RS C.S.H.B. 710 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 710 By: Averitt 3-19-97 Committee Report (Substituted) BACKGROUND Presently, there are an estimated 4.6 million individuals in the state of Texas who are uninsured by any form of health insurance coverage. Of these, 13,000 are anticipated to be able to afford health insurance coverage, but are unable to purchase it at any price, due to existing medical conditions which cause them to be uninsurable in the private insurance market. The remaining uninsured individuals are comprised of individuals that may also have existing medical conditions that cause them to be uninsurable. However, they are primarily uninsured due to affordability issues. The Health Insurance Risk Pool is a mechanism for establishing access for those individuals who are able to afford the premiums associated with such coverage. In the 71st legislative session (1989), SB832 was enacted, creating the Texas Health Insurance Risk Pool. The intent was to create access to health insurance for uninsurable individuals with medical conditions or diagnoses that resulted in an inability to purchase insurance coverage in the private market. Although SB832 enacted Article 3.77, Texas Insurance Code, the Texas Health Insurance Risk Pool has not been operational. Federal health insurance reforms, passed in August 1996, known as the Health Insurance Portability and Accountability Act (Kassebaum/Kennedy Bill), require the state of Texas to enact a mechanism to establish access to health insurance coverage on an individual basis. The federal law requires the state of Texas to adopt the minimum requirements of the federal law or to develop an acceptable alternative mechanism. Without action in Texas, the federal law will preempt and the state of Texas will forfeit the right to establish criteria or regulate at the state level. A Health Insurance Risk Pool (meeting specified federal standards) is an acceptable alternative mechanism for the purposes of this federal law. The Health Insurance Portability and Accountability Act (Kassebaum/Kennedy Bill) also establishes minimum criteria for employer group plans and individual health coverages, generally including requirements related to minimum renewability requirements and waiver or reduction of preexisting condition limitations (portability) for certain individuals. The federal preemption is similar in that Texas will forfeit the right to establish criteria or regulate at a state level absent conforming legislation. PURPOSE As proposed, HB710 revises the existing statute, Article 3.77, Texas Insurance Code, to establish a health insurance risk pool that will meet the requirements of the federal law as an acceptable alternative mechanism for individual reforms. In addition, HB710 incorporates additional changes to the original structure of the Texas Health Insurance Risk Pool Act that will improve the anticipated operation and administration of the Pool. RULEMAKING AUTHORITY It is the committee's opinion that rulemaking authority is granted to the commissioner of the Texas Department of Insurance under the following. SECTION 1. Article 3.77, Section 5(e) and Section 8 permits the commissioner to establish a plan for the Pool and additional powers and duties of the Board of the Texas Health Insurance Risk Pool, respectively, by rule. The section further permits the commissioner to adopt rules as necessary to implement this article and to develop procedures, criteria and forms necessary for the assessments. (Sections 1.03 and 1.06, respectively) In addition, the Board of Directors established by the Act would have the ability and authority to develop a plan of operations (under the oversight of the commissioner). SECTION 2. Article 3.51-6, Section 1(d)(3)(B)(ii) maintains the commissioner's ability to adopt minimum standards for conversion policies for insurance companies. (Section 2.01 of the bill). SECTION 3. Article 3.70-1A(c) will permit the commissioner to adopt regulations necessary to meet the minimum requirements under federal law related to renewability standards in individual policies. (Section 3.02 of the bill). SECTION 4. Article 20A.09(k)(B) and 20A.09(l)(D) adds the commissioner's ability to adopt minimum standards for conversion policies offered by HMOs. Also, adds rulemaking authority related to the regulation of individual coverages offered by HMOs generally and to meet the minimum requirements under federal law and regulations. (Section 4.01 of the bill). SECTION BY SECTION ANALYSIS Part 1. HEALTH INSURANCE RISK POOL SECTION 1.01 amends Article 3.77, Texas Insurance Code. Sect. 1 is not included in the bill. No amendment to this section which sets forth original legislative findings and intent for the Health Insurance Risk Pool. Sect. 2 amends the definitions related to the Health Insurance Risk Pool. _ Definitions; Defines "Benefits plan," "Board," "Commissioner," "Department," "Dependent," "Family member," "Health insurance," "Health maintenance organization," "hospital," "Insured," " Insurer," "Insurance arrangement," "Medicare," "Physician," "Plan of operation," "Pool," and "Resident." Sect. 3 is not included in the Bill since there is no change. The original section indicates only that the Health Insurance Risk Pool is created. SECTION 1.02 amends Article 3.77, Section 4, with regards to the establishment of the Board of Directors for the Pool. _ The Board is made up of 9 members. At least two but not more than 4 members from the industry; at least two persons or parents of persons reasonably expected to qualify for coverage; and the remaining members must be public members. This conforms to the requirements of Article 1.35C, TIC, requiring a majority of members to be comprised of public members. _ The Board members are appointed by the Commissioner for staggered, 6-year terms. The commissioner will designate one member to be the Chair. _ The original statute and these amendments permit the Board members to be paid a per diem. The amounts are the same as General Appropriations Act. _ Language has been added clarifying no liability to the Board of Directors. SECTION 1.03 amends Art. 3.77, Sec. 5 with regards to the Pool's Plan of Operation. _ The Board is required to submit a plan of operation to the commissioner that will assure the fair, reasonable, and equitable administration of the Pool. _ The Plan of Operation must include procedures for the operation of the Pool, selecting a Plan Administrator, creating a fund, the handling, accounting, and auditing of money and other assets of the Pool, marketing programs to assure public awareness of the Pool, a complaint process, and any other necessary or required provisions. _ Complaints to the Pool must be reviewed by a Grievance Committee appointed by the Pool. The complaints should be reported to the Board after completion. _ The Plan of Operation must be approved by the Commissioner, after notice and hearing, if determined acceptable. _ If an acceptable plan is not submitted, the commissioner shall develop and adopt for operation until board has completed. _ The Board may amend the Plan as necessary. Amendments must be approved by the commissioner. SECTION 1.04 amends Art. 3.77, Sect. 6, regarding the authority of the pool. _The Pool may exercise any of the authority that an insurance company authorized to write health insurance may exercise under the laws of the State. This section has been amended to delete any prohibitions on group insurance since the limitation seemed only to unnecessarily restrict the flexibility of the Pool in developing affordable coverages. _ The Pool may: i. provide health benefits to eligible people; ii. enter into necessary contracts; iii. sue or be sued, or take necessary actions to collect assessments; iv. pay claims appropriately and recover amounts as necessary; v. establish rates, expense allowances, agent fees, claim reserves, and other actuarial functions; vi. adopt policy forms; vii. issue insurance policies; viii. appoint appropriate legal, actuarial or other committees necessary; ix. employ and determine the compensation for persons necessary to assist the Pool; x. contract for stop loss coverages; xi. assess insurers (detailed in Sec. 13 of this article); xii. borrow money; xiii. issue additional types of coverage that meet the requirements of state law (e.g.. Medicare supplement coverages, HMO coverages); xiv. use cost containment [NOTE: required utilization review to be conducted in accordance with Article 21.58A] and individual case management to maximize cost-effectiveness; xv. create, utilize, or contract managed care features, including provider networks. [NOTE: deleted references to limited provider networks at request of HMO division.] _ The Board is required to delineate a list of health conditions for which a person shall be eligible without applying elsewhere. This list is effective on day one of the Pool's operation. _ An annual report must be made on or before June 1 to the governor, the lieutenant governor, the speaker of the house, the legislature, and the commissioner. The report shall summarize the activities of the Pool, including net written and earned premium, plan enrollment, administration expenses and the paid and incurred losses of the Pool. SECTION 1.05 amends Art. 3.77, Sec. 7(a), (b), and (e) regarding the Pool administrator. _ The Pool may contract with a Texas Department of Insurance-certified administering carrier or third party administrator. It must be done through a competitive bid process. _ The Board must establish criteria for evaluation of bids. One new criterion requires the Board's consideration of the administrator's financial stability. _ The Administrator shall perform duties assigned to it. This provision is written to permit the Board to contract with an administrator for certain functions and possibly hire staff to perform other functions as may be more cost efficient (e.g., the state of Illinois contracts for claims administration but conducts eligibility and enrollment through Pool employees). SECTION 1.06 amends Art. 3.77, Sec. 8, regarding rules. _ The commissioner may establish additional powers and duties of the Board by rule. The commissioner may adopt rules necessary to implement this article and by rule shall develop procedures, criteria and forms necessary for the assessments. SECTION 1.07 amends Art. 3.77, Sect. 9 regarding rates and premiums _ Rates may not be unreasonable in relation to benefits and the risk experience of providing such coverage. _ Rates may be adjusted based on risk factors, including age. _ Standard risk rate is determined by using reasonable actuarial techniques with consideration for the rates charged other individuals in the market place. _ The initial rates must be between 125% and 150% of standard risk and may not exceed 150%. _ Subsequent rates may not exceed 200% of standard risk rate. _ The commissioner must approve the rates of the Pool. NOTE: The provisions of this section are consistent with the requirements of the Kassebaum/Kennedy (Public Law 104-191) legislation. SECTION 1.08 amends Art. 3.77, Sec. 10, regarding eligibility for coverage. _ Individuals must be Texas and United States residents to be eligible for enrollment in the Pool. _ Eligible for coverage if: 1. refused coverage by two insurers; 2. offered coverage only with conditional riders; 3. a rate exceeding the pool rate (there is not specified %); 4. the individual is eligible by reason of federal law (has 18 months of creditable coverage under another health insurance or insurance arrangement); OR 5. the individual has one of the medical conditions defined by the Board. _ The dependents or resident family members of insured are also eligible for coverage in the Pool. _ The person may maintain pool coverage for the period they are satisfying a preexisting condition period under another health policy intended to replace pool coverage. This situation is not likely to occur in light of additional federal laws. _ A person is not eligible for coverage if they have other coverage, terminated coverage from the Pool within the last 12 months without a good faith reason, or in a state prison or county jail. _ Provisions disqualifying by reason of Medicare have been deleted on the basis that many high risk individuals have Medicare due to disability and are unable to purchase comprehensive Medicare supplement coverage. The Bill otherwise requires that major medical coverage be made available to individuals who are not eligible for Medicare and permits the Board to make available Medicare Supplement coverage. _ Coverage will terminate: 1. on the date when the individual is no longer a resident of this state (except for certain children); 2. the date the person requests; 3. the death of covered person; 4. on the date state law requires cancellation; 5. thirty days after an inquiry by Pool that the covered person does not respond to (at the option of the Pool); 6. for nonpayment of premium within 31 days of due date; 7. if the person ceases to meet eligibility criteria. Requirements specifically requiring application within 60 days of terminated employer coverage have been deleted in order to conform to the requirements of federal Kassebaum/Kennedy bill. SECTION 1.09 amends Art. 3.77, Sect. 1, regarding minimum pool benefits. _ The coverages offered shall be consistent with major medical expense coverage (except to Medicare eligible individuals); _ The coverage, the benefits, exclusions, and other limitations shall be established by the board and approved by the commissioner; _ Sections specifically describing covered services or exclusion were deleted; _ These sections have been amended for consistency with the federal Kassebaum/Kennedy requirements; _ The Board may adjust deductibles, the amounts of any pool stop loss and time periods governing preexisting as needed. A report outlining reasons is required to be given to the commissioner within 30 days of the adjustment. _ Contains a provision that all Pool payment amounts for covered services shall be reduced by any benefits otherwise payable in any program; SECTION 1.10 amends Art. 3.77, Sec. 12 and Sec. 13, regarding preexisting conditions and assessments, respectively. Sec. 12--Pre-existing Conditions _ Pool coverage will not pay for expenses incurred due to preexisting conditions for 12 months following the effective date of coverage. There are provisions in the statute (in this Section and in Sec. 11(c)) that would permit the board to modify or eliminate the preexisting condition provision as needed or appropriate (e.g., offering of managed care arrangements such as HMO coverage that would not include a preexisting limitation). _ Preexisting condition is defined as any condition for which medical advice, care or treatment was recommended or received during the six month period preceding effective date of coverage. _ Waiver of pre-existing condition provision is granted for any individual with continuous coverage for aggregate period of 12 months with no greater than a 63 day gap in coverage; _ Credit is granted towards preexisting limitation period for any individual with any period of coverage during the preceding twelve months. This section is not required under federal law; however, it is consistent with existing requirements in Texas for small employer groups. The original statute only contained a six month preexisting limitation period. This Bill has increased the limitation period to 12 months; however, the provisions for waiver and credit are also included It is consistent with federal Kassebaum/Kennedy requirements and will be a factor in cost control. Sect. 13 - Assessments _ The Board has the authority to assess insurers (including insurance companies, health maintenance organizations and other entities within the definition); _ Advance interim assessments may be done as necessary for organizational and interim operating expenses. This would permit start-up expenses to assessed up front. _ Initial advance interim assessments will be offset as a credit towards the regular assessments; _ A provision is included requiring any funds in excess of actual losses of the Pool to be held in interest-bearing accounts to offset any future losses of the Pool; _ At the end of each fiscal year, the Board must report net losses to the commissioner. Any net loss is recouped through assessment to insurers. _ The assessment amount shall be equal to the amount of insurer's ratio of the gross premiums collected in this state in the preceding calendar year; _ Medicare supplement premiums and small employer premiums are excluded from the calculation of health insurance premiums for assessment purposes. These types of coverages are currently subject to some form of guaranteed issue law in Texas and an assessment would appear to create an inequitable exposure to risk. _ An insurer may request an abatement or deferral of assessment. The commissioner may grant if determined that assessment would endanger the ability of insurer to otherwise meet contractual obligations. This dollar amount will be assessed to remaining carriers. The insurer receiving the abatement or deferral will continue to be liable for such amount to the Pool. This provision has been amended to delete the language which capped the period on liability; _ There is no premium tax offset or reimbursement language included in the Bill. SECTION 1.11 amends Art. 3.77, Sec. 14 and Sec. 15 regarding complaint procedures and audit. Sec. 14--Complaint Procedures _ Complaints to the Pool must be reviewed by a Grievance Committee appointed by the Pool. The complaints should be reported to the Board after completion. The Board must keep all written complaints for three years from the date of receipt of complaint. Sec. 15--Audit _ The Pool shall be audited annually by the State auditors. The Pool shall reimburse general revenue for expenses associated with the audit. PART 2. GROUP COVERAGES SECTION 2.01 amends Art. 3.51-6, Section 1(d)(3) regarding group coverages. _ This section of the Bill deletes (repeals) the requirements for a mandatory group conversion offer. _ Accident and health insurers would instead be required ONLY to offer a six-month continuation option in all group insurance policies. This option would be extended to any individual (insured, employee, member, or dependent) losing coverage for any reason (except involuntary termination for cause). _ As required in the existing statute, the continuation premium will continue to be limited to 102% of the group premium. _ Termination of continuation coverage may not be until the earlier of (a) 6 months, (b) eligibility for coverage or coverage under any other plan (including any state or federal program), (c ) failure to pay premium; or (d) discontinuance of group policy. _ At least 30 days prior to termination of the continuation, the insurer must notify the insured that he or she may be eligible for coverage under the Texas Health Insurance Risk Pool. _ Insurers may offer a conversion policy voluntarily. If the insurer elects to do so, the conversion policy must meet the minimum benefits for conversion policies as adopted by the commissioner. _ The Bill maintains the language limiting the premium for conversion policies providing same coverage and benefits to 200% of the premiums under the prior group plan. There is companion language applicable to health maintenance organizations in SECTION 4 of the Bill. PART 3. INDIVIDUAL COVERAGES SECTION 3.01 amends Art. 3.70-1 regarding individual coverages. _ If an individual health insurer issues an individual health insurance policy, a preexisting condition exclusion may NOT apply to an individual who was continuously covered for 18 months of creditable coverage whose most recent coverage was a group health plan, governmental plan, or church plan. _ The language is patterned after the federal law for the purposes of completing the portability circle for healthy, insurable individuals. Absent this provision (which is NOT required by federal Kassebaum/Kennedy legislation under the alternative mechanism), healthy, insurable individuals would have no individual mechanism to preserve portability other than the high risk pool. _ In determining whether or not a preexisting limitation or exclusion period will apply, either (1) it will be completely waived for individuals with 18 months aggregate coverage under creditable coverage; or (2) credit given towards partial satisfaction for any person covered for any period during the previous 18 months. _ There is NO corresponding section applicable to health maintenance organizations since HMOs do not generally contain preexisting limitations. SECTION 3.02 amends Art. 3.70-1A regarding guaranteed renewability of certain individual policies. _ Requires an individual health insurance policy providing benefits for medical care under a hospital, medical, or surgical policy to be renewed or continued in force at the option of the individual. _ such individual health insurance policy may only be non-renewed or discontinued for stated reasons: 1. failure to pay premiums; 2. fraud or intentional misrepresentation; 3. the insurer is ceasing to offer a product; 4. the individual no longer lives, resides, or works in a service area of the insurer; or 5. in accordance with applicable federal law or regulations. _ The commissioner is permitted to adopt regulations necessary to implement this statute and meet the minimum requirements of federal law or regulations. There are several additional areas that would require reference by rule. The Bill was drafted in this manner in order to permit development of rules as clarification is provided at federal level (through regulations or amendments to federal law). _ There is a companion section applicable to health maintenance organizations under SECTION 4 of the Bill. PART 4. COVERAGE THROUGH HEALTH MAINTENANCE ORGANIZATIONS SECTION 4.01 amends Art. 20A.09, regarding coverage by HMOs. _ Section (k) mirrors the continuation and conversion language applicable to group insurance carriers (addressed in SECTION 2). _ Provisions would require HMOs offering group type coverage to provide a minimum 6 month continuation period to all individuals losing eligibility. _ Conversion would be optional; offered on a voluntary basis. If a conversion policy is issued, it must meet the minimum standards for benefits for conversion policies as adopted by the Commissioner. _ Section (l) establishes a minimum regulatory framework for individual HMO coverages. Individual Health Care Plan means (1) a health care plan, providing health care services for individuals and their dependents; (2) a health care plan in which an enrollee pays the premium and is not being covered under the contract pursuant to continuations of services and benefits provisions applicable under federal or state law; and (3) a plan in which the evidence of coverage meets the requirements of Section 2(a) of the HMO Act (basic health care services); _ Such individual health care plans shall be guaranteed renewable in accordance with the federal Kassebaum/Kennedy legislation. This section essentially mirrors the provisions of SECTION 3 as they pertain to individual health insurance carriers. NOTE: There is no corresponding section related to HMOs regarding the portability provisions addressed in SECTION 1. These sections are not applicable to HMOs since they generally do not contain preexisting condition exclusions. Part 5. TRANSITION; EFFECTIVE DATE; EMERGENCY SECTION 5.01 This act applies to insurance policies issued or renewed on or after July 1, 1997. SECTION 5.02 Coverages under the Texas HEalth Insurance Risk Pool must be made available not later than January 1, 1998. SECTION 5.03 Effective Date of July 1, 1997. SECTION 5.04 Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Several non-substantive changes in language occur in the committee substitute. These changes are strictly for clarification purposes of certain terms in the introduced version and for clarification of denoting certain conditions. The phrase "fix compensation" is clarified by replacing it with "set the compensation" in SECTION 1.04. "Recover or collect assessments" replaces "assess insurers" in SECTION 1.04. "The insurer or third party administrator" replaces "plan administrator" in SECTION 1.05. "Promulgated" is replaced with "listed by" for clarification. "Makes any inquiry" changes to "sends to the person" in SECTION 1.08. "Every" changes to "each" for clarification in SECTION 1.09. "Health benefits coverages" replaces "policies" in SECTION 1.09. Some of the sections are renumbered and/or renamed. Certain complaint-related language in SECTION 1.03 is transferred to 1.11 and titled "COMPLAINT PROCEDURES." SECTION 1.05 title changes from "Administering Insurer" to "ADMINISTRATOR." SECTION 1.06 title changes from "Rulemaking Authority" to "RULES." An "AUDIT" section is added (SECTION 1.11). SECTION 1.10 title changes from "Preexisting conditions provisions" to "PREEXISTING CONDITIONS." SECTION 1.10 adds Sec. 13(a), "ASSESSMENTS," allowing the Board to assess insurers, and requiring interim assessments to be credited as offsets for regular assessments. PART 2 of the bill is entirely renumbered. However, the legislative intent remains intact. Paragraph (b)(ii) adds a member or dependent as an eligible participant. Paragraph (B)(v) cites conditions with regards to continuation or termination. SECTION 3.01 amends Subsection (H) in CSHB 710 instead of (G). SECTION 4 is renumbered as SECTION 3.02 in CSHB 710. SECTION 5 is renumbered as SECTION 4.01. Language that was deleted from the code in the introduced bill, but reinstated in CSHB 710 is found in SECTION 1.08 (Sec. 10(f)) and SECTION 2.01 (Sec. 1(d)(3)).