Legislature(2005 - 2006)SENATE FINANCE 532
05/01/2005 01:00 PM Senate FINANCE
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 24 | TELECONFERENCED | |
| += | SB 156 | TELECONFERENCED | |
| += | HB 182 | TELECONFERENCED | |
| += | HB 91 | TELECONFERENCED | |
| += | HB 119 | TELECONFERENCED | |
| + | HB 136 | TELECONFERENCED | |
| + | SB 135 | TELECONFERENCED | |
| += | SB 108 | TELECONFERENCED | |
| + | SB 121 | TELECONFERENCED | |
| + | SB 122 | TELECONFERENCED | |
| + | HB 35 | TELECONFERENCED | |
| + | HB 75 | TELECONFERENCED | |
| + | HB 132 | TELECONFERENCED | |
| + | HB 156 | TELECONFERENCED | |
| + | HB 230 | TELECONFERENCED | |
| += | SB 46 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 19 | ||
| = | HB 15 | ||
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
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