Legislature(2011 - 2012)BARNES 124

03/07/2011 03:15 PM House LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 87 ANTITRUST VIOLATION PENALTIES TELECONFERENCED
Moved CSHB 87(L&C) Out of Committee
+= HB 164 INSURANCE: HEALTH CARE & OTHER TELECONFERENCED
Moved CSHB 164(L&C) Out of Committee
+= HB 155 PUBLIC CONSTRUCTION CONTRACTS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                                                                                                                              
3:41:17 PM                                                                                                                    
                                                                                                                                
             HB 164-INSURANCE: HEALTH CARE & OTHER                                                                          
                                                                                                                                
CHAIR OLSON  announced that the  next order of business  would be                                                               
HOUSE BILL  NO. 164, "An  Act relating to insurance;  relating to                                                               
health care insurance, exemption  of certain insurers, reporting,                                                               
notice,   and    record-keeping   requirements    for   insurers,                                                               
biographical   affidavits,  qualifications   of  alien   insurers                                                               
assuming  ceded  insurance,   risk-based  capital  for  insurers,                                                               
insurance holding companies,  licensing, federal requirements for                                                               
nonadmitted insurers,  surplus lines insurance,  insurance fraud,                                                               
life insurance  policies and annuity  contracts, rate  filings by                                                               
health  care  insurers,   long-term  care  insurance,  automobile                                                               
service corporations, guaranty fund  deposits of a title insurer,                                                               
joint  title plants,  delinquency proceedings,  fraternal benefit                                                               
societies, multiple  employer welfare arrangements,  hospital and                                                               
medical    service   corporations,    and   health    maintenance                                                               
organizations; and providing for an effective date."                                                                            
                                                                                                                                
3:41:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON moved  to  adopt  the proposed  committee                                                               
substitute (CS) for HB 164,  labeled 27-LS0444\M, Bailey, 3/4/11,                                                               
as the working document. There  being no objection, Version M was                                                               
before the committee.                                                                                                           
                                                                                                                                
CHAIR OLSON objected for purpose of discussion.                                                                                 
                                                                                                                                
3:41:44 PM                                                                                                                    
                                                                                                                                
LINDA HALL,  Director, Division  of Insurance,  Anchorage Office,                                                               
Department of Community &  Economic Development (DCCED), referred                                                               
to the changes in the CS.   The majority of changes were added to                                                               
clarify the bill.  She turned  to page 50, which adds a provision                                                               
to  ensure clarity.   She  referred  to page  9, subsection  (b),                                                               
which read, "Notwithstanding the  definition of 'group market' in                                                               
AS  21.54.500..."   She  said  the  Division of  Insurance  (DOI)                                                               
wanted  to  be certain  to  avoid  any  ambiguity as  to  whether                                                               
individual  policies  could be  sold  to  a group  under  certain                                                               
circumstances.                                                                                                                  
                                                                                                                                
3:43:41 PM                                                                                                                    
                                                                                                                                
MS. HALL referred  to page 62, proposed Section 93  of Version M,                                                               
which was  added.  She read,  "Unless another form of  payment is                                                             
agreed  to by  the  policy holder  or  beneficiary, an..."  which                                                             
requires an  insurer to pay  with a  negotiable bank check.   She                                                               
pointed   out   publicity   by  life   insurance   companies   of                                                               
"checkbooks,"  which provided  a means  of distributing  proceeds                                                               
from life  insurance.  She stated  this is an appropriate  way of                                                               
distributing   proceeds  as   it   allows   the  beneficiary   to                                                               
contemplate  and determine  what  to do  with the  funds.     The                                                               
policy  holder  or  the  beneficiary   would  need  to  agree  to                                                               
something other  than a  negotiable check.   The DOI  would adopt                                                               
regulations for disclosure,  based on a model.   This would allow                                                               
the policy holder or beneficiary  to determine how to receive the                                                               
funds rather than receive a lump  sum.  This is especially useful                                                               
during stressful times.                                                                                                         
                                                                                                                                
MS. HALL related  that proposed Sections 86 and  87 were deleted.                                                               
These sections  dealt with  insolvencies and  loss reimbursement,                                                               
and  money  deposited  to  the  guarantee  fund.    The  industry                                                               
expressed concern as to how  this would impact Alaska as compared                                                               
to other states.  Thus, the  DOI asked these proposed sections be                                                               
deleted from the bill.                                                                                                          
                                                                                                                                
3:46:02 PM                                                                                                                    
                                                                                                                                
MS. HALL referred to the  final substantive change is in proposed                                                               
Section 62 and  77, which refer to the individual  and group rate                                                               
filings.  She previously discussed  the DOI having the ability to                                                               
review  health insurance  rates prior  to them  being used.   The                                                               
language has  been adjusted  to match the  file and  use language                                                               
for other insurance rates.  She  related that rates must still be                                                               
filed  and the  DOI would  have  an opportunity  to review  them.                                                               
Rates  would  go  into  effect  45  days  after  filing,  if  not                                                               
disapproved.   She stated an  effective date of January  1, 2012,                                                               
was added to allow insurers time to adopt the changes.                                                                          
                                                                                                                                
3:47:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CHENAULT  referred to  the "checkbook" issue.   He                                                               
asked if  that provision  would only  be in  effect if  the party                                                               
knew he/she  was the beneficiary and  would need to agree  to the                                                               
one-time payout or another method of payment.                                                                                   
                                                                                                                                
MS.  HALL  responded  that  either   the  policy  holder  or  the                                                               
beneficiary  would  have  to  agree.   The  policy  holder  could                                                               
designate  the method  up front,  whereas  the beneficiary  could                                                               
only exercise the option later.                                                                                                 
                                                                                                                                
REPRESENTATIVE  CHENAULT asked  whether  beneficiaries could  opt                                                               
for a lump sum.                                                                                                                 
                                                                                                                                
MS. HALL answered yes.                                                                                                          
                                                                                                                                
CHAIR OLSON removed his objection.                                                                                              
                                                                                                                                
3:48:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON   made  a  motion  to   adopt  Conceptual                                                               
Amendment 1, which read [original punctuation provided]:                                                                        
                                                                                                                                
     AMENDMENT                                                                                                                  
                                                                                                                                
     To:  CS HB 64(LC)(27-LS0444\M)                                                                                             
                                                                                                                                
     By:  Rep. Olson                                                                                                            
                                                                                                                                
     Page 1, Line 9: Following "corporations," delete "and"                                                                     
                                                                                                                                
     Page 1, Line 9: Following "organizations" delete ";"                                                                       
     and insert ", and alternate forms of payment to policy                                                                     
     holders;"                                                                                                                  
     Page 12, Line 20: Delete "or coverage"                                                                                     
     Page 28, Line 28: Delete "3.7 percent on"                                                                                  
     Page 38, Line 23: Delete "30" and insert "45"                                                                              
       Page 38, Line 25: Delete "becomes" and insert "may                                                                       
     become"                                                                                                                    
     Page 49, Line 14: Delete "30" and insert "45"                                                                              
       Page 49, Line 15: Delete "becomes" and insert "may                                                                       
     become"                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES objected for the purpose of discussion.                                                                   
                                                                                                                                
3:49:31 PM                                                                                                                    
                                                                                                                                
MS.  HALL explained  Conceptual  Amendment 1.    She stated  that                                                               
Conceptual  Amendment 1  would  address  inconsistencies the  DOI                                                               
found in  HB 164.   The first two relate  to the title,  adding a                                                               
reference  to proposed  Section 93,  the retained  asset account.                                                               
The next  2, page 12 and  28 are technical changes.   The changes                                                               
on page 38  and page 49 are the two  rate filings for consistency                                                               
purposes,  changing the  time to  45 days  and changed  language,                                                               
"become  effective"  to  "may   become"  effective  so  insurance                                                               
companies can make  changes out farther than 45 days  to allow an                                                               
option so their rates won't automatically become effective.                                                                     
                                                                                                                                
3:50:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked whether rates ever  are reduced and                                                               
if 45 days is appropriate.                                                                                                      
                                                                                                                                
MS. HALL answered that health  insurance rates have not, but some                                                               
rates do decrease.                                                                                                              
                                                                                                                                
REPRESENTATIVE  JOHNSON commented  that the  rates are  not going                                                               
down so he wondered, "Why not do it now?"                                                                                       
                                                                                                                                
REPRESENTATIVE  HOLMES removed  her  objection.   There being  no                                                               
further objections, Conceptual Amendment 1 was adopted.                                                                         
                                                                                                                                
3:52:36 PM                                                                                                                    
                                                                                                                                
MS.  HALL referred  to a  letter dated  March 4,  2011, from  the                                                               
National Association of Professional  Surplus Lines Offices, Ltd.                                                               
(NAPSLO) regarding surplus lines.   She stated several statements                                                               
were made  in the letter.   She agreed the state  is not required                                                               
to share the  taxes.  The state  is changing the way  in which it                                                               
collects taxes  on surplus lines  coverage.  Most of  the premise                                                               
of the  nonadmitted and reinsurance  act is that the  states will                                                               
regulate their  own risk, collect  the taxes, and  allocate those                                                               
to the  states in which the  risk is located.   She also referred                                                               
to statements  about taxing authority  being given to  an agency.                                                               
She  responded to  that by  stating the  legislature has  already                                                               
given  taxing authority  to the  DOI.   The DOI  levies taxes  on                                                               
insurance premiums so that is not  a new authority being given to                                                               
an agency.   She  pointed out  that this  is not  a "policymaking                                                               
power"  but authority  to participate  in a  clearinghouse.   The                                                               
bill specifically states  the agreements are solely  to allow for                                                               
the mutual collection  and allocation of premium  taxes, which is                                                               
more  an administering  function  than policymaking.   She  said,                                                               
"This is not a tax increase.   Our policy holders today are taxed                                                               
at the  premium tax rates  of each of  the states where  they may                                                               
have some  type of risk  located."  The  DOI is not  changing the                                                               
tax method.   In fact, the  DOI's surplus line tax  is lower than                                                               
most states.   The DOI  is changing  the method and  who collects                                                               
it, and  how it is  allocated.  The  changes to the  surplus line                                                               
tax in  an attempt  by the federal  government to  streamline the                                                               
process.   The  bill would  make Alaska  statutes conform  to the                                                               
federal  Nonadmitted   and  Reinsurance  Act  that   will  become                                                               
effective on  July 21, 2011 so  the state is not  in violation of                                                               
federal  law, which  specifically preempts  state statutes.   She                                                               
said, "This is  not something the DOI dreamed up  all by itself."                                                               
This particular type of legislation  to authorize entry into this                                                               
type of  interstate agreement is  pending in 17 states.   Another                                                               
compact  legislation,   which  is  more  complicated   than  this                                                               
approach is  pending in eight  states.  Competing  legislation is                                                               
under discussion  in five  states.   Eleven states  are currently                                                               
studying  the issue.   Thus,  a  number of  approaches are  being                                                               
taken to implement the federal law, she said.                                                                                   
                                                                                                                                
3:56:30 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  remarked  that the  proposed  committee  substitute                                                               
would bring the state into compliance.                                                                                          
                                                                                                                                
MS. HALL answered yes.                                                                                                          
                                                                                                                                
3:56:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  referred  to   the  letter  in  members'                                                               
packets that was  previously mentioned.  He then  referred to the                                                               
next  to the  last  paragraph, which  read: "NAPSLO  respectfully                                                               
requests  that should  Alaska wish  to determine  as a  matter of                                                               
public  policy  to share  taxes,..."    He  asked who  makes  the                                                               
determination.   He asked  whether the  DCCED or  the legislature                                                               
makes  that  determination.   He  explained  that the  NAPSLO  is                                                               
asking  for clarity  so their  brokers would  clearly understand.                                                               
He asked whether  a system currently exists so  that brokers will                                                               
understand what is happening.                                                                                                   
                                                                                                                                
MS. HALL responded that the  proposed CS clearly states the state                                                               
will allocate to the states where  the risk is located unless the                                                               
states have  not entered into a  mutual agreement.  If  the other                                                               
state has not  entered into a mutual agreement,  Alaska will keep                                                               
the tax,  she said.   She remarked that  she thinks it  is fairly                                                               
clear.   She referred to  the proposal  that was attached  to the                                                               
letter.  She said the specific  provision in HB 164 that pertains                                                               
to  allocation and  allocation  formulas was  deleted.   She  was                                                               
unsure  of how  those provisions  were interpreted,  but this  CS                                                               
identifies the  state will share the  taxes back to the  state in                                                               
which  the  risk is  located,  in  the  same  way the  taxes  are                                                               
currently  paid directly  to  those  states.   The  state is  not                                                               
forfeiting something.   The federal law makes  states collect 100                                                               
percent of the tax.  Thus,  the state currently collects only the                                                               
portion of  the risk taken in  Alaska, which is the  only portion                                                               
that is  taxed.   With the  changes in federal  law the  state is                                                               
required to tax 100 percent of  the policy for someone whose home                                                               
state is Alaska.  She offered  her belief that there would not be                                                               
significant  multi-state risks.    Under federal  law, the  state                                                               
would collect  100 percent and  allocate back the amount  paid in                                                               
the individual state.                                                                                                           
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  whether she  was comfortable  that                                                               
brokers   and   policyholders   can  clearly   understand   these                                                               
provisions and changes in the CS.                                                                                               
                                                                                                                                
MS. HALL answered  yes, she is very comfortable  with the clarity                                                               
in this bill.                                                                                                                   
                                                                                                                                
3:59:51 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON added  that Nonadmitted  and Reinsurance  Reform Act                                                               
(NRRA)  has been  in every  trade  publication for  the past  few                                                               
months and  has been reviewed in  a number of ways.   The vehicle                                                               
that appears to have the most  support is the manner in which the                                                               
DOI is addressing the NRRA.                                                                                                     
                                                                                                                                
4:00:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CHENAULT stated  he  was looking  for the  fiscal                                                               
note,  which he  thought would  be a  positive fiscal  note.   He                                                               
asked for clarification on the  amount of money that is collected                                                               
on behalf of other states.                                                                                                      
                                                                                                                                
MS. HALL  responded that  Alaska does  not currently  collect for                                                               
other  states,  just  Alaska's  taxes.     Thus,  Alaska  is  not                                                               
collecting for others.                                                                                                          
                                                                                                                                
REPRESENTATIVE CHENAULT  recalled that  Alaska would  collect 100                                                               
percent.                                                                                                                        
                                                                                                                                
MS. HALL  agreed that Alaska  would collect 100 percent  and then                                                               
allocate the  taxes back to the  states.  In further  response to                                                               
Representative  Chenault, she  explained that  the broker  or the                                                               
clearinghouse proposed in HB 188  would be tasked with making the                                                               
allocation.                                                                                                                     
                                                                                                                                
4:01:54 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON commented  the allocation would only  apply to states                                                               
outside of  Alaska.  He  asked Ms. Hall to  hazard a guess  as to                                                               
the percentage collected.                                                                                                       
                                                                                                                                
MS.   HALL  responded   that  the   DOI  collects   approximately                                                               
$50,000,000  in premium  tax,  with  approximately $3,000,000  as                                                               
surplus  lines premium  tax.   The DOI's  tax auditor  estimates,                                                               
given  that the  DOI does  not collect  statistics, approximately                                                               
$500,000 is multi-states  risks.  She concluded  that $500,000 of                                                               
$50,000,000 is a pretty nominal amount.                                                                                         
                                                                                                                                
4:02:49 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 164.                                                                                     
                                                                                                                                
4:04:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  moved  proposed CSHB  164,  labeled  27-                                                               
LS0444\M, Bailey,  3/4/11, as amended,  with a zero  fiscal note.                                                               
There being  no objection,  CSHB 164(L&C)  was reported  from the                                                               
House Labor and Commerce Standing Committee.                                                                                    

Document Name Date/Time Subjects
HB87 Supporting Documents - Civil Penalties Other States.pdf HL&C 3/7/2011 3:15:00 PM
HB 87
HB164 Draft Amendment to CS ver M.pdf HL&C 3/7/2011 3:15:00 PM
HB 164
HB164 Draft Proposed CS ver M.pdf HL&C 3/7/2011 3:15:00 PM
HB 164
HB164 Sectional Analysis ver M.pdf HL&C 3/7/2011 3:15:00 PM
HB 164
HB164 Opposing Documents - Letter NAPSLO 3-4-2011.pdf HL&C 3/7/2011 3:15:00 PM
HB 164
HB155 Opposing Documents - Email Steve Hennessey 3-4-2011.pdf HL&C 3/7/2011 3:15:00 PM
HB 155
HB155 Opposing Documents - Fax Zeb Woodman 3-1-2011.pdf HL&C 3/7/2011 3:15:00 PM
SFIN 4/17/2011 10:00:00 AM
HB 155
HB155 Supporting Documents - Fax City of Wasilla 3-1-2011.pdf HL&C 3/7/2011 3:15:00 PM
HB 155