Preproposal statement of inquiry was filed as WSR 08-21-089.
Title of Rule and Other Identifying Information: Regulating health and welfare self-insurance requirements as to local governments.
Hearing Location(s): Washington Cities Insurance Authority, 320 Andover Park East, Tukwila, WA 98138, on March 25, [2010,] at 10:00 a.m.
Date of Intended Adoption: May 1, 2010.
Submit Written Comments to: Roselyn Marcus, Office of Financial Management, P.O. Box 43113, Olympia, WA 98504-3113, e-mail Roselyn.Marcus@ofm.wa.gov, fax (306) 664-2832, by March 18, 2010.
Assistance for Persons with Disabilities: Contact Lillian Austin by March 18, 2010, TTY (360) 902-0679 or (360) 902-0533.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: When chapter 82-60 WAC was updated for the property and liability local government self-insurance (LGSI) programs, the standards for health and welfare (H/W) programs were removed, to be placed in its own WAC chapter. These two programs have become different, requiring standards that specifically address regulatory requirements for each type of program independently. As a result, temporary guidelines were put into place while engaging in rule making as prescribed in chapter 34.05 RCW.
LGSI programs have operated under temporary guidelines. This has led to confusion among the programs in determining what standards apply. Also, the rules were not specific enough as to each type of program. Given changes in the insurance, economic and legal environment, oral waivers from rules and guidelines requirements were provided to some programs, creating further confusion due to lack of written documentation.
The state risk manager is required to adopt rules which create standards for solvency, management, operations and certain contracts. The office of financial management (OFM), working with the H/W advisory board, has created this separate proposed chapter 82-65 WAC, which (1) creates a separate set of rules for H/W programs, (2) replaces temporary guidelines with updated rules specific to both individual and joint health and welfare programs, and (3) removes the provision for waivers from rules and guidelines and allows the state risk manager to consistently regulate all programs.
Reasons Supporting Proposal: The removal of the rules for individual and joint health and welfare programs from chapter 82-60 WAC and their resulting placement in a separate chapter will allow all individual and joint health and welfare programs to clearly identify standards that apply to those programs in a newly created separate chapter. By creating rules, rather than guidelines, local government wishing to form new programs will be able to easily locate the specific regulations which apply to their programs in the rules, as prescribed in RCW 48.62.061. Because these rules will clearly identify standards specific to each type of program, compliance with regulations will improve, regulation will be consistent, and waivers will no longer be necessary.
Statutory Authority for Adoption: RCW 48.62.061.
Statute Being Implemented: Chapter 48.62 RCW.
Rule is not necessitated by federal law, federal or state court decision.
Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: To obtain a copy of the rules, or to submit written comments on the rules, please contact either Shannon Stuber at firstname.lastname@example.org, phone (360) 902-7311, or Roselyn Marcus at email@example.com, phone (360) 902-0568.
Name of Proponent: OFM, governmental.
Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Shannon Stuber, General Administration Building, P.O. Box 41027, Olympia, (360) 902-7311.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The implementation of these rules have no or minimal cost to small business.
A cost-benefit analysis is not required under RCW 34.05.328. OFM is not an agency listed in RCW 34.06.328 [34.05.328] (5)(a)(i). Further, OFM does not voluntarily make section 201 applicable to this rule adoption nor to date, has JARRC made section 201 applicable to this rule adoption.
January 27, 2010
Director of Legal Affairs
LOCAL GOVERNMENT SELF-INSURANCE HEALTH AND WELFARE PROGRAM REQUIREMENTS
(2) "Assessment" means the moneys paid by the members to a joint self-insurance program.
(3) "Beneficiary" means any individual entitled to payment of all or part of a covered claim under a local government health and welfare self-insurance program.
(4) "Broker of record" means the insurance producer licensed in the state of Washington who, through a contractual agreement with the self-insurance program, procures insurance on behalf of the self-insurance program.
(5) "Claim" means a demand for payment for the delivery of a covered service or services.
(6) "Claim adjustment expense" means expenses, other than claim payments, incurred in the course of processing and settling claims.
(7) "Claims auditor" means a person who has the following qualifications:
(a) Has experience in auditing the same manner of claims filed against the program being audited;
(b) Provides proof of professional liability insurance; and
(c) Provides a statement that the auditor is independent from the program being audited, its brokers and third-party administrators.
(8) "Competitive process" means a formal sealed, electronic, or web-based bid procedure, used by joint self-insurance programs consisting of multiple entity types, for all nonclaims related purchases for goods and services over fifty thousand dollars. For purchases between five thousand dollars and fifty thousand dollars, competitive process means quotations obtained from at least three vendors by telephone or written quotations, or both, and supported by evidence of competition. Purchases up to five thousand dollars are exempt from competitive bids providing procurement is based on obtaining maximum quality at minimum cost.
(9) "Competitive solicitation" means a documented formal process requiring sealed bids, providing an equal and open opportunity to qualified parties and culminating in a selection based on criteria which may include such factors as the consultant's fees or costs, ability, capacity, experience, reputation, responsiveness to time limitations, responsiveness to solicitation requirements, quality of previous performance, and compliance with statutes and rules relating to contracts or services.
(10) "Consultant" means an independent individual or firm contracting with a self-insurance program to perform actuarial, claims auditing or third-party administration services, represent the program as broker of record, or render an opinion or recommendation according to the consultant's methods, all without being subject to the control of the program, except as to satisfaction of the contracted deliverables.
(11) "Contingent reserve policy" means a policy adopted by the governing body of an individual or joint program which establishes the amount of money (contingent reserves) necessary to fund the termination costs of the program and to insulate the program against unusual severity or frequency of claims.
(12) "Contingent reserves" means:
(a) For joint programs, an amount of money equal to eight weeks of program expenses as stated in the contingent reserve policy established by ordinance or resolution of the governing body;
(b) For individual programs, an amount of money equal to eight weeks of program expenses as recommended by the state risk manager or equal to a different amount as stated in the contingent reserve policy established by ordinance or resolution of the governing body.
(13) "Contribution" means the amount paid or payable by the employee into a health and welfare self-insurance program.
(14) "Governing body" means the multimember board, commission, committee, council, or other policy or rule-making body of a public agency, or any committee thereof when the committee acts on behalf of the governing body, conducts hearings, or takes testimony or public comment.
(15) "Individual self-insurance program" means a formal program established and maintained by a local government entity to provide advance funding to self-insure health and welfare benefits on its own behalf as opposed to risk assumption, which means a decision to absorb the entity's financial exposure to a risk of financial loss without the creation of a formal program of advance funding of anticipated losses.
(16) "Interlocal agreement" means an agreement joining local government members of a self-insurance program that is established under the Interlocal Cooperation Act defined in chapter 39.34 RCW.
(17) "Joint self-insurance program" means any two or more local government entities which have entered into a cooperative risk sharing agreement pursuant to the provisions of the Interlocal Cooperation Act (chapter 39.34 RCW) and/or subject to regulation under chapter 48.62 RCW.
(18) "Member" means a local government entity that:
(a) Is a signatory to a joint insurance program's interlocal agreement;
(b) Agrees to future assessments or reassessments as part of the program's joint self-insurance program; and
(c) Is a past or present participant in a joint self-insurance program subject to regulation under chapter 48.62 RCW.
(19) "Program liability" means an amount as of fiscal year end determined by each program to be either:
(a) Eight weeks of total program expenses based on total program expenses paid during the previous year; or
(b) The program's liability as determined by an actuary.
(20) "Program reserves" means moneys set aside to pay expenses of an individual or joint self-insurance program.
(21) "Reassessment" means additional moneys paid by the members to a joint self-insurance program.
(22) "Risk sharing" means a decision by the members of a joint self-insurance program to jointly absorb certain or specified financial exposures to risks of loss through the creation of a formal program of advance funding of anticipated losses; and/or joint purchase of insurance as a member of a joint self-insurance program formed under chapter 48.62 RCW.
(23) "Self-insurance program" means any individual or joint local government entity self-insurance program required by chapter 48.62 RCW to comply with this chapter.
(24) "Services" means administrative, electronic, management, training, wellness or other ongoing significant support services which do not include the participation in or purchase of the pool's commercial or self-insured insurance programs.
(25) "Stop-loss insurance" means a promise by an insurance company that it will cover losses of the entity it insures over and above an agreed-upon individual or aggregated amount.
(26) "Termination cost" means an estimate of the program's liabilities at the time the program ceases to operate, which shall include, at a minimum, final claim payments, claim adjustment expenses, unallocated loss adjustment expenses, and costs attributed to increased utilization.
(27) "Third-party administrator" means an independent association, agency, entity or enterprise which, through a contractual agreement, provides one or more of the following ongoing services: Program management or administration services, claims administration services, risk management services, or services for the design, implementation, or termination of an individual or joint self-insurance program.
(28) "Unallocated loss adjustment expense (ULAE)" means costs that cannot be associated with specific claims but are related to the claims adjustment process, such as administrative and internal expenses related to settlement of claims at the termination of the program.
(2) The governing body of every local government entity participating in a joint self-insurance program shall adopt the interlocal agreement of the joint self-insurance program by resolution or ordinance. The resolution or ordinance shall include, but not be limited to, an acknowledgment that the entity shall be subject to assessments and reassessments as required by the joint self-insurance program. Copies of each resolution or ordinance shall be retained by the joint self-insurance program and available for inspection by the state risk manager. The interlocal agreement, along with a list of members participating in the program, shall be published on the public web site of each joint self-insurance program. The interlocal agreement and subsequent amendments shall be filed in accordance with requirements of chapter 39.34 RCW.
(a) Establish program reserves in an amount equal to eight weeks of program expenses;
(b) Maintain an aggregate stop-loss insurance policy with an attachment point set between one hundred percent and one hundred twenty-five percent of annual claim costs; and
(c) Establish by ordinance or resolution of the governing body, an additional contingency reserve in the following amounts:
(i) For joint programs, an amount equal to at least eight weeks of program expenses;
(ii) For individual programs, an amount equal to at least eight weeks of program expenses (recommended), or a different amount approved by the state risk manager in writing.
(2) In lieu of the previous requirements stated in WAC 82-65-040(1), all individual and joint health and welfare programs self-insuring medical benefits must obtain an independent actuarial study and fund to the actuarially determined program liability.
(3) All individual and joint health and welfare programs self-insuring dental and prescription drug benefits shall establish and maintain program reserves in an amount not less than eight weeks of program expenses. An additional contingency reserve established by the governing body is recommended, but not required.
(4) All programs in existence less than one year shall establish reserves per the initial plan submitted and approved by the state risk manager.
(5) Self-insurance programs that do not meet requirements for program reserves as of the program's year end shall notify the state risk manager of the condition. The state risk manager shall require the program submit a corrective action plan within sixty days of year end. The state risk manager will notify the program in writing of denial or approval of the corrective action plan within thirty days of submission.
(6) Failure to meet the requirements of the approved corrective action plan may result in further remedial action by the state risk manager, including the service of a cease and desist order upon the program.
(a) Applicable restrictions, limitations, and exclusions;
(b) The procedure for filing a claim for benefits;
(c) The procedure for requesting an adjudication of disputes or appeals arising from beneficiaries regarding the payment or denial of any claim for benefits; and
(d) A schedule of any direct monetary contributions toward the program financing required by the employee.
Such benefits or procedures shall not be amended without written notice to the covered employees at least thirty days in advance of the effective date of the change unless exigent circumstances can be demonstrated.
(2) All joint self-insurance programs shall ensure every member of the program receives written plan documents which describe:
(a) All coverages or benefits currently provided by the program, including any applicable restrictions, limitations, and exclusions;
(b) The method by which members pay assessments;
(c) The procedure for filing a claim; and
(d) The procedure for a member to request an adjudication of disputes or appeals arising from coverage, claim payment or denial, membership, and other issues.
Such statements shall not be amended without written notice to the members at least thirty days in advance of the effective date of the change unless exigent circumstances can be demonstrated.
(2) Termination of members. All joint self-insurance programs shall maintain a written plan that provides for the termination of membership of a member.
(a) A procedure for accounting for moneys received, payments made and liabilities of the joint program which complies with generally accepted accounting principles. For individual programs, a separate fund to account for revenues and expenses associated with the program is recommended, but not required;
(b) An investment policy which conforms to RCW 48.62.111 governing the investments of the program; and
(c) Individual self-insurance programs shall ensure the preparation and submission of accurate and timely annual financial reports to the state risk manager within one hundred fifty days of fiscal year end.
Joint self-insurance programs shall ensure the submission of unaudited financial statements as prescribed by the state auditor's office within one hundred fifty days of fiscal year end. Joint self-insurance programs shall ensure the submission of audited financial statements to the state risk manager within one year of the program's fiscal year end.
(2) No financial plan of an individual self-insurance program shall permit interfund loans from assets held against liabilities for unpaid claims and claim adjustment expenses except for those amounts which are clearly inactive or in excess of program reserve and contingency reserve requirements.
(3) No financial plan of a joint self-insurance program shall permit loans to any member.
(1) Provide a method of third-party administrator selection using a formal competitive solicitation process;
(2) Require a complete written description of the services to be provided, remuneration levels, contract period and expiration date providing for a contract term no greater than five years. The contract may include an additional one-year extension to be exercised at the discretion of the self-insurance program;
(3) Provide for the confidentiality of the program's information, data and other intellectual property developed or shared during the course of the contract;
(4) Provide for the program's ownership of the information, data, and other intellectual property developed or shared during the course of the contract;
(5) Provide for the expressed authorization of the self-insurance program, consultants to the program, the state auditor, the state risk manager, or their designees, to enter the third-party administrator's premises to inspect and audit the records and performance of the third-party administrator which pertains to the program and to obtain such records electronically with audit travel costs can be eliminated or reduced;
(6) Require the compliance with all applicable local, state and federal laws;
(7) Establish a monitoring and acceptance procedure to determine compliance with third-party administrator contract requirements; and
(8) Establish indemnification provisions and set forth insurance requirements between the parties.
(b) All individual and joint health and welfare self-insurance programs shall have a written claim appeal procedure that contains, as a minimum, a time limit for filing an appeal, a time limit for response, and a provision for the second level of review.
(2) All self-insurance programs may perform claims administration services on their own behalf or may contract for claims administration services with a qualified third-party administrator, provided all of the specific requirements under subsection (1) of this section are included in the contract.
(3) All joint self-insurance programs shall maintain a financial system that identifies claim and claim adjustment expenses.
(4) All joint self-insurance programs shall maintain claim expense reports for all claims made against the joint self-insurance program and its members.
(5) All self-insurance programs offering medical coverage shall obtain a claims audit of claim reserving, adjusting and payment procedures every three years at a minimum. A claims audit shall be conducted by a qualified claims auditor not affiliated with the program, its broker of record, or its third-party administrator. Such review shall be in writing and identify strengths, areas of improvement, findings, conclusions and recommendations. Such review shall be provided to the governing body and retained for a period not less than six years. The scope of the claims audit shall include claims administration procedures listed in subsection (1) of this section.
(6) The state risk manager may require more frequent claims audits for programs that, in the state risk manager's opinion, are not operationally or financially sound. Failure to obtain the requested independent claims audit when required may result in the procurement of such audit by the state risk manager on behalf of the program. Costs of these services shall be the responsibility of the joint self-insurance program.
(2) Joint self-insurance programs shall electronically submit financial statements in the format prescribed by the state auditor's office. Individual programs shall electronically submit the revenue, expenses and other financial data on a form provided by the state risk manager.
(3) All individual and joint self-insurance programs maintaining less than eight weeks of claims reserves shall submit an actuarial study.
(4) All individual and joint self-insurance programs shall submit electronically a list of contracted consultants with the annual report to the state risk manager.
(5) Joint self-insurance programs shall submit electronically the following additional information as part of the annual report to the state risk manager:
(a) Details of changes in articles of incorporation, bylaws or interlocal agreement;
(b) Details of ongoing significant services provided by contract to nonmembers;
(c) List of local government members added to or terminated from the program.
(6) All individual and joint self-insurance programs not meeting reserve requirements described in WAC 82-65-040 shall submit quarterly reports in electronic form until notified by the state risk manager that reserving standards have been met.
(7) Failure to provide required financial reports may result in corrective action by the state risk manager. Such actions may include:
(a) Increase in frequency of examinations;
(b) On-site monitoring by the state risk manager;
(c) Service of a cease and desist order upon the program.
(a) Any change in the terms of the interlocal agreement of a joint self-insurance program;
(b) Elimination or reduction of stop-loss insurance;
(c) Acceptance of any loans or lines of credit;
(d) Provision of services to nonmembers;
(e) Addition of members of other entity types than those included in original application approved by state risk manager.
(2) The following program changes require written notification to the state risk manager prior to implementing the following changes:
(a) Increases in retention level;
(b) Initial contract with a third-party administrator, or change in third-party administrator;
(c) Any change to bylaws of a joint self-insurance program.
(2) All self-insurance programs shall meet the following standards regarding restrictions on the financial interests of the program administrators:
(a) No member of the board of directors; trustee; administrator, including a third-party administrator; or any other person having responsibility for the management or administration of a self-insurance program or the investment or other handling of the program's money shall:
(i) Receive directly or indirectly or be pecuniarily interested in any fee, commission, compensation, or emolument arising out of any transaction to which the program is or is expected to be a party except for salary or other similar compensation regularly fixed and allowed for because of services regularly rendered to the program.
(ii) Receive compensation as a consultant to the program while also acting as a member of the board of directors, trustee, third-party administrator, or as an employee.
(iii) Have any direct or indirect pecuniary interest in any loan or investment of the program.
(b) No consultant or legal counsel to the self-insurance program shall directly or indirectly receive or be pecuniarily interested in any commission or other compensation arising out of any contract or transaction between the self-insurance program and any insurer, health care service contractor, health care supply provider or consultant.
(c) Brokers of record for the self-insurance program may receive compensation for insurance transactions performed within the scope of their licenses. The terms of compensation shall be provided for by contract between the broker of record and the self-insurance program, and the amount or percentage of the compensation must be disclosed in writing. Contracts between brokers of record and the self-insurance program shall include a provision that contingent commissions or other form of compensation not specified in the contract shall not be paid to the broker of record as a result of any self-insurance program insurance transactions. The self-insurance program shall establish a contract provision which requires the broker provide to the program a written annual report on a form provided by the state risk manager which discloses the actual financial compensation received. The report shall include verification that no undisclosed commission was received as a result of any such insurance transaction made on behalf of the program.
(d) No third-party administrator shall serve as an officer or on the board of directors of a self-insurance program.
(2) The state risk manager fees shall be paid by each self-insurance program to the state of Washington, office of financial management within sixty days of the date of invoice. Any self-insurance program failing to remit its fee when due is subject to denial of permission to operate or to a cease and desist order until the fee is paid.
(3) A self-insurance program that has voluntarily or involuntarily terminated shall continue to pay an administrative fee until such time as all liabilities for unpaid claims and claim adjustment expenses and all administrative responsibilities of the self-insurance program have been satisfied.
(4) The state risk manager shall assess each prospective joint health and welfare self-insurance program and each prospective individual health and welfare benefit self-insurance program, an initial investigation fee at a rate determined annually by the state risk manager, with the concurrence of the advisory boards.
(2) The state risk manager shall review any fee appealed by a self-insurance program, together with the reasons for the appeal. Within fourteen days of receipt of notification from the self-insurance program, the state risk manager shall respond in writing to the self-insurance program, either reaffirming the fee or modifying it, and stating the reasons for the decision.
(1) Each member shall pay assessments and reassessments when required by the governing body of the program.
(2) Each member shall obtain approval to join the program from the governing body of the respective member. The approval shall be by resolution or ordinance of the governing body as appropriate for the entity type.
(3) Each member shall become a signatory to the interlocal agreement and subsequent amendments to the interlocal agreement of the joint self-insurance program.
(2) A program intending to provide ongoing significant services to nonmembers shall submit a written plan to the state risk manager for approval prior to providing services. The plan shall include, at a minimum, the services to be provided, the time frame for providing such services, the expected revenues and expenditures resulting from providing said services, and a written legal determination of all potential federal and state tax liabilities created by providing services to nonmembers. The arrangement to provide such services shall be approved in writing by the state risk manager within sixty days of the joint self-insurance program's final plan submission.
(3) Every joint self-insurance program providing ongoing significant services to nonmembers as of the effective date of these regulations must submit a written plan meeting the requirements stated herein.
(2) Amendments to the interlocal agreement shall be adopted by ordinance or resolution of the governing board or council of each member. The signed amendment and copy of the ordinance or resolution, as appropriate, shall be retained by the joint self-insurance program. The interlocal agreement and subsequent amendments shall be published on the electronic web site of the joint self-insurance program.
(3) Changes to any terms of the interlocal agreement shall require amendment using the approval and adoption process described above.
(4) The addition of new members to a joint self-insurance program and/or the subscription of the interlocal agreement by said new members shall not be considered as amendments to the foundation agreement.