04/12/2011 02:00 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB115 | |
| HB24 | |
| HB130 | |
| HB164 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 115 | TELECONFERENCED | |
| += | HB 24 | TELECONFERENCED | |
| += | HB 130 | TELECONFERENCED | |
| + | SB 74 | TELECONFERENCED | |
| + | HB 164 | TELECONFERENCED | |
| + | HB 155 | TELECONFERENCED | |
| + | HB 188 | TELECONFERENCED | |
| + | HB 87 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
April 12, 2011
2:08 p.m.
MEMBERS PRESENT
Senator Dennis Egan, Chair
Senator Joe Paskvan, Vice Chair
Senator Linda Menard
Senator Bettye Davis
Senator Cathy Giessel
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 115
"An Act defining portable electronics insurance and authorizing
the director of insurance to issue a limited producer license to
a person that sells portable electronics insurance."
- MOVED CSSB 115(L&C) OUT OF COMMITTEE
COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 24(FIN)
"An Act extending the termination date of the Regulatory
Commission of Alaska; and providing for an effective date."
- MOVED CSHB 24(FIN) OUT OF COMMITTEE
COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 130(L&C)
"An Act relating to municipal building code requirements for
fire sprinkler systems in certain residential buildings."
- MOVED CSHB 130(L&C) OUT OF COMMITTEE
COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 164(FIN)
"An Act 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, fraternal benefit societies,
multiple employer welfare arrangements, hospital and medical
service corporations, health maintenance organizations, and
alternate forms of payment to policyholders; and providing for
an effective date."
- HEARD & HELD
SENATE BILL NO. 74
"An Act requiring insurance coverage for autism spectrum
disorders, describing the method for establishing a covered
treatment plan for those disorders, and defining the covered
treatment for those disorders; and providing for an effective
date."
- SCHEDULED BUT NOT HEARD
CS FOR HOUSE BILL NO. 155(L&C)
"An Act relating to the applicability of prevailing wage rates
to public construction contracts; and, with regard to public
construction contracts, relating to notifications, bonding
notifications, filings, notices, primary contractors, final
payments, penalties, advertised specifications, required
contract provisions, terminations, lists of violating
contractors, and remedies."
- SCHEDULED BUT NOT HEARD
CS FOR HOUSE BILL NO. 87(L&C)
"An Act relating to civil and criminal penalties for antitrust
violations."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 115
SHORT TITLE: PORTABLE ELECTRONICS INSURANCE
SPONSOR(s): LABOR & COMMERCE
03/25/11 (S) READ THE FIRST TIME - REFERRALS
03/25/11 (S) L&C, FIN
04/07/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
04/07/11 (S) Heard & Held
04/07/11 (S) MINUTE(L&C)
04/12/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: HB 24
SHORT TITLE: EXTEND REGULATORY COMM. OF ALASKA SUNSET
SPONSOR(s): OLSON
01/18/11 (H) PREFILE RELEASED 1/7/11
01/18/11 (H) READ THE FIRST TIME - REFERRALS
01/18/11 (H) L&C, FIN
03/16/11 (H) L&C AT 3:15 PM BARNES 124
03/16/11 (H) Moved CSHB 24(L&C) Out of Committee
03/16/11 (H) MINUTE(L&C)
03/18/11 (H) L&C RPT CS(L&C) 7DP
03/18/11 (H) DP: CHENAULT, THOMPSON, SADDLER,
JOHNSON, HOLMES, MILLER, OLSON
03/22/11 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/22/11 (H) Moved CSHB 24(FIN) Out of Committee
03/22/11 (H) MINUTE(FIN)
03/23/11 (H) FIN RPT CS(FIN) 8DP 2NR
03/23/11 (H) DP: FAIRCLOUGH, T.WILSON, JOULE,
COSTELLO, EDGMON, DOOGAN, STOLTZE,
THOMAS
03/23/11 (H) NR: GUTTENBERG, GARA
03/28/11 (H) TRANSMITTED TO (S)
03/28/11 (H) VERSION: CSHB 24(FIN)
03/30/11 (S) READ THE FIRST TIME - REFERRALS
03/30/11 (S) L&C, FIN
04/07/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
04/07/11 (S) Heard & Held
04/07/11 (S) MINUTE(L&C)
04/12/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: HB 130
SHORT TITLE: RESIDENTIAL SPRINKLER SYSTEMS
SPONSOR(s): LABOR & COMMERCE
01/28/11 (H) READ THE FIRST TIME - REFERRALS
01/28/11 (H) CRA, L&C
02/08/11 (H) CRA AT 8:00 AM BARNES 124
02/08/11 (H) Moved Out of Committee
02/08/11 (H) MINUTE(CRA)
02/09/11 (H) CRA RPT 6DP
02/09/11 (H) DP: AUSTERMAN, CISSNA, DICK, FOSTER,
GARDNER, MUNOZ
02/14/11 (H) L&C AT 3:15 PM BARNES 124
02/14/11 (H) Moved CSHB 130(L&C) Out of Committee
02/14/11 (H) MINUTE(L&C)
02/16/11 (H) L&C RPT CS(L&C) NT 7DP
02/16/11 (H) DP: THOMPSON, SADDLER, JOHNSON, HOLMES,
SEATON, MILLER, OLSON
03/11/11 (H) TRANSMITTED TO (S)
03/11/11 (H) VERSION: CSHB 130(L&C)
03/14/11 (S) READ THE FIRST TIME - REFERRALS
03/14/11 (S) CRA, L&C
03/22/11 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg)
03/22/11 (S) Scheduled But Not Heard
03/29/11 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg)
03/29/11 (S) Moved CSHB 130(L&C) Out of Committee
03/29/11 (S) MINUTE(CRA)
03/30/11 (S) CRA RPT 3DP 1NR
03/30/11 (S) DP: KOOKESH, MENARD, WAGONER
03/30/11 (S) NR: OLSON
04/07/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
04/07/11 (S) Heard & Held
04/07/11 (S) MINUTE(L&C)
04/12/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: HB 164
SHORT TITLE: INSURANCE: HEALTH CARE & OTHER
SPONSOR(s): LABOR & COMMERCE
02/18/11 (H) READ THE FIRST TIME - REFERRALS
02/18/11 (H) L&C, FIN
02/21/11 (H) L&C AT 3:15 PM BARNES 124
02/21/11 (H) Heard & Held
02/21/11 (H) MINUTE(L&C)
02/23/11 (H) L&C AT 3:15 PM BARNES 124
02/23/11 (H) Heard & Held
02/23/11 (H) MINUTE(L&C)
02/28/11 (H) L&C AT 3:15 PM BARNES 124
02/28/11 (H) Scheduled But Not Heard
03/07/11 (H) L&C AT 3:15 PM BARNES 124
03/07/11 (H) Moved CSHB 164(L&C) Out of Committee
03/07/11 (H) MINUTE(L&C)
03/09/11 (H) L&C RPT CS(L&C) NT 4DP 2NR
03/09/11 (H) DP: THOMPSON, HOLMES, MILLER, OLSON
03/09/11 (H) NR: CHENAULT, JOHNSON
03/09/11 (H) L&C AT 3:15 PM BARNES 124
03/09/11 (H) <Bill Hearing Canceled>
03/22/11 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/22/11 (H) Heard & Held
03/22/11 (H) MINUTE(FIN)
03/30/11 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/30/11 (H) Scheduled But Not Heard
04/06/11 (H) FIN AT 1:30 PM HOUSE FINANCE 519
04/06/11 (H) Moved CSHB 164(FIN) Out of Committee
04/06/11 (H) MINUTE(FIN)
04/07/11 (H) FIN RPT CS(FIN) NT 3DP 6NR 1AM
04/07/11 (H) DP: GARA, HAWKER, DOOGAN
04/07/11 (H) NR: GUTTENBERG, T.WILSON, JOULE,
COSTELLO, EDGMON, STOLTZE
04/07/11 (H) AM: FAIRCLOUGH
04/08/11 (H) TRANSMITTED TO (S)
04/08/11 (H) VERSION: CSHB 164(FIN)
04/11/11 (S) READ THE FIRST TIME - REFERRALS
04/11/11 (S) L&C
04/12/11 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
REPRESENTATIVE KURT OLSON
State Capitol Bldg.
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of HB 24, and chair of the House
Labor and Commerce Committee, sponsor of HB 130 and HB 164.
LINDA HALL, Director
Division of Insurance
Department of Commerce, Community and Economic Development
(DCCED)
Juneau, AK
POSITION STATEMENT: Supported HB 164.
JOSHUA KORVER
Insurance Center
Anchorage, AK
POSITION STATEMENT: Had concerns with HB 164.
GARY SLEEPER
Denali Alaskan Federal Credit Union
POSITION STATEMENT: Had concerns with section 79 of HB 164.
STEVE STEPHAN, Director
Governmental Relations
National Association of Professional Surplus Lines Offices
POSITION STATEMENT: Had concerns about HB 164.
ACTION NARRATIVE
2:08:03 PM
CHAIR DENNIS EGAN called the Senate Labor and Commerce Standing
Committee meeting to order at 2:08 p.m. Senators Paskvan,
Giessel, Davis, and Egan were present at the call to order.
SB 115-PORTABLE ELECTRONICS INSURANCE
2:10:17 PM
CHAIR EGAN announced SB 115, sponsored by the Senate Labor and
Commerce Committee, to be up for consideration. He asked his
staff, Dana Owen, to come forward for questions.
SENATOR MENARD remarked that Asurian had testified on this bill
and it had been well-vetted.
2:10:22 PM
SENATOR PASKVAN moved to report CSSB 115 (L&C), labeled 27-
LS0609\I from committee with individual recommendations and
attached fiscal note(s). There were no objections and it was so
ordered.
2:10:46 PM
At ease from 2:10 to 2:12 PM.
HB 24-EXTEND REGULATORY COMM. OF ALASKA SUNSET
2:12:17 PM
CHAIR EGAN announced HB 24 to be up for consideration [CSHB
24(FIN) was before the committee].
REPRESENTATIVE KURT OLSON, sponsor of HB 24, said this measure
would extend the Regulatory Commission of Alaska (RCA) one year
to allow them to deal with some of their outstanding
recommendations as per the Legislative Audit.
SENATOR PASKVAN moved to report CSHB 24(FIN), version \B, from
committee with individual recommendations and attached fiscal
note. There were no objections and it was so ordered.
2:13:48 PM
At ease from 2:13 to 2:15 PM.
HB 130-RESIDENTIAL SPRINKLER SYSTEMS
2:15:16 PM
CHAIR EGAN announced HB 130, sponsored by the House Labor and
Commerce Committee, to be up for consideration [CSHB 130(L&C),
27-LS0332\B was before the committee].
REPRESENTATIVE OLSON, chair of the House Labor and Commerce
Committee, said he had no further comments on this measure.
SENATOR PASKVAN moved to report CSHB (L&C), version \B, from
committee with individual recommendations and attached fiscal
note. There were no objections and it was so ordered.
2:16:01 PM
At ease from 2:16 to 2:17 PM.
HB 164-INSURANCE: HEALTH CARE & OTHER
2:17:30 PM
CHAIR EGAN announced HB 164, sponsored by the House Labor and
Commerce Committee, to be up for consideration [CSHB 164(FIN)
was before the committee].
REPRESENTATIVE OLSON, chair, House Labor and Commerce Committee,
sponsor of HB 164, asked the committee to allow Linda Hall to
present the bill so they wouldn't be presenting it twice. Then
he would like to comment on the two contentious sections.
2:18:48 PM
LINDA HALL, Director, Division of Insurance, Department of
Commerce, Community and Economic Development (DCCED), said the
bill is lengthy and involves a number of issues. Seven tabs deal
with a particular piece of change to Alaska's statutes that she
thought would enhance her division's regulatory ability and the
overall marketplace in Alaska.
She explained that in sections 2 - 21, pages 1-15, the term
"managed care" is changed to "health care". Today the term is
used only in AS 21.07 and it's not consistent with the rest of
their title.
2:20:53 PM
The actual substantive changes are under the Financial heading
(pages 15-22) and are predominantly changes to meet national
models to enhance her solvency oversight, what she views is the
primary mission of her division. Companies doing business in
Alaska must have adequate funds to pay claims, she elaborated,
and insurance companies are being required to submit
biographical affidavits so she knows who is running the
companies and to submit electronic addresses to make
communication more efficient. She said it's fairly standard to
adopt reinsurance and other kinds of model laws across the
country.
MS. HALL said the next tab is "Licensing" and proposes to
streamline their entire agent licensing process. They would no
longer have individual-in-a-firm licenses, but just an
individual license that is actually more portable. They are
trying to make sure that the employee in a firm can take their
license and move to another firm, but that they can operate
under the firm appointments with insurance companies. She
elaborated that the firm's records are considered their records;
the fiduciary accounts are considered the records of the
individual. This leads to the requirement for an employment
contract. She said this type of concept has been discussed for
several years and she believes that agents are supportive of
these kinds of changes. It will streamline the process for both
agents and her division.
CHAIR EGAN objected for questions.
SENATOR PASKVAN asked her to explain the trust accounts and
licensing going to the individual again.
MS. HALL explained that under this legislation the individual
employee in a firm would have his own license; today it's called
"an individual in a firm." They could leave employment in firm A
and go to firm B. Because the license is no longer tied to that
firm, provisions were made that the firms keep the appointments
with insurance companies and the fiduciary accounts. That
individual is allowed to operate under all of those things. The
individual is not being required to maintain extensive records
and have their own appointments by insurance companies, which
would add a burden they don't have today.
2:25:03 PM
SENATOR PASKVAN asked if this promotes the mobility of the
individual.
MS. HALL responded that's correct.
SENATOR MENARD said so you have State Farm and Mat Valley
Federal Credit Union and she is working in the insurance
division at that bank, which has a trust department, and Senator
Paskvan has given her to manage his trust papers. Now she has
decided to leave that company; her license is still good at
State Farm, but is she free to move Senator Paskvan's
information over to State Farm?
MS. HALL replied that typically the client information would be
addressed in her employment contract; generally, that
information is considered to be proprietary and owned by the
firm - in Senator Menard's case the Federal Credit Union. It
becomes a contractual matter, not an insurance regulatory
matter. Her division just sets out certain things that must be
addressed, the three that she has mentioned. The fiduciary
accounts are short term money accounts where Senator Paskvan
paid Senator Menard his premium, and she put it in an account
that is considered a trust account, but it's not a "trust" as in
long term trust, but probably a checking account.
SENATOR MENARD said her late husband's dental records still
belong to Wasilla Palmer Dental Center. If a patient leaves the
practice, their records still belong to her corporate structure.
MS. HALL said that was correct, but it would be part of the
employment contract between the firm (ABC).
REPRESENTATIVE OLSON added that he considers himself to be
knowledgeable on surplus lines; a number of years ago he and Ms.
were surplus lines brokers in Anchorage while at the same time
serving on the Board of the State Surplus Lines Association. He
is currently on the Executive Board of the National Council of
Insurance Legislators (NCOIL). The reason he brings this up is
because NCOIL has a different approach that the State of Alaska
is attempting to pursue of setting up a clearing house run by
industry to collect the surplus lines taxes. He believes the
division would be giving up the right and duty to handle that
function via the Division of Insurance. Coincidentally the model
they are using for that is from an organization called
"Interstate Insurance Product Review Committee" and it consists
of eight state regulators such as Ms. Hall. That organization
has nothing to do with the collection of taxes; they review
life, health and long term care policies so a standard form can
be used for the whole country to provide for people moving
around. It has no bearing on taxes and he didn't know why that
is being used as a model.
2:31:34 PM
SENATOR PASKVAN asked what Alaska gains or loses when it can't
regulate a nonadmitted insurer (it says Alaska will not be able
to tax or regulate under the surplus lines) compared to what
happens now.
MS. HALL answered that she wasn't sure what he was referring to,
but the division is not giving up control of regulating surplus
lines insurers. Today the department has a different regulatory
authority ability over surplus lines insurers who don't file for
certificate of authority. They are merely listed on a "white
list" and authorized to do business here. They don't undergo the
same financial scrutiny; they don't file their forms and rates
for approval.
She stated that this bill does not change the division's
regulatory authority. One of the two things it does change is a
portion of state law to meet a federal law that specifically
preempts state law, and that is effective in July 2011. Instead
of collecting taxes on these particular types of accounts the
way it is done today, it would mandate that the division adopt a
definition of "home state," which is a principle place of
business, and then collect 100 percent of the home state tax
instead of just the piece they collect today (part of the
federal law). And it also prohibits a state from having its
surplus lines agent follow laws of a state unless they are the
home state. So, they don't have to follow laws of five different
states for the same actual policy placement.
She recapped that they are asking first to bring Alaska statute
into compliance with the federal law. Second, there are two ways
to proceed after that is changed. The division will still
collect taxes; today she collects approximately $50 million in
premium tax today. What this piece of HB 164 does is they
collect approximately $3.5 million in taxes on surplus lines
coverage. It really only changes the way they tax accounts
(policies) that cover things in multiple states, probably a very
small portion of the surplus lines (maybe a half million
dollars). It will change how it is collected and whether or not
the division allocates it back to the state where it properly
belongs, because that is where the risk is. The National
Association of Insurance Commissioners (NAIC), through the state
regulators, have voted on a simple clearing house to do that and
that is why this section has the authority for the director to
join in an agreement that can collect and allocate out to the
states where the risk belongs. It doesn't change the amount they
are taxed; it doesn't change the tax on an Alaskan account, but
it does collect differently and allocate differently than what
is done today. She said the other way to do that is through a
much more complex formalized compact that Representative Olson
just addressed.
SENATOR PASKVAN asked if the regulator process for nonadmitted
insurers remains the same.
MS. HALL replied yes.
2:36:23 PM
She went on to the "Miscellaneous" tab on page 37; there she
pointed out a new consumer protection in section 59 that would
require an insurer to provide a notice to the covered individual
45 days before the date of cancellation. Today there is no
requirement for that.
She said section 60 would make no sense to them on the surface,
because it's a bunch of numbers and letters. So, she described
what it did. This section deals with fraud and the insurance
code and the criminal code. Under the current insurance code the
Division of Insurance has the authority to bring criminal
charges. The division has a part time dedicated prosecutor and
fraud investigators who are law enforcement people. This removes
one piece from the criminal code and makes it a Class B felony
in the insurance code instead. The language actually says:
"Knowingly issues a forged certificate of insurance or other
document relating to insurance."
MS. HALL explained that the criminal code requires intent to
defraud insurance code and prosecutes felonies. This is
critically important to them, because they had an incident about
a year ago when an individual issued certificates of insurance,
but did not collect money and never placed the coverage. The
first time she heard this, the division had a complaint from an
individual who owned two tour buses and had a certificate of
insurance showing that he had coverage, but his two tour buses
were out on the road full of tourists and he had no insurance.
Right now the division has no ability to criminally prosecute
this individual because he didn't collect any money. She said
they have jail sentences for agents who collect money and use it
for their own purposes and don't place coverage. But this is a
case where there is no money involved, and that needs to be
changed so that issuing false documents becomes an offense.
SENATOR PASKVAN asked how the person found out he wasn't
covered.
MS. HALL answered that he didn't get a bill and finally called
the insurance company that had supposedly issued the certificate
to ask about his coverage and found it didn't exist. Ultimately,
she sent a team to the particular Southeast town to go through
files; they found several instances of false certificates being
issued and to the best of their knowledge they found them all
and there was never an unpaid claim.
2:40:21 PM
SENATOR MENARD asked if she had vetted this with the Department
of Law (DOL) and if had been reviewed in the Judiciary
Committee.
MS. HALL replied yes; this has been carefully vetted through the
department, her criminal prosecutor and through Legislative
Legal Services and she hadn't had any push back on it. No, it
hasn't been through the Judiciary Committee.
She said the last section under "Miscellaneous" is new and it is
also a new concept in Alaska. It would give the Division of
Insurance oversight of premium rates charged for individual
health insurance plans today. Now they only have prior review of
rates before they are used for Premera Insurance. While they are
the largest of the state's health insurers with about 73 percent
of the market, rating standards are used for the other 27
percent of the market. If she gets a complaint, they are
entitled to look at the company's actuarial justification, but
they don't have an opportunity to review it before it's used.
The same provision is used later in the bill for group health
insurance review.
2:43:13 PM
MS. HALL said the long term care section goes from page 39 to
48. The current long term care statutes are 20 years old and
don't reflect the products that are sold today. Here they seek
to adopt the NAIC model and to have approval of long term care
rates, which they don't have today. A number of consumer
protections are in this section: section 68 says, for instance,
if you return your policy within 30 days of purchase you can
have a refund. Companies are also required to give you a clear
outline of coverage; they are required to give you written
reason for a claim denial.
It also changes some provisions for benefits if you drop your
coverage after paying for it for a number of years, because
maybe you couldn't afford the rate increases. Today you lose
that coverage, but under this bill the insurer would be required
to provide some benefit. It's called "nonforfeiture" - getting
something for money put in over the years.
SENATOR PASKVAN asked what that something might be.
MS. HALL replied that that is left fairly open; it could be a
much smaller but paid up benefit - so you haven't just lost
everything. A couple of years ago, a company had dramatic rate
increases; people just couldn't afford them anymore and
forfeited the money they had put in it.
SENATOR PASKVAN asked if it could be similar to the cash value
of a whole life policy.
MS. HALL answered yes.
SENATOR MENARD asked why she didn't specifically state that.
MS. HALL replied that an individual doesn't have to buy the
benefit; the insurer may offer a nonforfeiture benefit in the
form of a rider to the policy. Language on page 44, line 14,
says:
If a policyholder declines the nonforfeiture benefit,
the insurer shall provide a contingent benefit upon
lapse that is available for a specified period of time
following a substantial increase in premium rates.
She explained that the change is adopted an in statute,
additional detail would be provided in regulations.
SENATOR MENARD said she wanted some assurance that when Ms. Hall
is gone, that there would be enough specifics for someone else
to follow.
MS. HALL answered that the language has enough specificity to
adopt the regulations that go through the public hearing process
and it is difficult to manipulate that process.
SENATOR MENARD said she was somewhat uncomfortable going down
this path, but would rely on the wisdom of the committee.
SENATOR PASKVAN asked if there could be some annual disclosure
in, maybe, the premium notice of what the accumulated forfeiture
might be.
2:50:21 PM
MS. HALL said that not all long term care policies would have
this benefit; it would be offered as a rider. A person could
choose to purchase a policy without it, but she assumes that
there would be a charge for that benefit. But a disclosure makes
sense.
2:50:51 PM
She left the long term care issue and went to section 77 on page
49, the filing and approval of group insurance rates that would
be the same as she discussed for the individual rates.
The only other section that she wanted to comment on was section
79. She explained that about a year and a half ago the division
got a consumer complaint from a woman who had been terminated
from employment and sought to get COBRA benefits. She was told
she could not get them, because the employer did not have group
health insurance any longer. She had a friend who still worked
at this place of employment and she still had health insurance.
What had occurred was a group health policy had been terminated
and instead the employer was helping the employees purchase
individual policies. But, any time the employer puts money into
a single plan, it becomes a group plan. Alaska statutes provide
a number of protections for group plans. Among those, and
probably the most important, is the guarantee issue. If you are
a small employer with 2 to 50 employees, you can buy coverage
for your group even if you have an employee with some type of a
health condition.
She explained that individual policies are underwritten for
health conditions and include charges for them. In a group
market, those charges for health conditions are limited. What
she saw happening was a circumvention of the group health law
protections. So, they have proposed language, but she said it is
clearly a policy call, indicating in (a) on page 50, line 6,
that a person may not sell, solicit or negotiate an individual
health care policy to an employee or an insurer may not issue.
In (b) some conditions are provided saying that you could do
that (line 14) "if the employee is not an eligible employee"
meaning those who would not normally fall under the definition
of "group" like part time or seasonal employees. The employer
could contribute to an individual health policy.
However, Ms. Hall said, (2) on line 16 is a disincentive because
you could not cancel a group policy and offer individual
policies if your plan has been without a waiting period of six
months. Ms. Hall said it is critically important that the
ability to keep group coverage continue because of the
protections in small group law. This proposed six-month waiting
period protects employees with health conditions and the only
other choice for them would be a high risk pool - and it
protects premiums with a limit for increases. The other thing it
does is put individual employees who don't have a health
condition for that six months at risk. The individual can buy
insurance or supplemental insurance with their own money, but
the employer cannot contribute to an individual plan for at
least six months after the dropping group coverage.
She said the employer can do things like investigate higher
deductibles or do HSAs and help fund those deductibles. They
could negotiate a different level of payment with their
insurance company where instead of paying 80 percent of your
health insurance today, they only pay 50 percent. So, when
premiums get unaffordable, which they are today, there are other
avenues an employer can explore and they propose that there be
some kind of a disincentive for canceling that policy.
2:56:16 PM
SENATOR MENARD said that COBRA is federal and it applies for 18
months after a person is terminated and it's very expensive. Do
the individual polices have the COBRA option?
MS. HALL replied that she believed so.
CHAIR EGAN asked if there is a concern that this piece of
legislation passes the legislature this session.
MS. HALL answered that not necessarily for the surplus lines
piece and the mechanisms used to collect and allocate taxes, but
the conformance with federal law goes into effect on July 2011.
It's important to bring state statutes in conformance with that
or the division stands to lose its ability to collect premium
taxes in the way that is mandated by the federal law on July 21,
2011.
CHAIR EGAN informed the committee that this legislation had no
further referrals.
SENATOR DAVIS asked how many states have already met the
requirement.
MS. HALL answered that some type of legislation is in
approximately 40 states; about 5 have legislation just to meet
the federal mandate; about 20 states have passed and 3 have put
in place this type of mechanism. Approximately 10 have proposed
the other type of compact; 2 have actually signed those into
statute. About 5 states have both versions in their legislature
and she wasn't sure what they were doing. She pointed out that
some states don't meet every year, so about 10 states may not be
doing anything.
2:59:17 PM
SENATOR PASKVAN asked what is attributable to the surplus lines.
MS. HALL replied that $3.5 million is surplus lines and it's
really a rough estimate based on reviewing forms.
REPRESENTATIVE OLSON said he thought about 21 states are going
in this bill's direction.
3:00:24 PM
JOSHUA KORVER, Insurance Center, Anchorage, said they are a
local Managing General Agents' Office (MGA), which puts them in
the wholesale spot within the stream of getting people insurance
coverage. He raised two issues on HB 164; one deals with
licensing. He knows that they are trying to meet national
standards with this legislation and his concern is that the goal
of being able to have a license that goes with a person from one
office to another, while laudable, might not be most efficiently
accomplished with the mechanism of an employment contract and
its cost might be difficult for some people.
He said that employment law controls employment contracts and
it's fairly specific on what a contract needs. It has to have a
term, responsibilities, benefits, reasons for termination and a
dispute resolution processes. A lot of the independent agents in
Alaska are going to have to hire attorneys to put these
agreements together and that will require a significant upfront
cost which smaller agents might not be able to afford. A person
has to work the term of their contract so he didn't know how it
could be that more mobile.
Using employment contracts moves you from an at-will employment
scenario to an employment contract scenario and Mr. Korver said
"You can't use the handbook anymore; you've got to have
everything spelled out in a person's employment contract." This
seems to go against the goal, which is to allow people to be
more mobile. One of the big things about employment contracts is
term and the reasons for termination. A person under employment
contract can't just pack up and leave; they have to work the
term of the contract. So, again, he didn't see how it makes one
more mobile.
MR. KORVER said employment contracts must specify lines and
classes of authority and "authority" is a term of art in
insurance; it is something that is usually granted by a carrier
and their ability to write. An authority can be at the class
level, but it's impossible to list those. A general liability
policy can have hundreds of classes and to be able to list out
for a particular individual based on all the carriers that you
may have an affiliation with as an individual insurance office
is an exercise in "absolute futility" because it's too much to
keep track of. He has never heard of employment contracts being
legislatively mandated.
3:06:00 PM
MR. KORVER said his second issue concerns the surplus lines
allocation method. He knows there is a deadline to do 100
percent taxation on the premium, but a lot of industry people
disagree that this approach is the best method to go with. A
better way to go is the compact method, which even though it's
complex in its legislation, is easy in its implementation. He
concluded by asking them to not move this forward too quickly
without looking at what the rest of the country is doing.
3:08:09 PM
GARY SLEEPER, Denali Alaskan Federal Credit Union, said his
testimony will deal with section 79 of HB 164 that deals with
the sale of individual health insurance policies to the group
market. In general, section 79 would do two things - first it
would prohibit an insurance agent from selling an individual
health insurance policy to an employee if the employee's
employer offers a group plan. It would also prohibit an
insurance company from issuing an individual health insurance
policy to an employee whose employer offers a group plan. Denali
Alaska opposes passage of section 79, because it believes this
section limits both an employee's and an employer's choice of
health insurance coverage. Under section 79, if an employee is
covered under a group policy but wants to purchase an individual
health insurance policy even if the employee has opted out of
the group policy, the employee can't do this. That is because
even though the employee may want the coverage, section 79
prohibits an insurance company from issuing a policy if the
employer offers a group plan.
He said that section 79 is so broadly drafted that it would
prohibit an insurance agent from even discussing the merits of
individual policies with an employee or an employer. Denali
believes that Alaskans should be allowed to freely choose which
type of health insurance coverage they want and section 79
doesn't give them that choice.
MR. SLEEPER said even if they were to support the policy of
section 79, they believe the statute may have been drafted in
such a way as to create an unintended consequence. It appears
under certain circumstances the statute would prevent an
individual from having any health insurance coverage whatsoever
for what could be an extended period of time.
He explained that section 79 contains an absolute ban against
marketing an individual insurance policy or issuing an
individual health insurance policy to an employee if the
employer offers a group plan. As the director pointed out there
are only two exceptions to this ban. The first allows the
marketing or sale of an individual insurance policy to a part-
time employee. The second allows the marketing or sale of an
individual policy to employees, but only so long as the employer
does not offer a group plan and has not offered a group plan in
the last six months. This is where the problem arises. Sometimes
employers have no choice but to cancel their group health
insurance plans because they can't afford them.
His concern was that under the language of the proposed statute,
if an employer voluntarily terminates its group plan, employees
may not be able to purchase their own health insurance for at
least six months. This is because the statute prohibits an
insurance company from issuing a policy even if the employee
asks for one unless the employer hasn't offered group insurance
for at least six months. So, a person may be left with no health
insurance coverage whatsoever for a substantial period of time
even if the person wants to buy his own policy.
He remarked that the director said the statute wouldn't preclude
an individual from purchasing their own policy, just that the
employer could not make any contribution towards that. But he
didn't see the language that would allow that to happen. He said
a person with a health issue might have no insurance for six
months and it could be even worse if there was a waiting period
for the person to get his own coverage.
3:12:44 PM
SENATOR PASKVAN said he understood the purpose of section 79 to
be that as long as the employer continues with group coverage,
then the former employee would obtain coverage under COBRA. Does
that make sense?
MR. SLEEPER replied that section 79 deals more with current
employees. If the employer has a group plan in place when the
employee terminates and if they are subject to COBRA (you need
20 or more employees to be subject to COBRA), then the
terminated employee would be able to get insurance coverage for
18 months. Section 79 deals with current employees of an
employer. It says an insurance company cannot simply issue an
individual health policy to an employee if the employer offers
group coverage. One of the points they are making is that
sometimes there may be benefits to individual policies as
opposed to group policies. They are portable, for example, or
you may be working for an employer who offers group coverage,
but it may have a huge deductible and huge co-payment and they
want to buy their own because they could take the policy with
when they leave. You can't do that if you're part of a group
policy and don't have COBRA right; if you leave you lose your
coverage.
The way the statute is drafted, it simply says the agent can't
even talk to the employee or the employer about individual
policies because it says you can't sell, solicit or negotiate
and then it goes on to say that an insurance company cannot
issue a policy. So it completely precludes individual employees
from purchasing their policies if their employer offers a group
policy. The problem is compounded because if the employer were
to terminate their group coverage on January 1, the individual
employees of that employer cannot purchase individual policies
for six months, because the insurance companies are precluded by
this statute from issuing the policy.
3:15:48 PM
STEVE STEPHAN, Director, Governmental Relations, National
Association of Professional Surplus Lines Offices, said he
wanted to address a clause in the surplus lines bill that
authorizes the commissioner to enter into a compact or agreement
for the allocation of taxes. His first point is that nothing is
mandated in the federal bill regarding the allocation of taxes
and nothing has to happen today. The exact language in the
federal bill says that the states "may" enter into a compact or
agreement to allocate among the states the premium taxes. The
word "may" was inserted intentionally after a meeting in
Washington where they discussed whether it would be mandatory or
voluntary and they decided to make it a voluntary tax sharing
arrangement if the states decided they wanted to share taxes.
MR. STEPHAN said he didn't think they had enough facts to make a
decision today. They don't know if the state would make money on
surplus lines taxes or lose money; Alaska would be required to
send some of that money to the other states. He had not seen an
estimate of how much that would be. The other issue with this
model is that taxes will have to be raised on some Alaska policy
holders and the whole idea of that agreement is that you will
charge the tax rate on the location based on some other criteria
such as sales. So, if an Alaskan corporation had sales in
Florida or Mississippi or Alabama, you would need to charge much
higher tax rates, which are frequently in the 10 percent range.
So, an Alaskan policy holder would be charged a higher rate for
the purpose of sending that money to those other states. Those
clearly are legislative issues and he thought those decisions by
were being delegated to the director of revenue. He said another
clause would also impose a surcharge on policy holders, but
again, that surcharge is not specified.
3:20:20 PM
CHAIR EGAN found no more comments and closed public testimony.
MS. HALL commented that she really thinks there is a
misinterpretation of what is called the NEMA proposal, which
this is, that it is more complex and burdensome. There wouldn't
be an increase on Alaskan policy holders. The taxes that they
would pay are the same taxes they pay today, and besides that,
she wouldn't likely propose something that increases taxes on
Alaskans.
The allocation method is not specified in statute, but that
would be done by regulations and it is under discussion by
regulators and industry today. She is the vice chair of the
National Association of Insurance Commissioner's Surplus Lines
Task Force and is highly involved on a national level on this
issue. As she said earlier, 20 plus states are pursuing the same
path.
SENATOR DAVIS asked her to comment specifically on Mr. Sleeper's
comments about section 79.
MS. HALL said she actually looked at the language and they fully
believe that it would allow an individual to buy an individual
policy with their own money, not with an employer's money. They
certainly don't want to preclude an individual from buying a
policy with their own money.
SENATOR PASKVAN said the first witness talked about the
increased cost between the employer and employee and he asked if
that was accurate.
MS. HALL replied that had been taken out of context. They are
proposing a contract, but not an employment contract that would
disrupt any at-will employment or for a particular period of
time; it's a contract that would allow certain things to happen.
She worked with the Agents Association on this and they support
this bill. They think this language is a good thing for them to
have; it's good business practice and this is the first
criticism she has heard.
SENATOR PASKVAN said he was wondering if he was missing
something.
MS. HALL responded that she didn't believe so.
REPRESENTATIVE OLSON commented that he has participated in the
National Conference of Insurance Legislators (NCOIL) for the
last five years and it is one of the most professional
organizations he has participated in. When you are talking with
all the states, trust territories, and Washington, industry
people and consumer groups, it takes three to five years to
develop a model law; it gets thoroughly vetted. This one has
been around for one year and some people don't have all the
information. He thought the collection authority on surplus
lines taxes should stay with the state.
3:25:50 PM
CHAIR EGAN said HB 164 would be held for the next meeting.
Finding no further business to come before the committee, he
adjourned the meeting at 3:26 p.m.
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