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.