Legislature(2005 - 2006)SENATE FINANCE 532

05/01/2005 01:00 PM FINANCE

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Heard & Held
Moved SB 156 Out of Committee
Moved CSHB 182(FIN)(efdf) Out Committee
Heard & Held
Heard & Held
Heard & Held
Moved CSSB 135(JUD) Out of Committee
Heard & Held
Heard & Held
Heard & Held
Heard & Held
Heard & Held
Heard & Held
Scheduled But Not Heard
Heard & Held
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
Heard & Held
     CS FOR SENATE BILL NO. 108(L&C)                                                                                            
     "An  Act relating  to the  regulation of  insurance,  insurance                                                            
     licensing,  surplus lines, insurer  deposits, owner-controlled                                                             
     and contractor-controlled  insurance programs,  health discount                                                            
     plans,  third-party  administrators, and  self-funded  multiple                                                            
     employer welfare arrangements and self-funded governmental                                                                 
     plans; and providing for an effective date."                                                                               
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Green conveyed  that the  purpose of this  hearing  was to                                                            
hear an explanation of the bill.                                                                                                
LINDA  HALL,   Director,  Division   of  Insurance,  Department   of                                                            
Commerce, Community and  Economic Development, stated that this bill                                                            
would propose  statutory changes that  would make the regulation  of                                                            
insurance  more efficient  for the Division,  make regulations  more                                                            
uniform   for  the  insurance   industry,   and  provide   increased                                                            
protection to Alaskan consumers.  Expressing that many of the bill's                                                            
sections were "very technical",  she stated that her testimony would                                                            
review the bill's components  by generalized topic area, rather than                                                            
in a detailed manner.                                                                                                           
Co-Chair  Green noted  that  Members'  packets include  a  Sectional                                                            
Analysis of the CS SB 108(L&C),  Version 24-GS1083\Y [copy on file].                                                            
Ms. Hall  stated that one  issue addressed  in the bill would  be to                                                            
change licensing  regulations in order  to streamline the  licensing                                                            
processes  and  further  the  efforts to  conform  to  the  National                                                            
Association of  Insurance Commission Models and National  Standards.                                                            
Sec. 2  and Sec. 3 would  remove the requirement  that the  Division                                                            
notify  an insurer's  agent of the  suspension or  revocation  of an                                                            
Insurer's Certificate  of Authority. Such notification  would become                                                            
the responsibility  of the  insurer. While  Sec. 8 and Sec.  9 would                                                            
eliminate  the  requirement   that  insurers  or  agents  must  file                                                            
appointments  with the Division,  they would  require that  insurers                                                            
provide  written   notification  when  an  agent's  appointment   is                                                            
terminated "for cause".                                                                                                         
2:11:57 PM                                                                                                                    
Co-Chair  Green  asked  for  further  clarification   regarding  the                                                            
termination process.                                                                                                            
Ms. Hall  clarified  that when  an insurance  company terminates  an                                                            
agent's appointment,  they must notify the agent in  writing of that                                                            
Ms. Hall continued that  Sec. 10 would allow the Division to conduct                                                            
license renewals via such  things as electronic mail. Currently non-                                                            
resident    new   license    applications    could   be    conducted                                                            
electronically,  and efforts to allow resident and  renewal licenses                                                            
to  be conducted  electronically  would  be  completed  in the  near                                                            
future. The Division would  also endeavor to provide notification of                                                            
renewals by electronic means.                                                                                                   
Ms. Hall communicated that  several sections of the bill address the                                                            
issue "of surplus  lines". Major changes  in the Division's  surplus                                                            
line Statutes  were provided for by legislation that  was enacted in                                                            
the  year 2004.  This  bill would  "clean  up requiring  some  minor                                                            
changes in documents that  are required to be signed by surplus line                                                            
brokers and  changes in documents  that are required to be  filed in                                                            
order to allow  "alien insurers to  report at the same time  as they                                                            
do their stockholder reports".                                                                                                  
Ms. Hall noted that the  bill would also eliminate unused provisions                                                            
regarding the  use of safety deposit  boxes for insurers'  deposits.                                                            
Ms.  Hall stated  that  language in  Sections  21, 22  and 24  would                                                            
address  "a fairly  new  phenomena called  Health  Discount  Plans".                                                            
During  the years  2000 to 2002  there were  approximately  "200,000                                                            
programs that resulted  in $252,000,000 in unpaid claims nationally.                                                            
In order to  protect Alaskans from  illegal products", the  Division                                                            
is seeking "to  add some specific authority to regulate  these types                                                            
of  plans".  Language  in this  bill  would  enhance  current  trade                                                            
practice authority to clarify  that such plans "could not be sold in                                                            
Alaska  unless they  are licensed  by the Division  and the  carrier                                                            
providing them  is licensed". She  had recently signed "a  cease and                                                            
desist  order  against  an  entity   that  was  providing  a  health                                                            
insurance  discount plan in  our State".  The Division had  received                                                            
complaints  from consumers  who had  authorized that  plan to  debit                                                            
their checking  accounts and who had been assured  that their health                                                            
providers participated  in the health discount plan even though they                                                            
did not.  "Consumers  are being ripped  off by  scam artists."  Such                                                            
plans  typically  advertise  on television  or  fax  information  to                                                            
offices  and offer  low rates.  Their advertising  is misleading  in                                                            
that, while it utilizes  health insurance terminology, the plan does                                                            
not provide health insurance.                                                                                                   
Ms. Hall stressed  that she regarded  this component of the  bill as                                                            
being very  important. The  Division's Consumer  Protection  Program                                                            
Press  is developing  press releases  to  alert the  public to  this                                                            
2:16:43 PM                                                                                                                    
Co-Chair  Green  asked  whether  Legislators   might  have  received                                                            
notification  of this issue by a doctor's  office approximately  six                                                            
weeks earlier.                                                                                                                  
Ms. Hall  assured that  that was  quite possible.  The Division  had                                                            
notified  the   Alaska  Medical  Association   of  these   types  of                                                            
activities in the summer  of 2004. They in turn "had issued an alert                                                            
to  Alaska  physicians  to watch  for  these".  She noted  that  the                                                            
Division  is actively pursuing  other plans  that are targeting  the                                                            
Co-Chair Green  asked whether identities  of the offenders  could be                                                            
Ms. Hall stated  that the group to  which she had recently  signed a                                                            
cease and desist order  was named Signature Health Group Health Care                                                            
Advantage  or  Signature  HCA.  She  noted  that  the  Division  has                                                            
developed press releases that identify this entity.                                                                             
Co-Chair  Green asked whether  the Division  anticipates that  there                                                            
could be other such entities.                                                                                                   
Ms. Hall affirmed there  would be. This is a national issue and some                                                            
of the work being  conducted by the Division is in  cooperation with                                                            
other state  regulators in  an effort to  prevent the entities  from                                                            
moving from one state to another.                                                                                               
2:17:24 PM                                                                                                                    
Co-Chair  Green asked whether  the term "health  discount plan"  was                                                            
new terminology.                                                                                                                
Ms.  Hall affirmed  that  it was.  As health  insurance  costs  have                                                            
increased,  there has  been  an increase  of plans  offering  health                                                            
discounts.  Some plans are  offered by insurance  companies  and are                                                            
legitimate.  However, it  should be  noted that  these plans  do not                                                            
provide medical  coverage; they might  provide such things  as a 20-                                                            
percent  discount for  a visit to  a participating  doctor or  a 20-                                                            
percent discount on a drug  prescription with a provider. Some plans                                                            
might  advertise   no  waiting  periods   and  allow  coverage   for                                                            
preexisting  conditions;  such  things  "are  problematic  for  some                                                            
individuals in the health insurance arena".                                                                                     
2:18:15 PM                                                                                                                    
Co-Chair  Green  understood  therefore   that  a legitimate   health                                                            
discount  plan  would have  a  list  of providers  who  would  offer                                                            
discounts, similar to a coupon book.                                                                                            
Ms.  Hall affirmed.  However,  she  noted that  the  plans that  the                                                            
Division has investigated  do not have such service  provider lists.                                                            
Co-Chair Green  disclosed a conflict  of interest in the  discussion                                                            
as her husband  sells insurance, albeit  not health discount  plans.                                                            
Furthermore,  she  would  be  willing to  remove  herself  from  the                                                            
discussion  and  abstain  from voting  were  that  the will  of  the                                                            
Ms. Hall noted  that one of the more technical sections  of the bill                                                            
deals  with Third  Party Administrators  (TPA),  which are  entities                                                            
that administer health  insurance programs. Aetna is the third party                                                            
administrator  for  the State's  Select  Benefits  health  insurance                                                            
program. Third party administrators  are not required to be licensed                                                            
in the same manner  as insurance salesmen or companies  are; however                                                            
they must register  with the Division. This bill would  require that                                                            
these administrators  must  "file certification  if they are  exempt                                                            
from the State's registration  process". Provisions would also allow                                                            
the Division's director  "to immediately suspend registration if the                                                            
TPA  was financially  impaired".  Some  states  have had  TPAs  that                                                            
collect  premiums, administer  the program,  and pay the  providers.                                                            
While this  practice has  not, of yet, been  experienced in  Alaska,                                                            
the Division  would like  to insure  that the  State would have  the                                                            
ability  to  stop   a  TPA  from  operating  were  they   to  become                                                            
financially impaired.                                                                                                           
2:20:59 PM                                                                                                                    
Ms. Hall directed the Committee's  attention to Sec. 31, which would                                                            
allow the Division  to establish requirements regarding  the State's                                                            
bargaining  union   health  trusts.  Current  Statutory   provisions                                                            
provide that  "if an entity is not  regulated by another  regulatory                                                            
body,  they  would be  subject  to  regulation  by the  Division  of                                                            
Insurance."  The federal  government under  the Employee  Retirement                                                            
Income  Security  Act  (ERISA)  regulates  many  self-funded  plans;                                                            
however, it  should be noted that  government plans are exempt  from                                                            
ERISA. To that  point, the Division has been requesting  information                                                            
from the Union Health Trust  since March 2004. The information being                                                            
requested  would allow the  Division "to conduct  a legal review  of                                                            
whether or not they are  regulated by another entity or whether they                                                            
should come under  the purview" of the Division. This  bill contains                                                            
language  that  she viewed  as  being  a policy  decision  that  the                                                            
Legislature  should make  in that  it would propose  that the  union                                                            
health trusts must provide  such things "as financial statements and                                                            
actuarial  opinions  both  on the  level  of contribution  rate  and                                                            
reserves for claims" to the Division.                                                                                           
Ms. Hall continued  that this bill  "has generated some discussion"                                                             
that would be appropriately discussed by this Committee.                                                                        
2:23:20 PM                                                                                                                    
Ms.  Hall stated  that,  "there  are 19,000  State  employees  whose                                                            
health  coverage  is  provided  through  one of  five  union  health                                                            
trusts. A substantial amount  of general fund monies are contributed                                                            
to the health  trust for the provision  of health coverage."  In the                                                            
year  2004,  the Alaska  State  Employees  Association  (ASEA),  for                                                            
example,  managed  $56,000,000  of general  fund money.  The  Public                                                            
Employees  Local 71  managed approximately  $12,000,000  of  general                                                            
fund money.  The policy decision being  introduced to the  Committee                                                            
"is  whether  there should  be  some  level of  oversight  of  those                                                            
funds". Such oversight  would require the trusts to  incur actuarial                                                            
opinion  expenses of approximately  $40,000  to $50,000.  Therefore,                                                            
the  $50,000 expense  that  might be  associated  with acquiring  an                                                            
actuarial   opinion  that  could   affirm  that  ASEA's   "reserving                                                            
practices are  such that would allow  for continued solvency"  would                                                            
amount to seven-tenths  of a percent  of the State's and  employee's                                                            
contribution rate.  The cost of such an opinion from  Local 71 would                                                            
amount  to approximately  one-third  of a percent.  She opined  that                                                            
"this would be good public  policy but it is not something" that the                                                            
Division should do without Legislative concurrence.                                                                             
2:25:21 PM                                                                                                                    
In response  to a question from Co-Chair  Green, Ms. Hall  expressed                                                            
that 19,000 State  employees' insurance coverage is  managed by five                                                            
union health trusts. This number would not include dependents.                                                                  
Co-Chair  Green understood  therefore, that  since these five  plans                                                            
are governmental  plans,  they would  not be required  to report  to                                                            
ERISA. They also do not report to the Division of Insurance.                                                                    
Ms. Hall replied that that is the Division's determination.                                                                     
2:26:15 PM                                                                                                                    
Ms. Hall  stated that  the last  major component  of the bill  would                                                            
address project  owner or contractor controlled insurance  programs.                                                            
This  information is  located in  Sections  23 and 25  of the  bill.                                                            
These  types  of  insurance   programs  typically  accompany   large                                                            
construction  projects such as the  Trans Alaska Pipeline  System. A                                                            
single  program is written  to provide  the insurance  needs  of the                                                            
subcontractors  and  the  primary  contractor.  The rules  for  such                                                            
programs are included in  the Divisions Worker Compensation Manuals.                                                            
The  Division  has  determined  the  need  to  codify  these  rules.                                                            
Attempts  have  been  made to  expand  such  programs  into  general                                                            
operation  and maintenance  functions.  The Division  believes  such                                                            
action  would  have  "a  detrimental   affect"  on  both  the  small                                                            
insurance marketplace currently  existing in the State as well as to                                                            
small individual  subcontractor programs. Such action  would make it                                                            
less and less attractive  to insurance companies to conduct business                                                            
in the State. In addition,  subcontractors who have either their own                                                            
self-insured or  fully insured insurance programs,  would experience                                                            
diminished  ability to support  those insurance  programs were  they                                                            
required to utilize  payroll monies to support a project's  on-going                                                            
maintenance program insurance.                                                                                                  
2:28:02 PM                                                                                                                    
Ms. Hall  noted that  Sec. 23,  beginning  on page  13, line 29  and                                                            
continuing through  page 15, line twelve is the predominate  section                                                            
regarding this issue.                                                                                                           
Co-Chair Green understood Sec. 23 to include new language.                                                                      
Ms. Hall affirmed. It would expand and codify existing rules.                                                                   
Co-Chair Green determined  that this section would apply to an owner                                                            
controlled  insurance program or a  contractor controlled  insurance                                                            
program. She asked for an example of such a program.                                                                            
Mr. Hall  responded  that the best  example of  an owner  controlled                                                            
insurance  program would  have been  the Trans  Alaska Pipeline.  In                                                            
these cases,  "the liability and the  workers compensation  coverage                                                            
were  all provided  in  one  package." The  Division  considers  "it                                                            
appropriate"  for either the  owner or the  general contractor  of a                                                            
large construction project  to purchase the insurance plan. However,                                                            
"the line is drawn"  at the point where the concept  "is expanded to                                                            
cover large on-going operations".                                                                                               
Co-Chair  Green understood  therefore  that the desire  it that  the                                                            
program "should not morph" into an ongoing insurance program.                                                                   
Ms. Hall affirmed.                                                                                                              
Ms.  Hall  stated  that  the  bill  contains  "a  few miscellaneous                                                             
sections.  Sec. 27  sets the  standards  for rate  making in  health                                                            
insurance at the  same statutory standards" the State  currently has                                                            
for  all  lines  of  insurance.  "The  rates  cannot  be  excessive,                                                            
inadequate  or unfairly discriminatory."  Section 1 would  allow the                                                            
Division  director to examine  or require  documents from  producers                                                            
provided  there was  "reasonable cause".  Sections  29 and 30  would                                                            
authorize  the Director's  designee to accept  financial  statements                                                            
within 45 days after the end of each quarter.                                                                                   
Co-Chair Green  ascertained that some sections of  the bill are new,                                                            
some are "creative",  and some would  allow the State to  align with                                                            
nationwide practices.                                                                                                           
Ms. Hall stated  that the majority of the bill would  serve "to keep                                                            
Alaska statutory language  in conformity" with national trends. This                                                            
has been  an on-going  effort;  otherwise, the  State's regulations                                                             
might discourage business.                                                                                                      
2:31:43 PM                                                                                                                    
Senator  Dyson  asked  whether   State  law  should  be  changed  to                                                            
accommodate health savings  accounts (HSAs), particularly in regards                                                            
to State employees.                                                                                                             
Ms.  Hall responded  that  in  terms of  insurance  regulation,  the                                                            
answer is no.  The Division has conducted  analyses in this  regard.                                                            
"Companies are  beginning to offer HSAs more readily  than they were                                                            
before."  She  could  not  speak  to  the  matter   involving  State                                                            
employees.   "The  plans  could  be   very  beneficial  to   Alaskan                                                            
consumers." No changes in the insurance title would be required.                                                                
2:32:45 PM                                                                                                                    
Senator Dyson  understood therefore  that there would be  no need to                                                            
include language  in this "omnibus insurance bill  to encourage HSAs                                                            
to go forward in this State".                                                                                                   
Ms.  Hall   stated  that   this  issue  had   been  discussed.   The                                                            
determination was that such inclusion would be unnecessary.                                                                     
Senator  Dyson,  having been  absent  for a  portion  of Ms.  Hall's                                                            
comments, asked  whether language  in Sec. 31 regarding Self-funded                                                             
Governmental Plans, had been addressed.                                                                                         
Ms. Hall affirmed that she had addressed that section.                                                                          
Senator Dyson  specifically asked that the major benefit  that would                                                            
be derived  by including the bargaining  unit trust plans  under the                                                            
Division's purview, be identified.                                                                                              
Ms.  Hall  responded  that  the major  benefit  would  be  that  the                                                            
Division would  be provided a financial  statement and an  actuarial                                                            
analysis that determined  that the contribution rates "were adequate                                                            
for payments"  and that  the reserving practices  would continue  to                                                            
allow the program "to remain solvent".                                                                                          
Senator  Dyson asked  whether  the Division  had  concerns that  the                                                            
funds had either been mismanaged or misused.                                                                                    
Ms. Hall responded  that, "there is no indication  that anything has                                                            
been misused. That is not the purpose of this legislation."                                                                     
Senator  Dyson continued  however, that, "there  is the possibility                                                             
that they are inadequately funded or actuarially not sound."                                                                    
Ms. Hall responded that, "that is a possibility".                                                                               
The bill was HELD in Committee.                                                                                                 
AT EASE: 2:35:05 PM / 2:35:34 PM                                                                                            

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