Legislature(1997 - 1998)
05/09/1998 09:10 AM House RLS
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 490 - INSURANCE PREMIUM TAX Number 122 CHAIRMAN KOTT announced the next order of business would be CSHB 490(FIN), "An Act relating to insurance premium taxes and to insurance taxes, licenses, or fees imposed by another state or country; and providing for an effective date," sponsored by the House Rules Committee. Number 127 JAMES HORNADAY, Legislative Assistant to Representative Pete Kott, Alaska State Legislature, came before the committee. He read the following statement into the record: "In general, HB 490 repeals the retaliatory tax paid on health insurance by the state, a municipality, city or borough, school district, REAA or University of Alaska or community college. It does this by amending an existing statute [AS 21.09.270]. The fiscal impact of this provision is about $200,000 loss in tax revenue. There is a fiscal note from Representative Ryan's office and there is also a new fiscal note from the Division of Insurance that indicates that is a $270,000 figure. Mr. Reinwand, I think, may want to address that. The purpose of the retaliatory tax is to not [un]fairly advantage an Alaska domiciled health insurance company. There are no Alaska domiciled health insurers at present. It is my understanding that this statute has been on the books for 30 years and there are still no domiciled health insurers. As a result of legislation passed in the state of Washington, the taxes imposed on Blue Cross were increased 2 percent in the state of Alaska and the consumers have been notified that the increase will be passed on to them. Blue Cross is placed at a competitive disadvantage as it is the only insurer subject to the increase. HB 490 provides an even playing field for companies writing health insurance in the state of Alaska. "HB 490 also should encourage large private placement insurance policies exceeding $1 million in annual premiums in conjunction with the prior passage of the Alaska Trust Act." MR. HORNADAY deferred any questions to Representative Ryan and Mr. Reinwand for further explanations. Number 167 REPRESENTATIVE JOE RYAN came before the committee. He explained that in consultation with Marianne Burke, Director, Division of Insurance, Department of Commerce and Economic Development, she told him that there weren't any policies written in the state of Alaska with a yearly premium of $100,000 or more. Representative Ryan said these are high-end policies and he figures that there between 11,000 and 12,000 a year that are written. He explained that there is a person in Los Angeles who has a insurance policy with a premium of $200 million a year and is waiting for legislation like this to be passed so they can buy it in Alaska rather than an offshore jurisdiction. Almost all this business goes outside because offshore jurisdictions don't have a premium tax. He stated we are trying to get some of that market by reducing the premium on the high-end policies to 1/10 of 1 percent. It would make Alaska competitive with the offshore jurisdiction. Representative Ryan explained that there are a number of people who would like to come to Alaska to do business because we're under the American Banking System and the American government protection rather than the Virgin Islands or the Caymans or some place like that. Ms. Burke has indicated it is a good idea and she is going to go to New York in July to meet with the chief executive officer (CEO) of New York Life. They are talking about establishing a wholly owned Alaska subsidiary to deal with the high-end market of the Pacific Rim in conjunction with the Alaska Trust Act. By passing the legislation, it is another way of bringing more money to Alaska that we are currently not receiving. Number 203 JERRY REINWAND, Lobbyist, Blue Cross, came before the committee. He explained that Section 3 of the Rules Committee substitute deals with the retaliation tax. He explained that essentially, insurance companies pay premium taxes to the state. The public policy question that the CS and the original version of the bill raises is, "Should the state collect taxes in any form, insurance policies written in the private sector, to public entities - municipalities, school districts and the University of Alaska?" Mr. Reinwand informed the committee members that issue is further compounded by a tax law, which is really astounding in many respects, a retaliation tax. He pointed out that nobody really paid much attention to this law until the state of Washington passed a major health insurance overhaul plan in 1994. He said, "Basically, the idea of a retaliation tax is to not give any insurance company -- or to protect any Alaska-based insurance company against an insurance company that's based in another state, but is selling insurance in your state, through tax policy, not to give the outside company an advantage over and Alaska domiciled company." He explained that the net effect of what the state of Washington did in 1994, was to trigger a 2 percent increase all premiums written by Blue Cross. He said that Blue Cross has been in discussions with the Division of Insurance for quite awhile over this issue, particularly over public entities. Blue Cross writes insurance in the private market and insures over 90,000 Alaskans. Mr. Reinwand noted some are federal employees, some who work for school districts, municipalities and the University of Alaska. After lengthy discussions with the Division of Insurance and after reviewing the law, people have come to the conclusion that the retaliation tax needs to be looked at. He said the question is, "Does the state want to impose at least a retaliation tax equivalent to a 2 percent tax on all premiums we write for municipalities, school districts, etc.?" Mr. Reinwand asked, "Do you want to impose a 2 percent retaliation tax that was basically triggered by the state of Washington on Alaskan people who buy health insurance from us?" He said Blue Cross is the only company affected by this because most of the companies are domiciled in Delaware or Connecticut or some other place that has a favorable tax plan. He informed the committee members that Blue Cross' plans are scattered all across the nation and are domiciled in one place. MR. REINWAND said the legislation proposes to, in a limited way, say the state of Alaska will not impose a retaliation tax on insurance that Blue Cross sells to the state if that were ever happen. Mr. Reinwand said that you could argue that's a tax that never should have been collected in the first place, but Blue Cross has been paying it. They have basically been eating the tax for the last three years. People have been informed that it will be passed along to them next year. Number 266 MR. REINWAND referred to the fiscal note from the Division of Insurance for $270,000 and said about $40,000 is for the Public Safety employees' trust. He said, "That would not be exempted from this amendment. So really, at least in our math, the fiscal note is $230,000." He indicated it is confusing and the issue is a very difficult issue to deal with. They hope that next year the legislature will look at the entire question to give guidelines about premiums paid by public entities to private insurers being taxed. The next effect is that Blue Cross doesn't believe they should be. MR. REINWAND pointed out that the House Finance Committee voted to entirely repeal the retaliatory tax. He said, "This takes it back. We would pay the retaliation tax on premiums we write on the private side, but we would not pay the retaliation tax on premiums paid by public organizations. So it's a very complicated difficult issue to understand." Number 292 REPRESENTATIVE PORTER asked if all insurance companies would be treated the same. MR. REINWAND responded in the affirmative. REPRESENTATIVE PORTER asked if there are any insurance companies domiciled in the state. MR. REINWAND responded in the negative. REPRESENTATIVE PORTER said, "If we got one, we wouldn't have a retaliatory tax on the books that would, in some way, assist it?" MR. REINWAND said, "You would under this provision. The retaliation tax would still exist for insurance written on the private side, not on the public side. And in that sense, everybody would be treated equally. I think there is a legitimate public policy reason. There was a big discussion in House Finance about this circular loop that the state appropriates money to school districts, municipalities and so on and so forth, and then you turn around and tax it and bring at least part of it back. And that's what lead people -- frankly, we didn't remember asking for a total repeal. But after the House Finance committee kicked it around, they decided this law doesn't make any sense." He indicated Ms. Burke was not optimistic there would ever be a health insurance company domiciled in the state of Alaska. Mr. Reinwand said he doesn't know whether that will happen or not. If and when that happens, the legislature could always revisit the issue. He said he believes that is why the House Finance Committee voted for a total repeal. The current version would limit the repeal to just public entities. Number 316 REPRESENTATIVE PORTER stated, "I didn't quite track how Blue Cross got affected by Washington's...." MR. REINWAND indicated Blue Cross is the only insurance company in the state of Alaska that is "domiciled." He said the official residence is Seattle. He noted they are also selling insurance in the state of Alaska. When the state of Washington increased, to cover the cost of its major overhaul of the health care plan, they increased premium taxes 2 percent. Mr. Reinwand said, "Because of our retaliation tax that's on the book, when they did that, we are 2 percent hit up here. I mean automatically, the taxes were raised 2 percent. You need a road map to even understand this law, but if you read this law, basically the legislature has surrendered its taxing power to another jurisdiction. I mean the retaliation tax is not that unusual, but it's a very weird way to do business." Number 333 REPRESENTATIVE PHILLIPS said she thinks it would be better to repeal it for everybody. She said she doesn't know what the justification is for reestablishing part of the retaliation. MR. REINWAND stated that some people felt it would jump the fiscal note to about $700,000. He said, "It's such a difficult issue to explain. At least on the public side, (indisc.) make some sense to say let's at least start and look at it here." REPRESENTATIVE PORTER said, "We're paying it, in other words, on the public side. MR. REINWAND responded in the affirmative. Number 348 REPRESENTATIVE KIM ELTON said without the bill, Blue Cross will pass the costs on to the public entities. He said, "So essentially, what is going to happen is we're going to be -- if we don't pass this, the fiscal note here says $270,000, but if it's $230,000 or $200,000 or whatever it is, you'll be passing that cost back to these public entities." MR. REINWAND responded in the affirmative. He said, "For almost three years, the Blue Cross has 'eaten it.' In the case of Anchorage, which is the largest school district we insure, it's a sizable chunk of money. It was about $800,000 or $900,000. In addition, Blue Cross gets hit with an assessment on the high risk pool. Nobody knows about that, that's a tax (indisc.) $500,000 or $600,000. So you start putting all these things together, it gets to be a real problem, at least this piece of it, we think, from a public policy point of view." Number 368 CHAIRMAN KOTT referred to information the committee has and said there are several rural districts that will benefit from this. Number 375 REPRESENTATIVE PHILLIPS moved to adopt Version K. There being no objection CSHB 490(RLS) was before the committee. Number 378 REPRESENTATIVE BILL WILLIAMS made a motion to move CSHB 490(RLS) out of committee with individual recommendations and with the attached fiscal note. There being no objection CSHB 490(RLS) moved out of the House Rules Standing Committee.
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