SENATE BILL REPORT

SHB 3002

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 care service contractors.

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 McCaslin, McMullen, Matson, Moore, Rasmussen, Smitherman.

Senate Staff:Walt Corneille (786-7416)

                  February 27, 1990

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

BACKGROUND:

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

Unlike health insurance companies, contractors do not agree to indemnify participants (policyholders) for costs incurred in obtaining health care services.  Rather, contractors enter into agreements with providers of health care who in turn agree to provide services to participants in the contractor's health plan.  The health care providers must obtain compensation for services from the contractor, not the participant using the services.  Alternatively, if the participant obtains health care services from a provider who has not entered into a contract with the service contractor (a nonparticipating provider), the participant is directly liable for the costs of such health services.

To protect the participant in the event the contractor cannot reimburse the participant, the insurance code requires contractors to obtain insurance or deposit cash, bonds, or other securities with the commissioner to cover the participant's liability for health care services performed by a nonparticipating provider.  If the contractor becomes insolvent, this source of funds is available to pay claims for care rendered by nonparticipating providers.

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

SUMMARY:

Insurance code provisions governing health care service contractors are amended to provide new procedures and standards for the protection of consumers in the event of contractor insolvency.

Any rehabilitation, liquidation, or conservation of a health care service contractor must be conducted in accordance with procedures applicable to the rehabilitation, liquidation, or conservation of an insurance company.

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

Health care service contractors must meet new net worth standards and increased standards for deposits to protect participants from liability for health care services rendered by nonparticipating health care providers.  Net worth requirements for health care service contractors are $1.5 million at the time of initial registration and $1 million thereafter.

Participating health care providers are prohibited from maintaining an action against a participant to collect sums owed by the insolvent contractor.

Health care service contractors registered before the effective date of the act are allowed a three-year graduated phase in period before being required to meet the net worth requirements.

If contractor becomes insolvent, the other contractors and health maintenance organizations doing business in Washington must permit participants of the insolvent contractor to enroll in a health plan without proof of insurability.  A health care service contractor must have a plan for handling insolvency that is approved by the commissioner that will allow for the continuation of benefits for the duration of a contract 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 health care service contractor other than the limited service provided by that limited health care service contractor.

The commissioners may establish standards for reviewing a health care service contractor's financial strength when its net worth drops below $1 million.  The commissioner may waive compliance with the $1 million net worth requirement; however, if the net worth drops below $500,000, the commissioner must require that the net worth be increased to $1 million.

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