HOUSE BILL NO. 164 "An Act relating to insurance; relating to health care insurance, exemption of certain insurers, reporting, notice, and record-keeping requirements for insurers, biographical affidavits, qualifications of alien insurers assuming ceded insurance, risk-based capital for insurers, insurance holding companies, licensing, federal requirements for nonadmitted insurers, surplus lines insurance, insurance fraud, life insurance policies and annuity contracts, rate filings by health care insurers, long-term care insurance, automobile service corporations, guaranty fund deposits of a title insurer, joint title plants, delinquency proceedings, fraternal benefit societies, multiple employer welfare arrangements, hospital and medical service corporations, and health maintenance organizations; and providing for an effective date." 3:19:18 PM LINDA HALL, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, addressed two areas of major concern related to HB 164. She identified page 50, Section 79, of the legislation. She explained that Section 79 intended to act as a disincentive for employers to drop their group health coverage. She read Section (a), lines 6-7, "an insurer may not issue an individual health care insurance policy to an employee of an employer." She related that a group plan must adhere to specific statutory requirements that protect consumers. Guarantee issue insurance coverage for the small group market (2 to 50 employees) provided that an insurer could not deny coverage to small employers. She furthered that Section (b) allowed for two exceptions. An employee and insurer may provide an individual health insurance policy with employer funds if the employee was eligible as defined by statute. She listed eligible employees: part-time, temporary, and seasonal employees not eligible for a group plan. The second exception exempted employers that did not provide health insurance coverage and had not within the last six months. She elaborated that individual coverage was more restrictive than group coverage. For example, the individual market excluded maternity coverage; small group plans provided it. The Division of Insurance opted to help people denied coverage due to existing conditions in Section 79. Employees forced to purchase individual policies due to a dropped group plan would be underwritten for deniable health conditions. The section would not protect the other employees that must wait six months or more for other health coverage. 3:23:32 PM Vice-chair Fairclough referred to testifiers concerns that Section 79 would severely limit employer's flexibility. Her interpretion was that the employee received the penalty in the event an employer can only provide individual coverage, not the employer. The employee was left at risk. She felt the policy decision was left open for debate. 3:28:17 PM Ms. Hall directed attention to Section 46 (line 16, page 27) t related to surplus lines. REPRESENTATIVE KURT OLSON, SPONSOR, spoke in support of Section 46. He explained that the National Conference of Insurance Legislators (NCOIL) proposed model legislation, a national tax and collection authority that relinquished the authority from states Division of Insurance. He reported a conflict of interest as a member of the Executive Committee of NCOIL and member of the Interstate Insurance Product Review Committee (IIPRC). Representative Olson declared that he was in wholehearted support of Section 46. He believed that the NCOIL model legislation was hastily crafted and not fully developed. He believed that Section 46 was thoughtfully fashioned by the division and conformed to the federal mandate. He noted that 20 other states proposed legislation similar to Section 46. The Alaska Surplus Lines Association was the main opposition to Section 46. He concluded that the division had the existing structure and experience to carry out the provisions of Section 46. Passage will save the state money and lead to faster implementation. Vice-chair Fairclough understood that existing state statute granted the division tax-collecting authority. The provisions of Section 46 would enable Alaska to benefit if particular [insurance] products were sold. Representative Gara read page 28, lines 3-4, Section 46: "The tax paid by the insurer under this section is in lieu of all insurer taxes…" He wondered how the section influenced the amount of tax the state could collect from insurance companies. Ms. Hall replied that HB 164 did not change the amount of taxes owed. The bill defined the surplus lines tax rate. The only change combined a 2.7 percent tax and a 1 percent stamping fee to a single 3.7 percent tax. 3:33:03 PM Representative Gara asked for an explanation of surplus lines. Ms. Hall explained that surplus lines were a type of insurance written differently than admitted insurance. Admitted insurers must file authorizations for form and rate approval. A class of "other" insurers underwrote more difficult lines of insurance such as earthquake or some marine coverage. They did not file forms and rates for approval. The taxes were paid by surplus lines brokers as opposed to the actual insurance company. Ms. Hall elaborated that Section 46 introduced a new "home state" concept based on changes in the federal law that preempted state statutes from the type of tax collection. The state currently collected premium taxes only on the portion of a multi-state surplus line insurance policy with a risk located in the state of Alaska. In compliance with the new federal law, the state would collect 100 percent of the tax debt if Alaska was declared the home state of the multi-state business owner. Vice-chair Fairclough asked how many insurers sell multi- state surplus lines. Ms. Hall identified approximately 900 surplus lines brokers; 100 were residents of Alaska. Vice- chair Fairclough asked whether the state stood to benefit from Section 49 if an Alaskan surplus lines broker sold their product in another state. Ms. Hall replied that it did not matter where the insurer selling a product was located; what mattered was the location of the insured property. Vice-chair Fairclough asked how Alaska would benefit from the statute change. Ms. Hall informed that the provision enabled the state to continue to collect taxes on surplus lines risk. She contended that the division could not collect taxes on multiple state risks, estimated at $500 thousand, if the state failed to conform to the new federal mandate. 3:37:58 PM Representative Gara referred to Section 64 of the bill. He inferred that long-term care insurance could not deny coverage for a pre-existing condition. He noted the change in the definition of "pre-existing". He asked whether the statute made it easier or harder to deny coverage. Ms. Hall responded that "the intent was to take away the subjectivity of an ordinary prudent person and instead to rely on medical advice or treatment as opposed to the opinion of an ordinary prudent person." Representative Gara asked whether HB 164 made it harder or more expensive to procure insurance or reduced coverage. Ms. Hall answered in the negative. Representative Wilson asked whether HB 164 was written in response to changes in federal law. Ms. Hall responded that only Section 46 (the section on surplus lines) was included due to federal law. She elaborated that the legislation was influenced by the National Association of Insurance Commissioners (NAIC), loosely described as a trade association of all the insurance regulators in the country. The Association attempted to implement self-imposed uniformity of insurance laws. The division was accredited by NAIC and many of the changes in HB 164 were included to maintain accreditation standards. She noted that all 50 states were accredited, which ensured financial oversight of insurance companies. 3:41:42 PM Representative Wilson asked if a state board of insurance existed. Ms. Hall replied in the negative. RICHARD BOUHAN, EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF PROFESSIONAL SURPLUS LINES OFFICES, LTD. (NAPSLO), MISSOURI (via teleconference), spoke in opposition to the surplus lines and tax collection provisions in HB 164. He alleged that the legislation would not conform to the new federal law. The legislation required the establishment of an allocation formula for surplus lines tax collection. The formula proposed by NAIC in their "non-admitted insurance multi-state agreement" was burdensome to brokers and did not simplify the tax payment process as mandated by federal law. He opposed paying taxes to a clearinghouse that allowed states to distribute revenue from taxes collected on multi-state surplus lines risk policies. He felt that the tax rates established under the structure did not comply with federal regulations. He added that only 5 to 15 percent of surplus lines were multi-state. He was uncertain that any state would gain revenue by entering into a multi- state compact. Vice-chair Fairclough asked the witness if he had contacted any Alaskan insurers on the issue. Mr. Bouhan answered that he contacted insurance companies and brokers dealing in Alaska. Vice-chair Fairclough CLOSED public testimony. Representative Wilson MOVED to report CS HB 164 (L&C) 27- LS0444/B out of Committee with individual recommendations and the accompanying fiscal note. 3:50:27 PM AT EASE 3:51:04 PM RECONVENED Representative Wilson WITHDREW her motion. Representative Wilson MOVED to Adopt CS HB 164 (FIN) (27- LS0444\I, Bailey, 4/1/11) as a working document before the committee. Vice-chair Fairclough OBJECTED for discussion on the difference between the versions. Ms. Hall reported that the CS reflected minor corrections or formatting changes and did not contain any substantive changes. She listed the revisions. She referenced page 38, line 13, the addition of three words "the sum of." She identified that page 62, line 13, corrected a repealer. She concluded that on line 15, page 62, the number 14 replaced 13 as the correct number. Vice-chair Fairclough REMOVED her OBJECTION. There being NO further OBJECTION, it was so ordered. Representative Wilson MOVED to report CSHB 164(FIN) out of Committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 164(FIN) was REPORTED out of Committee with a "no recommendation" and with attached previously published fiscal note: FN1, CED. 3:54:06 PM