HOUSE BILL REPORT

SHB 3002

As Amended by the Senate

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

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (11)

      Signed by Representatives Dellwo, Chair; Zellinsky, Vice Chair; Chandler, Ranking Republican Member; Anderson, Beck, Day, Dorn, Inslee, Nutley, Schmidt and Winsley.

House Staff:John Conniff (786-7119)

AS PASSED HOUSE FEBRUARY 9, 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 non-participating 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 non-participating provider.  If the contractor becomes insolvent, this source of funds is available to pay claims for care rendered by non-participating providers.

Apart from the financial losses faced by a participant in a plan of a 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 non-participating 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 non-participating health care providers.

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

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.

EFFECT OF SENATE AMENDMENTS:  A health care service contractor who offers only limited benefits is not required to offer greater benefits to persons covered by an insolvent contractor who offered broad benefits.

The Insurance Commissioner may establish standards for reviewing a contractor's financial integrity when for any reason its net worth is reduced below $1 million.  The commissioner may waive the $1 million net worth requirement if the contractor is financially sound, but must require compliance with the net worth standard if the contractor's net worth falls below $500,000.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Robert Flanagan, Group Health Cooperative; Mel Sorensen, Washington Physicians Service and Blue Cross; John Woodall, Office of the Insurance Commissioner; and Don Brazier, Washington Physicians Service and Blue Cross.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    These new standards governing health care service contractor net worth, providing protection for consumers against insolvent contractors, and giving consumers an opportunity to replace coverage without proof of insurability reflect months of work on the part of affected contractors to improve consumer protection against insolvent contractors.  The new procedures governing insolvency will allow the Insurance Commissioner to respond quickly and effectively when a contractor encounters financial problems.

House Committee - Testimony Against:      None.

VOTE ON FINAL PASSAGE:

      Yeas 95; Excused 3

Excused:    Representatives Basich, Chandler, Sommers D