By: Harris, Jack H.B. No. 596
73R903 DLF-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to premium rates and termination of coverage for health
1-3 insurance sold to certain small employer groups.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Subchapter E, Chapter 3, Insurance Code, is
1-6 amended by adding Article 3.50-7 to read as follows:
1-7 Art. 3.50-7. PREMIUM RATES FOR HEALTH INSURANCE
1-8 Sec. 1. PURPOSE. (a) The legislature finds that it is
1-9 difficult for small employers to purchase and retain health
1-10 insurance coverage for their employees. Legislation is needed to
1-11 provide uniformity in establishing and maintaining rates for small
1-12 employers. While not directly impacting affordability of coverage
1-13 for small employers, this legislation is intended to stabilize the
1-14 health insurance marketplace.
1-15 (b) The purpose of this article is to promote the
1-16 availability of health insurance coverage to individuals, to
1-17 prevent abusive rating practices, to require disclosure of rating
1-18 practices to purchasers, and to improve the efficiency and fairness
1-19 of the small group health insurance marketplace.
1-20 Sec. 2. DEFINITIONS. In this article:
1-21 (1) "Base premium rate" means, for each class of
1-22 business for a rating period, the lowest premium rate charged or
1-23 the lowest premium rate that could be charged under a rating system
1-24 for that class of business to small employers with similar case
2-1 characteristics for health benefits plans with the same or similar
2-2 coverage.
2-3 (2) "Carrier" means a person that provides a health
2-4 benefits plan in this state, including an insurance company, a
2-5 health maintenance organization, a group hospital service
2-6 corporation, a multiple employer welfare arrangement, or any other
2-7 person providing a health benefits plan subject to regulation by
2-8 the department.
2-9 (3) "Case characteristics" means demographic or other
2-10 relevant characteristics of a small employer, as determined by a
2-11 small employer carrier, that are considered by the small employer
2-12 carrier in determining the premium rates for that small employer.
2-13 The term does not include claim experience, health status, or
2-14 duration of coverage since the date of issuance of a health
2-15 benefits plan.
2-16 (4) "Class of business" means a class of business
2-17 determined under Section 4 of this article.
2-18 (5) "Health benefits plan" means a hospital or medical
2-19 expense incurred policy or certificate, hospital or medical service
2-20 plan contract, or health maintenance organization subscriber
2-21 contract. The term does not include:
2-22 (A) accident-only, credit, dental, or disability
2-23 income insurance;
2-24 (B) coverage issued as a supplement to liability
2-25 insurance;
2-26 (C) worker's compensation or similar insurance;
2-27 (D) automobile personal injury protection or
3-1 other medical payment insurance; or
3-2 (E) a policy that is individually underwritten
3-3 and individually written.
3-4 (6) "Index rate" means, for each class of business as
3-5 to a rating period for small employers with similar case
3-6 characteristics, the arithmetic average of the applicable base
3-7 premium rate and the corresponding highest premium rate.
3-8 (7) "New business premium rate" means, for each class
3-9 of business as to a rating period, the premium rate charged or
3-10 offered by the small employer carrier to small employers with
3-11 similar case characteristics for newly issued health benefits plans
3-12 with the same or similar coverage.
3-13 (8) "Person" means an individual, corporation,
3-14 organization, partnership, association, or other legal entity.
3-15 (9) "Rating period" means a calendar period determined
3-16 by a small employer carrier for which a premium rate established by
3-17 that carrier is in effect.
3-18 (10) "Small employer" means a person actively engaged
3-19 in a business that, on at least 50 percent of its working days
3-20 during the preceding calendar year, employed at least three and not
3-21 more than 25 eligible employees. In determining the number of
3-22 eligible employees, affiliated companies or companies that are
3-23 eligible to file a combined tax return for purposes of state
3-24 taxation are considered to be one employer.
3-25 (11) "Small employer carrier" means a carrier that
3-26 offers a health benefits plan that provides coverage for employees
3-27 of a small employer.
4-1 Sec. 3. APPLICABILITY. This article applies to a health
4-2 benefits plan that provides coverage to one or more employees of a
4-3 small employer.
4-4 Sec. 4. CLASS OF BUSINESS; DISTINCT GROUPINGS. (a) In this
4-5 article, a class of business is composed of:
4-6 (1) all small employers as shown on the records of a
4-7 small employer carrier; or
4-8 (2) a distinct grouping of small employers established
4-9 by a small employer carrier in accordance with this section.
4-10 (b) A small employer carrier may establish a distinct
4-11 grouping of small employers only if the applicable health benefits
4-12 plans:
4-13 (1) are marketed and sold through persons that are not
4-14 participating in the marketing or sale of other distinct groupings
4-15 of small employers for the small employer carrier;
4-16 (2) have been acquired from another small employer
4-17 carrier as a distinct grouping of plans;
4-18 (3) are provided through an association with a
4-19 membership of not less than 15 small employers that is formed for
4-20 purposes other than obtaining a health benefits plan; or
4-21 (4) meet the requirements for exception to the
4-22 restrictions related to premium rates provided by Section 5(b)(1)
4-23 of this article.
4-24 (c) A small employer carrier may divide a distinct grouping
4-25 established under Subsection (b) of this section into not more than
4-26 two subgroupings on the basis of underwriting criteria that are
4-27 expected to produce substantial variation in the health care costs.
5-1 (d) The commissioner, on application, may approve the
5-2 establishment of additional distinct groupings if the commissioner
5-3 finds that establishing those groupings would enhance the
5-4 efficiency and fairness of the small employer health insurance
5-5 marketplace.
5-6 Sec. 5. RESTRICTIONS RELATING TO PREMIUM RATES. (a) Except
5-7 as provided by Subsection (b) of this section, the index rate for a
5-8 rating period for a class of business written by a small employer
5-9 carrier may not exceed the index rate for any other class of
5-10 business written by that carrier plus 20 percent of that index
5-11 rate.
5-12 (b) Subsection (a) of this section does not apply to a class
5-13 of business if:
5-14 (1) the class of business is one for which the carrier
5-15 does not reject, and never has rejected, a small employer included
5-16 within the definition of employers eligible for the class of
5-17 business or otherwise eligible employees and dependents who enroll
5-18 on a timely basis based on claim experience or health status;
5-19 (2) the carrier does not involuntarily transfer, and
5-20 never has involuntarily transferred, a health benefits plan into or
5-21 out of the class of business; and
5-22 (3) the class of business is currently available for
5-23 purchase from the carrier.
5-24 (c) For a class of business, the premium rate charged during
5-25 a rating period to a small employer with similar case
5-26 characteristics for the same or similar coverage, or the rate that
5-27 could be charged to that employer under the rating system for that
6-1 class of business, may not vary from the index rate by more than 25
6-2 percent of the index rate.
6-3 (d) The percentage increase in the premium rate charged to a
6-4 small employer for a new rating period may not exceed the sum of:
6-5 (1) the percentage change in the new business premium
6-6 rate measured from the first day of the prior rating period to the
6-7 first day of the new rating period except that, in the case of a
6-8 class of business for which the small employer carrier is not
6-9 issuing new policies, the small employer carrier shall use the
6-10 percentage change in the base premium rate;
6-11 (2) an adjustment, not to exceed 15 percent annually
6-12 and adjusted pro rata for rating periods of less than one year, due
6-13 to the claim experience, health status, or duration of coverage of
6-14 the employees or dependents of the small employer as determined
6-15 from the carrier's rate manual for the class of business; and
6-16 (3) any adjustment due to change in coverage or change
6-17 in the case characteristics of the small employer as determined
6-18 from the small employer carrier's rate manual for the class of
6-19 business.
6-20 (e) This section does not prohibit the use of legitimate
6-21 rating factors other than claim experience, health status, and
6-22 duration of coverage in the determination of premium rates. Small
6-23 employer carriers shall apply rating factors, including case
6-24 characteristics, consistently with respect to all small employers
6-25 in a class of business.
6-26 (f) A small employer carrier may not involuntarily transfer
6-27 a small employer, an individual, or group into or out of a class of
7-1 business. A small employer carrier may not offer to transfer a
7-2 small employer group into or out of a class of business unless the
7-3 offer is made to transfer all small employers in the class of
7-4 business without regard to case characteristics, claim experience,
7-5 health status, or duration of coverage since the date of issuance
7-6 of the plan.
7-7 Sec. 6. RENEWAL OF COVERAGE. (a) Except as provided by
7-8 Subsection (c) of this section, a health benefits plan subject to
7-9 this article is renewable at the option of the small employer
7-10 unless:
7-11 (1) the small employer:
7-12 (A) does not pay required premiums;
7-13 (B) commits fraud or misrepresentation;
7-14 (C) does not comply with plan provisions; or
7-15 (D) is no longer actively engaged in the
7-16 business in which it was engaged on the effective date of the plan;
7-17 or
7-18 (2) the number of individuals covered under the plan
7-19 is less than the number of eligible individuals required by
7-20 percentage requirements under the plan.
7-21 (b) Except as provided by Subsection (c) of this section,
7-22 coverage for an eligible employee or dependent under a health
7-23 benefits plan that is renewed under Subsection (a) of this section
7-24 is renewable unless the eligible employee or dependent, or a
7-25 representative of the eligible employee or dependent, commits fraud
7-26 or misrepresentation.
7-27 (c) A small employer carrier may cease to renew all plans in
8-1 a class of business. The carrier shall provide notice to all
8-2 affected small employers and to the commissioner or similar
8-3 official of each state in which an affected insured individual is
8-4 known to reside not later than the 90th day before termination of
8-5 coverage. A carrier that exercises its right to cease to renew all
8-6 plans in a class of business may not:
8-7 (1) establish a new class of business for six years
8-8 after the nonrenewal of the plans without prior approval of the
8-9 commissioner; or
8-10 (2) transfer or otherwise provide coverage to an
8-11 employer from the nonrenewed class of business unless the carrier
8-12 offers to transfer or provide coverage to all affected employers
8-13 and eligible employees and dependents without regard to case
8-14 characteristics, claim experience, health status, or duration of
8-15 coverage.
8-16 Sec. 7. Disclosure of Rating Practices and Renewability
8-17 Provisions. A small employer carrier, in solicitation and sales
8-18 materials provided to small employers, shall disclose:
8-19 (1) the extent to which premium rates for a specific
8-20 small employer are established or adjusted because of the claim
8-21 experience, health status, or duration of coverage of the employees
8-22 or dependents of the small employer;
8-23 (2) the policy provisions concerning the carrier's
8-24 right to change premium rates and the factors, including case
8-25 characteristics, that affect changes in premium rates;
8-26 (3) a description of the class of business in which
8-27 the small employer is or will be included, including the applicable
9-1 health benefits plans; and
9-2 (4) the policy provisions relating to renewability of
9-3 coverage.
9-4 Sec. 8. Maintenance of Records. (a) Each small employer
9-5 carrier shall maintain at its principal place of business a
9-6 complete and detailed description of its rating practices and
9-7 renewal underwriting practices, including information and
9-8 documentation that demonstrate that its rating methods and
9-9 practices are based on commonly accepted actuarial assumptions and
9-10 are in accordance with sound actuarial principles.
9-11 (b) A small employer carrier shall make the information and
9-12 documentation described by Subsection (a) of this section available
9-13 to the commissioner on request under Article 1.24 of this code.
9-14 The information is not subject to disclosure under the Texas open
9-15 records law, Chapter 424, Acts of the 63rd Legislature, Regular
9-16 Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes),
9-17 except as ordered by a court of competent jurisdiction.
9-18 Sec. 9. ACTUARIAL CERTIFICATION. (a) Not later than March
9-19 1 of each year, each small employer carrier shall file with the
9-20 commissioner a written actuarial certification stating that the
9-21 carrier is in compliance with Section 8 of this article and that
9-22 the rating methods of the carrier are actuarially sound.
9-23 (b) A copy of the actuarial certification shall be retained
9-24 by the small employer carrier at its principal place of business.
9-25 (c) An actuarial certification under this section must be
9-26 made by a member of the American Academy of Actuaries or by another
9-27 person acceptable to the commissioner and must be based on that
10-1 person's examination of the small employer carrier, including
10-2 review of the appropriate records and of the actuarial assumptions
10-3 and methods used by the carrier in establishing premium rates for
10-4 health benefits plans.
10-5 Sec. 10. SUSPENSION OF PREMIUM RATE RESTRICTIONS. (a) A
10-6 small employer carrier may file a request for suspension of all or
10-7 part of Section 5 of this article applicable to a small employer
10-8 class of business for one or more rating periods.
10-9 (b) The commissioner may grant a request filed under
10-10 Subsection (a) of this section if the commissioner finds that the
10-11 suspension:
10-12 (1) is reasonable in light of the financial condition
10-13 of the carrier; or
10-14 (2) would enhance the efficiency and fairness of the
10-15 small group health insurance marketplace.
10-16 SECTION 2. (a) This Act takes effect September 1, 1993, and
10-17 applies only to rates charged on or after January 1, 1994.
10-18 (b) In the case of a health benefits plan subject to Article
10-19 3.50-7, Insurance Code, as added by this Act, and issued before
10-20 January 1, 1994, a premium rate charged before January 1, 1999, may
10-21 exceed the ranges described by Sections 5(a) and (c), Article
10-22 3.50-7, Insurance Code, as added by this Act. In that case, the
10-23 percentage increase in the premium rate may not exceed the sum of:
10-24 (1) the percentage change in the new business premium
10-25 rate measured from the first day of the prior rating period to the
10-26 first day of the new rating period except that, in the case of a
10-27 class of business for which the small employer carrier is not
11-1 issuing new policies, the carrier shall use the percentage change
11-2 in the base premium rate; and
11-3 (2) any adjustment due to change in coverage or change
11-4 in the case characteristics of the small employer as determined
11-5 from the carrier's rate manual for the class of business.
11-6 SECTION 3. The importance of this legislation and the
11-7 crowded condition of the calendars in both houses create an
11-8 emergency and an imperative public necessity that the
11-9 constitutional rule requiring bills to be read on three several
11-10 days in each house be suspended, and this rule is hereby suspended.