3:41:17 PM HB 164-INSURANCE: HEALTH CARE & OTHER  CHAIR OLSON announced that the next order of business would be 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." 3:41:23 PM REPRESENTATIVE JOHNSON moved to adopt the proposed committee substitute (CS) for HB 164, labeled 27-LS0444\M, Bailey, 3/4/11, as the working document. There being no objection, Version M was before the committee. CHAIR OLSON objected for purpose of discussion. 3:41:44 PM LINDA HALL, Director, Division of Insurance, Anchorage Office, Department of Community & Economic Development (DCCED), referred to the changes in the CS. The majority of changes were added to clarify the bill. She turned to page 50, which adds a provision to ensure clarity. She referred to page 9, subsection (b), which read, "Notwithstanding the definition of 'group market' in AS 21.54.500..." She said the Division of Insurance (DOI) wanted to be certain to avoid any ambiguity as to whether individual policies could be sold to a group under certain circumstances. 3:43:41 PM MS. HALL referred to page 62, proposed Section 93 of Version M, which was added. She read, "Unless another form of payment is agreed to by the policy holder or beneficiary, an..." which requires an insurer to pay with a negotiable bank check. She pointed out publicity by life insurance companies of "checkbooks," which provided a means of distributing proceeds from life insurance. She stated this is an appropriate way of distributing proceeds as it allows the beneficiary to contemplate and determine what to do with the funds. The policy holder or the beneficiary would need to agree to something other than a negotiable check. The DOI would adopt regulations for disclosure, based on a model. This would allow the policy holder or beneficiary to determine how to receive the funds rather than receive a lump sum. This is especially useful during stressful times. MS. HALL related that proposed Sections 86 and 87 were deleted. These sections dealt with insolvencies and loss reimbursement, and money deposited to the guarantee fund. The industry expressed concern as to how this would impact Alaska as compared to other states. Thus, the DOI asked these proposed sections be deleted from the bill. 3:46:02 PM MS. HALL referred to the final substantive change is in proposed Section 62 and 77, which refer to the individual and group rate filings. She previously discussed the DOI having the ability to review health insurance rates prior to them being used. The language has been adjusted to match the file and use language for other insurance rates. She related that rates must still be filed and the DOI would have an opportunity to review them. Rates would go into effect 45 days after filing, if not disapproved. She stated an effective date of January 1, 2012, was added to allow insurers time to adopt the changes. 3:47:03 PM REPRESENTATIVE CHENAULT referred to the "checkbook" issue. He asked if that provision would only be in effect if the party knew he/she was the beneficiary and would need to agree to the one-time payout or another method of payment. MS. HALL responded that either the policy holder or the beneficiary would have to agree. The policy holder could designate the method up front, whereas the beneficiary could only exercise the option later. REPRESENTATIVE CHENAULT asked whether beneficiaries could opt for a lump sum. MS. HALL answered yes. CHAIR OLSON removed his objection. 3:48:55 PM REPRESENTATIVE JOHNSON made a motion to adopt Conceptual Amendment 1, which read [original punctuation provided]: AMENDMENT To: CS HB 64(LC)(27-LS0444\M) By: Rep. Olson Page 1, Line 9: Following "corporations," delete "and" Page 1, Line 9: Following "organizations" delete ";" and insert ", and alternate forms of payment to policy holders;" Page 12, Line 20: Delete "or coverage" Page 28, Line 28: Delete "3.7 percent on" Page 38, Line 23: Delete "30" and insert "45" Page 38, Line 25: Delete "becomes" and insert "may become" Page 49, Line 14: Delete "30" and insert "45" Page 49, Line 15: Delete "becomes" and insert "may become" REPRESENTATIVE HOLMES objected for the purpose of discussion. 3:49:31 PM MS. HALL explained Conceptual Amendment 1. She stated that Conceptual Amendment 1 would address inconsistencies the DOI found in HB 164. The first two relate to the title, adding a reference to proposed Section 93, the retained asset account. The next 2, page 12 and 28 are technical changes. The changes on page 38 and page 49 are the two rate filings for consistency purposes, changing the time to 45 days and changed language, "become effective" to "may become" effective so insurance companies can make changes out farther than 45 days to allow an option so their rates won't automatically become effective. 3:50:48 PM REPRESENTATIVE JOHNSON asked whether rates ever are reduced and if 45 days is appropriate. MS. HALL answered that health insurance rates have not, but some rates do decrease. REPRESENTATIVE JOHNSON commented that the rates are not going down so he wondered, "Why not do it now?" REPRESENTATIVE HOLMES removed her objection. There being no further objections, Conceptual Amendment 1 was adopted. 3:52:36 PM MS. HALL referred to a letter dated March 4, 2011, from the National Association of Professional Surplus Lines Offices, Ltd. (NAPSLO) regarding surplus lines. She stated several statements were made in the letter. She agreed the state is not required to share the taxes. The state is changing the way in which it collects taxes on surplus lines coverage. Most of the premise of the nonadmitted and reinsurance act is that the states will regulate their own risk, collect the taxes, and allocate those to the states in which the risk is located. She also referred to statements about taxing authority being given to an agency. She responded to that by stating the legislature has already given taxing authority to the DOI. The DOI levies taxes on insurance premiums so that is not a new authority being given to an agency. She pointed out that this is not a "policymaking power" but authority to participate in a clearinghouse. The bill specifically states the agreements are solely to allow for the mutual collection and allocation of premium taxes, which is more an administering function than policymaking. She said, "This is not a tax increase. Our policy holders today are taxed at the premium tax rates of each of the states where they may have some type of risk located." The DOI is not changing the tax method. In fact, the DOI's surplus line tax is lower than most states. The DOI is changing the method and who collects it, and how it is allocated. The changes to the surplus line tax in an attempt by the federal government to streamline the process. The bill would make Alaska statutes conform to the federal Nonadmitted and Reinsurance Act that will become effective on July 21, 2011 so the state is not in violation of federal law, which specifically preempts state statutes. She said, "This is not something the DOI dreamed up all by itself." This particular type of legislation to authorize entry into this type of interstate agreement is pending in 17 states. Another compact legislation, which is more complicated than this approach is pending in eight states. Competing legislation is under discussion in five states. Eleven states are currently studying the issue. Thus, a number of approaches are being taken to implement the federal law, she said. 3:56:30 PM CHAIR OLSON remarked that the proposed committee substitute would bring the state into compliance. MS. HALL answered yes. 3:56:50 PM REPRESENTATIVE JOHNSON referred to the letter in members' packets that was previously mentioned. He then referred to the next to the last paragraph, which read: "NAPSLO respectfully requests that should Alaska wish to determine as a matter of public policy to share taxes,..." He asked who makes the determination. He asked whether the DCCED or the legislature makes that determination. He explained that the NAPSLO is asking for clarity so their brokers would clearly understand. He asked whether a system currently exists so that brokers will understand what is happening. MS. HALL responded that the proposed CS clearly states the state will allocate to the states where the risk is located unless the states have not entered into a mutual agreement. If the other state has not entered into a mutual agreement, Alaska will keep the tax, she said. She remarked that she thinks it is fairly clear. She referred to the proposal that was attached to the letter. She said the specific provision in HB 164 that pertains to allocation and allocation formulas was deleted. She was unsure of how those provisions were interpreted, but this CS identifies the state will share the taxes back to the state in which the risk is located, in the same way the taxes are currently paid directly to those states. The state is not forfeiting something. The federal law makes states collect 100 percent of the tax. Thus, the state currently collects only the portion of the risk taken in Alaska, which is the only portion that is taxed. With the changes in federal law the state is required to tax 100 percent of the policy for someone whose home state is Alaska. She offered her belief that there would not be significant multi-state risks. Under federal law, the state would collect 100 percent and allocate back the amount paid in the individual state. REPRESENTATIVE JOHNSON asked whether she was comfortable that brokers and policyholders can clearly understand these provisions and changes in the CS. MS. HALL answered yes, she is very comfortable with the clarity in this bill. 3:59:51 PM CHAIR OLSON added that Nonadmitted and Reinsurance Reform Act (NRRA) has been in every trade publication for the past few months and has been reviewed in a number of ways. The vehicle that appears to have the most support is the manner in which the DOI is addressing the NRRA. 4:00:24 PM REPRESENTATIVE CHENAULT stated he was looking for the fiscal note, which he thought would be a positive fiscal note. He asked for clarification on the amount of money that is collected on behalf of other states. MS. HALL responded that Alaska does not currently collect for other states, just Alaska's taxes. Thus, Alaska is not collecting for others. REPRESENTATIVE CHENAULT recalled that Alaska would collect 100 percent. MS. HALL agreed that Alaska would collect 100 percent and then allocate the taxes back to the states. In further response to Representative Chenault, she explained that the broker or the clearinghouse proposed in HB 188 would be tasked with making the allocation. 4:01:54 PM CHAIR OLSON commented the allocation would only apply to states outside of Alaska. He asked Ms. Hall to hazard a guess as to the percentage collected. MS. HALL responded that the DOI collects approximately $50,000,000 in premium tax, with approximately $3,000,000 as surplus lines premium tax. The DOI's tax auditor estimates, given that the DOI does not collect statistics, approximately $500,000 is multi-states risks. She concluded that $500,000 of $50,000,000 is a pretty nominal amount. 4:02:49 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 164. 4:04:11 PM REPRESENTATIVE JOHNSON moved proposed CSHB 164, labeled 27- LS0444\M, Bailey, 3/4/11, as amended, with a zero fiscal note. There being no objection, CSHB 164(L&C) was reported from the House Labor and Commerce Standing Committee.