H-4337

AN ACT Relating to reinsurance; adding a new chapter to Title 48 RCW; and providing an effective date.

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

NEW SECTION. Sec. 1. The legislature finds that it is difficult for group disability insurers, contractors, or health maintenance organizations to provide coverage to small employer groups because the experience rating base is small. It finds that when such coverage is provided the issuer may need to make enormous rate increases from one year to the next in order to cover losses. The legislature further finds that with huge rate increases, provisions such as guaranteed renewability and conversion rights lose their meaning, which creates a problem of accessibility.

It is the intent of the legislature to make it economically feasible for issuers to provide small employer group coverage by creating a stop-loss mechanism within the office of the insurance commissioner. The purpose of which will be to protect both employers and issuers from unusual claims.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Issuer" means group disability insurers as defined in chapter 48.21 RCW, health service contractors as defined in chapter 48.44 RCW, and health maintenance organizations as defined in chapter 48.46 RCW.

(2) "Small employer" and "employer" mean a business which, during the most recent calendar year, employed at least three and not more than fifty employees who are eligible for coverage under a health care benefit plan on at least fifty percent of that business' working days.

(3) "Health benefit plan" and "plan" mean any group policy, contract, or agreement, which provides medical, surgical, or hospital care or benefits to employees of a small employer and their dependents.

(4) "Premium" means consideration for issuance and administration of a policy, contract, or agreement.

NEW SECTION. Sec. 3. (1) There is hereby created a nonprofit entity to be known as the Washington residents health care reinsurance pool. This pool will serve as a stop loss for claims that exceed twenty-five thousand dollars in any one issuing year on any one individual within the small employer groups.

(2) All issuers providing small business coverage within the state of Washington shall participate in the Washington residents health care reinsurance pool.

(3)(a) The pool shall operate subject to the supervision and control of the board which is hereby created. Subject to the provisions of (b) of this subsection, the board shall consist of eight members appointed by the commissioner plus the commissioner or his or her designated representative, who shall serve as an ex officio member of the board.

(b) In selecting the members of the board, the commissioner shall include representatives of small employers and small employer issuers and other individuals determined to be qualified by the commissioner. At least five of the members of the board shall be representatives of reinsuring issuers and shall be selected from individuals nominated by small employer issuers in this state pursuant to procedures and guidelines developed by the commissioner.

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

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

(4) Premium rates charged for reinsurance by the pool to a health maintenance organization that is federally qualified under 42 U.S.C. Sec. 300c(c)(2)(A), and as such is subject to requirements that limit the amount of risk that may be ceded to the pool, shall be reduced to reflect that portion of the risk above the amount that may not be ceded to the pool, if any.

(5) Small group employer issuers' participation in excess of loss claim payments will be set by the board in an equitable manner related to experience.

(6)(a) The board, as part of the plan of operation, shall establish a methodology for determining premium rates to be charged by the pool for reinsuring small employers and individuals. The methodology shall include a system for classification of small employers that reflects the types of case characteristics commonly used by small employer issuers in the state.

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

(c) The board may, with approval of the commissioner, change the assessment formula 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.

(d) Subject to the approval of the commissioner, the board shall make an adjustment to the assessment formula for reinsuring issuers that are approved health maintenance organizations that 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 issuers.

NEW SECTION. Sec. 4. 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 marketplace. The report shall address whether issuers and producers are fairly and actively marketing or 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 action.

NEW SECTION. Sec. 5. The commissioner may adopt rules under this chapter.

NEW SECTION. Sec. 6. 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. 7. Sections 1 through 6 of this act shall constitute a new chapter in Title 48 RCW.

NEW SECTION. Sec. 8. This act shall take effect July 1, 1993.