Legislature(2003 - 2004)

03/31/2004 09:05 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     CS FOR SENATE BILL NO. 357(L&C)                                                                                            
     "An  Act relating  to the  regulation of  insurance,  insurance                                                            
     licenses,   qualifications  of  insurance  producers,   surplus                                                            
     lines,  fraud  investigations,  electronic   transactions,  and                                                            
     compliance  with  federal   law  and national   standards;  and                                                            
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken stated  this bill, sponsored by the Senate Labor and                                                            
Commerce  Committee, "is  known as  the insurance  omnibus bill  and                                                            
contains numerous to insure  that State statutes are consistent with                                                            
federal law, model act standards and guidelines."                                                                               
                                                                                                                                
LINDA  HALL,   Director,  Division   of  Insurance,  Department   of                                                            
Community  and Economic Development,  deferred  to Senator  Bunde to                                                            
introduce the bill.                                                                                                             
                                                                                                                                
Senator  Bunde  testified   that  the  Senate  Labor   and  Commerce                                                            
Committee  sponsored  this  bill at  the  request of  the  Murkowski                                                            
Administration.  He  also  characterized   this  legislation  as  an                                                            
insurance  omnibus  bill  and  a  "technical   clean-up"  bill  that                                                            
proposes  numerous  changes  to  Title  21 of  Alaska  Statutes.  He                                                            
explained this  bill would insure that the State is  consistent with                                                            
federal law and the National  Association of Insurance Commissioners                                                            
model act standards and  guidelines. He noted this legislation would                                                            
update   procedures  and   transactions  within   the  Division   of                                                            
Insurance.                                                                                                                      
                                                                                                                                
Senator Bunde listed six key elements of the bill as follows.                                                                   
                                                                                                                                
     1. provides for electronic communication                                                                                   
     2.  provides for  changes in  the reinsurance  capabilities  in                                                            
     Alaska                                                                                                                     
     3.  implements  recommendations   for  licensing  revisions  as                                                            
     suggested  by National Association  of Insurance Commissioners                                                             
     4.  makes  changes in  the  liability  for civil  damages  when                                                            
     filing a report concerning fraudulent acts                                                                                 
     5.   contains  provisions that  clarify that  a guarantee  fund                                                            
     deposit is required for title insurance companies                                                                          
     6.  makes  changes  to taxes  and  late  penalties to  be  more                                                            
     consistent with Department of Revenue statutes.                                                                            
                                                                                                                                
Senator  Bunde  summarized  this  bill  would "promote  consistency                                                             
between  Alaska and  other  states,  should promote  more  efficient                                                            
operation."                                                                                                                     
                                                                                                                                
Amendment #1:  This amendment inserts a new bill section  on page 2,                                                            
following line 11 to read as follows.                                                                                           
                                                                                                                                
     Sec. 2. AS 21.07.010(b) is amended to read:                                                                                
          (b) A contract between a participating health care                                                                    
     provider and a managed  care entity that offers a group managed                                                            
     care plan may not contain a provision that                                                                                 
                (1) has as its predominant purpose the creation of                                                              
     direct  financial incentives  to the  health care provider  for                                                            
     withholding  covered health  care services  that are  medically                                                            
     necessary;  nothing  in this  paragraph shall  be construed  to                                                            
     prohibit  a  contract  between   a participating   health  care                                                            
     provider  and a managed care entity from containing  incentives                                                            
     for  efficient  management  of  the  utilization  and  cost  of                                                            
     covered health care services;                                                                                              
                (2) requires the provider to contract for all                                                                   
     products  that are currently offered or that  may be offered in                                                            
     the future by the managed care entity; or [AND]                                                                          
                (3) requires the health care provider to be                                                                     
     compensated  for health  care  services performed  at the  same                                                            
     rate as  the health care provider  has contracted with  another                                                            
     managed care entity.                                                                                                       
                                                                                                                                
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
                                                                                                                                
Co-Chair  Wilken moved  for adoption.  He announced  that this  bill                                                            
would not be reported from Committee at this hearing.                                                                           
                                                                                                                                
Senator  Dyson  relayed  his  understanding  that  significant  cost                                                            
shifting  occurs   by  health  care  providers.  He  exampled   that                                                            
hospitals  are unable  to  recover expenses  incurred  from  surgery                                                            
procedures  and  subsequently   charges  higher  amounts  for  other                                                            
services, which  are ultimately shifted  to third-party payers.   He                                                            
asked if the State has  a responsibility to ensure that insurers are                                                            
only  paying for  costs actually  incurred  and not  for  providers'                                                            
unrecoverable debts from other services.                                                                                        
                                                                                                                                
Ms.  Hall replied  this  is a  philosophical  question  she was  not                                                            
currently  prepared to  answer. She  assured she  would discuss  the                                                            
matter with Division staff  responsible for primary oversight of the                                                            
health insurers and undertake additional research.                                                                              
                                                                                                                                
Senator Dyson commented this would be a wise choice.                                                                            
                                                                                                                                
Senator Dyson  remarked on the "unfortunate"  circumstances  whereby                                                            
third  party  payers, large  insurance  carriers  and  self  insured                                                            
negotiate with providers  for lower rates, while requiring uninsured                                                            
patients to pay 100 percent.  He also stated that some patients must                                                            
pay the cost recovery of  other services offered by the provider. He                                                            
wanted to ensure  that self-payers get same discount  as third party                                                            
payers.                                                                                                                         
                                                                                                                                
Ms. Hall responded  that she would further discuss  this matter with                                                            
Senator Dyson.                                                                                                                  
                                                                                                                                
Ms. Hall testified on the bill as follows.                                                                                      
                                                                                                                                
     The  purpose  of the  bill is  to make  some  changes that  are                                                            
     required  in the  accreditation  process that  the Division  of                                                            
     Insurance   goes  though  with  the  National  Association   of                                                            
     Insurance   Commissioners.  It  also  makes   some  changes  to                                                            
     correspond  with  some  of  the  national  producer   licensing                                                            
     requirements.                                                                                                              
                                                                                                                                
     There's  six major areas of change.  One, as Senator  Bunde has                                                            
     pointed out  is electronic communication; the  ability to allow                                                            
     various  communications  for  the  services  we provide  to  be                                                            
     preformed  electronically.  We have  financial  forms that  are                                                            
     filed  electronically  and we're trying  to gradually  increase                                                            
     the ability to communicate with our public in that manner.                                                                 
                                                                                                                                
     Second  area  is late  tax  payments.  Currently  we have  some                                                            
     fairly  high penalties  that are mandatory  for late  payments.                                                            
     There are  four sections in the bill that revise  the penalties                                                            
     to make  them more consistent  with the Department of  Revenue.                                                            
     We also add  a new section that is up to $10,000  penalties for                                                            
     willful late payments of taxes.                                                                                            
                                                                                                                                
     The  reinsurance  piece  of  the  bill  is  probably  the  most                                                            
     complex.  It is the  only area of the  bill that I've  received                                                            
     any comments  from industry on. There are two  sections. One is                                                            
     reflected  in Version  "H", it is a  c.s. Originally,  the bill                                                            
     proposed   that  the   Division  of   Insurance  must   approve                                                            
     reinsurance  treaties  that insurance  companies  entered  into                                                            
     with  reinsurance  insurers.  We have  changed  that merely  to                                                            
     require  that they  file their  signed agreements  with us.  In                                                            
     some  financial  examinations,  we've  had  difficulty  getting                                                            
     signed  reinsurance agreements  and we want to be sure  we have                                                            
     those  available  for  our  review  when  we're  reviewing  our                                                            
     domestic insurance companies.                                                                                              
                                                                                                                                
     The forth  area of the bill makes some changes  in licensing to                                                            
     be consistent  with the Producer License Model  Act and federal                                                            
     law.  We've eliminated  some  training licensing;  we've  added                                                            
     crop  insurity  licenses.  We  have removed  some  language  on                                                            
     limited lines that  made it more difficult - they made barriers                                                            
     for Alaskans  to have licenses.  We have required that  surplus                                                            
     lines  brokers also  be licensed  as producers.  These  license                                                            
     agreements  don't have  any particularly  strong impact  on our                                                            
     current  group  of  agents  but  they  do bring  us  more  into                                                            
     compliance with federal national areas.                                                                                    
                                                                                                                                
     The fifth area that  I'd like to address briefly is the surplus                                                            
     lines  area.  There  are  several  sections  dealing  with  the                                                            
     surplus  lines  and  without  going  into a  lot  of  technical                                                            
     discussion,  I would like to point out that these  are based on                                                            
     a  task force  that met  over  the summer.  We had  a group  of                                                            
     surplus lines brokers,  both from Alaska and from out of state,                                                            
     come  in and work  with the  Division staff  and each other  to                                                            
     streamline  the process of surplus  lines. Basically  a surplus                                                            
     lines company  is a company that is not under  a requirement to                                                            
     file their forms and  taxes. We talked about document coverage,                                                            
     what types of documents  needed to be given to the consumer. We                                                            
     placed some  additional responsibility on brokers  to make sure                                                            
     the  consumer receives  notice of their  responsibility.  There                                                            
     are  certain-what  we call disclosures,  given  in the  surplus                                                            
     lines arena,  which require surplus lines brokers  to make sure                                                            
     the  consumer  understands   the  nature  of  a  surplus  lines                                                            
     placement that is  not subject to form and rate filing, it also                                                            
     is  not covered  by the guarantee  association.  And that  is a                                                            
     requirement in current  statute that we want to make sure stays                                                            
     there and we've added another layer to that.                                                                               
                                                                                                                                
     The  last  major  section   I'd  like  to  address  deals  with                                                            
     fraudulent  activity. Section  40 of the  bill provides  that a                                                            
     person involved  in the prevention and detection  of fraudulent                                                            
     acts  would not  be subject to  civil liability  when filing  a                                                            
     report  or furnishing  information to  others also involved  in                                                            
     prevention  and detection of insurance fraud.  This addition to                                                            
     the  current  statute  would  allow  fraud  investigators  from                                                            
     insurance companies  to communicate with each other. Currently,                                                            
     fraud   investigators   from   one  insurance   company   can't                                                            
     communicate  with fraud investigators  from a second  insurance                                                            
     company without  fear of some kind of prosecution.  They end up                                                            
     doing that through  our office. Company "A" comes to us, thinks                                                            
     that  there's fraud involved  in a policy,  [and] asks  that we                                                            
     get  information  from Company  "B".  We'd like  to  facilitate                                                            
     communication to help prevent fraud in insurance in Alaska.                                                                
                                                                                                                                
     Those  are the six major areas.  As I said, I won't  go through                                                            
     all 28 pages. I would  be happy to entertain questions. But the                                                            
     general overview of  the entire bill is to bring Alaska more in                                                            
      line with the NAIC requirements and model regulations.                                                                    
                                                                                                                                
Senator Olson  questioned, if this is "cleanup" legislation,  why it                                                            
was   not   submitted    prior   to   the   current   gubernatorial                                                             
administration.                                                                                                                 
                                                                                                                                
Ms. Hall clarified  the bill is "cleanup" in that  it is intended to                                                            
conform to national  changes. She was unable to speak  to actions of                                                            
the prior  administration,  although she noted  that changes  to the                                                            
NAIC  reinsurance  language  were  recent,  as  well  as  new  areas                                                            
identified  that need  additional  oversight. She  also stated  that                                                            
changes to federal  regulations must be complied with.  She informed                                                            
that  this  legislation  would  provide  "a  more  stable,  stronger                                                            
oversight ability."                                                                                                             
                                                                                                                                
Senator Olson  asked whether any opposition has been  voiced to this                                                            
legislation.                                                                                                                    
                                                                                                                                
Ms. Hall told  of the two hearings this bill received  in the Senate                                                            
Labor and  Commerce Committee  in which no  one appeared to  testify                                                            
and noted the absence of  any testifiers at the present hearing. She                                                            
relayed  she  has  received  two  "areas"  of  comments,  one  which                                                            
resulted  in the committee  substitute and  the other matter,  which                                                            
she  determined  should  remain  in  the  legislation  as  it  would                                                            
strengthen the  Division's oversight and ability to  ensure solvency                                                            
in reinsurance agreements.                                                                                                      
                                                                                                                                
Senator Olson  clarified that industry is not in opposition  to this                                                            
bill.                                                                                                                           
                                                                                                                                
Ms. Hall  qualified that  parties have not  "jumped up and  down" in                                                            
support  of the legislation,  but  none have  objected or  testified                                                            
against it or contacted her to voice concern.                                                                                   
                                                                                                                                
Senator   Olson  referenced   concerns  with   insurance   companies                                                            
discontinuing  operations in  Alaska and asked  if any provision  of                                                            
this  bill  would  give  incentive  to  insurance  companies  to  do                                                            
business in Alaska.                                                                                                             
                                                                                                                                
Ms. Hall replied  she was unaware  of any. She stressed the  need to                                                            
attract more insurance companies to do business in Alaska.                                                                      
                                                                                                                                
Senator  Dyson asked  the  extent of  insurance fraud  committed  in                                                            
Alaska.  He  assumed  most  fraudulent   activity  is  committed  by                                                            
providers rather than insurance companies.                                                                                      
                                                                                                                                
Ms. Hall  informed  that the  Division  receives three  to four  new                                                            
reports   of  activities   each  month.  She   told  of  the   fraud                                                            
investigators  operating within the  Division. She stated  that most                                                            
cases  involve  consumers,  and  exampled  claims  for damage  to  a                                                            
vehicle  that  occurred  prior to  the  purchase  of a  policy.  She                                                            
asserted that  fraud affects the rates  charged to other  consumers.                                                            
                                                                                                                                
Senator Dyson  asked if the Division  therefore does not  experience                                                            
many fraud cases involving providers.                                                                                           
                                                                                                                                
Ms. Hall affirmed, noting that it is a small percentage.                                                                        
                                                                                                                                
Co-Chair  Green  commented  on  the timeliness  of  this  bill.  She                                                            
extolled  Ms.  Hall's many  years  of experience  in  the  insurance                                                            
industry stating she is  likely the most qualified Division director                                                            
to serve in the position.                                                                                                       
                                                                                                                                
Co-Chair Green  told of expanded fraud investigation  efforts of the                                                            
past several years  at the national level involving  a consortium of                                                            
huge corporations  and  the Federal  Bureau of  Investigations.  She                                                            
predicted these  efforts could impact Alaska, although  not directed                                                            
at this State.                                                                                                                  
                                                                                                                                
Co-Chair   Wilken  objected   to  adoption   of  Amendment   #1  for                                                            
clarification.  He noted it is drafted  to the original legislation                                                             
and asked  if it  is applicable  to  the Senate  Labor and  Commerce                                                            
committee substitute.                                                                                                           
                                                                                                                                
JANET SIETZ,  Staff to Representative  Norm Rokeberg, testified  the                                                            
amendment applies  to the committee substitute. She  stated that the                                                            
change of  "and" to "or"  in the existing  statutory language  of AS                                                            
21.07.010(b)  would clarify  that none of  the three provisions  are                                                            
allowable.  She noted that  current language  could be construed  to                                                            
imply that so  long as all three provisions are not  present, one or                                                            
two would be allowed.                                                                                                           
                                                                                                                                
Co-Chair  Green  asked the  definition  "participating  health  care                                                            
provider" and "managed care entity" stated in the amendment.                                                                    
                                                                                                                                
Ms. Sietz  exampled  that a  doctor or  dentist would  qualify  as a                                                            
provider  and stated  that  managed care  entity  would include  the                                                            
organization  that provides  vision  care services  to the State  of                                                            
Alaska.                                                                                                                         
                                                                                                                                
Co-Chair Green  asked what other parties are managed  care entities.                                                            
                                                                                                                                
Ms. Sietz  replied that  insurance contracts  where the provider  is                                                            
signing up  to participate in program  that offers patients  certain                                                            
benefits. This,  she said, prevents  the provider from being  forced                                                            
by the  managed care entity  to accept all  the products offered  by                                                            
the provider.  She stated this gives health care providers  a choice                                                            
in what services it would provide.                                                                                              
                                                                                                                                
Co-Chair  Green asked  if  this relates  to the  preferred  provider                                                            
organization (PPO).                                                                                                             
                                                                                                                                
Senator  Olson  asked  if  the  language  would  pertain  to  health                                                            
management organizations (HMO).                                                                                                 
                                                                                                                                
Ms. Sietz replied that no HMOs operate in Alaska.                                                                               
                                                                                                                                
Senator  Olson asked if  this would  change in  the future and  HMOs                                                            
would begin to operate in the State.                                                                                            
                                                                                                                                
Ms. Sietz  characterized "managed  care entity"  as a "term  of art"                                                            
utilized in the language of this bill.                                                                                          
                                                                                                                                
Co-Chair  Green  asked  if  "managed  care  entity"  is  defined  in                                                            
statute.                                                                                                                        
                                                                                                                                
Ms.  Hall relayed  that  as  she discussed  Amendment  #1  with  the                                                            
Division's  lead life and health actuary  staff, it was agreed  that                                                            
the intent was to attempt  to stipulate that the contracts would not                                                            
be required  of  providers.  She noted  the specific  instance  that                                                            
prompted this  amendment related to a vision plan.  She stressed the                                                            
Division  does  not support  requiring  a  provider to  provide  all                                                            
available services in order to have a contract with an insurer.                                                                 
                                                                                                                                
Co-Chair  Wilken  asked if  the  Division  supports or  opposes  the                                                            
amendment.                                                                                                                      
                                                                                                                                
Ms. Hall answered that the she supports the amendment.                                                                          
                                                                                                                                
Ms. Sietz cited  the definition of managed care in  AS 21.07.090(10)                                                            
as  "…includes  insurer,  hospital,  medical  service organization,                                                             
health maintenance  organization,  employer or employee health  care                                                            
organization,  managed care contractor that operates  a managed care                                                            
plan, or a person who has  a financial health care services provided                                                            
to an individual."                                                                                                              
                                                                                                                                
Senator Olson asked if  any input has been received from health care                                                            
providers  on  this  amendment,   as  he  perceived  this  to  offer                                                            
protection to health care providers.                                                                                            
                                                                                                                                
Ms. Sietz  replied this amendment  was submitted  at the request  of                                                            
some  health  care  providers.  She referenced  a  letter  from  Dr.                                                            
Faulkner [copy  not provided,] indicating that the  current language                                                            
is onerous.                                                                                                                     
                                                                                                                                
Senator Olson  wanted a more specific example of organizations  such                                                            
as  the dental  society,  Alaska State  Medical  Association,  nurse                                                            
practitioner group, etc.                                                                                                        
                                                                                                                                
Ms. Sietz  informed that  Dr. Falkner is  Executive Director  of the                                                            
Alaska Optometric Association.                                                                                                  
                                                                                                                                
Co-Chair  Wilken  withdrew  his objection  to  the adoption  of  the                                                            
amendment and it was ADOPTED.                                                                                                   
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                

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