WSR 10-14-034

PERMANENT RULES

OFFICE OF

FINANCIAL MANAGEMENT

[ Filed June 28, 2010, 1:02 p.m. , effective October 1, 2010 ]


Effective Date of Rule: October 1, 2010.

Purpose: When chapter 82-60 WAC was updated for the property and liability local government self-insurance (LGSI) programs, the standards for health and welfare (H/W) programs were removed, to be placed in its own chapter. These two programs have become different, requiring standards that specifically address regulatory requirements for each type of program independently. As a result, temporary guidelines were put into place while engaging in rule making as prescribed in chapter 34.05 RCW.

LGSI programs have operated under temporary guidelines. This has led to confusion among the programs in determining what standards apply. Also, the rules were not specific enough as to each type of program. Given changes in the insurance, economic and legal environment, oral waivers from rules and guidelines requirements were provided to some programs, creating further confusion due to lack of written documentation.

The state risk manager is required to adopt rules which create standards for solvency, management, operations and certain contracts. The office of financial management, working with the health and welfare advisory board, has created chapter 82-65 WAC, which (1) creates a separate set of rules for H/W programs, (2) replaces temporary guidelines with updated rules specific to both individual and joint health and welfare programs, and (3) removes the provision for waivers from rules and guidelines and allows the state risk manager to consistently regulate all programs.

Statutory Authority for Adoption: RCW 48.62.061.

Adopted under notice filed as WSR 10-04-036 on January 27, 2010.

Changes Other than Editing from Proposed to Adopted Version: In responding to comments received; the following changes were made:

WAC 82-65-030(2) and 82-65-210(1), the phrase "and reassessment" has been deleted.

WAC 82-65-120(6), the word "joint" was removed from the last sentence.

WAC 82-65-140(1), is made applicable to both joint and individual programs, in subsection (2), "joint self-insurance" is inserted before "program" and "Increases in retention level" is removed.

WAC 82-65-290 and 82-65-300 are not going to be adopted as they are not necessary.

In addition, the following five rules have been removed from this adoption notice and are subject to a supplemental notice for additional comments due to the changes being proposed for each of these rules. These changes may be a substantial variance from the rule as originally published. The rules are WAC 82-65-020, 82-65-040, 82-65-100, 82-65-110, and 82-65-130.

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 0, Amended 0, 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 23, Amended 0, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 23, Amended 0, 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 23, Amended 0, Repealed 4 [0].

Date Adopted: June 27, 2010.

Roselyn Marcus

Director of Legal Affairs

Rules Coordinator

OTS-2600.4

Chapter 82-65 WAC

LOCAL GOVERNMENT SELF-INSURANCE HEALTH AND WELFARE PROGRAM REQUIREMENTS


NEW SECTION
WAC 82-65-010   Preamble and authority.   These rules governing local government self-insurance transactions are adopted by the state risk manager to implement chapter 48.62 RCW relating to the management and operations of both individual and joint local government health and welfare benefit self-insurance programs.

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NEW SECTION
WAC 82-65-030   Standards for management and operation -- Adoption of program.   (1) The governing body of every local government entity establishing an individual self-insurance program shall adopt the self-insurance program by resolution or ordinance.

(2) The governing body of every local government entity participating in a joint self-insurance program shall adopt the interlocal agreement of the joint self-insurance program by resolution or ordinance. The resolution or ordinance shall include, but not be limited to, an acknowledgment that the entity shall be subject to assessments as required by the joint self-insurance program. Copies of each resolution or ordinance shall be retained by the joint self-insurance program and available for inspection by the state risk manager. The interlocal agreement, along with a list of members participating in the program, shall be published on the public web site of each joint self-insurance program. The interlocal agreement and subsequent amendments shall be filed in accordance with requirements of chapter 39.34 RCW.

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NEW SECTION
WAC 82-65-050   Nondiscrimination in contributions.   Contribution rate schedules for individual and joint health and welfare self-insurance programs shall be consistent and nondiscriminatory among beneficiaries of the self-insurance program. This provision is not intended to prohibit choice of coverage for beneficiaries, classes of beneficiaries, or bargaining groups from several offered by the self-insurance program, or to prohibit different contribution schedules between classes of beneficiaries or bargaining groups.

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NEW SECTION
WAC 82-65-060   Standards for operations -- Standards for management -- Disclosures.   (1) All individual health and welfare self-insurance programs shall furnish each employee or retiree covered by the program with a written description of the benefits allowable under the program, together with:

(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 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 ensure every member of the program receives written plan documents 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 unless exigent circumstances can be demonstrated.

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NEW SECTION
WAC 82-65-070   Standards for operations -- Standards for management -- Wellness programs.   Health and welfare self-insurance programs may offer coverage for preventative care, wellness programs, and/or other cost containment measures.

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NEW SECTION
WAC 82-65-080   Standards for operations -- Standards for solvency -- Termination provisions.   (1) Termination of a program. All individual and joint health and welfare self-insurance programs shall maintain a written plan that provides for the partial or complete termination of the program and for liquidation of its assets upon termination of the program. The termination procedure shall include, but not be limited to, a provision for the settling of all its liabilities for unpaid claims and claim adjustment expenses.

(2) Termination of members. All joint self-insurance programs shall maintain a written plan that provides for the termination of membership of a member.

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NEW SECTION
WAC 82-65-090   Standards for management -- Standards for operations -- Financial plans.   (1) All self-insurance programs shall maintain a written plan for managing the financial resources of the program. The financial plan shall include:

(a) A procedure for accounting for moneys received, payments made and liabilities of the joint program which complies with generally accepted accounting principles. For individual programs, a separate fund to account for revenues and expenses associated with the program is recommended, but not required;

(b) An investment policy which conforms to RCW 48.62.111 governing the investments of the program; and

(c) Individual self-insurance programs shall ensure the preparation and submission of accurate and timely annual financial reports to the state risk manager within one hundred fifty days of fiscal year end.

Joint self-insurance programs shall ensure the submission of unaudited financial statements as prescribed by the state auditor's office within one hundred fifty days of fiscal year end. Joint self-insurance programs shall ensure the submission of audited financial statements to the state risk manager within one year of the program's fiscal year end.

(2) No financial plan of an individual 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 program reserve and contingency reserve requirements.

(3) No financial plan of a joint self-insurance program shall permit loans to any member.

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NEW SECTION
WAC 82-65-120   Standards for claims management -- Claims administration.   (1)(a) All self-insurance programs shall have a written claims administration program which includes, as a minimum, claims filing procedures, internal financial control mechanisms, and claim and claim adjustment expense reports.

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

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

(3) All joint self-insurance programs shall maintain a financial system that identifies claim and claim adjustment expenses.

(4) All joint self-insurance programs shall maintain claim expense reports for all claims made against the joint self-insurance program and its members.

(5) All self-insurance programs offering medical coverage shall obtain a claims audit of claim reserving, adjusting and payment procedures every three years at a minimum. A claims audit shall be conducted by a qualified claims auditor not affiliated with the program, its broker of record, or its third-party administrator. Such review shall be in writing and identify strengths, areas of improvement, findings, conclusions and recommendations. Such review shall be provided to the governing body and retained for a period not less than six years. The scope of the claims audit shall include claims administration procedures listed in subsection (1) of this section.

(6) The state risk manager may require more frequent claims audits for programs that, in the state risk manager's opinion, are not operationally or financially sound. Failure to obtain the requested independent claims audit when required may result in the procurement of such audit by the state risk manager on behalf of the program. Costs of these services shall be the responsibility of the self-insurance program.

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NEW SECTION
WAC 82-65-140   Standards for operations -- Program changes -- Notification to the state risk manager.   (1) All individual and joint self-insurance programs shall operate in the same form and manner stated in the program's original application approved by the state risk manager. Programs shall submit a written request and receive approval from the state risk manager prior to implementing the following proposed program changes:

(a) Any change in the terms of the interlocal agreement of a joint self-insurance program;

(b) Elimination or reduction of stop-loss insurance;

(c) Acceptance of any loans or lines of credit;

(d) Provision of services to nonmembers;

(e) Addition of members of other entity types than those included in original application approved by state risk manager.

(2) The following joint self-insurance program changes require written notification to the state risk manager prior to implementing the following changes:

(a) Initial contract with a third-party administrator, or change in third-party administrator;

(b) Any change to bylaws of a joint self-insurance program.

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NEW SECTION
WAC 82-65-150   Standards for management and operations -- Conflict of interest.   (1) Every individual and joint self-insurance program shall require the third-party administrator, the actuary, and the broker of record to contract separately with the self-insurance program. Each contract shall require that a written statement be submitted to the program on a form provided by the state risk manager providing assurance that no conflict of interest exists prior to acceptance of the contract by the self-insurance program.

(2) All self-insurance programs shall meet the following standards regarding restrictions on the financial interests of the program administrators:

(a) 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 self-insurance program or the investment or other handling of the program's money shall:

(i) 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.

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

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

(b) No consultant 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, health care supply provider or consultant.

(c) Brokers of record for the self-insurance program may receive compensation for insurance transactions performed within the scope of their licenses. The terms of compensation shall be provided for by contract between the broker of record and the self-insurance program, and the amount or percentage of the compensation must be disclosed in writing. Contracts between brokers of record and the self-insurance program shall include a provision that contingent commissions or other form of compensation not specified in the contract shall not be paid to the broker of record as a result of any self-insurance program insurance transactions. The self-insurance program shall establish a contract provision which requires the broker provide to the program a written annual report on a form provided by the state risk manager which discloses the actual financial compensation received. The report shall include verification that no undisclosed commission was received as a result of any such insurance transaction made on behalf of the program.

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

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NEW SECTION
WAC 82-65-160   Standards for operations -- State risk manager -- Expense and operating cost fees.   (1) The state risk manager, with concurrence from the health and welfare advisory board, shall fix state risk manager fees to cover expenses and operating costs of the state risk manager's office in administering chapter 48.62 RCW. Such fees shall be levied against each individual and joint health and welfare benefit self-insurance program regulated by chapter 48.62 RCW. Services covered by the state risk manager fees will include program reviews, monitoring and continuing oversight.

(2) The state risk manager fees shall be paid by each self-insurance program to the state of Washington, office of financial management within sixty 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.

(3) A self-insurance program that has voluntarily or involuntarily terminated shall continue to pay an administrative fee 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.

(4) The state risk manager shall assess each prospective joint health and welfare 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.

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NEW SECTION
WAC 82-65-170   Standards for operations -- Appeals of fees.   (1) A self-insurance program which disagrees with a fee for services issued to it by the state risk manager shall notify the state risk manager in writing within thirty days after receipt of the invoice. The writing shall include the self-insurance program's reasons for challenging the fee and any other information the self-insurance program deems pertinent.

(2) The state risk manager shall review any fee appealed by a self-insurance program, together with the reasons for the 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.

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NEW SECTION
WAC 82-65-180   Standards for operations -- Appeals of cease and desist orders.   Within ten days after an individual or joint self-insurance program covering health and welfare benefits has been served with a cease and desist order under RCW 48.62.091(3), the entity may request an administrative hearing. The hearing provided may be held in such a place as is designated by the state risk manager and shall be conducted in accordance with chapters 34.05 RCW and 10-08 WAC.

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NEW SECTION
WAC 82-65-190   Standards for operations -- Meetings.   Every self-insurance program is subject to the requirements of the Open Public Meetings Act as described in chapter 42.30 RCW.

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NEW SECTION
WAC 82-65-200   Standards for operation and management -- Rules for joint self-insurance programs.   The following rules apply exclusively to joint self-insurance programs. Individual programs shall be exempt from these requirements.

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NEW SECTION
WAC 82-65-210   Standards for operation -- Membership.   Membership in a joint self-insurance program requires the execution of an interlocal agreement. Members of a joint self-insurance program shall receive benefits for claims covered by the program only as a result of their signature on the interlocal agreement. Only members may participate in risk-sharing. Only members may participate in the self-insured retention layer, and only members may participate in the joint purchase of insurance. Further, each member shall agree to the following:

(1) Each member shall pay assessments when required by the governing body of the program.

(2) Each member shall obtain approval to join the program from the governing body of the respective member. The approval shall be by resolution or ordinance of the governing body as appropriate for the entity type.

(3) Each member shall become a signatory to the interlocal agreement and subsequent amendments to the interlocal agreement of the joint self-insurance program.

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NEW SECTION
WAC 82-65-220   Standards for operation -- Providing services to nonmembers.   (1) Nonmember local governments may purchase claims administration, risk management, claims processing and/or other ongoing significant support services through an interlocal agreement as authorized by chapter 39.34 RCW. Nonmembers shall not participate in any coverages of the joint self-insurance program including the self-insured retention layer and the excess insurance or reinsurance layer. This section is not intended to preclude nonmembers purchasing services from becoming members of the joint self-insurance program, provided the nonmember meets the requirements of WAC 82-65-210 and is eligible for membership as authorized by RCW 48.62.021(1). This section is not intended to limit programs from providing occasional risk management or other support services to nonmembers, but is intended to provide standards for members providing ongoing significant services to nonmembers.

(2) A program intending to provide ongoing significant services to nonmembers shall submit a written plan to the state risk manager for approval prior to providing services. The plan shall include, at a minimum, the services to be provided, the time frame for providing such services, the expected revenues and expenditures resulting from providing said services, and a written legal determination of all potential federal and state tax liabilities created by providing services to nonmembers. The arrangement to provide such services shall be approved in writing by the state risk manager within sixty days of the joint self-insurance program's final plan submission.

(3) Every joint self-insurance program providing ongoing significant services to nonmembers as of the effective date of these regulations must submit a written plan meeting the requirements stated herein.

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NEW SECTION
WAC 82-65-230   Standards for operation -- Communication with members -- Annual membership report.   Every joint self-insurance program shall make available to each member a copy of the program's annual membership report. The annual membership report shall include, at a minimum, financial information which includes the comparative balance sheet and statement of revenues, expenses and net assets. The reports shall be delivered to each member by electronic or regular mail. Programs may meet the delivery requirement by publishing and maintaining the membership report on the official web site of the program for a minimum of three years from the date of publication.

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NEW SECTION
WAC 82-65-240   Standards for operation -- Notice of regular meetings of the governing body.   Every joint self-insurance program shall provide every member with a notice of the time and place of each regular meeting of the governing body at least ten days prior to the meeting. The notice shall be delivered in electronic or paper form, and the time and location of each meeting shall be included in such notice. The state risk manager shall be provided a copy of all meeting notifications to members in the same form, manner and time as provided to members. In addition to electronic or regular mail, programs shall publish notification of regular meetings on the electronic web site of the program accessible to the public. Notice of regular meetings shall comply with the meeting notification requirements of chapter 42.30 RCW or be published at least ten days in advance of regular meetings, whichever notification time is greater.

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NEW SECTION
WAC 82-65-250   Standards for operation -- Special meetings -- Notice to members.   All joint self-insurance programs shall comply with the requirements of RCW 42.30.080 in providing notification of special meetings. In addition, programs shall provide notice by electronic mail to the state risk manager and every member of the joint self-insurance program twenty-four hours in advance of every special meeting.

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NEW SECTION
WAC 82-65-260   Standards for operations -- Meeting agendas -- Meeting minutes.   Every joint self-insurance program will provide the state risk manager and every member with a preliminary agenda in advance of each meeting of the governing body. The agenda shall be delivered by electronic mail and shall be posted on the web site of the program accessible to the public. Meeting minutes, after approval, shall be provided to the state risk manager and every member of the program by electronic mail and shall be posted on the web site of the program accessible to the public.

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NEW SECTION
WAC 82-65-270   Standards for operation -- Notification of changes to bylaws or interlocal agreement.   Every joint self-insurance program shall provide notification of the intent to change the bylaws or interlocal agreement to each member of the joint self-insurance program and the state risk manager by regular or electronic mail at least thirty days in advance of the meeting during which a vote on the proposed change will occur. Such notification shall include a copy of proposed changes.

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NEW SECTION
WAC 82-65-280   Standards for operation -- Changes to interlocal agreement.   (1) Changes to any terms of the interlocal agreement shall be approved by a majority of the members, or by a greater majority if provided for in the bylaws or interlocal agreement of the joint self-insurance program. Changes to the interlocal agreement shall be approved during a regular meeting of the governing body or by mail-in ballot. If mail-in ballots are used, the ballots are to be secured and remain unopened until the next regular meeting of the governing body. The opening and counting of the ballots shall be conducted by the governing body of the joint self-insurance program during the next regular meeting and retained in compliance with public records retention laws. Each ballot shall be read orally as to the member name and vote, either in the affirmative or negative, and recorded in the meeting minutes.

(2) Amendments to the interlocal agreement shall be adopted by ordinance or resolution of the governing board or council of each member. The signed amendment and copy of the ordinance or resolution, as appropriate, shall be retained by the joint self-insurance program. The interlocal agreement and subsequent amendments shall be published on the electronic web site of the joint self-insurance program.

(3) Changes to any terms of the interlocal agreement shall require amendment using the approval and adoption process described above.

(4) The addition of new members to a joint self-insurance program and/or the subscription of the interlocal agreement by said new members shall not be considered as amendments to the interlocal agreement.

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Washington State Code Reviser's Office