HB 403-LIFE & HEALTH INSURANCE GUARANTY ASSN.  3:50:31 PM CHAIR KITO announced that the next order of business would be HOUSE BILL NO. 403, "An Act relating to the Alaska Life and Health Insurance Guaranty Association; and providing for an effective date." 3:50:29 PM SORCHA HAZELTON, Staff, Representative Sam Kito, presented HB 403 on behalf of House Labor and Commerce Standing Committee, prime sponsor. She gave some background on HB 403. She paraphrased the sponsor statement [included in committee packet], which reads as follows [original punctuation provided]: House Bill 403 updates the Alaska Life and Health Insurance Guaranty Act to conform to the National Association of Insurance Commissioners Life and Health Guaranty Model Act. These changes update the Act and improve uniformity nationwide in the administration of life and health guarantee associations. House Bill 403 incorporates changes made by the National Association of Insurance Commissioners to the Life & Health Insurance Guarantee Association Model Act (MDL 520) in December 2017, after House Bill 157 had been introduced. These changes added health maintenance organizations (HMOs) as members of the association, providing HMO coverage, and addressing long-term care insolvencies. With the substantial number of changes made, HB 403 was introduced to help explain these changes, though few are substantive. Throughout, numerous conforming changes are made to AS 21.79 consistent with the model law, most of which do not substantively change the bill. The Alaska Life and Health Insurance Guarantee Association (Association) is composed of insurers who transact life insurance, health insurance, or annuities in Alaska. The purpose of the Association is to guarantee that residents and certain nonresidents will continue to receive benefits in the event one of the members becomes impaired or insolvent. In order to accomplish this, the Act directs the insurers to form a board and collect assessments from members to pay for the operations of the Association and obligations of insolvent or impaired members. House Bill 403 amends terms for consistency with the model act, raises payment limits, adds language clarifying what products are included and excluded from the protections under the Act, and adds language clarifying that medical and hospital service corporations and their products are subject to the provisions of the Act. House Bill 403 amends the powers and duties section for the Association to follow the model act, authorizes the board to increase assessments, grants the Association the ability to develop procedures to remove an Association governor for cause, and adds new definitions. 3:52:09 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community & Economic Development (DCCED), testified in the hearing on HB 403. She said long term care insurance has been around for many years, but there has been a concern about the solvency of insurers. She explained the National Association of Insurance Commissioners (NAIC) took action to address those insurers. Previously, those insolvencies would have been covered only by healthcare insurers. She indicated the bill would bring in life insurers and split potential insolvencies evenly. She stated the division was still asking hospital services medical associations to participate. She mentioned Primera is the only provider and they have not been a member before. She added the update to the NAIC model also brought in health maintenance organizations (HMOs). She remarked the cost of health care is being discussed throughout the legislature. 3:54:33 PM MS. WING-HEIER summarized the sectional analysis [included in committee packet], which reads as follows [original punctuation provided]: Sec. 1 AS 21.79.010 is amended to conform to National Association of Insurance Commissioners' (NAIC) Life and Health Insurance Guaranty Association Model Act (MDL 520) model language and clarifies protections that apply to the failure in performance of contractual obligation because of the impairment or insolvency of the member insurer. Sec. 2 AS 21.79.020(a) is amended to clarify that applicability includes a nonresident who is not eligible for coverage by a guaranty association in another state because the insurer was not licensed at the time specified in the guaranty association law of that state. Sec. 3 AS 21.79.020(b) is amended to have AS 21.79 apply to a contract issued by a hospital or medical service corporation and defines the terms "annuity policy or contract" and "certificate under a direct group life health, annuity, or supplemental policy or contract". This section also includes health maintenance organizations (HMOs) in the definition of "health insurance," for the purposes of AS 21.79. Sec. 4 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- 211395- w154 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 model language and provide exceptions to the above inapplicability. Sec. 5 AS 21.79.020(d) Non-substantive changes are made for either consistency with the NAIC Model or drafting conventions. Sec. 6 AS 21.79.020(e) Non-substantive changes made are for either consistency with the NAIC Model or drafting conventions, with a citation correction in paragraph (9). Sec. 7 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. Conforms to model language by replacing "basic hospital, medical, and surgical insurance or major medical insurance" with the term "health benefit plans." • 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. 8 AS 21.79.025(c) is amended to not require the association to reissue the contractual obligations of an insolvent or impaired insurer under a covered policy or contract when the obligations do not materially affect the economic values or economic benefits of the covered policy or contract. Sec. 9 AS 21.79.025(d) is amended to correct a typographical error, to replace "basic hospital, medical, and surgical insurance or major medical insurance" with the term "health benefit plans," and to add the word "contract" as is consistent with the model language. Sec. 10 AS 21.79.025 is amended to add a new subsection: long-term care rider benefits to a life insurance policy or contract are considered to be the same type of benefits as the basic life insurance policy or contract to which it relates. Sec. 11 AS 21.79.040(a) is amended to require a hospital or medical service corporation business and an HMO business to become members of an association. Sec. 12 AS 21.79.050(a) is amended to increase the number of representatives on the Board of Governors of a guaranty association to 7-11 from 5-9. Sec. 13 AS 21.79.060(a) 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; also gives authority to reissue policies or contracts if the member insurer is impaired. Sec. 14 AS 21.79.060(d) AS 21.79.060(d)(1) is amended to better track the model 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 13 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 model language by placing existing subsections (e) (j) in this paragraph. This subsection also adds the terms "contract," "enrollee," and HMOs, as is consistent with the model language. Sec. 15 AS 21.79.060(k) is amended to conform with the model language by adding the word "contract." Sec. 16 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. 17 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 approved by a court and the association finds that the amount that may be assessed is less than the amount needed to assure full and prompt performance of the association's duties. Sec. 18 AS 21.79.060(o) is amended to conform to the model language and change a subsection citation to conform with amendments being made. Sec. 19 AS 21.79.060(p) is amended to change a subsection citation to conform to amendments being made to the section. Sec. 20 AS 21.79.060(s) is amended to conform to the model language by adding the words "policies," "contracts," and "enrollee." Sec. 21 AS 21.79.060(t) is amended to conform to model language and to allow the association to file rate and premium increases with the director for policies or contracts. Sec. 22 AS 21.79.060 adds a new subsection (aa) to better track the model language by incorporating the provisions in existing AS 21.79.060(u) (x). Sec. 23 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. 24 AS 21.79.070(c) is amended to increase the amount of a non-pro-rata assessment of from $250 per calendar year to $500 per calendar year. It also amends the class B assessment to include pro-rata assessments related to long-term care insurance, as well as changing the manner in which Class A and Class B assessments are made. Sec. 25 AS 21.79.070(f) is amended to conform to the model language by adding the term "member insurer" in place of "insurer." Sec. 26 AS 21.79.070(j) is amended to conform to the model language by adding the term "member insurer" in place of "insurer." Sec. 27 AS 21.79.070(k) is amended to allow hospital and medical service corporations and HMOs to consider the amount necessary to meet its assessment obligations when determining its premium rates and policy owner dividends. Sec. 28 AS 21.79.070(l) is amended to conform to model language by adding the term "member insurer." Sec. 29 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. 30 AS 21.79.090(b) is amended to conform to the model language by replacing the term "insurance" with the term "business." Sec. 31 AS 21.79.090(c) is amended to (1) clarify that only a final action of the board may be appealed, 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. 32 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. 33 AS 21.79.100(a) is amended to require the director to notify other insurance regulatory officials in the country when issuing orders for the security of contract owners and certificate holders. Sec. 34 AS 21.79.100(e) is amended to allow the director to seek the association board's advice and recommendations as to the financial condition of hospital and medical service corporations and HMOs. Sec. 35 AS 21.79.100(f) is amended to enable the association board to make reports and recommendations to the director relating to the solvency of hospital and medical service corporations and HMOs. Sec. 36 AS 21.79.100(h) is amended to conform to model language by using the term "member insurer." Sec. 37 AS 21.79.110(c) is amended to add the words "or contract," as is consistent with the model language. Sec. 38 AS 21.79.110(d) is amended to expand the list of those situations where the court may or must consider the contributions of the parties when distributing ownership rights. Sec. 39 AS 21.79.110(e) is amended to conform to model language by using the term "member insurer." Sec. 40 AS 21.79.110(f) is amended to conform to model language by using the term "member insurer," and adding the words "or contract" after "policy." Sec. 41 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. 42 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. 43 AS 21.79.160(a) is amended to clarify that the section does not apply to entities that do not sell or solicit coverage by a hospital or medical service corporation or coverage by an HMO; conforms to model language by replacing the term "insurer" with "member insurer." Sec. 44 AS 21.79.160(b) is amended to conform to model language by including the terms "member," "policy owner," "contract owner," "certificate holder," and "enrollee." Sec. 45 AS 21.79.160(c) is amended to conform to model language by including the words "member," "policy owner," "contract owner," and "certificate owner." Prohibits hospital or medical service corporations or HMOs from using the existence of the association for sales, solicitation, or inducement to purchase insurance. Sec. 46 AS 21.79.900(5) amends the term "called" to (1) mean a notice has been mailed by the association to member insurers requiring that an authorized assessment be paid within the time set out in the notice, and (2) include that an authorized assessment becomes "called" when notice is mailed by the association. Sec. 47 AS 21.79.900(6) amends the term "contractual obligation" to clarify that the term only applies to an obligation for which coverage is provided under AS 21.79.020(a), (b), (d), and (e). Sec. 48 AS 21.79.900(7) amends the term "covered policy" to include "covered contract." Sec. 49 AS 21.79.900(10) amends the term "member insurer" to include a hospital or medical service corporation licensed under AS 21.87, and includes even those whose license or certificate of authority has been suspended, revoked, not reviewed, or voluntarily withdrawn. Sec. 50 AS 21.79.900(12) is amended to conform to model language by changing the term "owner" in regard to a policy or contract to "policyholder," "policy owner," and "contract owner." Sec. 51 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. 52 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 limitations with respect to one individual, one participant, and one contract owner. Sec. 53 AS 21.79.900(15) conforms to model language by amending the definition of "receivership court" and uses the term "member insurer" in place of "insurer." Sec. 54 AS 21.79.900(16) amends the term "resident" to delete language considered unnecessary under state drafting conventions. Sec. 55 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. 56 AS 21.79.900 is amended to add new paragraphs to define the terms "health benefit plan", "election date" and "extra contractual claim". The section is also amended to define "published monthly average", previously defined under AS 21.79.020(f). Sec. 57 AS 21.86.260(a) is amended to apply AS 21.79 to HMOs. Sec. 58 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. 59 Repeals the following provisions • AS 21.79.020(f) defining "published monthly average" as the definition is moved under AS 21.79.900. • AS 21.060(c) is repealed as the provision no longer is in the model language. • 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. 60 Provides for an uncodified new section outlining the timing of when the director may adopt regulations. Sec. 61 Provides that section 60 of the Act takes effect immediately. Sec. 62 Provides a July 1, 2018 effective date. 3:57:02 PM REPRESENTATIVE SULLIVAN-LEONARD referred to Section 7 and asked about the liability amount. MS. WING-HEIER answered the liability amount is $300,000 for disability income as defined, and $300,000 for long-term care is new. She said it was clarifying that the limit is specific to long-term care. She added the last two limits are increasing from $100 [thousand] to $250 [thousand], which is what a consumer could collect, provided as funded if their policy were with an insolvent insurer. CHAIR KITO summarized that the aim is to catch up with late adopted changes to the model law. He added long-term care insolvency is a big issue. 4:08:39 PM DONALD THOMAS, Administrator and Counsel, Alaska Life and Health Insurance Guarantee Association, testified in the hearing on HB 403. He said that during the past 8 years, he has been engaged in efforts to have the Guarantee Association's Organic Act updated. He explained HB 403 would give the board of governors the tools to affect the purposes of the Association's Act. He underlined the board is operating under outdated rules and has had to incur expenses that could have been avoided had it not been operating under an outdated system. He said HB 403 would ensure functional consistency within the nationwide state-based guarantee system. He added it is important as presently there is no health or life insurance domesticated in Alaska. He said with HB 403 there is an increased likelihood that Alaska law will be applied to Alaska policyholders. 4:10:59 PM JANA-LEE PRUITT, Regional Vice President, American Council of Life Insurers (ACLI), testified in support of HB 403. She stated the American Council of Life Insurers (ACLI) is a national trade association representing around 290 companies which offer life insurance annuities, long term care insurance, disability income insurance, and reinsurance. She added ACLI has 219 members licensed to do business in Alaska, and 96 percent of all life insurance and annuity payments to Alaska citizens are made by ACLI member companies. She stated ACLI supports the bill. She informed HB 403 would better protect insured residents of Alaska in the unlikely event of an insurer insolvency by amending the Alaska Life and Health Insurance Guaranty Association Act to incorporate amendments made to the National Association of Insurance Commissioners ("NAIC") Life & Health Insurance Guaranty Association Model Act, upon which the Alaska Act is based. MS. PRUITT said HB 403 would increase coverage limits for individuals covered by unallocated annuity contracts and structured settlement annuities from $100,000 to $250,000 and make the Alaska Act functionally consistent with the NAIC Model Act. Forty-five states have already amended their guaranty association laws to achieve functional consistency, which is critical to ensuring multi-state insolvencies are handled as quickly and efficiently as possible and policyholder claims are treated similarly, regardless of a policyholder's state of residence. She underlined that lack of consistency among state guaranty association statutes has led to unnecessary and expensive litigation in the past, which can delay claim payments and divert resources from protecting policyholders. MS. PRUITT stated HB 403 would also help ensure the continued sustainability of the state-based guaranty association system in the event of the insolvency of a carrier that writes long-term care insurance. She said the current assessment formula for long-term care insurance insolvencies is not sustainable. The newly-revised NAIC Model Act and HB 403 would distribute the assessments for long-term care insurance insolvencies among companies writing life, health, annuity products. Regulators, insurers, consumer representatives and experts in the insurance receivership community worked together for over a year to make these critical changes to the NAIC Model Act. She added HB 403 would help ensure the Alaska Act which was created to protect consumers and act as a safety net in the event of an insurer insolvency remains stable, fair, and sustainable through sufficient assessment capacity. MS. PRUITT said there are a few minor revisions required and ACLI is in discussion with Ms. Wing-Heier and her staff to make sure the revisions comply with Alaska's legislative drafting conventions. 4:14:28 PM CHAIR KITO opened testimony on HB 403. CHAIR KITO held over HB 403.