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.