H-4121

AN ACT Relating to small employer health insurance, data collection, and administrative reform; adding a new chapter to Title 48 RCW; prescribing penalties; and providing an effective date.

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

NEW SECTION. Sec. 1. SHORT TITLE. This chapter shall be known and may be cited as the small employer health insurance availability act.

NEW SECTION. Sec. 2. PURPOSE. The purpose and intent of this chapter is to promote the availability of health insurance coverage to small employers regardless of the health status or claims experience, to prevent abusive rating practices, to require disclosure of rating practices to purchasers, to establish rules regarding renewability of coverage, to establish limitation on the use of preexisting condition exclusions, to provide for development of a basic health benefit plan to be offered to all small employers, to provide for establishment of an allocation program, and to improve the overall fairness and efficiency of the small group health insurance market.

This chapter is not intended to provide a solution to the problem of affordability of health care or health insurance.

NEW SECTION. Sec. 3. DEFINITIONS. As used in this chapter:

(1) "Actuarial certification" means a written statement by a member of the American academy of actuaries, or other individual acceptable to the commissioner, that a small employer carrier is in compliance with the provisions of section 5 of this act, based upon the person's examination, including a review of the appropriate records and of the actuarial assumptions and methods used by the small employer carrier in establishing premium rates for applicable health benefit plans.

(2) "Allocating carrier" means a small employer carrier participating in the allocation program under section 8 of this act.

(3) "Base premium rate" means, as to a rating period, the lowest premium rate charged or that could have been charged under the rating system by the small employer carrier to small employers with similar case characteristics for health benefit plans with the same or similar coverage.

(4) "Basic health benefit plan" means a lower cost health benefit plan developed under section 9 of this act.

(5) "Board" means the board of directors of the Washington state health insurance pool, as established by chapter 48.41 RCW.

(6) "Carrier" means any entity that provides health insurance in Washington state. For the purposes of this chapter, carrier includes an insurance company, health care service contractor, fraternal benefit society, health maintenance organization, multiple employer welfare arrangements, or any person or entity that writes, issues, or administers health benefit plans in Washington state.

(7) "Case characteristics" means demographic or other objective characteristics of a small employer that are considered by the small employer carrier in the determination of premium rates for the small employer, provided that claim experience, health status, and duration of coverage shall not be case characteristics for the purposes of this chapter.

(8) "Commissioner" means the insurance commissioner as defined in RCW 48.02.010.

(9) "Committee" means the health benefit plan committee created under section 9 of this act.

(10) "Dependent" means the spouse or an unmarried child under the age of nineteen years or an unmarried child who is a full-time student under the age of twenty-three years who is financially dependent upon an eligible employee or a child of any age who is medically certified as disabled and dependent of an eligible employee.

(11) "Eligible employee" means an employee who works on a full-time basis and has a normal work week of thirty or more hours, who has met any applicable requirement of the employer as to the period of employment before an employee is eligible for health benefits coverage. The term includes a sole proprietor, a partner of a partnership, and an independent contractor, if the sole proprietary, partner, or independent contractor is included as an employee under a health benefit plan of a small employer, but does not include an employee who works on a part-time, temporary, or substitute basis.

(12) "Established geographic service area" means a geographical area, as approved by the commissioner and based on the carrier's certificate of authority to transact business in Washington state, within which the carrier is authorized to provide coverage.

(13) "Health benefit plan" means any hospital or medical policy or certificate, health care service contract, health maintenance organization subscriber contract, plan provided by a multiple employer welfare arrangement, or plan provided by any other benefit arrangement subject to this chapter. The term does not include accident only, credit, dental, vision, medicare supplement, long-term care, or disability income insurance, coverage issued as a supplement to liability insurance, workers' compensation or similar insurance, or automobile medical payment insurance.

(14) "Index rate" means, as to a rating period for small employers with similar case characteristics, the arithmetic average of the applicable base premium rate and corresponding highest premium rate.

(15) "Late enrollee" means an eligible employee or dependent who requests enrollment in a health benefit plan of a small employer following the initial enrollment period provided under the terms of the health benefit plan, provided that such initial enrollment period is a period of at least thirty days. However, an eligible employee or dependent shall not be considered a late enrollee if:

(a) The individual meets each of the following:

(i) The individual was covered under qualifying previous coverage at the time the individual was eligible to enroll;

(ii) The individual lost coverage under qualifying previous coverage as a result of termination of employment or eligibility, the involuntary termination of the qualifying previous coverage, death of a spouse, or divorce;

(iii) The individual requests enrollment within thirty days after termination of the qualifying previous coverage;

(b) The individual is employed by an employer that offers multiple health benefit plans and the individual elects a different plan during an open enrollment period; or

(c) A court has ordered coverage be provided for a spouse or minor or dependent child under a covered employee's health benefit plan and request for enrollment is made within thirty days after issuance of the court order.

(16) "New business premium rate" means, as to a rating period, the lowest premium rate charged or offered, or which could have been charged or offered, by the small employer carrier to small employers with similar case characteristics for newly issued health benefit plans with the same or similar coverage.

(17) "Plan of operation" means the plan of operation of the allocation program established under section 8 of this act.

(18) "Premium" means all moneys paid by a small employer and eligible employees as a condition of receiving coverage from a small employer carrier, including any fees or other contributions associated with the health benefit plan.

(19) "Program" means the Washington small employer allocation program established under section 8 of this act.

(20) "Rating period" means the calendar year period for which premium rates established by a small employer carrier are presumed to be in effect.

(21) "Restricted network provision" means any provision of a health benefit plan that conditions the payment of benefits, in whole or in part, on the use of health care providers that have entered into a contractual arrangement with the carrier pursuant to chapter 48.44 or 48.46 RCW to provide health care services to covered individuals.

(22) "Small employer" means any person, firm, corporation, partnership, or association that is actively engaged in business that, on at least fifty percent of its working days during the preceding calendar quarter, employed at least three unrelated eligible employees but no more than twenty-five eligible employees, the majority of whom were employed within Washington state. In determining the number of eligible employees, companies that are affiliated companies, or that are eligible to file a combined tax return for proposes of state taxation, shall be considered one employer.

(23) "Small employer carrier" means any carrier that offers health benefit plans covering eligible employees of one or more small employers in Washington state.

(24) "Affiliate" or "affiliated" means any entity or person who directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a specified entity or person.

(25) "Qualifying previous coverage" and "qualifying existing coverage" mean benefits or coverage provided under:

(a) Medicare or medicaid;

(b) An employer-based health insurance or health benefit arrangement that provides benefits similar to or exceeding benefits provided under the basic health benefit plan that is subject to the insurance regulations of Washington state; or

(c) An individual health insurance policy, including coverage issued by an insurance company, health care service contractor, fraternal benefit society, health maintenance organization, multiple employer welfare arrangement, or any person or entity that writes, issues, or administers health benefit plans in Washington state, that provides benefits similar to or exceeding benefits provided under the basic health benefit plan, provided that such policy has been in effect for a period of at least six months.

NEW SECTION. Sec. 4. APPLICABILITY AND SCOPE. This chapter shall apply to any health benefit plan that provides coverage to the employees of a small employer in Washington state if any of the following conditions are met:

(1) Any portion of the premium or benefits is paid by or on behalf of the small employer;

(2) An eligible employee or dependent is reimbursed, whether through wage adjustments or otherwise, by or on behalf of the small employer for any portion of the premium; or

(3) The health benefit plan is treated by the employer or any of the eligible employees or dependents as part of a plan or program for the purposes of section 162, section 125, or section 106 of the United States Internal Revenue Code.

(4)(a) Except as provided in (b) of this subsection, for the purposes of this chapter, carriers that are affiliated companies or that are eligible to file a consolidated tax return shall be treated as one carrier and any restrictions or limitations imposed by this chapter shall apply as if all health benefit plans issued to small employers in Washington state by such affiliated carriers were issued by one carrier.

(b) An affiliated carrier that is a health maintenance organization having a certificate of authority under chapter 48.44 RCW may be considered a separate carrier for the purposes of this chapter.

(c) Unless otherwise authorized by the commissioner, a small employer carrier shall not enter into one or more ceding arrangements with respect to health benefit plans issued to small employers in Washington state if such arrangements would result in less than fifty percent of the insurance obligation or risk for such health benefit plans being retained by the ceding carrier.

NEW SECTION. Sec. 5. RESTRICTIONS RELATING TO PREMIUM RATES. (1) Premium rates for health benefit plans subject to this chapter shall be subject to the following provisions:

(a) The premium rates charged during a rating period to small employers with similar case characteristics for the same or similar coverage, or the rates that could be charged to such employers under the rating system, shall not vary from the index rate by more than twenty-five percent of the index rate.

(b) The percentage increase in the premium rate charged to a small employer for a new rating period may not exceed the sum of the following:

(i) The percentage change in the new business premium rate measured from the first day of the prior rating period to the first day of the new rating period. In the case of a health benefit plan into which the small employer carrier is no longer enrolling new small employers, the small employer carrier shall use the percentage change in the base premium rate, provided that such change does not exceed, on a percentage basis, the change in the new business premium rate for the most similar health benefit plan into which the small employer carrier is actively enrolling new small employers;

(ii) Any adjustment, not to exceed fifteen percent annually and adjusted pro rata for rating periods of less than one year, due to the claim experience, health status, and duration of coverage of the employees or dependents of the small employer as determined from the small employer carrier's rate manual; and

(iii) Any adjustment due to change in coverage or change in the case characteristics of the small employer, as determined from the small employer carrier's rate manual.

(c) Adjustments in rates for claim experience, health status, and duration of coverage shall not be charged to individual employees or dependents. Any such adjustment shall be applied uniformly to the rates charged for all employees and dependents of the small employer.

(d) A small employer carrier may utilize industry as a case characteristic in establishing premium rates, provided that the highest rate factor associated with any industry classification shall not exceed the lowest rate factor associated with any industry classification by more than fifteen percent.

(e) In the case of health benefit plans issued prior to the effective date of this act, a premium rate for a rating period may exceed the ranges set forth in (a) of this subsection for a period of three years following the effective date of this act. In such cases, the percentage increase in the premium rate charged to a small employer for a new rating period shall not exceed the sum of the following:

(ii) Any adjustment due to change in coverage or change in the case characteristics of the small employer, as determined from the small employer carrier's rate manual.

(f)(i) Small employer carriers shall apply rating factors, including case characteristics, consistently with respect to all small employers. Rating factors shall produce premiums for identical groups that differ only by amounts attributable to plan design and do not reflect differences due to the nature of the groups assumed to select particular health benefit plans.

(ii) A small employer carrier shall treat all health benefit plans issued or renewed in the same calendar month as having the same rating period.

(g) For the purposes of this subsection, a health benefit plan that utilizes a restricted provider network shall not be considered similar coverage to a health benefit plan that does not utilize such a network, provided that utilization of the restricted provider network results in substantial differences in claims costs.

(h) A small employer carrier shall not use case characteristics other than age, gender, industry, geographic area, family composition, and group size without prior approval of the commissioner.

(i) The commissioner may establish regulations to implement the provisions of this section and to assure that rating practices used by small employer carriers are consistent with the purposes of this chapter, including:

(i) Assuring that differences in rates charged for health benefit plans by small employer carriers are reasonable and reflect objective differences in plan design, not including differences due to the nature of the groups assumed to select particular health benefit plans; and

(ii) Prescribing the manner in which case characteristics may be used by small employer carriers.

(2) A small employer carrier shall not transfer a small employer involuntarily into or out of a health benefit plan. A small employer carrier shall not offer to transfer a small employer into or out of a health benefit plan unless such offer is made to transfer all small employers with the same health benefit plan without regard to case characteristics, claim experience, health status, or duration of coverage.

(3) The commissioner may suspend for a specified period the application of subsection (1)(a) of this section as to the premium rates applicable to one or more small employers of a small employer carrier for one or more rating periods upon a finding by the small employer carrier and a finding by the commissioner either that the suspension is reasonable in light of the financial condition of the small employer carrier or that the suspension would enhance the efficiency and fairness of the marketplace for small employer health insurance.

(4) In connection with the offering for sale of any health benefit plan to a small employer, a small employer carrier shall make a reasonable disclosure, as part of its solicitation and sales materials, of all of the following:

(a) The extent to which premium rates for a specified small employer are established or adjusted based upon the actual or expected variation in claims costs or actual or expected variation in health status of the employees of the small employer and their dependents;

(b) The provisions of the health benefit plan concerning the small employer carrier's right to change premium rates and factors, other than claim experience, that affect changes in premium rates;

(d) The provisions relating to any preexisting condition.

(5)(a) Each small employer carrier shall maintain at its principal place of business a complete and detailed description of its rating practices and renewal underwriting practices, including information and documentation that demonstrate that its rating methods and practices are based upon commonly accepted actuarial assumptions and are in accordance with sound actuarial principles.

(b) Each small employer carrier shall file with the commissioner annually on or before March 15 an actuarial certification certifying that the carrier is in compliance with this chapter and that the rating methods of the small employer carrier are actuarially sound. Such certification shall be in a form and manner, and shall contain such information, as specified by the commissioner. A copy of the certification shall be retained by the small employer carrier at its principal place of business.

(c) A small employer carrier shall make the information and documentation described in (a) of this subsection available to the commissioner upon request. Except in cases of violations of this chapter, the information shall be considered proprietary and trade secret information and shall not be subject to disclosure by the commissioner to persons outside of the office except as agreed to by the small employer carrier or as ordered by a court of competent jurisdiction.

NEW SECTION. Sec. 6. RENEWABILITY OF COVERAGE. (1) A health benefit plan subject to this chapter shall be renewable with respect to all eligible employees and dependents, at the option of the small employer, except in any of the following cases:

(a) Nonpayment of required premiums;

(b) Fraud or misrepresentation by the small employer or, with respect to coverage of individual insureds, the insureds or their representatives;

(d) Noncompliance with the carrier's employer contribution requirements;

(e) Repeated misuse of a provider network provision; or

(f) The small employer carrier elects to not renew all of its health benefit plans issued to small employers in Washington state. In such a case the carrier shall:

(i) Provide advance notice of its decision under this subsection (1)(f)(i) to the commissioner; and

(ii) Provide notice of the decision not to renew coverage to all affected small employers and to the commissioner in each state in which an affected covered individual is known to reside at least one hundred eighty days prior to the nonrenewal of any health benefit plan by the carrier. Notice to the commissioner under this subsection (1)(f)(ii) shall be provided at least three working days prior to the notice to the affected small employers.

(g) The commissioner finds that the continuation of the coverage would:

(i) Not be in the best interests of the policyholders or certificate holders; or

(ii) Impair the carrier's ability to meet its contractual obligations.

In such instance the commissioner shall assist affected small employers in finding replacement coverage.

(2) A small employer carrier that elects not to renew a health benefit plan under subsection (1)(f) of this section shall be prohibited from writing new business in the small employer market in Washington state for a period of five years from the date of notice to the commissioner.

(3) In the case of a small employer carrier doing business in one established geographic service area of the state, the rules set forth in this section shall apply only to the carrier's operations in such service area.

NEW SECTION. Sec. 7. GENERAL SMALL EMPLOYER CARRIER REQUIREMENTS. (1) A health benefit plan covering small employers shall comply with the following provisions:

(a) A small employer carrier shall file with the commissioner, in a form and manner prescribed by the commissioner, the basic health benefit plans to be used by the carrier. A health benefit plan filed pursuant to this subsection (1)(a) may be used by a small employer carrier beginning thirty days after it is filed unless the commissioner disapproves its use.

(b) A health benefit plan shall not deny, exclude, or limit benefits for a covered individual for losses incurred more than six months following the effective date of the individual's coverage due to a preexisting condition. A health benefit plan shall not define a preexisting condition more restrictively than:

(i) A condition that would have caused an ordinarily prudent person to seek medical advice, diagnosis, care, or treatment during the six months immediately preceding the effective date of coverage;

(ii) A condition for which medical advice, diagnosis, care, or treatment was recommended or received during the six months immediately preceding the effective date of coverage; or

(iii) A pregnancy existing on the effective date of coverage.

(c) A health benefit plan shall waive any time period applicable to a preexisting condition exclusion or limitation period with respect to particular services for the period of time an individual was previously covered by qualifying previous coverage that provided benefits with respect to such services, provided that the qualifying previous coverage was continuous to a date not less than thirty days prior to the effective date of the new coverage. This subsection (1)(c) does not preclude application of any waiting period applicable to all new enrollees under the health benefit plan.

(d) A health benefit plan may exclude coverage for late enrollees for the greater of twelve months or for a twelve-month preexisting condition exclusion, provided that if both a period of exclusion from coverage and a preexisting condition exclusion are applicable to a late enrollee, the combined period shall not exceed twelve months from the date the individual enrolls for coverage under the health benefit plan.

(e)(i) Except as provided in (iv) of this subsection (1)(e), requirements used by a small employer carrier in determining whether to provide coverage to a small employer, including requirements for minimum participation of eligible employees and minimum employer contributions, shall be applied uniformly among all small employers with the same number of eligible employees applying for coverage or receiving coverage from the small employer carrier.

(ii) A small employer carrier may vary application of minimum participation requirements and minimum employer contribution requirements only by the size of the small employer group.

(iii)(A) Except as provided in (iii)(B) of this subsection (1)(e), in applying minimum participation requirements with respect to a small employer, a small employer carrier shall not consider employees or dependents who have qualifying existing coverage in determining whether the applicable percentage of participation is met.

(B) With respect to a small employer with ten or fewer eligible employees, a small employer carrier may consider employees or dependents who have coverage under another health benefit plan sponsored by such small employer in applying minimum participation requirements.

(iv) A small employer carrier shall not increase any requirement for minimum employee participation or any requirement for minimum employer contribution applicable to a small employer at any time after the small employer has been accepted for coverage.

(f)(i) If a small employer carrier offers coverage to a small employer, the small employer carrier shall offer coverage to all of the eligible employees of the small employer and their dependents. A small employer carrier shall not offer coverage to only certain individuals in a small employer group or to only part of the group, except in the case of late enrollees as provided in (c) of this subsection.

(ii) A small employer carrier shall not modify a basic health benefit plan with respect to a small employer or any eligible employee or dependent through riders, endorsements, or otherwise, to restrict or exclude coverage for certain diseases or medical conditions otherwise covered by the basic health benefit plan.

(2)(a) Every small employer carrier shall, as a condition of transacting business in Washington state with small employers, actively offer to small employers at least a basic health benefit plan.

(b) A small employer carrier shall issue at least a basic health benefit plan to any eligible small employer that applies to such a plan and agrees to make the required premium payments and to satisfy the other reasonable provisions of the health benefit plan not inconsistent with this chapter.

(ii) An allocating small employer carrier shall issue at least the basic health benefit plan or an approved minimum benefit plan to any eligible small employer that applies to such a plan and agrees to make the required premium payments and to satisfy the other reasonable provisions of the health benefit plan not inconsistent with this chapter, until the carrier's allotment of high-risk individuals has been met under section 8 of this act.

(c) A small employer is eligible under subsection (2)(b) of this section if it employed at least three unrelated eligible employees within Washington state on at least fifty percent of its working days during the preceding calendar quarter.

(d) For purposes of establishing continued small employer eligibility under this chapter, a small employer carrier may reassess the size of the covered employer on the anniversary date of the employer's policy. Coverage under this chapter may be discontinued if the small employer no longer meets the size requirements provided for in this chapter. However, if a small employer falls below the minimum size, coverage must be continued for a period of at least one year before the small employer carrier can discontinue coverage under this chapter, provided that the small employer continues to fall below the minimum group size requirements of this chapter.

(e) The provisions of this subsection shall be effective one hundred eighty days after the commissioner's approval of the basic health benefit plan developed under section 9 of this act, provided that if the small employer allocation program created under section 8 of this act is not yet in operation on such date, the provisions of this subsection shall be effective on the date that such program begins operation.

NEW SECTION. Sec. 8. SMALL EMPLOYER ALLOCATION PROGRAM. (1) All small employer carriers issuing health benefit plans in this state on and after the effective date of this act shall be required to meet the requirements of this section as a condition of authority to transact business in Washington state.

(2) There is created a nonprofit entity to be known as the Washington small employer allocation program. All small employer carriers issuing health benefit plans in Washington state on and after the effective date of this act shall be allocating carriers in the program.

(3) The program shall operate subject to the supervision and control of the board of the Washington health insurance pool, as established by chapter 48.41 RCW.

(4) Within sixty days of the effective date of this act, each small employer carrier shall make a filing with the commissioner containing the carrier's net health insurance premium derived from health benefit plans issued to small employers in this state in the previous calendar year.

(5) Within one hundred eighty days after the appointment of the initial board, the board shall submit to the commissioner a plan of operation and thereafter any amendments thereto necessary or suitable, to assure the fair, reasonable, and equitable administration of the program. The commissioner may, after notice and hearing, approve the plan of operation if the commissioner determines that it is required to assure the fair, reasonable, and equitable administration of the program and provides for the sharing of program gains or losses on an equitable and proportionate basis in accordance with the provisions of this section. The plan of operation shall become effective upon approval in writing by the commissioner.

(6) If the board fails to submit a suitable plan of operation within one hundred eighty days after its appointment, the commissioner shall, after notice and hearing, adopt a temporary plan of operation. The commissioner shall amend or rescind any plan adopted under this section at the time a plan of operation is submitted by the board and approved by the commissioner.

(7) The plan of operation shall:

(a) Establish procedures for handling and accounting of program assets and moneys and for an annual fiscal reporting to the commissioner;

(b) Establish procedures for selecting an administering carrier and setting forth the powers and duties of the administering carrier;

(c) Establish procedures for assigning allotments of high-risk individuals and small employers among small employer carriers in accordance with the provisions of this chapter;

(d) Establish procedures for collecting assessments from all members subject to assessment to provide for administrative expenses incurred or estimated to be incurred for the period for which the assessment is made; and

(e) Provide for any additional matters necessary for the implementation and administration of the program.

(8) The program shall have the general powers and authority granted under the laws of Washington state to insurance companies, health care service contractors, and health maintenance organizations licensed to transact business, except the power to issue health benefit plans directly to either groups or individuals. In addition thereto, the program shall have the specific authority to:

(a) Enter into contracts as are necessary or proper to carry out the provisions and purposes of this section, including the authority, with the approval of the commissioner, to enter into contracts with similar programs of other states for the point performance of common functions or with persons or other organizations for the performance of administrative functions;

(b) Sue or be sued, including taking any legal actions necessary or proper for recovering any assessments and penalties for, on behalf of, or against the program or any allocating carriers;

(d) Assess allocating carriers in accordance with the provisions of subsection (12) of this section, and to make interim assessment as may be reasonable and necessary for organizational and interim operating expenses. Any interim assessments shall be credited as offsets against any regular assessments due following the close of the fiscal year;

(e) Appoint appropriate legal, actuarial, and other committees as necessary to provide technical assistance in the operation of the program, policy and other contract design, and any other function within the authority of the program;

(f) Borrow money to effect the purposes of the program. Any notes or other evidence of indebtedness of the program not in default shall be legal investments for carriers and may be carried as admitted assets;

(g) Perform other functions necessary and proper to carry out its responsibilities under this chapter.

(9) The board shall establish procedures, as part of the plan of operation, for determining allotments of high-risk individuals and small employers among all allocating carriers. Such procedures shall be designed to assure a fair allocation of risks among allocating small employer carriers. The procedures shall include the following:

(a) A method by which the board shall estimate each year the total number of high-risk individuals in small employer groups that will be identified and used for determining carrier allotments under this subsection during the year. The board shall develop a uniform definition of a high-risk individual based on standardized medical underwriting criteria for purposes of this section.

(b) A method by which the program shall assign to each small employer carrier a target number of high-risk individuals. The target number for a small employer carrier shall bear the same proportional relationship to the total number of high-risk individuals estimated under (a) of this subsection as the small employer carrier's annual net premiums for coverage of small employers bears to the annual net premiums of all small employer carriers for coverage of small employers. In the case of a small employer carrier with an established geographic services area, the board may adjust the target number of high-risk individuals to account for the carrier's increased or decreased exposure resulting from the allocation.

(c) A procedure by which the program shall determine the number of high-risk eligible employees and dependents of each small employer that constitutes the carrier's allotment of high-risk individuals and small employers.

(d) A procedure by which small employers that are identified as high risk may select an allocating carrier from a list in the program. The procedure shall provide for the small employer to be allocated to choose among allocating carriers unless, as a result of the addition of the small employer, the carrier's target number determined under (b) of this subsection would be exceeded. A small employer that is rejected by the carrier that it initially selects shall make selections from a list of allocating carriers that have not yet met their allotments of high-risk individuals and small employers.

(e) A procedure by which the board shall determine, as for each calendar year, the extent to which the average claims costs incurred by a small employer carrier for providing coverage to high-risk individuals, whether allocated or identified in that year or any preceding year, is greater or less than the average claims cost incurred by small employer carriers for providing coverage to all high-risk individuals, whether allocated in that calendar year or any preceding year, that have been allocated or identified under the program.

(i) The procedure shall provide for the board to adjust the target number for a small employer carrier for the subsequent year if the average claims cost incurred by such carrier from providing coverage to high-risk individuals is either more or less, by at least the applicable percentage determined in (e)(ii) of this subsection, than the average claims cost for all high-risk individuals allocated under the program.

(ii) The procedure shall provide for the board to determine a percentage amount for the purpose of (e)(i) of this subsection. In determining such percentage, the board shall balance the following objectives:

(A) Achieving an equitable distribution among small employer carriers of the claims costs of high-risk individuals;

(B) Efficient administration of the program; and

(C) Providing incentive for small employer carriers to manage the care of high-risk individuals allotted under the program.

(10) The board shall periodically evaluate the program to assure equity in the distribution of allotted small employers. The board, subject to the approval of the commissioner, shall have the authority to make adjustments to the procedures established pursuant to this subsection to further the goal of equitable distribution of allocated small employers.

(11) A small employer carrier shall not be required to accept small employers that are not located within their established geographic service area or areas.

(12)(a) Following the close of each fiscal year, the administering carrier shall determine the program expenses of the administration. The net expense for the year shall be recouped by assessment on the allocating carriers. The administering carrier also shall determine the claims expense for allocated small employers for each small employer carrier for the basic health benefit plan, on an annual basis, using information collected from carriers under subsection (15) of this section.

(b) Assessments to cover the administrative expenses of the program shall be apportioned by the board among allocating carriers in proportion to their respective shares of the total premiums earned from health benefit plans issued to small employers in Washington state by all allocating carriers during the calendar year coinciding with or ending during the fiscal year of the program. Premiums earned by allocating carriers that are less than an amount determined by the board to justify the cost of assessment collection shall not be considered for purposes of determining assessments.

(c) Each allocating carrier's assessment shall be determined annually by the board based on annual statements and other reports deemed necessary by the board and filed by the allocating carrier with board.

(d) The plan of operation shall provide for the imposition of an interest penalty for late payment of assessments.

(e) An allocating carrier may seek from the commissioner a deferment from all or part of its assessment if payment of the assessment would place the allocating carrier in a financially impaired condition. The commissioner shall make such a determination and allow all or part of the assessment deferral. If all or part of an assessment against an allocating carrier is deferred, the amount deferred shall be assessed against the other allocating carriers in a manner set forth in this subsection. The allocating carrier receiving the deferment shall remain liable to the program for the amount deferred.

(13) Except as provided in subsection (11) of this section, allocating carriers shall accept application from all small employers until their allotments for high-risk individuals are met, as determined by the board pursuant to subsection (9) of this section. The allocating carrier shall offer all small employers a benefit plan that at least offers the benefits contained in the basic health benefit plan. An allocating carrier may also offer to small employers coverage that is more comprehensive than that required by this chapter.

(14) An allocating carrier shall not be required to provide coverage to small employers under this section for any period of time for which the commissioner determines that the participation in the program could place the small employer carrier in a financially impaired condition. In such instances, such small employer carriers will be prohibited from accepting application from any small employer until the commissioner determines that the carrier can accept small employers allocated from the program.

(15) Each allocating carrier shall file with the commissioner, in a form and manner to be prescribed by the commissioner, an annual report. The report shall state the small employer carrier's net premium for new small employer coverage written in the previous twelve-month period. The report also shall state the number of small employers with high-risk individuals that meet the standard underwriting criteria for high-risk individuals, the claims expenses for these high-risk individuals, the names and number of the small employers that canceled or terminated coverage with it during the preceding calendar year, and the reasons for such cancellations or terminations, if known. The report shall be filed on or before March 1 for the preceding calendar year. A copy of the report shall be provided to the board.

(16) Neither the participation in the program, the establishment of procedures, nor any other joint or collective action required by this chapter shall be the basis of any legal action, criminal or civil liability, or penalty against the program or any allocating carrier either jointly or separately.

(17) The program shall be exempt from any and all taxes.

(18) The board, as part of the plan of operation, shall develop standards setting forth the manner and levels of compensation to be paid to producers for the sale of basic health benefit plans. In establishing such standards, the board shall take into consideration: The need to assure the broad availability of coverages, the objectives of the program, the time and effort expended in placing the coverage, the need to provide ongoing service to the small employer, the levels of compensations currently used in the industry, and the overall costs of coverage to small employers selecting these plans.

NEW SECTION. Sec. 9. HEALTH BENEFIT PLAN COMMITTEE. (1) The commissioner shall appoint a health benefit plan committee. The committee shall be composed of representatives from small employer carriers, including insurance companies, health care service contractors, health maintenance organizations, other carriers, small employers, employees, health care providers, and producers.

(2) The committee shall recommend the form and level of coverage to be made available by small employer carriers under sections 7 and 8 of this act.

(3)(a) The committee shall recommend benefit levels, cost sharing levels, exclusions, and limitations for the basic health benefit plan. The committee shall also design a basic health benefit plan that contains benefit and cost sharing levels that are consistent with the basic method of operation and benefits of health maintenance organizations, including any restrictions imposed by federal law.

(b) The committee shall submit the health benefit plan described in (a) of this subsection to the commissioner for approval within one hundred eighty days after the appointment of the committee.

(c)(i) A small employer carrier shall file with the commissioner, in a format and manner prescribed by the commissioner, the basic health benefit plan to be used by the carrier. A health benefit plan filed pursuant to this subsection (3)(c)(i) may be used by a small employer carrier beginning thirty days after it is filed unless the commissioner disapproves its use.

(ii) The commissioner at any time may, after providing written notice and an opportunity for a hearing to the small employer carrier, disapprove the continued use by a small employer carrier of a basic health benefit plan on the grounds that the plan does not meet the requirements of this subsection.

NEW SECTION. Sec. 10. PERIODIC MARKET EVALUATION. (1) The board, in consultation with members of the committee, shall study and report at least every three years to the commissioner on the effectiveness of this chapter. The report shall analyze the effectiveness of the chapter in promoting rate stability, product availability, and coverage affordability. The report may contain recommendations for actions to improve the overall effectiveness, efficiency, and fairness of the small group health insurance market place. The report shall address whether carriers and producers are fairly and actively marketing and issuing health benefit plans to small employers in fulfillment of the purposes of this chapter. The report may contain recommendations for market conduct or other regulatory standards or actions.

(2) The board shall commission an actuarial study, by an independent actuary approved by the commissioner, within the first three years of the operation of the program to evaluate and measure the relative risks being assumed by differing types of small employer carriers as a result of this chapter.

NEW SECTION. Sec. 11. WAIVER OF CERTAIN STATE LAWS. No law requiring the coverage of a health care service or benefit, or requiring the reimbursement, utilization, or inclusion of a specific category of licensed health care practitioner, shall apply to a basic health benefit plan issued pursuant to this chapter.

NEW SECTION. Sec. 12. ADMINISTRATIVE PROCEDURES. The commissioner may issue rules in accordance with the small employer health coverage reform act.

NEW SECTION. Sec. 13. STANDARDS TO ASSURE FAIR MARKETING. (1) An allocating small employer carrier that denies coverage to a small employer on the basis of standard medical underwriting criteria established by the board of the program as applied to the small employer's employees or dependents shall provide notice to the small employer, in a form and manner prescribed by the commissioner, of the potential availability of coverage through the allocation program.

(2) A small employer carrier shall provide reasonable compensation, as provided under the plan of operation of the program, to a producer, if any, for placing small employers with the small employer carrier through the program.

(3) No small employer carrier shall terminate, fail to renew, or limit its contract or agreement of representation with a producer because the producer has placed small employers with the small employer carrier.

(4) No small employer carrier or producer shall induce or otherwise encourage a small employer to separate or otherwise exclude an employee from health coverage or benefits provided in connection with the employee's employment.

(5) Denial by an allocating small employer carrier of an application for coverage from a small employer shall be consistent with the provisions of section 8 of this act, shall be in writing, and shall state the reason or reasons for the denial.

(6) The commissioner may adopt by rule additional standards to provide for the availability of health benefit plans to small employers through the program.

(7)(a) A violation of this section by a small employer carrier or producer shall be an unfair trade practice under chapter 48.30 RCW.

(b) If a small employer carrier enters into a contract, agreement, or other arrangement with a third-party administrator to provide administrative, marketing, or the other services related to the offering of health benefit plans to small employers in Washington state, the third-party administrator shall be subject to this section as if it were a small employer carrier.

NEW SECTION. Sec. 14. APPLICATION OF CHAPTER TO CHAPTERS 48.20, 48.21, AND 48.44 RCW. This chapter applies to carriers regulated under chapters 48.21, 48.44, and 48.46 RCW.

NEW SECTION. Sec. 15. CAPTIONS. Captions as used in this act constitute no part of the law.

NEW SECTION. Sec. 16. SEVERABILITY. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 17. EFFECTIVE DATE. This act shall take effect January 1, 1993.

NEW SECTION. Sec. 18. Sections 1 through 17 of this act shall constitute a new chapter in Title 48 RCW.