AN ACT Relating to health care; amending RCW 41.05.025, 48.46.180, 51.44.020, and 74.09.510; adding a new section to chapter 41.05 RCW; adding a new chapter to Title 43 RCW; adding new sections to chapter 43.131 RCW; adding a new section to chapter 48.62 RCW; adding a new section to chapter 51.44 RCW; adding a new section to chapter 74.09 RCW; making an appropriation; providing an expiration date; providing an effective date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. This chapter shall be known as the state health care purchasing reform act of 1985.

NEW SECTION. Sec. 2. The legislature finds that the rising increase in health costs for public employees and persons within the state's care is a major public policy concern and that unless addressed through specific statutory direction adequate health care will not be attainable through the expenditure of public funds. The legislature further finds that prevalent methods of health care delivery and cost reimbursement is often inefficient and wasteful.

It is therefore the intent of the legislature to control costs of state purchased health care while maintaining an adequate level of care; encourage the development of managed health care systems and other systems that have been effective in controlling costs; place within one authority the responsibility and power to control cost while insuring adequate care; and place the state of Washington in a leadership position in cost containment.

NEW SECTION. Sec. 3. Unless the context clearly requires otherwise, the definitions in this section shall apply throughout this chapter.

(1) "State purchased health care" or "health care" means medical and health care, pharmaceuticals, and medical equipment purchased with state and federal funds by the department of social and health services, the state employees insurance board, the department of labor and industries, the department of corrections, the department of veteran's affairs, and by local school districts.

(2) "Authority" means state health care purchasing authority.

(3)(a) "Managed health care" means a system which shall include these components:

(i) Provision of insurance and responsibility for delivery of care through the same organization;

(ii) A comprehensive range of services either directly or on contract with other providers;

(iii) Control of utilization through identified management intervention points; and

(iv) A data collection system that includes, as a minimum, utilization data on all clients; quality of care review; and identification of conservative-practice providers.

(b) It may as an option also include the following:

(i) A mechanism to receive complaints from clients and rectify the situation;

(ii) Incorporation of health promotion activities as a regular part of medical care;

(iii) Membership education regarding appropriate use of facilities and services;

(iv) Quality of care reviews, utilization review, and peer review;

(v) Financial incentives to both the provider and consumer to control costs; and

(vi) Public assistance enrollment of approximately the same proportion as all public assistance recipients to the general population of the service area.

NEW SECTION. Sec. 4. (1) There is hereby created the state health care purchasing authority which shall be directly responsible to the governor. The authority shall have the following powers and responsibilities:

(a) To adopt standards for acceptable state purchased health care programs. Standards shall be modeled after the managed health care definition, and other similar effective cost containing approaches;

(b) To approve all agency proposals for purchasing health care, provided that they are in compliance with purchasing standards;

(d) To submit to the legislature by January 1987, legislation that shall streamline health care purchasing procedures and remove unnecessary barriers, including but not limited to state contracting procedures;

(e) To encourage the private sector to participate in a managed health care system and other effective approaches;

(f) To establish an information gathering capacity, using existing data systems to the extent possible, that enables the authority to fulfill its responsibilities, including:

(i) Monitoring the number of enrollees in state purchased health care programs, types of benefit packages, and costs;

(ii) Developing biennial and long-term projections for health care costs;

(iii) Preparing and submitting to the legislature and state health care purchasing agencies, by July 1 of each even-numbered year, proposed enrollee rates;

(g) To establish procedures for volume purchasing of health care goods and equipment; and

(h) To appoint any technical advisory committee the governor deems appropriate to implement the purposes of this act.

(2) The authority shall submit to the legislature no later than November 1986, a report that includes a review of state health care regulatory agencies, including the hospital commission, the health planning and certificate of need sections of the department of social and health services, the board of health, department of licensing, health care facilities authority, and the office of the insurance commissioner.

The report shall describe the role of these agencies regarding health care cost containment and their accomplishments over the past six years, and shall address ways to increase the combined efficiency of these agencies to control costs and maintain quality of care.

NEW SECTION. Sec. 5. A new section is added to chapter 41.05 RCW to read as follows:

The board shall establish a pilot health care program as follows:

(1) The boards shall offer on a voluntary basis a less than comprehensive health benefit package to no more than one thousand public employees;

(2) The package shall include deductions and noncoverage for certain out-patient benefits usually covered under board benefit plans.

(3) The board shall determine the amount saved for each enrollee and divide the savings in the general fund equally between the enrollees.

NEW SECTION. Sec. 6. A new section is added to chapter 48.62 RCW to read as follows:

School districts and educational service districts may, either individually or in combination with other such districts, self-fund their employees' loss of time and health benefit plans if (1) the plans, their manner of operation, and the managers meet standards established by the superintendent of public instruction; and (2) the plan is fully covered by an excess loss insurance policy issued by an insurer which has a certificate authorizing it to provide insurance in this state, or enroll employees in health benefit plans offered by the state employees insurance board. Claims under such plans shall be administered by competent, disinterested third parties acting independently of all school districts and their personnel. Such a plan or any trust established thereunder shall not be deemed to be an insurance company and shall not be deemed to be engaged in the business of insurance for purposes of the insurance code.

Any plan authorized to be formed by this section shall be subject to audit by the state auditor.

NEW SECTION. Sec. 7. A new section is added to chapter 51.44 RCW to read as follows:

As a condition of an appropriation from the medical aid fund for the period July 1, 1986 to June 30, 1987, the director of labor and industries shall submit to the legislature, no later than January 1, 1986, a budget for the medical aid fund expenditure for the above-mentioned period that shall not exceed seventy-five percent of the projected medical cost for the above-mentioned period. Accompanying the budget shall be descriptions of methods to be used to obtain these savings and also an analysis of other optional systems considered by the department to control costs, such as managed health care strategies and diagnoses-related group reimbursement for hospital care.

NEW SECTION. Sec. 8. A new section is added to chapter 74.09 RCW to read as follows:

In addition to its existing managed health care programs the department shall develop plans for two managed health care programs, one in the eastern part and one in the western part of the state. The plan shall include enrollment for at least five thousand medical assistance enrollees in each program. The department shall report to the legislature no later than January 1, 1986, on the development of the plan.

Sec. 9. Section 2, chapter 136, Laws of 1977 ex. sess. as last amended by section 68, chapter 287, Laws of 1984 and RCW 41.05.025 are each amended to read as follows:

(1) There is hereby created a state employees' insurance board to be composed of the members of the present board holding office on the day prior to July 1, 1977, which such members shall serve until the expiration of the period of time of the term for which they were appointed and until their successors are appointed and qualified. Thereafter the board shall be composed as follows: The governor or the governor's designee; one administrative officer representing all of higher education to be appointed by the governor; two higher education faculty members to be appointed by the governor; the director of the department of personnel who shall act as trustee; one representative of an employee association certified as an exclusive representative of at least one bargaining unit of classified employees and one representative of an employee union certified as exclusive representative of at least one bargaining unit of classified employees, both to be appointed by the governor; one person who is retired and is covered by a program under the jurisdiction of the board, to be appointed by the governor; one member of the senate who shall be appointed by the president of the senate; and one member of the house of representatives who shall be appointed by the speaker of the house. The terms of office of the administrative officer representing higher education, the two higher education faculty members, the representative of an employee association, the retired person, and the representative of an employee union shall be for four years: PROVIDED, That the first term of one faculty member and one employee association or union representative member shall be for three years. Meetings of the board shall be at the call of the director of personnel. The board shall prescribe rules for the conduct of its business and shall elect a chairman and vice chairman annually. Members of the board shall be compensated in accordance with RCW 43.03.240 and shall be paid for their travel expenses while on official business in accordance with RCW 43.03.050 and 43.03.060, and legislative members shall receive allowances provided for in RCW 44.04.120.

(2) The board shall study all matters connected with the providing of adequate health care coverage, life insurance, liability insurance, accidental death and dismemberment insurance, and disability income insurance or any one of, or a combination of, the enumerated types of insurance and health care plans for employees and their dependents on the best basis possible with relation both to the welfare of the employees and to the state: PROVIDED, That liability insurance shall not be made available to dependents. The board shall design benefits, devise specifications, analyze carrier responses to advertisements for bids, determine the terms and conditions of employee participation and coverage, and decide on the award of contracts which shall be signed by the trustee on behalf of the board: PROVIDED, That all contracts for insurance, health care plans, including panel medicine plans, or protection applying to employees covered by RCW 28B.10.660 and chapters 41.04 and 41.05 RCW shall provide that the beneficiaries of such insurance, health care plans, or protection may utilize on an equal participation basis the services of practitioners licensed pursuant to chapters 18.22, 18.25, 18.32, 18.53, 18.57, 18.71, 18.74, 18.83, and 18.88 RCW: PROVIDED FURTHER, That the boards of trustees and boards of regents of the several institutions of higher education shall retain sole authority to provide liability insurance as provided in RCW 28B.10.660. The board shall from time to time review and amend such plans. Contracts for all plans shall be rebid and awarded at least every five years.

(3) The board shall develop and provide as a part of the employee insurance benefit program an employee health care benefit plan which may be provided through a contract or contracts with regularly constituted insurance carriers or health care service contractors as defined in chapter 48.44 RCW, and ((~~a plan to be provided by~~)) a panel medicine plan in its service area only when approved by the board: PROVIDED, That panel medicine plans may be developed either by negotiation or by solicitation of sealed bids or both: PROVIDED FURTHER, That the board may disapprove the offering of any panel medicine plan provided by an organization which declines to enter into an agreement to: (a) Provide flexibility in benefit design to promote cost containment; (b) offer premium rating based on the actual claim experience of the state employees' insurance board group; and (c) provide periodic but not less than annual claim experience and administrative expense accounting for premium rating and experience refunding. However, the board may negotiate a delay of up to twelve months for implementation of (a), (b), and (c) of this subsection (3) with respect to a panel medicine plan provided by an organization which does not initially have such internal administrative procedure as may be required for the plan to comply with such terms. The board's bidding procedures and negotiations with organizations providing panel medicine plans shall take into consideration any constraints placed on those which are federally qualified.

The board may but shall not be required to pay more for health benefits under a panel medicine plan than it would otherwise be required to pay for health benefits by a contract with a regularly constituted insurance carrier or health care service contractor in effect at the time the panel medicine plan is included in the employee health care benefit plan. Except for panel medicine plans, the board may but is not required to contract with more than one insurance carrier or health care service contractor to provide similar benefits: PROVIDED, That employees may choose participation in only one of the health care benefit plans sponsored by the board. Active employees, as defined in RCW 41.05.010(2), eligible for medicare benefits shall have the option of continuing participation in health care programs on the same basis as all other employees or participation in medicare supplemental programs as may be developed by the board. These health care benefit plans shall provide coverage for all officials and employees and their dependents without premium or subscription cost to the individual employees and officials, unless the board approves a panel medicine plan at a subscription rate in excess of the premium of the regularly constituted insurance carrier or health care service contractor, in which circumstances an employee contribution may be authorized at an amount equal to such excess. Rates for self pay segments of state employee groups will be developed from the experience of the entire group. Such self pay rates will be established based on a separate rate for the employee, the spouse, and children.

(4) The board shall review plans proposed by insurance carriers who desire to offer property insurance and/or accident and casualty insurance to state employees through payroll deduction. The board may approve any such plan for payroll deduction by carriers holding a valid certificate of authority in the state of Washington and which the board determines to be in the best interests of employees and the state. The board shall promulgate rules setting forth criteria by which it shall evaluate the plans.

(5) (a) The board may self-fund, self-insure, or enter into other methods of providing for programs under its jurisdiction, except property and casualty insurance authorized under subsection (4) of this section. The board may contract for payment of claims or other administrative services including the purchase of reinsurance for programs under its jurisdiction. If programs do not require the prepayment of reserves, the board shall establish that such reserves be maintained for the payment of claims as are normally required for that method of providing that type of insurance. Reserves established by the board shall be held in respective separate trust accounts of the state employees insurance fund by the state treasurer. The state investment board is authorized to invest moneys in the state employees insurance fund in accordance with RCW 43.84.150. Except as provided in RCW 43.33A.160, one hundred percent of all earnings from these investments shall accrue directly to the state employees insurance fund and the separate accounts which may be created.

(b) Group disability coverage provided as a self-insured program of the board shall provide conversion rights in accordance with RCW 48.21.210.

(c) Group disability coverage provided as a self-insured program of the board shall provide coverage as required by RCW 48.21.130, 48.21.140, 48.21.141, 48.21.142, 48.21.144, 48.21.146, 48.21.150, 48.21.155, and 48.21.180.

(d) Group disability coverage provided as a self-insured program of the board shall conform with the requirements of RCW 48.21.200 (1) and (2).

(e) Any savings realized as a result of a program created under this subsection (5) shall not be used to increase benefits unless such use is authorized by statute.

(f) The board shall keep or cause to be kept full and adequate accounts and records of the assets, obligations, transactions, and affairs of any program created under this subsection (5).

(g) The board shall file an annual report of the financial condition, transactions, and affairs of any program under the board's jurisdiction. The report shall also contain actuarial information regarding the adequacy of the reserves established for the type of insurance being offered. A copy of the annual report shall be filed with the speaker of the house of representatives, the president of the senate, and the office of the state auditor. The statement shall be signed by a member of the American academy of actuaries certifying that the actuarial amounts are computed in accordance with commonly accepted actuarial standards and shall include all actuarial reserves and related statement items required for the sound operation of any employee benefits program.

(h) Members of the board are deemed to stand in a fiduciary relationship to the employees covered by any insurance program created under this subsection (5) and shall discharge the duties of their respective positions in good faith and with that diligence, care, and skill which ordinary prudent persons would exercise under similar circumstances in like positions.

Sec. 10. Section 19, chapter 290, Laws of 1975 1st ex. sess. and RCW 48.46.180 are each amended to read as follows:

(1) The state government, or any political subdivision thereof, which offers its employees a health benefits plan shall make available to and inform its employees or members of the option to enroll in at least one health maintenance organization holding a valid certificate of authority which provides health care services in the geographic areas in which such employees or members reside.

(2) Except as provided in RCW 41.05.025(3), each employer, public or private, having more than fifty employees in this state which offers its employees a health benefits plan, and each employee benefits fund in this state having more than fifty members which offers its members any form of health benefits shall make available to and inform its employees or members of the option to enroll in at least one health maintenance organization holding a valid certificate of authority which provides health care services in the geographic areas in which a substantial number of such employees or members reside: PROVIDED, That unless at least twenty-five employees agree to participate in a health maintenance organization the employer need not provide such an option: PROVIDED FURTHER, That where such employees are members of a bona fide bargaining unit covered by a labor-management collective bargaining agreement, the selection of the options required by this section may be specified in such agreement: AND PROVIDED FURTHER, That the provisions of this section shall not be mandatory where such members are covered by a Taft-Hartley health care trust, except that the labor-management trustees may contract with a health maintenance organization if a feasibility study determines it is to the advantage of the members to so contract.

(3) Subsections (1) and (2) of this section shall impose no responsibilities or duties upon state government or any political subdivision thereof or any other employer, either public or private, to provide health maintenance organization coverage when no health maintenance organization exists for the purpose of providing health care services in the geographic areas in which the employees or members reside.

(4) No employer in this state shall in any way be required to pay more for health benefits as a result of the application of this section than would otherwise be required by any prevailing collective bargaining agreement or other legally enforceable contract of obligation for the provision of health benefits between such employer and its employees.

Sec. 11. Section 51.44.020, chapter 23, Laws of 1961 and RCW 51.44.020 are each amended to read as follows:

There shall be, in the ((~~office of the~~)) state ((~~treasurer~~)) treasury, a fund to be known and designated as the "medical aid fund((.))," disbursements from which shall be made pursuant to appropriation.

Sec. 12. Section 4, chapter 30, Laws of 1967 ex. sess. as last amended by section 5, chapter 3, Laws of 1981 2nd ex. sess. and RCW 74.09.510 are each amended to read as follows:

Medical assistance may be provided in accordance with eligibility requirements established by the department of social and health services, including the prohibition under RCW 74.09.532 through 74.09.536 against the knowing and wilful assignment of property or cash for the purpose of qualifying for such assistance, as defined in the social security Title XIX state plan for mandatory categorically needy persons and: (1) Individuals who would be eligible for cash assistance except for their institutional status; (2) individuals who are under twenty-one years of age, who would be eligible for aid to families with dependent children, but do not qualify as dependent children and who are in (a) foster care, (b) subsidized adoption, (c) an intermediate care facility or an intermediate care facility for the mentally retarded, or (d) inpatient psychiatric facilities; (3) the aged, blind, and disabled who: (a) Receive only a state supplement, or (b) would not be eligible for cash assistance if they were not institutionalized; (4) individuals who would be eligible for but choose not to receive cash assistance; ((~~and~~)) (5) pregnant women who would be eligible for aid to families with dependent children if the child had been born and was living with the mother during the month of the payment, and the pregnancy has been medically verified; (6) individuals who are enrolled in managed health care systems, who have otherwise lost eligibility for medical assistance, but who have not completed a current six-month enrollment in a managed health care system, and who are eligible for federal financial participation under Title XIX of the social security act; and (7) to the extent of available funds, other individuals for whom federal financial participation is available under Title XIX of the social security act.

NEW SECTION. Sec. 13. A new section is added to chapter 43.131 RCW to read as follows:

The state health care purchasing authority and its powers and duties shall be terminated on June 30, 1991, as provided in section 14 of this act.

NEW SECTION. Sec. 14. A new section is added to chapter 43.131 RCW to read as follows:

The following acts or parts of acts, as now existing or hereafter amended, are each repealed, effective June 30, 1992.

(1) Section 1 of this act;

(2) Section 2 of this act;

(3) Section 3 of this act; and

(4) Section 4 of this act.

NEW SECTION. Sec. 15. The sum of .......... dollars, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1987, from the general fund to the medical aid fund for the purposes of section 11 of this act.

NEW SECTION. Sec. 16. Sections 1 through 4 of this act shall constitute a new chapter in Title 43 RCW.

NEW SECTION. Sec. 17. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect July 1, 1985.