SBW C.S.H.B. 163 75(R)BILL ANALYSIS


PENSIONS & INVESTMENTS
C.S.H.B. 163
By: Maxey
3-12-97
Committee Report (Substituted)



BACKGROUND 

A person in the private life insurance market may transfer the right to
receipt of the death benefit from their life insurance policy to a third
party, if permitted by the policy's terms.  A "viatical settlement" is the
transfer of ownership interest through an assignment, and/or the naming of
an irrevocable beneficiary in return for receiving payment of a percentage
of the death benefit prior to death.  Viatical Statements are governed
under state law by Tex. Ins. Code art. 3.50-6A; 28TAC **3.10001-3.10018. 

State law also regulates the payment of accelerated benefits in group term
life insurance policies in Tex. Ins. Code art. 3.50-6.  "Accelerated
benefits" or "accelerated death benefits" occur when policyholders choose
the option to receive payment prior to the death of the insured in the
case of certain health conditions. 

State employees may purchase group life insurance through GLH, a
subsidiary of Blue Cross/ Blue Shield.  Under terms of the state's
agreement with GLH, state employees who have a "noncorrectable health
condition that, with medical certainty, will result in a death within six
months from the date of the Attending Physician's Statement," may apply
for an Accelerated Life Benefit (ALB).  This is the same as an accelerated
death benefit.  With an ALB, the employee is eligible for up to 50 percent
of the amount of coverage in force on the date the claim is filed, to a
maximum of $100,000.  If the ALB is granted, the policyholder's
beneficiary may claim the remaining 50 percent when the insured dies. 

ERS internal policy decisions prohibit state employees from naming
irrevocable beneficiaries for their life insurance policies.  This
effectively prevents state employees from viaticating their policies.
Most viatical settlement companies require an irrevocable beneficiary
designation because the irrevocable beneficiary has total control over the
receipt of the death benefit.  Unlike accelerated benefits, viatical
settlements are often offered to individuals who have up to 24 months to
live and viatical settlements typically pay a larger percent of the
policy's worth to the policyholder. 

Under federal law, both viatical settlements and accelerated benefit
payments now receive favorable income tax treatment.  Health Insurance
Portability and Accountability Act of 1996, P.L. 104-191 (amending section
of 26 U.S.C.). 


PURPOSE

The bill proposes the adoption of the rules to allow for irrevocable
beneficiaries, thereby permitting terminally-ill state employees to
viaticate their life insurance policies in the Employees Retirement
System. 


RULEMAKING AUTHORITY

Rulemaking authority is granted to the ERS trustee in Section 1,
Subsection 11A(a), The Texas Employees Uniform Group Insurance Benefits
Act (Article 3.50-2, Vernon's Texas Insurance Code). 
 
SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Section 11A, The Texas Employees Uniform Group
Insurance Benefits Act (Article 3.50-2, Vernon's Texas Insurance Code), by
adding Section 11A.  PAYMENT OF ACCELERATED BENEFITS; IRREVOCABLE
DESIGNATION OF BENEFICIARY.  This section requires the ERS trustee to
promulgate rules for employee group life policies.  Under the rules, group
life policies must give employees, annuitants, or dependents the ability
to elect an accelerated benefit under Art. 3.50-6 of the Insurance Code,
or to name an irrevocable beneficiary for all or part of their group life
coverage pursuant to a viatical settlement under Insurance Code, Art.
3.50-6A. 

SECTION 2.  (a)  Effective date is September 1, 1997, and the Act applies
to coverage under a group life insurance policy delivered, issued for
delivery, or renewed on or after September 1, 1997.  A group life policy
delivered, issued for delivery, or renewed before September 1, 1997 is
subject to the laws that existed as of that date. 

 (b)  An employee or retired employee may not make an election under this
Act before January 1, 1998. 

SECTION 3.  Emergency Clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

CSHB 163 adds retirees and dependants to this provision.  Adds language
stating that this Act applies to group life insurance coverage that is
delivered, issued for delivery, or renewed on or after September 1, 1997.
Prohibits an employee or retiree from receiving an accelerated benefit or
designate a beneficiary in accordance with Section 11A, Texas Employees
Uniform Group Insurance Benefits Act before January 1, 1998.