions in proposed AS 21.85 will create a new chapter in statute for MEWAs. This proposed chapter lays out very specific requirements regarding licensing, financing, certification by an actuary, stop-loss insurance, and financial reporting. REPRESENTATIVE COGHILL asked about the provision regarding membership for MEWAs in the Comprehensive Health Insurance Association. MS. CAMPBELL said that that provision was added because "if we have a separate license for [MEWAs], they wouldn't be considered a member as an insurer, so we have to mention them separately as a member." Thus MEWAs would be assessed for the Comprehensive Health Insurance Association as well, she added. CHAIR ROKEBERG referred to the stop-loss insurance provisions [Section 35] located on page 13. He asked why the entities listed therein may not issue a stop-loss insurance policy "that has an annual attachment point of claims incurred for each individual that is lower than $10,000". MS. CAMPBELL replied: If you have a self-funded or a self-insured employer, and they're taking the risk and paying for health claims directly, they will go out and buy a stop-loss insurance policy to cover excess losses. So if there's excessively large claims, or [an] excessive number of claims, they have insurance to cover themselves.... This is saying, for any particular individual, if they have a loss over $10,000, the insurance would kick in to protect the employer because they don't want to take as much risk. And when that drops down too low, you end up having a situation where it's basically health insurance they're purchasing instead of excess loss insurance. Number 1476 CHAIR ROKEBERG said: "But you could have a plan ... that ... didn't kick in until [$5,000] or $10,000, if you offered that as part of your menu selection to employees, for example, where you had a deductible that was [$5,000 or $10,000], to lower the cost." MS. CAMPBELL indicated that situation would not be affected by the provision in Section 35. CHAIR ROKEBERG remarked that about the only way people can afford to have insurance anymore is to have high deductibles. REPRESENTATIVE JAMES, referring to lines 18 and 19 of page 13, asked whether there are any health maintenance organizations licensed under AS 21.86. MS. CAMPBELL said that currently there are none, but noted that the statutory language is in place should any ever form in the future. CHAIR ROKEBERG remarked that so much legislation has been adopted regarding HMOs (health maintenance organizations), it is unlikely that any ever will form in Alaska. He added, "I wish we had an HMO as another alternate form of health care services in the state." REPRESENTATIVE JAMES indicated that she is not in favor of HMOs because of their behavior. CHAIR ROKEBERG said: They're ... not all bad guys. Let's blame the U.S. Congress for our health care problem, because they won't reimburse Medicare and Medicaid to a reasonable point, and that's what's called the phantom health tax in this country, and that's the problem in this country; it's not so much the HMOs or the health care providers - it's our politicians. Number 1352 BRUCE GALE, Employee Benefit Consultant, Willis of Alaska, Inc., testified via teleconference. He said: I would like to talk to the committee about, first, the provisions concerning stop-loss insurance, on page 13. And I believe the aggregate attachment point requirements in today's hard stop-loss market are somewhat unrealistic. For the past two years, it has been almost impossible to find an aggregate attachment point of 120 percent, for any large employer. The lowest we have been able to obtain in the marketplace is 120 percent. And I notice that [paragraph (3)] for a large employer is lower than 110 percent of expected claims. We have not been able to obtain those kinds of aggregate attachment points for the last three years in the stop-loss market. The number of carriers that are offering stop-loss insurance, both specific and aggregate - nationwide, not just in the state of Alaska - to employers of under 1,000 lives, has shrunk considerably. Those insurance carriers that are offering stop-loss insurance to these types of MEWA arrangements are very few. Right now I believe we have two alternatives - ... possibly three - in the state, where we could approach them for such insurance coverage. I appreciate that the legislature or the [Division] of Insurance is trying correct some deficiencies ... in earlier drafted legislation. I would like to remind the committee that there is current Alaskan insurance law that allows for banding together of various groups or employers strictly for the purpose of insurance to be outside the law, ... [but] there must be some other commonality in those groups - an association, a professional association, et cetera. I would also like to state that in most of the MEWA arrangements that I have been involved in, these arrangements are operated through a 501(c)(9) trust, which is a tax-exempt trust under the IRS [Internal Revenue Service] regulations. These trusts are governed by a board of trustees that are held to a fiduciary requirement - or standard - by ERISA. They purchase ERISA-required bonding. They are required to provide an annual statement - certified statement - by an auditor. They hire, as a matter of course, a trust auditor, a trust attorney, and a trust consultant. Number 1190 MR. GALE referred to proposed SEC. 21.85.060 found on page 30, line 29, which read in part: Investments. A multiple employer welfare arrangement shall maintain an amount at least equal to 85 percent of net unpaid claim liability in ... cash and ... equivalents; ... fully insured portion of a bank deposit when the insurance is provided by a solvent agency of the United States government ...; a bank certificate of deposit ...; ... savings account...." MR. GALE said, "I believe what we're talking about here is what in the industry is known as 'incurred but no reported claims liability (IBNR),'" defined as those claims that were incurred prior to the termination date of the coverage, but presented for payment afterwards; those claims would be covered by this reserving. Referring to line 27 of page 30, which says, "30 percent of unpaid claim liability", he stated: I don't quite understand what that means. I believe a sufficient IBNR reserve should be in the area of 25 percent of annual health claims. And even that, in today's market, would be considered a rather conservative reserving amount, as today claims tend to turn much quicker than they have in the past. But I would like some clarification of the amount of reserves to be established and the 85 percent. I assume what the [division] would like to have is confirmation that, in fact, these cash reserves exist and are available to the trust. CHAIR ROKEBERG referred back to the stop-loss provisions on page 13. He asked Mr. Gale if the 120 percent and the 110 percent were the only figures that he took issue with, and if he could recommend any other percentages instead. MR. GALE said: "I would change those numbers to '125 percent of expected claims', for both line 27 and line 31." CHAIR ROKEBERG requested confirmation that this suggestion "has to do with attainability and you're having difficulty even getting those numbers." MR. GALE said yes; "I would state that that is almost an impossibility in today's marketplace as opposed to just difficult," he added. CHAIR ROKEBERG asked Mr. Gale whether he had any problems with the other provisions regarding the "attachment point numbers." Number 1003 MR. GALE said: I would have to work those out. Four thousand dollars seems, just as a gut reaction, to be relatively low. In Alaska, our costs tend to run higher than most states in the Lower 48. The $20,000, of course, would depend upon the number of people covered by the trust, and I would venture to say that a $20,000 figure might be adequate for three or four people. And the cost associated with establishing and maintaining a MEWA - that's a totally unrealistic figure, in my opinion. CHAIR ROKEBERG asked Mr. Gale to clarify which figure he is referring to regarding MEWAs. MR. GALE said: The figure on line 29 [of page 13], the $20,000 for [an] expected claim figure, which I assume is what that number refers to. Mr. Chairman, it appears to me ... the regulations for the proposed bill [are] trying to say ... that the aggregate attachment point would be $4,000 times the number of individuals - my copy has a typo; I assume that's "of", not "if" - covered under the health benefit plan. In other words, we would have a hard-dollar figure for the maximum claims paid per individual per year under the policy, and that number would depend entirely upon the benefits that are actually covered by the aggregate insurance. Some self-funded clients elect to cover only medical and prescription drugs, while others would include medical, prescription drugs, dental and vision claims, so that number would be suspect. And I believe, since that would result to less than some $350 - $375 per employee per month, that appears low to me. The number shown under [subparagraph] (C) in line 29 appears to be an alternative, saying that the aggregate stop-loss attachment point, overall for a year for a group, would be $20,000. This again, to me, would be an extremely low number, and probably there should not be a reference to an overall minimum or maximum because this would depend entirely upon the number of people covered by that policy. Number 0877 MS. CAMPBELL, in response, said: These are actually minimums, so if the availability in the market is that you can't get anything under 125 [percent], this is not saying that you have to have these. This is just saying, if you could get that, you can't get any lower than what is here; it's trying to prevent something from becoming health insurance. The other point is that these figures ... and these provisions are based off of a National Association of Insurance Commissioners' model law, and that was highly debated on the national level, and there was an actuarial firm that they had hired to look at these limitations to make sure that they were reasonable. And when you have, in the first part, a small employer - ... someone with 2 to 50 employees - you could have a small group out there with 2 employees. And that's why there's a $20,000 minimum, because it wouldn't make any sense to say $4,000 times 2 and say you could have [an] $8,000 aggregate stop-loss limit. So, ... it's the [lower] of the greater of all of those. CHAIR ROKEBERG asked Ms. Campbell to comment on Mr. Gale's remarks regarding pages 30 and 31. MS. CAMPBELL said: In [regard] to the 30 percent of unpaid claim liability in the minimum reserving section on page 30, line 27, there's ... an "or" there to allow for a different amount if it's certified by an actuary that that's the appropriate reserve level. So we felt like we've covered that; that 30 percent may be ... perhaps more conservative than 25 [percent], but if it's certified by an actuary that you can have something less than that and that's appropriate, then it would be okay. The investment section is basically saying what types of securities you have to put your money in, so that you can feel safe that you're actually going to have the money if ... and when you need it. Number 0731 REPRESENTATIVE BERKOWITZ, referring to the minimum reserve provision, noted that reserves must equal the greater of either 30 percent of the unpaid claim liability or the amount recommended and certified by a qualified actuary. MS. CAMPBELL indicated that she stands corrected; it is the greater of those two amounts, rather than the lower. CHAIR ROKEBERG suggested changing the amount [on line 27 of page 30] to 25 percent, as recommended by Mr. Gale. He asked Ms. Campbell to comment. REPRESENTATIVE BERKOWITZ noted that this recommendation comes from only one person. MS. CAMPBELL said that according to her understanding, on a nationwide basis, a lot of MEWAs have struggled financially, and that is why the states have been given specific authority to regulate them; it's because they have gone under and left people without health insurance and with unpaid claims. The reserves are intended as a safety valve, she explained, to make sure that MEWAs have the money necessary to pay claims. REPRESENTATIVE BERKOWITZ noted, "It seems to me [that] the consequence ... of not having ... [reserves] at all, is that ... then you run the risk of ... not having any insurance at all." CHAIR ROKEBERG asked: "Why not allow for a small section of equity investments in their whole portfolio?" MS. CAMPBELL pointed out that proposed Sec. 21.85.060 only specifies how 85 percent of net unpaid claim liability is invested; the other 15 percent of that liability could be invested in other ways. REPRESENTATIVE BERKOWITZ asked why is it 85 percent? Where does this [number] come from? MS. CAMPBELL said, "Much of this is based off of existing state laws that have MEWA laws on the books, and that provision - ... that percentage - came from Montana; ... they've had ... [MEWA] laws on their books for some time and haven't had any issues with it." CHAIR ROKEBERG asked if the division stipulates the percentage of investment and the method of investment for other regulated insurers. Number 0557 MS. CAMPBELL said, "Yes, we do; in fact, ... last year the legislature passed HB 184, and then regulations were adopted specifically to insurance company investments, telling them where they can put their money." REPRESENTATIVE BERKOWITZ said that it seem to him that "the lower you go, the more people get insured; ... the lower these numbers are, the more MEWAs could exist." MS. CAMPBELL asked Representative Berkowitz if he is talking about the reserving levels. REPRESENTATIVE BERKOWITZ said yes. MS. CAMPBELL replied: "It's just the lower amount of money they actually have to have sitting there to pay claims when they need it. I don't know that that means that more people could afford it." CHAIR ROKEBERG said: "This is the degree [of] risk you want to have on ... the retained capital base." REPRESENTATIVE BERKOWITZ offered that he did not know whether "this is as low [or as high] as you can prudently go, for the degree of risk." CHAIR ROKEBERG indicated that he is surmising from the testimony that the department is taking a conservative stance because of the failure rate of the MEWAs. On the other hand, he added, "we want to try to encourage them too." Number 0420 REPRESENTATIVES BERKOWITZ and JAMES made a motion to adopt Amendment 1. There being no objection, Amendment 1 was adopted. Number 0413 REPRESENTATIVE JAMES moved to report CSHB 246(L&C), as amended, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 246(JUD) was reported from the House Judiciary Standing Committee.