[atlas:bill]

AN ACT Relating to third-party administrators for health carriers; 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 definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Administrator" or "third-party administrator" means a person who directly or indirectly solicits or effects coverage of, underwrites, collects charges or premiums from, or adjusts or settles claims on residents of this state, or residents of another state from offices in this state, in connection with disability insurance coverage, or the prepayment for health care services, except any of the following:

(a) An employer on behalf of its employees or the employees of one or more subsidiaries or affiliated corporations of such employer;

(b) A union on behalf of its members;

(c) A health carrier which is authorized to transact insurance in this state with respect to its own policies lawfully issued and delivered in and under the laws of this state or another state;

(d) A health care service contractor or health maintenance organization registered with the commissioner;

(e) An insurance agent or broker licensed to sell disability insurance or prepaid health care plans in this state whose activities are limited exclusively to the sale of disability insurance or prepaid health care plans;

(f) A creditor on behalf of its debtors with respect to insurance covering a debt between the creditor and its debtors;

(g) A trust and its trustees, agents, and employees acting pursuant to such trust established in conformity with 29 U.S.C. Sec. 186;

(h) A trust exempt from taxation under section 501(a) of the internal revenue code, its trustees and employees acting pursuant to such trust, or a custodian and the custodian's agents or employees acting pursuant to a custodian account which meets the requirements of section 401(f) of the internal revenue code;

(i) A credit union or a financial institution which is subject to supervision or examination by federal or state banking authorities, or a mortgage lender, to the extent they collect and remit premiums to licensed insurance agents or authorized insurers in connection with loan payments;

(j) A credit card issuing company which advances for and collects premiums or charges from its credit card holders who have authorized collection if the company does not adjust or settle claims;

(k) A person who adjusts or settles claims in the normal course of that person's practice or employment as an attorney at law;

(l) An adjuster licensed by this state whose activities are limited to adjustment of claims;

(m) Except as provided in section 12 of this act, a person who acts solely as an administrator or trustee of one or more bona fide employee benefit plans established by an employer or an employee organization, or both, for which the insurance laws of this state are preempted pursuant to the Employee Retirement Income Security Act of 1974;

(n) A person licensed as a managing general agent in this state, whose activities are limited exclusively to the scope of activities conveyed under his or her license and is in compliance with the provisions of chapter 48.98 RCW; or

(o) A group of health care providers who adjust or settle the claims of only the providers in the group or under contract with the group.

(2) "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.

(3) "Commissioner" means the insurance commissioner.

(4) "Control" has the same meaning as defined in RCW 48.31B.005.

(5) "Health carrier" has the same meaning as defined in RCW 48.43.005, and means any person undertaking to provide disability insurance coverage or prepaid health plans in this state. For the purposes of this chapter, "health carrier" includes an authorized insurance company, a registered health care service contractor, a registered health maintenance organization, an authorized multiple employer welfare arrangement, or any other person providing a plan of insurance subject to state insurance regulation. "Health carrier" does not include a bona fide employee benefit plan established by an employer or an employee organization, or both, for which the insurance laws of this state are preempted pursuant to the Employee Retirement Income Security Act of 1974.

(6) "Insurance," as defined in RCW 48.01.040, or "insurance coverage" means any coverage offered or provided by a health carrier.

(7) "Underwrites" or "underwriting" means, but is not limited to, the acceptance of employer or individual applications for coverage of individuals in accordance with the written rules of the health carrier; the overall planning and coordinating of an insurance program; and the ability to procure bonds and excess insurance.

NEW SECTION. Sec. 2. Each carrier is accountable for and must oversee any activities performed by an administrator on its behalf to ensure compliance with chapter 5, Laws of 2000. No contract with an administrator may relieve the health carrier of its obligations to any enrollee for the provision of health care services or of its responsibility for compliance with statutes or rules.

NEW SECTION. Sec. 3. (1) An administrator shall not act as an administrator without a written agreement between the administrator and the health carrier, and the written agreement shall be retained as part of the official records of both the health carrier and the administrator for the duration of the agreement and for seven years thereafter. The agreement shall contain all provisions required by this chapter, except insofar as those requirements do not apply to the functions performed by the administrator.

(2) The written agreement shall include a statement of duties that the administrator is expected to perform on behalf of the health carrier and the lines, classes, or types of insurance for which the administrator is to be authorized to administer. The agreement shall make provision with respect to underwriting or other standards pertaining to the business underwritten by the health carrier.

(3) The health carrier or administrator may, with written notice, terminate the written agreement for cause as provided in the agreement. The health carrier may suspend the underwriting authority of the administrator during the pendency of any dispute regarding the cause for termination of the written agreement. The health carrier must fulfill any lawful obligations with respect to policies affected by the written agreement, regardless of any dispute between the health carrier and the administrator.

NEW SECTION. Sec. 4. If a health carrier utilizes the services of an administrator, the payment to the administrator of any premiums or charges for insurance by or on behalf of the insured party is deemed to have been received by the health carrier, and the payment of return premiums or claim payments forwarded by the health carrier to the administrator is not to be deemed to have been paid to the insured party or claimant until the payments are received by the insured party or claimant. Nothing in this section limits any right of the health carrier against the administrator resulting from the failure of the administrator to make payments to the health carrier, insured parties, or claimants.

NEW SECTION. Sec. 5. (1) Every administrator shall maintain and make available to the health carrier complete books and records of all transactions performed on behalf of the health carrier. The books and records shall be maintained in accordance with prudent standards of insurance recordkeeping and must be maintained for a period of not less than seven years from the date of their creation, and until the books and records have been examined by the commissioner.

(2) The commissioner has access to books and records maintained by an administrator for the purposes of examination, audit, and inspection. Any trade secrets contained in the books and records, including the identity and addresses of policyholders and certificate holders, shall be kept confidential, except that the commissioner may use the information in any proceeding instituted against the administrator.

(3) The commissioner may receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from the national association of insurance commissioners, its affiliates or subsidiaries, and from regulatory and law enforcement officials of other states and nations and of the federal government, and shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information, except that the commissioner may use the documents, materials, or information in any proceeding instituted against the administrator. The commissioner may enter into agreements governing the sharing and use of information consistent with this subsection.

(4) The health carrier owns the records generated by the administrator pertaining to the health carrier. However, the administrator retains the right to continuing access to books and records to permit the administrator to fulfill all of its contractual obligations to insured parties, claimants, and the health carrier.

(5) In the event the health carrier and the administrator cancel their agreement, notwithstanding the provisions of subsection (1) of this section, the administrator may, by written agreement with the health carrier, transfer all records to a new administrator rather than retain them for seven years. In these cases, the new administrator shall acknowledge, in writing, that it is responsible for retaining the records of the prior administrator as required in subsection (1) of this section.

NEW SECTION. Sec. 6. An administrator may use only advertising pertaining to the business underwritten by a health carrier that has been approved in writing by the health carrier in advance of its use.

NEW SECTION. Sec. 7. (1) If a health carrier utilizes the services of an administrator, the health carrier is responsible for determining the benefits, premium rates, underwriting criteria and claims payment procedures applicable to the coverage and for securing reinsurance, if any. The health carrier must provide the rules pertaining to these matters, in writing, to the administrator. The responsibilities of the administrator as to any of these matters shall be set forth in the written agreement between the administrator and the health carrier.

(2) It is the sole responsibility of the health carrier to provide for competent administration of its programs.

(3) In cases where an administrator administers benefits for more than one hundred certificate holders on behalf of a health carrier, the health carrier shall, at least semiannually, conduct a review of the operations of the administrator. At least one such semiannual review shall be an on-site audit of the operations of the administrator.

NEW SECTION. Sec. 8. (1) All insurance charges or premium, however denominated, collected by an administrator on behalf of or for a health carrier or health carriers, and the return of premium received from that health carrier or health carriers, shall be held by the administrator in a fiduciary capacity. These funds shall be immediately remitted to the person or persons entitled to them or shall be deposited promptly in a fiduciary account established and maintained by the administrator in a federally insured financial institution. The written agreement between the administrator and the health carrier shall provide for the administrator to periodically render an accounting to the health carrier detailing all transactions performed by the administrator pertaining to the business underwritten by the health carrier.

(2) If charges or premium deposited in a fiduciary account have been collected on behalf of or for one or more health carriers, the administrator shall keep records clearly recording the deposits in and withdrawals from the account on behalf of each health carrier. The administrator shall keep copies of all the records and, upon request of a health carrier, shall furnish the health carrier with copies of the records pertaining to the deposits and withdrawals.

(3) The administrator shall not pay any claim by withdrawals from a fiduciary account in which premium or charges are deposited. Withdrawals from a fiduciary account shall be made as provided in the written agreement between the administrator and the health carrier. The written agreement shall address, but not be limited to, the following:

(a) Remittance to a health carrier entitled to remittance;

(b) Deposit in an account maintained in the name of the health carrier;

(c) Transfer to and deposit in a claims-paying account, with claims to be paid as provided for in subsection (4) of this section;

(d) Payment to the administrator of its commissions, fees, or charges; and

(e) Remittance of a return premium to the person or persons entitled to such return premium.

(4) All claims paid by the administrator from funds collected on behalf of or for a health carrier shall be paid only on drafts or checks of and as authorized by the health carrier.

NEW SECTION. Sec. 9. (1) An administrator shall not enter into an agreement or understanding with a health carrier in which the effect is to make the amount of the administrator's commissions, fees, or charges contingent upon savings effected in the adjustment, settlement, and payment of losses covered by the health carrier's obligations. This provision shall not prohibit an administrator from receiving performance-based compensation for providing hospital or other auditing services.

(2) This section shall not prevent the compensation of an administrator from being based on premiums or charges collected or the number of claims paid or processed.

NEW SECTION. Sec. 10. (1) When the services of an administrator are utilized, the administrator shall provide a written notice approved by the health carrier to covered individuals advising them of the identity of, and relationship among, the administrator, the policyholder, and the health carrier.

(2) When an administrator collects funds, the reason for collection must be identified to the insured party. No additional charges may be made to the insured other than the insurance premium.

(3) The administrator shall disclose to the health carrier all charges, fees, and commissions received from all sources in connection with the provision of administrative services for the health carrier, including any fees or commissions paid by insurers providing reinsurance.

NEW SECTION. Sec. 11. Any policies, certificates, booklets, termination notices, or other written communications delivered by the health carrier to the administrator for delivery to insured parties or covered individuals shall be delivered by the administrator promptly after receipt of instructions from the health carrier to deliver them.

NEW SECTION. Sec. 12. (1) A person shall not act, or offer to act as, or hold himself or herself out to be an administrator in this state or with residents of this state without a valid certificate of authority as an administrator issued by the commissioner.

(2) Applicants to be an administrator shall make an application to the commissioner upon a form to be furnished by the commissioner. The application shall include or be accompanied by the following information and documents:

(a) All basic organizational documents of the administrator, including any articles of incorporation, articles of association, partnership agreement, trade name certificate, trust agreement, shareholder agreement, and other applicable documents and all amendments to those documents;

(b) The bylaws, rules, regulations, or similar documents regulating the internal affairs of the administrator;

(c) The names, addresses, official positions, and professional qualifications of the individuals who are responsible for the conduct of affairs of the administrator, including all members of the board of directors, board of trustees, executive committee, or other governing board or committee; the principal officers in the case of a corporation or the partners or members in the case of a partnership, association, or limited liability company; shareholders or members holding directly or indirectly ten percent or more of the voting stock, voting securities, or voting interest of the administrator; and any other person who exercises control or influence over the affairs of the administrator;

(d) Audited annual financial statements or reports for the two most recent years that prove that the applicant is solvent and any information the commissioner may require in order to review the current financial condition of the applicant;

(e) A statement describing the business plan including information on staffing levels and activities proposed in this state and nationwide. The plan must provide details setting forth the administrator's capability for providing a sufficient number of experienced and qualified personnel in the areas of claims processing, recordkeeping, and underwriting;

(f) If the applicant will be managing the solicitation of new or renewal business, proof that it employs or has contracted with an agent licensed by this state for solicitation and taking of applications. Any applicant that intends to directly solicit insurance contracts or to otherwise act as an insurance agent must provide proof that it has a license as an insurance agent in this state;

(g) Any other pertinent information as may be required by the commissioner; and

(h) An application fee of two hundred fifty dollars which shall be deposited to the insurance commissioner's regulatory account under RCW 48.02.190.

(3) The applicant shall make available for inspection by the commissioner copies of all contracts with health carriers or other persons utilizing the services of the administrator.

(4) The administrator shall produce its accounts, records, and files for examination, and make its officers available to give information with respect to its affairs, as often as reasonably required by the commissioner. An examination of an administrator by the commissioner or by examiners designated by the commissioner shall be at the expense of the administrator being examined. The administrator examined and liable therefore shall reimburse the state upon presentation of an itemized statement thereof, for the actual travel expenses of the commissioner's examiners, their reasonable living allowance, and their per diem compensation, including salary and the employer's cost of employee benefits, at a reasonable rate approved by the commissioner, incurred on account of the examination.

(5) The commissioner may refuse to issue a certificate of authority if the commissioner determines that the administrator, or any individual responsible for the conduct of affairs of the administrator under subsection (2)(c) of this section, is not competent, trustworthy, financially responsible, or of good personal and business reputation, or has had an insurance or an administrator license denied or revoked for cause by any state, or if the commissioner determines that any of the grounds set forth in section 15 of this act exist with respect to the administrator.

(6) A certificate of authority issued under this section shall remain valid, unless surrendered, suspended, or revoked by the commissioner, for so long as the administrator continues in business in this state and remains in compliance with this chapter.

(7) An administrator is not required to hold a certificate of authority as an administrator in this state if all of the following conditions are met:

(a) The administrator has its principal place of business in another state;

(b) The administrator is not soliciting business as an administrator in this state; and

(c) In the case of any group policy or plan of insurance serviced by the administrator, fewer than one hundred certificate holders reside in this state.

(8) A person is not required to hold a certificate of authority as an administrator in this state if the person exclusively provides services to one or more bona fide employee benefit plans each of which is established by an employer or an employee organization, or both, and for which the insurance laws of this state are preempted by the Employee Retirement Income Security Act of 1974. These persons shall register with the commissioner annually, verifying their status.

(9) An administrator shall notify the commissioner within fifteen days of any material change in its ownership, control, or other fact or circumstance affecting its qualification for a certificate of authority in this state.

NEW SECTION. Sec. 13. Upon request from an administrator, the commissioner may waive the application requirements of section 12(2) of this act if the administrator has a valid certificate of authority as an administrator issued in a state that has standards for administrators that are at least as stringent as those contained in this act.

NEW SECTION. Sec. 14. (1) Each administrator shall file an annual report for the preceding calendar year with the commissioner before March 1st of each year, or within an extension of time the commissioner for good cause may grant. The report shall be in the form and contain those matters the commissioner prescribes and shall be verified by at least two officers of the administrator.

(2) The annual report shall include the complete names and addresses of all health carriers with which the administrator had an agreement during the preceding fiscal year.

(3) At the time of filing its annual report, the administrator shall pay a filing fee of two hundred dollars, which shall be deposited to the insurance commissioner's regulatory account under RCW 48.02.190.

NEW SECTION. Sec. 15. (1) The certificate of authority of an administrator shall be denied, nonrenewed, suspended, or revoked if the commissioner finds that the administrator:

(a) Is in an unsound financial condition;

(b) Is using methods or practices in the conduct of its business so as to render its further transaction of business in this state hazardous or injurious to insured persons or the public; or

(c) Has failed to pay any judgment rendered against it in this state within sixty days after the judgment has become final.

(2) The commissioner may, in his or her discretion, deny, nonrenew, suspend, or revoke the certificate of authority of an administrator if the commissioner finds that the administrator:

(a) Has violated any lawful rule or order of the commissioner or the insurance laws of this state;

(b) Has refused to be examined or to produce its accounts, records, and files for examination, or if any of its officers has refused to give information with respect to its affairs or has refused to perform any other legal obligation as to an examination, when required by the commissioner;

(c) Has, without just cause, refused to pay proper claims or perform services arising under its contracts or has, without just cause, caused covered individuals to accept less than the amount due them or caused covered individuals to employ attorneys or bring suit against the administrator to secure full payment or settlement of such claims;

(d) Is affiliated with or under the same general management or interlocking directorate or ownership as another administrator or health carrier that unlawfully transacts business in this state without having a certificate of authority;

(e) At any time fails to meet any qualification for which issuance of the certificate could have been refused had such failure then existed and been known to the commissioner;

(f) Has been convicted of, or has entered a plea of guilty or nolo contendere to, a felony without regard to whether adjudication was withheld;

(g) Has had any of its principal directors or officers convicted of, or has entered a plea of guilty or nolo contendere to, a felony without regard to whether adjudication was withheld;

(h) Is under suspension or revocation in another state; or

(i) Has failed to timely file its annual report and pay its annual filing fee under section 14 of this act.

(3) The commissioner may, in his or her discretion and without advance notice or hearing thereon, immediately suspend the certificate of an administrator if the commissioner finds that one or more of the following circumstances exist:

(a) The administrator is insolvent or impaired;

(b) A proceeding for receivership, conservatorship, rehabilitation, or other delinquency proceeding regarding the administrator has been commenced in any state; or

(c) The financial condition or business practices of the administrator otherwise pose an imminent threat to the public health, safety, or welfare of the residents of this state.

(4) If the commissioner finds that one or more grounds exist for the suspension or revocation of an administrator's certificate of authority, the commissioner may, in lieu of suspension or revocation, impose a fine upon the administrator.

NEW SECTION. Sec. 16. The commissioner may adopt rules to implement and administer this chapter.

NEW SECTION. Sec. 17. This act takes effect January 1, 2002.

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