HB 157-LIFE & HEALTH INSURANCE GUARANTY ASSN.  3:30:05 PM CHAIR KITO announced that the next order of business would be HOUSE BILL NO. 157,"An Act relating to the Alaska Life and Health Insurance Guaranty Association; and providing for an effective date." 3:30:27 PM BIANCA CARPENETTI, Staff, Representative Sam Kito, Alaska State Legislature, advised that HB 157 is a House Labor and Commerce Standing Committee bill by request of the Department of Commerce, Community & Economic Development (DCCED). On 1/20/17, the department presented the concept of the bill for the committee and the committee authorized the chair to draft legislation on behalf of the committee addressing the issues raised by the department. The legislation updates the Alaska Life and Health Insurance Guaranty Act and conforms to the National Association of Insurance Commissioners, Life, and Health Insurance Guaranty Association Model Act. It includes the definition of an insured member of the association and the Hospital and Medicare Service Corporations, which are entities of active insurance companies. These changes update the Act and improve uniformity nationwide in the administration of Life and Health Guaranty Associations. The bill has a zero-fiscal note from the Division of Insurance, she said. 3:32:02 PM LORI WING-HEIR, Director, Division of Insurance, Department of Commerce, Community & Economic Development (DCCED), advised that HB 157 is an amendment to the Alaska Life and Health Insurance Guaranty Association. The sectional analysis summary is mainly conformance to the National Association of Insurance Commissioners Model Law (NAIC), and Alaska statutes with 16 typographical errors within the statutes. 3:32:55 PM MS. WING-HEIR began paraphrasing the sectional analysis. 3:33:08 PM The committee took an at-ease from 3:33 p.m. to 3:34 p.m. 3:34:49 PM MS. WING-HEIR paraphrased the sectional analysis as follows [original punctuation provided]: Sec. 1 AS 21.79.020(a) is amended to clarify that the chapter applies to a nonresident who is not eligible for coverage by a guaranty association in another state due to the fact that the insurer was not licensed at the time specified in the guaranty association law of that state. Sec. 2 AS 21.79.020(b) is amended to have AS 21.79 apply to a subscriber's contract issued by a hospital or medical service corporation authorized under AS 21.87. The amendment also defines the terms "annuity policy or contract" and "certificate under a direct group life health, annuity, or supplemental policy or contract". 3:35:09 PM MS. WING-HEIR advised that the hospital or medical service corporation in Alaska is Premera Blue Cross, and as was discussed in January, it is the intent of the department to bring Premera in to make an assessment in the event of a large insolvency. The second portion of Sec. 2, creates consistencies to a draft modeling in NAIC-Model. MS. WING-HEIR advised that Sec. 3 lists exclusions to what is not covered in this particular Guaranty Association, because there is wording in Alaska statutes to make sure to not pick up federal preemptions, or structured settlements or annuities that have been sold to a third-party. MS. WING-HEIR continued paraphrasing as follows [original punctuation provided]: Sec. 3 AS 21.79.020(c) is amended to make AS 21.79 inapplicable to: 1. a policy or contract providing a hospital, medical, prescription drug, or other health care benefit in accordance with 42 U.S.C. 1395w-21 - 1395w- 154 or federal regulations adopted under those sections; (Medicare Choice Program and Voluntary Prescription Drug Benefit Program) 2. a person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 U.S.C. 5891(c)(3)(A), regardless of whether the transaction occurred before or after such section became effective. 3. structured settlement annuity benefits to which a payee or beneficiary has transferred the payee or beneficiary's rights in a structured settlement factoring transaction as defined in 26 U.S.C. 5891(c)(3)(A), regardless of whether the transaction occurred before or after 26 U.S.C. 5891(c)(3)(A) became effective. • Subsection (c) is also amended to add clarifying language consistent with the National Association of Insurance Commissioners (NAIC) Life and Health Insurance Guaranty Association Model Act (MDL 520) (NAIC Model). Sec. 4 AS 21.79.020(d) Non-substantive changes are made for either consistency with the NAIC Model or drafting conventions. Sec. 5 AS 21.79.020(e) Non-substantive changes made are for either consistency with the NAIC Model or drafting conventions, and a citation correction is made in paragraph (9). Sec. 6 AS 21.79.025(a) • AS 21.79.025(a)(2)(B)(ii) is amended to clarify that the benefits for which the association may become liable may not exceed $300,000 for long- term care insurance as defined under AS 21.53.200. • AS 21.79.025(a)(3) is amended to change "contract holder" to "contract owner" to be consistent with the NAIC Model, to clarify that the contract refers to an unallocated annuity contract issued to or in conjunction with a government lottery if the owner is a resident, and to clarify that the association is not liable to cover more than $5 million in benefits regardless of the number of policies and contracts held by the owner. • AS 21.79.025(a)(4) is amended to increase the coverage limit for net cash surrender and net cash withdrawal values of annuities from $100,000 to $250,000 for individuals participating in a governmental retirement benefit plans established under 26 U.S.C. 401, 26 U.S.C. 403(b) or 26 U.S.C. 457 and covered by an unallocated annuity contract • AS 21.79.025(a)(5) is amended to increase the coverage limit for net cash surrender and net cash withdrawal values, if any, from $100,000 to $250,000 to each payee of a structured settlement annuity, or beneficiary of the payee if the payee is deceased, in the aggregate. Sec. 7 AS 21.79.025(d)(2) is amended to correct a typographical error. Sec. 8 AS 21.79.060(a)(2) is amended to allow the association to provide loans to assure payment of the contractual obligations of the impaired insurer until those obligations are guaranteed, reinsured, or assumed. Sec. 9 AS 21.79.060(d) AS 21.79.060(d)(1) is amended to better track the NAIC Model organization and language by combining existing paragraphs 1 - 3 under AS 21.79.060(d). Tracking NAIC models and language promotes national uniformity and state-based regulation, and ease of interpretation, compliance, administration, enforcement, and amendment. • AS 21.79.060(d)(1), consistent with the addition of loans under AS 21.79.060(a)(2) under Section 8 of the bill above, is amended to authorize the association to utilize loans necessary to discharge the association's duties under AS 21.79.060. • AS 21.79.060(d)(2) is amended to better track the NAIC Model organization and language by placing existing subsections (e) - (j) in this paragraph. Sec. 10 AS 21.79.060(l) is amended to require the association to provide a report to the liquidator regarding the premium collected by the association if requested by the liquidator of an insolvent insurer. Sec. 11 AS 21.79.060(n) is amended to authorize the association to impose a permanent policy or contract lien under a guarantee, assumption, or reinsurance agreement if the policy or contract lien is approved by a court and the association finds that the amount that may be assessed under AS 21.79 is less than the amount needed to assure full and prompt performance of the association's duties under the chapter. Sec. 12 AS 21.79.060(o) is amended to use updated language consistent with the NAIC Model and to change a subsection citation to conform to amendments being made to the section. Sec. 13 AS 21.79.060(p) is amended to change a subsection citation to conform to amendments being made to the section. Sec. 14 AS 21.79.060(t) is amended to use updated language consistent with the NAIC Model. Sec. 15 AS 21.79.060(aa) AS 21.79.060 is amended to add a new subsection (aa) to better track the NAIC Model language and organization by incorporating into the new section the provisions in existing AS 21.79.060(u) - (x). Sec. 16 AS 21.79.070(a) is amended to require that any assessment of association members by the association board must be adopted by a resolution of the board. Sec. 17 AS 21.79.070(c) amended to increase the amount of a non- pro rata assessment of members by the association board from $250 per calendar year to $500 per calendar year. Sec. 18 AS 21.79.080(c) is amended to require the association board to adopt a plan of operation that includes (1) procedures for removing a member of the board for cause, including procedures for removing a member of the board who becomes an impair or insolvent insurer, and (2) policies and procedures for addressing conflicts of interest. Sec. 19 AS 21.79.090(c) is amended to (1) clarify that only a final action of the board may be appealed to the director of the division of insurance, and (2) increase the time by which an appeal may be taken from 30 days to 60 days after the date the notice of the board's action is mailed. Sec. 20 AS 21.79.090(d) is amended to clarify that the liquidator, rehabilitator, or conservator of an insolvent insurer may notify all interested persons of the effect of AS 21.79. Sec. 21 AS 21.79.110(b) is amended to remove the requirement that records of meetings of the association may only be made public after an insurer is no longer impaired or insolvent. Sec. 22 AS 21.79.140 is amended to (1) clarify that a cause of action may not arise for an action or omission of the association and its agents and employees, members of the Board of Governors, member insurers, and agents and employees of member insurers, and the director of the division of insurance and the director's representatives in performing their duties under AS 21.79, and (2) extend the immunity to such entities' participation in an organization of one or more state associations of similar purposes and to that organization and its agents or employees. Sec. 23 AS 21.79.150 is amended to extend the time a proceeding involving an insolvent insurer may be stayed from 60 days to 180 days after the date of a final order of liquidation, rehabilitation, or conservation in order to allow the association additional time to exercise a power or duty authorized under AS 21.79. Sec. 24 AS 21.79.900(5) amends the term "called" to (1) mean a notice has been mailed (formerly issued) by the association to member insurers requiring that an authorized assessment be paid within the time set out in the notice, and (2) include in the definition of "called" that an authorized assessment becomes called when notice IS mailed by the association to member insurers. Sec. 25 AS 21.79.900(6) amends the term "contractual obligation" to clarify that the term only applies to an obligation under a policy, contract, or certificate under a group policy or contract, or portion of one for which coverage is provided under AS 21.79.020(a), (b), (d), and (e). Sec. 26 AS 21.79.900(7) amends the term "covered policy" to mean a policy or contract or a portion of a policy or contract for which coverage is provided under AS 21.79.020(a), (b), (d) and (e). Sec. 27 AS 21.79.900(10) amends the term "member insurer" to include a hospital or medical service corporation licensed under AS 21.87. Sec. 28 AS 21.79.900(13) amends the term "plan sponsor" to clarify that the term applies to groups of representatives of parties similar to two or more employers or jointly by one or more employers and one or more employee organizations, an association, committee, or joint board of trustees who establish or maintain the benefit plan. Sec. 29 AS 21.79.900(14) amends the term "premium" to clarify that assessable premium may not be reduced on account of AS 21.79.020(c)(4) relating to interest limitations and AS 21.79.025(a)(2) - (5), (b), and (d) relating to limitations with respect to one individual, one participant, and one contract owner. The term "premium" does not include (1) premiums in excess of $5 million on an unallocated annuity contract not issued under a government retirement benefit plan or its trustee established under 26 U.S.C. 401, 26 U/S.C. 403(b), or 26 U.S.C. 457; or (2) with respect to multiple nongroup policies of life insurance owned by one owner, whether the policy holder is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, premiums in excess of $5 million with respect to those policies or contracts, regardless of the number of policies or contracts held by the owner. Sec. 30 AS 21.79.900(16) amends the term "resident" to delete language considered unnecessary under state drafting conventions. Sec. 31 AS 21.79.900(19) amends the term "supplemental contract" to mean a written agreement entered into for the distribution of proceeds under life, health, or annuity policy or contract benefits. Sec. 32 AS 21.79.900 is amended to add new paragraphs to define the terms "benefit plan", "election date", and "extra contractual claim". The section is also amended to define "published monthly average", a term previously defined under AS 21.79.020(f). Sec. 33 AS 21.87.340 is amended to add AS 21.79 to the list of statutory provisions which apply to hospital and medical service corporations. Sec. 34 Repeals the following provisions • AS 21.79.020(f) defining "published monthly average" as the term definition is placed under AS 21.79.900. • AS 21.060(c) is repealed as the provision no longer is in the NAIC Model. • AS 21.79.060(e) - (j) are repealed as these provisions have been relocated to AS 21.79.060(d). • AS 21.79.060(u) - (x) are repealed as these provisions have been relocated to AS21.79.060(aa). • AS 21.79.110(e) is repealed as unnecessary because the state has adopted Section 602 of the NAIC Insurers Receivership Model Act (MDL 555)(AS 21.78.325). Sec. 35 Provides for an uncodified new section outlining the timing of when the director may adopt regulations. Sec. 36 Provides that section 36 of the Act takes effect immediately under AS 01.10.070(c). Sec. 37 Provides that except as provided in section 37 of the Act, the Act takes effect July 1, 2017. 3:42:18 PM REPRESENTATIVE BIRCH requested a "two-minute elevator speech as to what this actually does." MS. WING-HEIER responded there are two Guaranty Associations in Alaska: property and casualty, which include workers' compensation, and life and health which does life and health annuities. In the event an entity is a member insurer in the State of Alaska, and holds a Certificate of Authority to Conduct Business, it is automatically a member insurer. There is life and there is health (coughing) within the association there are two categories of insurers. In the event the company becomes insolvent and cannot pay claims to its policyholders, the association steps in, makes assessments to its member insurers, and pays out the claims. She noted that this has happened in both the property and casualty, and the life and health associations. 3:43:32 PM REPRESENTATIVE BIRCH said he noticed some of the benefit obligations went from $100,000 to $250,000, a two and one-half times multiplier on a benefit. This implies, he said, there is an additional cost to someone because if the benefit is going up, the premium would go up for someone. He asked what type of budget this operates under, how many insurers there are, how many are insured, and whether this involves 10 percent of the state's population. MS. WING-HEIER answered that there are approximately 670-member insurers in the association. She noted that assessments are not made unless there is an insolvency or liquidation for which claims must be paid. The limits were raised because it had been $100,000 for as long as the association had existed, and due to trending and the need for the policies to perform, the limits needed to be raised, and the higher limits are being paid in other states. She explained that on those two or three categories, the limits were raised from $100,000 to $250,000. She said that $300,000 was inserted in long-term care because the statute was unclear, and the division wanted to be certain long-term care policies were capped at $300,000. REPRESENTATIVE BIRCH asked what the current operating budget is. MS. WING-HEIER replied that the association operates on a budget, not the division. She reiterated that in the event there is a need, the association accesses the member insurer up to 2 percent of the premiums of that insurer. Quite honestly, she said, the association may put the responsibility back on policyholders depending upon who they are, or they may just pay it directly. 3:46:15 PM DONALD THOMAS, Administrator and Counsel, Alaska Life and Health Insurance Guaranty Association, advised he has been the administrator and counsel for Alaska Life and Health Insurance Guaranty Association since 1996. 3:46:28 PM REPRESENTATIVE BIRCH noted the jump in benefits, and said that since the state has no liability, his primary interest is the impact it may have on potential constituents. He asked that with 670 insurers, what type of an annual budget he has and how it is managed and maintained. MR. THOMAS responded that the administrative budget is approximately $160,000, just to participate primarily with the national organization. The budget is funded through the Class A assessments which have been capped at $250,000 since the 1990 inception of the Act. Given the number of members under that cap, he said he is currently asking that the amount be increased to $500,000. The Alaska Life and Health Insurance Guaranty Association tries to avoid extra expenses and it tries to perform a Class A assessment every couple of years, rather than the expense of every year. The other side of the equation is that because Alaska has no domestic life or health insurer, every time a member insurer is declared insolvent, there is an insolvency affecting Alaska policyholders, a member insurer participates on a multi-state basis. The association works within a taskforce among the various states to determine how the states will collectively address the insolvency. Actuaries' determine the share of that cost for each state and the association receives a bill, the association accesses its members up to statutory limits. The association does not carry cash on hand, he advised, and it collects that money once the insolvency had been declared, under the statute, it sends out a 30-day notice to member insurers to pay the association, and that money is then sent to the proper location to affect the plans of the multi-state response to the insolvency. He related that that is one of the real reasons HB 157 [should become law] so Alaska can attain functional consistency with the other states of which it is always involved. He advised that 44 states have already adopted the amendments to the National Association of Insurance Commissioners Model Law (NAIC) which was substantially amended in 2009. Alaska is one of two states west of Ohio that has yet to adopt these amendments, which is a primary reason the Board of Governors of the Alaska Life and Health Insurance Guaranty Association supports passage of HB 157, he said. 3:50:28 PM REPRESENTATIVE KNOPP offered surprise that not many companies suffer insolvency and that this bill is truly about consumer protection. He asked whether the director had received any type of opposition or comment from Premera Blue Cross, Blue Shield on this legislation. MS. WING-HEIER responded that the only comment she received was from National Blue Cross, Blue Shield Association out of Washington, D.C., was to remind her that the National Association of Insurance Commissioners and the National Coalition of Insurance Legislators are working on model legislation to address long-term care, which would bring life insurers and health insurers together to address long-term care. "Currently, long-term care Penn Treaty is a long-term care insurer insolvency is just health insurers," she said. There are two accounts in the association, she reiterated, life and health, and currently Penn Treaty will be paid out of health. This model legislation is addressed because long-term care is huge nationwide, it would allow for insolvencies to call from both sets of insurers and not just in Alaska; it would have to adopt that legislation if it ever comes into fruition. She reiterated that the National Blue Cross, Blue Shield Association out of Washington, D.C., reminded her of the potential model act, and that it hoped "we would support it because there is such a large player in the medical field here and it would be -- (indisc.) long term care, not Penn Treaty, but if there were another one going forward that they would be expected to pay a pretty big part of the assessment. And, they would hope we would support bringing in the life insurers in that model legislation and into Alaska." REPRESENTATIVE KNOPP surmised there was no strong opposition to HB 157. 3:53:47 PM CHAIR KITO advised that public testimony would be left open.