Z-1437

AN ACT Relating to the availability of health insurance for the small employer; 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 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 a reinsurance 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 6 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) "Assocation" means an organization organized and maintained in good faith for purposes other than that of obtaining health benefits coverage. Associations shall have constitutions and by-laws or other analogous governing documents and shall have been in active existence for at least five years, unless they are based on participation in a certain industry, in which case they shall have been in active existence for two years.

(3) "Base premium rate" means, for each class of business, as to a rating period, the lowest premium rate charged or that could have been charged under the rating system for that class of business 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 11 of this act.

(5) "Board" means the board of directors of the program established under section 10 of this act.

(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 11 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 for each class of business 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 reinsurance program established under section 10 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 reinsurance program established under section 10 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) "Reinsuring carrier" means a small employer carrier participating in the reinsurance program under section 10 of this act.

(22) "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.

(23) "Risk assuming carrier" means a small employer carrier whose application is approved by the commissioner under section 9 of this act.

(24) "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 forty-nine 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.

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

(26) "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.

(27) "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 which are subject to the laws of Washington state regulating insurance; 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) Premium rates for health benefit plans shall comply with the requirements of this section notwithstanding any assessments paid or payable by small employer carriers pursuant to section 10 of this act.

(e) 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.

(f) 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) and (b) 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.

(g)(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.

(h) 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.

(i) 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.

(j) 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 design. A small employer carrier shall not offer to transfer a small employer into or out of a health benefit plan design unless such offer is made to transfer all small employers with the same health benefit plan design 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 with 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, 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. AVAILABILITY OF COVERAGE. (1)(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) An 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, unless the carrier is a federally qualified health maintenance organization, in which case the carrier's minimum offering shall comply with federal statutes and regulations.

(c) A small employer is eligible under (b) of this subsection 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 11 of this act, provided that if the small employer reinsurance program created under section 10 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.

(2)(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 (2)(a) may be used by a small employer carrier beginning thirty days after it is filed unless the commissioner disapproves its use.

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

(3) A health benefit plan covering small employers shall comply with the following provisions:

(a) 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.

(b) 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 (3)(b) does not preclude application of any waiting period applicable to all new enrollees under the health benefit plan.

(c) 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.

(d)(i) Except as provided in (iv) of this subsection (3)(d), 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 (3)(d), 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.

(e)(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 subsection (3)(d) of this section.

(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.

(4)(a) A small employer carrier shall not be required to offer coverage or accept applications pursuant to this subsection in the case of the following:

(i) To a small employer, where the small employer is not physically located in the carrier's established geographic service area;

(ii) To an employee, where the employee does not work or reside within the carrier's established geographic service area; or

(iii) Within an area where the small employer carrier reasonably anticipates, and demonstrates to the satisfaction of the commissioner, that it will not have the capacity within its established service area to delivery service adequately to the members of such groups because of its obligations to existing group policyholders and enrollees.

(b) A small employer carrier that cannot offer coverage pursuant to (a)(iii) of this subsection may not offer coverage in the applicable area to new cases of employer groups with more than forty-nine eligible employees or to any small employer groups until the later of one hundred eighty days following each such refusal or the date on which the carrier notifies the commissioner that it has regained capacity to deliver services to small employer groups.

(5) A small employer carrier shall not be required to provide coverage to small employers pursuant to subsection (1) of this section for any period of time for which the commissioner determines that requiring the acceptance of small employers in accordance with the provisions of subsection (1) of this section would place the small employer carrier in a financially impaired position.

NEW SECTION. Sec. 8. NOTICE OF INTENT TO OPERATE AS A RISK-ASSUMING CARRIER OR ALLOCATION CARRIER. (1) Each small employer carrier shall notify the commissioner within thirty days of the effective date of this act of the carrier's intention to operate as either a risk-assuming carrier or an allocation carrier. A small employer carrier seeking to operate as a risk-assuming carrier shall make an application pursuant to section 10 of this act.

(2) The decision shall be binding for a five-year period except that the initial decision shall be made within thirty days of the effective date of this act and shall be made for two years. The commissioner may permit a carrier to modify its decision at any time for good cause shown.

(3) The commissioner shall establish an application process for small employer carriers seeking to change their status under this section.

(4) A reinsuring carrier that applies and is approved to operate as a risk-assuming carrier shall not be permitted to continue to reinsure any health benefit plan with the program. Such a carrier shall pay a prorated assessment based upon business issued as a reinsuring carrier for any portion of the year that the business was reinsured.

NEW SECTION. Sec. 9. APPLICATION TO BECOME A RISK-ASSUMING CARRIER. (1) A small employer carrier may apply to become a risk-assuming carrier by filing an application with the commissioner in a form and manner prescribed by the commissioner.

(2) The commissioner shall consider the following factors in evaluating an application filed under subsection (1) of this section:

(a) The carrier's financial condition;

(b) The carrier's history of rating and underwriting small employer groups;

(c) The carrier's commitment to market fairly to all small employers in Washington state or its established geographic area, as applicable; and

(d) The carrier's experience with managing the risk of small employer groups.

(3) The commissioner shall provide public notice of an application by a small employer carrier to be a risk-assuming carrier and shall provide at least a sixty-day period for public comment prior to making a decision on the application. If the application is not acted upon within ninety days of the receipt of the application by the commissioner, the carrier may request a hearing.

(4) The commissioner may rescind the approval granted to a risk-assuming carrier under this section if the commissioner finds that:

(a) The carrier's financial condition will no longer support the assumption of risk from issuing coverage to small employers in compliance with subsection (5) of this section;

(b) The carrier has failed to market fairly to all small employers in Washington state or its established geographic service area, as applicable; or

(c) The carrier has failed to provide coverage to eligible small employers as required in subsection (5) of this section.

(5) A small employer carrier electing to be a risk-assuming carrier shall not be subject to the provisions of section 10 of this act.

NEW SECTION. Sec. 10. SMALL EMPLOYER CARRIER REINSURANCE PROGRAM. (1) A reinsurance carrier shall be subject to the provisions of this section.

(2) There is hereby created a nonprofit entity to be known as the Washington small employer reinsurance program.

(3)(a) The program shall operate subject to the supervision and control of the board. Subject to the provisions of (b) of this subsection, the board shall consist of eight persons plus the commissioner or his or her designated representative, who shall serve as an ex-officio member of the board.

(b) Within sixty days of the effective date of this act, the commissioner shall give notice to all reinsuring carriers of the time and place for an initial organization meeting of the small employer reinsurance program, which shall take place within one hundred twenty days of the effective date of this act. The purpose of the meeting shall be for the reinsuring small employer carriers to recommend up to five members for the board, subject to approval by the commissioner. The commissioner shall appoint up to three additional members which shall include representatives of small employers and such other individuals determined to be qualified by the commissioner.

(c) The initial board members shall be appointed as follows: One-third of the members to serve a term of two years; one-third of the members to serve a term of four years; and one-third of the members to serve a term of six years. Subsequent board members shall serve for terms of three years. A board member's term shall continue until his or her successor is appointed.

(d) No one carrier or other benefit arrangement shall be represented by more than one member of the board. The commissioner shall send notice to all reinsuring carriers on an annual basis for an annual meeting to recommend members for the board to the commissioner for those members whose terms are expiring. In approving the selection of the board, the commissioner shall assure that all reinsuring carriers are fairly represented.

(e) A vacancy in the board shall be filled by the commissioner. A board member may be removed by the commissioner for cause.

(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 it to be suitable 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 and promulgate 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 administrating carrier and setting forth the powers and duties of the administering carrier;

(d) Establish procedures for collecting assessments from all reinsuring carriers to fund claims and administrative expenses incurred or estimated to be incurred by the program; 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, 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 joint 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 reinsuring carriers;

(d) Define the health benefit plans for which the reinsurance will be provided, and to issue reinsurance policies, in accordance with the requirements of this chapter;

(e) Establish rules, conditions, and procedures for reinsuring risks under the program;

(f) Establish actuarial functions as appropriate for the operation of the program;

(g) Assess reinsuring carriers in accordance with the provisions of subsection (12) of this section, and to make advance interim assessments as may be reasonable and necessary to organization and interim operating expenses. Any interim assessments shall be credited as offsets against any regular assessments due following the close of the calendar year;

(h) 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; and

(i) 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.

(9) A reinsuring carrier may reinsure with the program as provided for in this subsection:

(a) With respect to a basic health benefit plan, the program shall reinsure the level of coverage provided and, with respect to other plans, the program shall reinsure up to the level of coverage provided in the basic health benefit plan;

(b) A small employer may reinsure an entire employer group within sixty days of the commencement of the group's coverage under a health benefit plan;

(c) A reinsuring carrier may reinsure an eligible employee or dependent within a period of sixty days following the commencement of the coverage with the small employer. A newly eligible employee or dependent of a reinsured small employer may be reinsured within sixty days of the commencement of his or her coverage;

(d)(i) The program shall not reimburse a reinsuring carrier with respect to the claims of a reinsured employee or dependent until the carrier has incurred an initial level of claims for such employee or dependent of five thousand dollars in a calendar year for benefits covered by the program. In addition, the reinsuring carrier shall be responsible for fifteen percent of the next one hundred thousand dollars of incurred claims during a calendar year. A reinsuring carrier's liability under this subsection (9)(d)(i) shall not exceed a maximum limit of twenty thousand dollars in any one calendar year with respect to any reinsured individual;

(ii) The board annually shall adjust the initial level of claims and the maximum limit to be retained by the carrier to reflect increases in costs and utilization within the standard market for health benefit plans within Washington state. The adjustment shall not be less than the annual change in medical component of the "Consumer Price Index of All Urban Consumers" of the department of labor, bureau of labor statistics, unless the board proposes and the commissioner approves a lower adjustment factor;

(e) A small employer carrier may terminate reinsurance for one or more of the reinsured employees or dependents of a small employer on any plan anniversary.

(10)(a) The board, as part of the plan of operation, shall establish a methodology for determining premium rates to be charged by the program for reinsuring small employers and individuals pursuant to this section. The methodology shall include a system for classification of small employers that reflects the types of case characteristics commonly used by small employer carriers in Washington state. The methodology shall provide for the development of base reinsurance premium rates, which shall be multiplied by the factors set forth in (b) of this subsection to determine the premium rates for the program. The base reinsurance premium rates shall be established by the board, subject to the approval of the commissioner, and shall be set at levels which reasonably approximate gross premiums charged to small employers by small employer carriers for health benefit plans with benefits similar to the basic benefit plan.

(b) Premiums for the program shall be as follows:

(i) An entire small employer group may be reinsured for a rate that is one and one-half times the base reinsurance premium rate for the group established pursuant to this subsection (10)(b)(i).

(ii) An eligible employee or dependent may be reinsured for a rate that is five times the base reinsurance premium rate for the individual established pursuant to this subsection (10)(b)(ii).

(c) The board periodically shall review the methodology established under (a) of this subsection, including the system of classification and any rating factors, to assure that it reasonably reflects the claims experience of the program. The board may propose changes to the methodology which shall be subject to the approval of the commissioner.

(11) If a health benefit plan for a small employer is entirely or partially reinsured with the program, the premium charged to the small employer for any rating period for the coverage issued shall meet the requirements relating to premium rates set forth in section 6 of this act.

(12)(a) Prior to March 1 of each year, the board shall determine and report to the commissioner the program net loss for the previous calendar year, including administrative expenses and incurred losses for the year, taking into account investment income and other appropriate gains and losses.

(b) Any net loss for the year shall be recouped by assessments of reinsuring carriers.

(i) The board shall establish, as part of the plan of operation, a formula by which to make assessments against reinsuring carriers. The assessment formula shall be based on:

(A) Each reinsuring carrier's share of total premiums earned in the preceding calendar year from health benefit plans issued to small employers in this state by reinsuring carriers; and

(B) Each reinsuring carrier's share of the premiums earned in the preceding calendar year from newly issued health benefit plans issued during such calendar year to small employers in Washington state by reinsuring carriers.

(ii) The formula established pursuant to (b)(i) of this subsection shall not result in any reinsuring carrier having an assessment share that is less than fifty percent nor more than one hundred fifty percent of an amount which is based on the proportion of the reinsuring carrier's total premiums earned in the preceding calendar year from health benefit plans issued to small employers in Washington state by reinsuring carriers to total premiums earned in the preceding calendar year from health benefit plans issued to small employers in this state by all reinsuring carriers.

(iii) The board may, with approval of the commissioner, change the assessment formula established pursuant to (b)(i) of this subsection from time to time as appropriate. The board may provide for the shares of the assessment base attributable to premiums from all health benefit plans and to premiums from newly issued health benefit plans to vary during a transition period.

(iv) Subject to approval of the commissioner, the board shall make an adjustment to the assessment formula for reinsuring carriers that are approved health maintenance organizations which are federally qualified under 42 U.S.C. Sec. 300, et seq., to the extent, if any, that restrictions are placed on them that are not imposed on other small employer carriers.

(v) Premiums and benefits paid by a reinsuring carrier that are less than an amount determined by the board to justify the cost of collection shall not be considered for purposes of determining assessments.

(c)(i) Prior to March 1 of each year, the board shall determine and file with the commissioner an estimate of the assessments needed to fund the losses incurred by the program in the previous calendar year.

(ii) If the board determines that the assessments needed to fund the losses incurred by the program in the previous calendar year will exceed the amount specified in (b)(iii) of this subsection, the board shall evaluate the operation of the program and report its findings, including recommendations for changes to the plan of operation, to the commissioner within ninety days following the end of the calendar year in which the losses were incurred. The evaluation shall include an estimate of future assessments, the administrative costs of the program, the appropriateness of the premiums charged and the level of insurer retention under the program, and the costs of coverage for small employers. If the board fails to file a report with the commissioner within ninety days following the end of the applicable calendar year, the commissioner may evaluate the operations of the program and implement such amendments to the plan of operation the commissioner deems necessary to reduce future losses and assessments.

(iii) For any calendar year, the amount specified in this subsection is five percent of total premiums earned in the previous year from health benefit plans issued to small employers in Washington state by reinsuring carriers.

(d) If assessments exceed net losses of the program, the excess shall be held at interest and used by the board to offset future losses or to reduce program premiums. As used in this subsection, "future losses" includes reserves for incurred but not reported claims.

(e) Each reinsuring carrier's proportion of the assessment shall be determined annually by the board based on annual statements and other reports deemed necessary by the board and filed by the reinsuring carriers with the board.

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

(g) A reinsuring carrier may seek from the commissioner a deferment from all or part of an assessment imposed by the board. The commissioner may defer all or part of the assessment of a reinsuring carrier if the commissioner determines that the payment of the assessment would place the reinsuring carrier in a financially impaired condition. If all or part of an assessment against a reinsuring carrier is deferred, the amount deferred shall be assessed against the other reinsuring carriers in a manner consistent with the basis for assessment set forth in this subsection. The reinsuring carrier receiving such deferment shall remain liable to the program for the amount deferred and shall be prohibited from reinsuring any individuals or groups in the program until such time as it pays the deferred assessments.

(13) Neither the participation in the program as reinsuring carriers, the establishment of rates, forms, or procedures, nor any other joint or collective actions required by this chapter shall be the basis for any legal action, criminal or civil liability, or penalty against the program or any of its reinsuring carriers jointly or separately.

(14) 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 compensation currently used in the industry, and the overall costs of coverage to small employers selecting these plans.

(15) The board shall commission an actuarial study, by an independent actuary approved by the commissioner, within the first two 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 and the availability of coverage to small employers.

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

NEW SECTION. Sec. 11. 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 section 7 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. 12. PERIODIC MARKET EVALUATION. 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.

NEW SECTION. Sec. 13. 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. 14. ADMINISTRATIVE PROCEDURES. The commissioner may issue rules in accordance with the small employer health coverage reform act.

NEW SECTION. Sec. 15. STANDARDS TO ASSURE FAIR MARKETING. (1) Each small employer carrier shall actively market health benefit plan coverage, including basic health benefit plans, to eligible small employers in Washington state. If a small employer carrier denies coverage to a small employer on the basis of the health status or claims experience of the small employer or its employees or dependents, the small employer carrier shall offer the small employer the opportunity to purchase a basic health benefit plan.

(2)(a) Except as provided in (b) of this subsection, no small employer carrier or producer shall, directly or indirectly, engage in the following activities:

(i) Encourage or direct small employers to refrain from filing an application for coverage with the small employer carrier because of the health status, claims experience, industry, occupation, or geographic location of the small employer;

(ii) Encourage or direct small employers to seek coverage from another carrier because of the health status, claims experience, industry, occupation, or geographic location of the small employer.

(b) The provisions of (a) of this subsection shall not apply with respect to information provided by a small employer carrier or producer to a small employer regarding the established geographic service area or a restricted provider network provision of a small employer carrier.

(3)(a) Except as provided in (b) of this subsection, no small employer carrier shall, directly or indirectly, enter into any contract, agreement, or arrangement with a producer that provides for or results in the compensation paid to a producer for the sale of a health benefit plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the small employer.

(b) Subsection (3)(a) of this section shall not apply with respect to a compensation arrangement that provides compensation to a producer on the basis of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic location of the small employer.

(4) A small employer carrier shall provide reasonable compensation, as provided under the plan of operation of the program, to a producer, if any, for the sale of a basic health benefit plan.

(5) No small employer carrier shall terminate, fail to renew, or limit its contract or agreement of representation with a producer for any reason related to the health status, claims experience, industry, occupation, or geographic location of the small employers placed by the producer with the small employer carrier.

(6) 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.

(7) Denial by a small employer carrier of an application for coverage from a small employer shall be in writing and shall state the reason or reasons for the denial.

(8) The commissioner may adopt by rule additional standards to provide for the fair marketing and broad availability of health benefit plans to small employers in Washington state.

(9)(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 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. 16. CAPTIONS. Captions as used in this act constitute no part of the law.

NEW SECTION. Sec. 17. 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. 18. EFFECTIVE DATE. This act shall take effect July 1, 1993.

NEW SECTION. Sec. 19. Sections 1 through 18 of this act shall constitute a new chapter in Title 48 RCW.