Purpose: The current rules need to be updated to reflect new legislation (RCW 48.62.036) and ensure application to and standards for nonprofit corporations included in local government or creating new self-insurance programs is provided. In addition, the outcome of this rule-making process will be (1) to move the rules from chapter 236-22 WAC and create a new chapter under OFM Title 82 WAC, where all the rules related to self-insurance programs will be found; and (2) amend the rules to update them to current law and standards; and (3) amend current rules and add a new rule (WAC 82-60-039) implementing SB 5869, enacted in 2004.

     Citation of Existing Rules Affected by this Order: Amending WAC 236-22-010, 236-22-020, 236-22-030, 236-22-031, 236-22-034, 236-22-036, 236-22-037, 236-22-038, 236-22-050, 236-22-060, 236-22-070, 236-22-080, 236-22-100, 236-22-200, and 236-22-210.

     Statutory Authority for Adoption: RCW 48.62.061.

      Adopted under notice filed as WSR 04-20-084 on October 5, 2004.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 1, Amended 3, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 12, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 1, Amended 15, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 1, Amended 15, Repealed 0.

     Date Adopted: February 1, 2005.

Roselyn Marcus

Director of Legal Affairs

Rule-making Coordinator

OTS-7590.1

AMENDATORY SECTION(Amending WSR 93-16-079, filed 8/3/93, effective 9/3/93)

WAC 236-22-010   Preamble and authority.   These rules (([and regulations governing] [for])) governing local government and nonprofit self-insurance transactions are adopted by the state risk manager to (([implement chapter 48.62 RCW relating to] [regulate the management and operations of both])) implement chapter 48.62 RCW relating to the management and operations of both individual and joint local government (([self insurance] [self-insured health and welfare benefit and property and liability risk] programs. The rules set forth in this chapter do not supersede the rules which govern the operation of self-insured employee benefit plans by school districts and educational service districts under chapter 392-130 WAC)) health and welfare benefit and property and liability self-insurance programs and nonprofit property and liability self-insurance programs.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-010, filed 8/3/93, effective 9/3/93; 92-12-092, § 236-22-010, filed 6/3/92, effective 7/1/92.]

     (2) "Assessment" means the ((monies)) moneys paid by the members to a joint self-insurance program.

     (3) "Beneficiary" means any individual entitled((, under a local government self-insurance program for health and welfare benefits,)) to payment of all or part of a covered claim under a local government health and welfare self-insurance program.

     (4) "Claim adjustment expense" means expenses, other than claim payments, incurred in the course of investigating and settling claims.

     (5) "Claim" means a demand for payment for damages or policy benefit because of the occurrence of an event such as:

     (a) For health and welfare benefits, a covered service or services being delivered; or

     (b) For property and liability, the destruction or damage of property or related deaths or injuries.

     Unless specifically referenced, the term "claim" is used for both health and welfare and property and liability programs.

     (6) "Competitive process" means a documented formal process providing ((an equal)) a fair and open opportunity to qualified parties and culminating in a selection based on criteria which may include such factors as the party's fees or costs, ability, capacity, experience, reputation, responsiveness to time limitations, responsiveness to solicitation requirements, quality of previous performance, and compliance with statutes and rules relating to contracts or services.

     (7) "Contribution" means the amount paid or payable by the employee into a health and welfare self-insurance program.

     (8) "Incurred but not reported, or IBNR" ((shall mean)) means claims and claim adjustment expenses for covered events which have occurred but have not yet been reported to the self-insurance program as of the date of the financial statement. IBNR claims include (a) known loss events that are expected to be presented later ((presented to be)) as claims, (b) unknown loss events that are expected to become claims, and (c) expected future development on claims already reported.

     (9) "Individual self-insurance program" means a program established and maintained by a local government entity to self-insure health and welfare benefits or property and liability risks on its own behalf.

     (10) "Joint self-insurance program" means any two or more local government entities, two or more nonprofit corporations or a combination of local government entities and nonprofit corporations which have entered into a cooperative risk sharing agreement pursuant to the provisions of the Interlocal Cooperation Act (chapter 39.34 RCW) and/or subject to regulation under chapter 48.62 RCW.

     (11) "Liability for unpaid claims" means the amount needed to provide for the estimated ultimate cost of settling claims which have occurred on or before a particular date. The estimated liability includes the amount of money that will be needed for future payments on both claims which have been reported and IBNR claims.

     (12) "Liability for unpaid claim adjustment expenses" means the amount needed to provide for the estimated ultimate costs required to investigate and settle claims for covered events that have occurred on or before a particular date, whether or not reported to the government entity or nonprofit corporation at that date.

     (13) "Member" means a local government entity ((which)) or nonprofit corporation that is a past or present ((legal)) participant in a ((local government)) joint self-insurance program subject to regulation under chapter 48.62 RCW.

     (14) "Nonprofit corporation," as defined in RCW 24.03.005(3), means a corporation no part of the income of which is distributable to its members, directors or officers.

     (15) "Self-insurance program" means any individual or joint local government entity or nonprofit corporation self-insurance program ((subject to regulation under)) required by chapter 48.62 RCW to comply with this chapter.

     (((15))) (16) "Stop-loss insurance" means insurance against the risk of economic loss assumed under a self-insurance program.

     (((16))) (17) "Third-party administrator" means:

     (a) An independent association, agency, entity or enterprise which, through a contractual agreement is responsible for the overall operational and financial management of the self-insurance program; or

     (b) An independent association, agency, entity or enterprise which, through a contractual agreement, provides a professional service for the analysis, design, implementation, or termination of a self-insurance program; or

     (c) An independent association, agency, entity or enterprise which, through a contractual agreement, administers the claim payment process on behalf of a self-insurance program. Such claim administration process includes, but is not limited to, receiving requests for claim payments, investigation, verification and adjustment of the claim. Claim payment disbursement is also considered an administrative process.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-020, filed 8/3/93, effective 9/3/93.]

     (2) The interlocal agreement of a joint self-insurance program shall be adopted by resolution or ordinance by each participating member's governing body.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-030, filed 8/3/93, effective 9/3/93.]

     (2) All self-insurance programs shall provide a method by which the program financing will be adjusted when it has been determined to be actuarially insufficient, or when the program is unable to meet debts as they become payable. Any increases shall be large enough to make the program actuarially sufficient.

     (3) ((All individual and joint health and welfare self-insurance program's and all joint property and liability self-insurance program's claim financing levels shall be determined annually by an actuary's recommendation, unless these self-insurance programs purchase annual aggregate stop-loss insurance and funds the self-insured portion to the stop-loss insurance attachment point.)) The claim financing levels and liabilities for unpaid claims and claims adjustment expenses for all individual and joint health and welfare medical self-insurance programs and all joint property and liability self-insurance programs shall be determined annually by an actuary. Such programs that purchase annual aggregate stop loss insurance and fund the self-insured portion to the stop loss insurance attachment point are exempt from the actuarial report requirement. The state risk manager may require a joint self-insurance program to perform an actuarial study when determined necessary to analyze the program's soundness and financial safety.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-031, filed 8/3/93, effective 9/3/93.]

     (a) Applicable restrictions, limitations, and exclusions((,));

     (b) The procedure for filing a claim for benefits((,));

     (c) The procedure for requesting an adjudication of disputes or appeals arising from beneficiaries regarding the payment or denial of any claim for benefits((,)); and

     (d) A schedule of any direct monetary contributions toward the program financing required by the employee.

     Such benefits or procedures shall not be amended without written notice to the covered employees and retirees at least thirty days in advance of the effective date of the change unless exigent circumstances can be demonstrated.

     (2) All joint self-insurance programs shall furnish to each member of the program written statements which describe:

     (a) All coverages or benefits currently provided by the program, including any applicable restrictions, limitations, and exclusions;

     (b) The method by which members pay assessments;

     (c) The procedure for filing a claim; and

     (d) The procedure for a member to request an adjudication of disputes or appeals arising from coverage, claim payment or denial, membership, and other issues.

     Such statements shall not be amended without written notice to the members at least thirty days in advance of the effective date of the change.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-034, filed 8/3/93, effective 9/3/93.]

     (2) All joint self-insurance programs shall provide for the termination of membership of a member.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-036, filed 8/3/93, effective 9/3/93.]

     (a) A procedure for accounting for ((monies)) moneys received, payments made and liabilities of the program;

     (b) An investment policy; and

     (c) The preparation of accurate annual financial statements of the program.

     (2) No financial plan of a self-insurance program shall permit interfund loans from assets held against liabilities for unpaid claims and claim adjustment expenses except for those amounts which are clearly inactive or in excess of liabilities for unpaid claims and claim adjustment expenses.

     (3) No financial plan of a joint self-insurance program shall permit loans from assets held against liabilities for unpaid claims and claim adjustment expenses to any member.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-037, filed 8/3/93, effective 9/3/93.]

     (a) Provide a method of third-party administrator selection using a competitive process;

     (b) Require a written description of the services to be provided, remuneration levels, and contract period;

     (c) Provide for the confidentiality and ownership of the information, data and other intellectual property developed or shared during the course of the contract;

     (d) Provide for the expressed authorization of the self-insurance program to enter the third-party administrator's premises to inspect and audit the records and performance of the third-party administrator which pertains to the program; and

     (e) Require the compliance with all applicable local, state and federal laws.

     (2) None of the above shall otherwise relieve the entity from other contracting requirements imposed on those entities.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-038, filed 8/3/93, effective 9/3/93.]

     (b) All individual and joint health and welfare self-insurance programs and all joint property and liability self-insurance programs shall have a written claim appeal procedure ((which)) that contains, as a minimum, a time limit for filing an appeal, a time limit for response, and a provision for a second level of review.

     (2)(a) All self-insurance programs may contract for claims administration services with a qualified third-party administrator, provided all the requirements under subsection (1) ((above)) of this section are included in the contract.

     (b) Individual and joint property and liability self-insurance programs may perform claims administration services on their own behalf. Individual and joint health and welfare self-insurance programs may perform claims administration services on their own behalf, provided the state risk manager is supplied with documentation and a detailed written explanation in support of the self-insurance program's proposed claims administration activities. The documentation and proposal shall include, as a minimum, the following:

     ((1.)) (i) The nature, type and anticipated volume of claims to be administered.

     ((2.)) (ii) The number of employment positions established or to be established which are required to perform the self-insurance program's claim administration functions, including an organizational chart showing reporting responsibilities.

     ((3.)) (iii) Qualifications of personnel having claim reserving and settlement authority.

     ((4.)) (iv) A projection of expected claim administration expenses.

     (3) All self-insurance programs shall have conducted by an independent qualified professional not currently performing claims administration services to the program, a review of claim reserving, adjusting and payment procedures no less than every three years. Such review shall be in writing and retained for a period not less than three years.

     (4) Joint self-insurance programs shall maintain a dedicated claim account from which only claim and claim adjustment expenses can be paid.

     (5) Joint self-insurance programs shall maintain written claim and claim adjustment expense reports for all claims made against the self-insurance program and, separate written reports for each individual member.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-050, filed 8/3/93, effective 9/3/93.]

     (2) All joint self-insurance programs authorized to transact business in the state of Washington shall submit quarterly financial reports to the state risk manager. Such reports shall be submitted to the state risk manager no later than sixty days following the completion of each of the program's four quarters within its fiscal year.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-060, filed 8/3/93, effective 9/3/93.]

     (1) Circumstances warrant a waiver((,)); and

     (2) Waiver will not jeopardize the financial condition of the self-insurance program.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-070, filed 8/3/93, effective 9/3/93.]

     (1) No member of the board of directors; trustee; administrator, including a third-party administrator; or any other person having responsibility for the management or administration of a program or the investment or other handling of the program's money shall:

     (a) Receive directly or indirectly or be pecuniarily interested in any fee, commission, compensation, or emolument arising out of any transaction to which the program is or is expected to be a party except for salary or other similar compensation regularly fixed and allowed for because of services regularly rendered to the program.

     (b) Receive compensation as a consultant to the program while also acting as a member of the board of directors, trustee, administrator, or as an employee.

     (c) Have any direct or indirect pecuniary interest in any loan or investment of the program.

     (2) No consultant, third-party administrator or legal counsel to the self-insurance program shall directly or indirectly receive or be pecuniarily interested in any commission or other compensation arising out of any contract or transaction between the self-insurance program and any insurer, health care service contractor, or health care supply provider. This provision shall not preclude licensed insurance brokers or agents from receiving compensation for insurance transactions performed within the scope of their licenses, provided such compensation is disclosed to the self-insurance program's governing body.

     (3) No third-party administrator shall serve as an officer or on the board of directors of a self-insurance program.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-080, filed 8/3/93, effective 9/3/93.]

     (2) The state risk manager, with concurrence from the two advisory boards, shall determine the (([assessment rate on a fiscal year basis prescribing the self-insurance program's share pursuant to the provisions of subsection (1) of this section until the regulatory program for local government self-insurance programs is fully implemented.

     (3) These assessments shall be payable by the assessed program to the state of Washington, division of risk management, on July 1 and January 1 of each year until the regulatory program for local government self-insurance programs is fully implemented. Any program failing to remit its assessment when due is subject to denial of permission to operate or to a cease and desist order until the assessment] [review and investigation fees on a fiscal year basis.

     (3) The review and investigation fees shall be paid by the self-insurance program to the state of Washington, department of general administration within thirty days of invoice. Any self-insurance program failing to remit its fee when due is subject to denial of permission to operate or to a cease and desist order until the fee])) assessment rate on a fiscal year basis and the review and investigation fees on a fiscal year basis.

     (3) The review and investigation fees shall be paid by the self-insurance program to the state of Washington, office of financial management within thirty days of the date of invoice. Any self-insurance program failing to remit its fee when due is subject to denial of permission to operate or to a cease and desist order until the fee is paid.

     (4) A self-insurance program (([referenced in subsection (1) of this section,] which)) that has voluntarily or involuntarily terminated(([,])) shall (([continue to] pay [an administrative cost assessment. This assessment shall continue until such time as all liabilities and all] [review and investigation fees until such time as all liabilities for unpaid claims and claim adjustment expenses and all administrative])) continue to pay an administrative cost assessment and review and investigation fees until such time as all liabilities for unpaid claims and claim adjustment expenses and all administrative responsibilities of the self-insurance program have been satisfied.

     (5) The state risk manager (([shall assess each prospective joint self-insurance program, and each prospective individual health and welfare benefit self-insurance program, an initial investigation fee at a rate determined annually by the state risk manager, with the concurrence of the advisory boards. Such fee shall be sufficient][, with concurrence from the property and liability advisory board and the health and welfare advisory board shall charge an initial investigation fee in an amount necessary])) shall assess each prospective joint self-insurance program, and each prospective individual health and welfare benefit self-insurance program, an initial investigation fee at a rate determined annually by the state risk manager, with the concurrence of the advisory boards. Such fee shall be sufficient to cover the costs for the initial review and approval of (([that] [a])) that self-insurance program. (([The fee must accompany the initial submission of the plan of operation and management.]))

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-100, filed 8/3/93, effective 9/3/93; 92-12-092, § 236-22-100, filed 6/3/92, effective 7/1/92.]

     (((b))) (2) The state risk manager shall review any fee ((challenged)) appealed by a self-insurance program, together with the reasons for the ((challenge)) appeal. Within fourteen days of receipt of notification from the self-insurance program, the state risk manager shall respond in writing to the self-insurance program, either reaffirming the fee or modifying it, and stating the reasons for the decision.

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-200, filed 8/3/93, effective 9/3/93.]

[Statutory Authority: Chapter 48.62 RCW. 93-16-079, § 236-22-210, filed 8/3/93, effective 9/3/93.]

     The following sections of the Washington Administrative Code are amended and recodified as follows:

Old WAC Number	New WAC Number
WAC 236-22-010	WAC 82-60-010
WAC 236-22-020	WAC 82-60-020
WAC 236-22-030	WAC 82-60-030
WAC 236-22-031	WAC 82-60-031
WAC 236-22-034	WAC 82-60-034
WAC 236-22-036	WAC 82-60-036
WAC 236-22-037	WAC 82-60-037
WAC 236-22-038	WAC 82-60-038
WAC 236-22-050	WAC 82-60-050
WAC 236-22-060	WAC 82-60-060
WAC 236-22-070	WAC 82-60-070
WAC 236-22-080	WAC 82-60-080
WAC 236-22-100	WAC 82-60-100
WAC 236-22-200	WAC 82-60-200
WAC 236-22-210	WAC 82-60-210

NEW SECTION

     The following sections of the Washington Administrative Code are recodified as follows:

Old WAC Number	New WAC Number
WAC 236-22-032	WAC 82-60-032
WAC 236-22-033	WAC 82-60-033
WAC 236-22-035	WAC 82-60-035
WAC 236-22-040	WAC 82-60-040

OTS-7591.1

NEW SECTION
WAC 82-60-039   Preparation for incorporation of nonprofit corporation members.   Joint property and liability self-insurance programs whose members are local government entities that are preparing to include nonprofit corporations as members of the program shall, as a minimum, address the following in their plan of operation:

     (1) Amount of capitalization each nonprofit corporation will pay to become a member of the self-insurance program;

     (2) Self-insured retention level for nonprofit corporation members;

     (3) Flexibility in premium assessment rates with emphasis on rates for nonprofit corporations that recognize the potential and actual loss experience of the nonprofit corporation;

     (4) Procedures for reviewing the financial soundness of each nonprofit corporation being considered for membership in the self-insurance program; and

     (5) Representation of nonprofit corporations on the governing board of directors but local government entities must retain control as required by RCW 48.62.121 (2)(a).

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