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 Committee. 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 action. 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 situation. 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 State. Co-Chair Green asked whether identities of the offenders could be released. 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 Committee. 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