SENATE BILL REPORT

SHB 3001

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Zellinsky, R. Meyers, Dellwo and Crane;by request of Insurance Commissioner)

Concerning solvency protection for health maintenance organizations.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 20, 1990; February 22, 1990

Majority Report:  Do pass as amended.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; McCaslin, McMullen, Moore, Smitherman.

Senate Staff:Walt Corneille (786-7416)

                  February 22, 1990

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 22, 1990

BACKGROUND:

Health maintenance organizations (HMOs) must apply for and receive the Insurance Commissioner's permission before selling health coverage in Washington.  However, the insurance code does not require HMOs to meet capital, surplus or other minimum net worth standards as a condition of obtaining authority to conduct business.

Unlike health insurance companies, HMOs do not agree to indemnify consumers (policyholders) for costs incurred in obtaining health care services.  Rather, HMOs directly provide health care services or enter into agreements with providers of health care who, in turn, agree to provide services to consumers.  The contracting health care providers must obtain compensation for services from the HMO, not from the consumer using the services.  Alternatively, if the consumer obtains health care services from a provider who has not entered into a contract with the HMO (a nonparticipating provider), the consumer is directly liable for the costs of such health services.

To protect the consumer in the event the contractor cannot pay for services for which the consumer may be liable, the insurance code requires HMOs to deposit cash, bonds, or other securities with the commissioner to cover the consumer's liability for health care services performed by a nonparticipating provider.  If the HMO becomes insolvent, this source of funds is available to pay claims for care rendered by a nonparticipating provider.

Apart from the financial losses faced by a consumer of an insolvent HMO, the consumer must obtain coverage for health care services from another insurance company, health care service contractor, or HMO.  The ability to obtain other coverage may be impossible if the consumer has a health condition that is unacceptable to other companies.

SUMMARY:

Insurance code provisions governing HMOs are amended to provide new procedures and standards for the protection of consumers in the event of HMO insolvency.

Any rehabilitation, liquidation, or conservation of a HMO shall be conducted in accordance with procedures applicable to the rehabilitation, liquidation, or conservation of an insurance company.

Consumers of a HMO are given the same priority to any assets of their insolvent HMO as is given to policyholders of an insolvent insurance company.  Consumer liability for health care services rendered by a nonparticipating health care provider is treated as a participant claim against the HMO.

HMOs must meet new net worth standards and increased standards for deposits to protect consumers from liability for health care services rendered by nonparticipating health care providers.  Minimum net worth standards are $1 million or 2 percent of the first $150 million annual premium revenues and 1 percent of the annual premium revenues over $150 million or an amount equal to three months of the uncovered expenditures as reported on the financial statement.  HMOs registered before the effective date of the act are allowed a three-year graduated phase-in period before required to meet the net worth requirements.

If a HMO becomes insolvent, the other health care service contractors and HMOs doing business in Washington must permit consumers of the insolvent HMO to enroll in a health plan without proof of insurability.  An HMO must have a plan for handling insolvency that is approved by the commissioner that will allow for the continuation of benefits during the period of the agreement for which premiums have been paid.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

SUMMARY OF PROPOSED SENATE AMENDMENT:

A limited health care service contractor is not required to offer services to a consumer previously serviced by an insolvent HMO other than the limited service provided by that limited health care service contractor.

Senate Committee - Testified: John Woodall, Insurance Department (pro); Mel Sorensen, Washington Physicians Service/Blue Cross