WSR 10-14-035

PROPOSED RULES

OFFICE OF

FINANCIAL MANAGEMENT

[ Filed June 28, 2010, 1:05 p.m. ]

Supplemental Notice to WSR 10-04-036.

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): Office of Financial Management, Insurance Building, Conference Room 440, Olympia, Washington 98504, on August 11, 2010, at 10:30 a.m.

Date of Intended Adoption: October 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) [(360)] 664-2832, by August 11, 2010.

Assistance for Persons with Disabilities: Contact Lillian Austin by August 2, 2010, TTY (360) 902-0679 or (360) 902-0533.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: A hearing was held and a comment period was established to received [receive] comments for the new chapter 82-65 WAC, the updated rules for health and welfare (H/W) programs. The purpose of this rule making was threefold: Create a separate set of rules for H/W programs; replace temporary guidelines with updated rules specific to both individual and joint H/W programs; and remove the provision for waivers from rules and guidelines and allows the state risk manager to consistently regulate all programs. After receiving comments on the rules, changes to the proposed rules were made. The changes proposed for five of the proposed rules may result in a substantial variance from the rules as originally published. This supplemental notice is to enable an additional comment period on the five rules that are being substantially changed.

Reasons Supporting Proposal: The changes are responsive to the comments received by the Health and Welfare Advisory Board and from various H/W programs that are subject to the rule requirements. The contracting requirements have been changed to make the process less rigid, greater flexibility for the programs and allow the process to fit the contract being sought. In addition, the requirement to pay reassessment as a member has been removed as that should be a statutory, not a rule, requirement. The reserve requirements were reduced, consistent with program comments and a new report was added for programs that cease operations. All the changes are the direct result of comments received.

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 shannon.stuber@ofm.wa.gov, phone (360) 902-7311, or Roselyn Marcus at roselyn.marcus@ofm.wa.gov, phone (360) 902-0568.

Name of Proponent: Office of financial management (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.

June 27, 2010

Roselyn Marcus

Director of Legal Affairs

Rules Coordinator

OTS-3350.1


NEW SECTION
WAC 82-65-020   Definitions.   (1) "Actuary" means any person who is a member of the American Academy of Actuaries.

(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 solicitation" means a documented competitive selection process 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.

(9) "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.

(10) "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.

(11) "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.

(12) "Contribution" means the amount paid or payable by the employee into a health and welfare self-insurance program.

(13) "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.

(14) "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.

(15) "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.

(16) "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.

(17) "Member" means a local government entity that:

(a) Is a signatory to a joint insurance program's interlocal agreement;

(b) Agrees to pay assessments 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.

(18) "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.

(19) "Program reserves" means moneys set aside to pay expenses of an individual or joint self-insurance program.

(20) "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.

(21) "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.

(22) "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.

(23) "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.

(24) "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.

(25) "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 termination of an individual or joint self-insurance program.

(26) "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.

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NEW SECTION
WAC 82-65-040   Standards for solvency -- Program funding requirements.   (1) All individual and joint health and welfare programs self-insuring medical benefits shall:

(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 at or below one hundred twenty-five percent of annual expected 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 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 self-insurance programs providing either vision, dental or prescription drug benefit programs or any combination of programs thereof shall establish and maintain program reserves in an amount not less than eight weeks of program expenses for each program offered. 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 according to 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.

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NEW SECTION
WAC 82-65-100   Standards for management -- Standards for contracts -- Third-party administrator contracts.   Before contracting for third-party administrator professional services, all self-insurance programs shall establish and maintain written procedures for contracting with third-party administrators. Entering a contract for services shall not relieve the governing body of the self-insurance program of its ultimate governing, managerial and financial responsibilities. The procedures shall, as a minimum:

(1) Provide a method of third-party administrator selection using a competitive solicitation process;

(2) Require a complete written description of the services to be provided, remuneration levels, contract period and expiration date;

(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.

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NEW SECTION
WAC 82-65-110   Standards for contracts -- Competitive solicitation standards for consultant contracts.   Every joint self-insurance program shall use a competitive solicitation process in the selection of consultants. The process shall provide an equal and open opportunity to qualified parties and shall culminate in a selection based on preestablished 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. Bid responses, solicitation documents and evidence of publication shall be retained in accordance with laws governing public records and shall be available for review by the state risk manager and state auditor.

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NEW SECTION
WAC 82-65-130   Standards for management and operations -- State risk manager reports.   (1) Every individual and joint health and welfare self-insurance program authorized to transact business in the state of Washington shall electronically submit the annual report to the state risk manager no later than one hundred fifty days following the completion of the program's fiscal year. Programs that terminate operations shall continue to submit annual reports until all claims have been paid.

(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 reserves of less than eight weeks of program expenses 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.

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NEW SECTION
WAC 82-65-290   Standards for operation -- Elections of the governing body.   The governing body of every joint self-insurance program shall be elected by a majority of the members. Elections may be conducted during a regular meeting of the governing body or by mail-in ballot. If mail-in ballots are used, the ballots are to be secured and remain unopened until the next regular meeting of the governing body. The opening and counting of the ballots shall be conducted by the governing body of the joint self-insurance program during the next regular meeting and retained in compliance with public records retention laws. Each ballot shall be read orally as to the member name and vote and recorded in the meeting minutes.

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NEW SECTION
WAC 82-65-300   Standards for contracts -- Standards for operation -- Purchases of goods and services.   Joint self-insurance programs comprised of one common entity type must comply with bidding and purchasing requirements as prescribed by law or regulation for that entity type. Joint self-insurance programs comprised of multiple entity types shall use a competitive process for the purchase of goods and services. Vendor selection shall be based on fees or costs, ability, capacity, experience, reputation, and responsiveness to time limitations.

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Washington State Code Reviser's Office