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By: Taylor H.B. No. 3202
A BILL TO BE ENTITLED
AN ACT
relating to rates for professional liability insurance for defined
Physicians, Hospitals, and Health Care Providers.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter O, Chapter 5, Insurance Code, is
amended by adding Article 5.134 to read as follows:
Art. 5.134. PROFESSIONAL LIABILITY INSURANCE RATES FOR
INSURANCE COVERING PHYSICIANS, HOSPITALS AND HEALTH CARE PROVIDERS
Sec. 1. FINDINGS. The Legislature finds that:
(1) the premium cost of professional liability
insurance for Physicians, Hospitals, and Health Care Providers has
been a significant factor in the reduced availability of health
care services in this state;
(2) legislation adopted by the regular session of the
78th Legislature places caps on damages for liability of
Physicians, Hospitals and Health Care Providers which caps are
projected to have the effect of significantly reducing the cost of
claims covered by professional liability insurance policies, thus
reducing the premiums for professional liability insurance;
(3) professional liability claims made under
professional liability insurance policies are claims for which
actual, quantifiable loss is not fully known for several years
after the claims arise, thus the actual, quantifiable savings
produced by caps on damages for liability of Physicians, Hospitals
and Health Care Providers cannot begin to be fully known for at
least two to three years after those caps are imposed;
(4) in order to provide immediate premium relief to
Physicians, Hospitals, and other Health Care Providers, rates for
professional liability insurance delivered, issued for delivery or
renewed on or after the effective date of caps on damages for
liability must immediately begin to take into consideration Cap
Savings, but due to lack of initial actual data reflecting the
effect of these caps on such rates, although actuarially
determined, may not produce rates for premiums that will, in all
cases, reflect the ultimate, actual quantifiable losses under
professional liability insurance policies in the future;
(5) in conjunction with placing the caps on damages
for liability recovery and adjusting premium rates, it is necessary
to put in place a mechanism to assure that, should initial rates of
premiums incorporating adjustments for Cap Savings exceed amounts
necessary to cover actual losses under professional liability
insurance, the policyholders will receive a refund of premium
reflecting any cost savings in an orderly manner;
(6) the benefits and savings from reducing insurance
costs for professional liability claims that may result from
legislation placing monetary caps on damages for professional
liability of Physicians, Hospitals and Health Care Providers will
have a significant impact on making health care services available
to Texas citizens, will assure that the health of Texas citizens is
protected, will protect public health interests of the state and
will assure that the providers of health care services can devote
their full time and efforts to healing the sick and injured; and
(7) legislative action in the public interest and
within the police power of the state is required to address the cost
savings resulting from the laws providing caps on damages adopted
by the regular session of the 78th Legislature in order to pass the
benefits of the Cap Savings on to insured Physicians, Hospitals,
and Health care providers of this state.
Sec. 2. In this Article, the following terms have the
following meanings:
(1) "Cap Savings" means the monetary savings realized
or projected to be realized in rates for premiums charged for
Professional Liability Insurance resulting from the imposition of
monetary caps on damages for liability of Physicians, Hospitals and
Health Care Providers by the regular session of the 78th
Legislature.
(2) "Escrow Account" means an account established by
an Insurer for the purpose of depositing and maintaining any
disputed percentage of Cap Savings plus investment income, as
provided in Section 7.
(3) "Health Care Provider" has the meaning assigned by
Article 5.15-1, Section 2(2) of this code.
(4) "Hospital" has the meaning assigned by Article
5.15-1, Section 2(3) of this code.
(5) "Insurer" means any person or entity authorized to
engage in the business of insurance in this state that delivers,
issues for delivery or renews professional liability insurance for
physicians, hospitals and/or health care providers in this state
including:
(a) a Lloyd's plan;
(b) a reciprocal or interinsurance exchange; and
(c) the joint underwriting association
established under Article 21.49-3 of this code.
(6) "Physician" has the meaning assigned by Article
5.15-1, Section 2(1) of this code.
(7) "Policyholder Premium Refund" means the amount of
premium refund and interest determined under Section 8 to be owed to
a Physician, Hospital or Health Care Provider under a Professional
Liability Insurance Policy.
(8) "Professional Liability Insurance" means
Professional Liability Insurance delivered, issued for delivery or
renewed by an Insurer to a Physician, Hospital or Health Care
Provider on or after January 1, 2004.
(9) "Department" means the Texas Department of
Insurance.
Sec. 3. APPLICATION OF ARTICLE. This article applies to
Professional Liability Insurance.
Sec. 4. ENTITLEMENT TO CAP SAVINGS. Each Physician,
Hospital and/or Health Care Provider who pays a premium for a
Professional Liability Insurance Policy which is ultimately
determined under Section 8 to exceed the premium that would be
charged by taking into consideration actual Cap Savings at the time
of distribution is entitled to a Policyholder Premium Refund from
the Insurer who wrote the policy in an amount equivalent to the
difference in the premium originally charged and the premium that
would have been charged if calculated on actual Cap Savings
determined under Section 8.
Sec. 5. RATE FILINGS. (a) Not later than the 30th day after
the date on which this article takes effect, each Insurer that plans
to deliver, issue for delivery or renew Professional Liability
Insurance in this state on or after January 1, 2004, shall file with
the Department new rate filings for that Professional Liability
Insurance which incorporates and clearly identifies the
actuarially determined Cap Savings that are projected to result in
the rates to be used to calculate premiums for Professional
Liability Insurance.
(b) Except as otherwise specifically provided in this
article, rate filing made under this section shall be made in
accordance with and subject to Article 5.15-1, Section 4 of this
code.
(c) In setting rates under this article, an Insurer, in
considering past and prospective loss experience, shall not
consider such experience in a manner that will diminish, minimize
or ignore the effect which Cap Savings will have on reducing rates
of premiums for Professional Liability Insurance.
(d) Any Professional Liability Insurance rate filings made
by an Insurer subsequent to the initial filing required by
Subsection (a) shall be made in accordance with this article.
Sec. 6. DEPARTMENT AUTHORITY AND REVIEW. (a) On receipt of
a rate filing from an Insurer, the Department shall review the
filing in accordance with this article.
(b) If the Department determines that the Insurer has
correctly projected the potential effect of the Cap Savings in its
rates, the Department shall notify the Insurer in writing that the
Insurer has met the requirements of this article as to Cap Savings
and the Insurer may proceed to write Professional Liability
Insurance in accordance with that filing.
(c) If after completing final review of a rate filing, the
Department believes that all or part of the Cap Savings reflected in
the rate filing do not reflect a correct percentage reduction, the
Department shall notify the Insurer in writing that the Department
believes that all or part of the rate filing does not accurately
reflect the reasonable projections of Cap Savinigs and state the
reasons for that position.
(d) If the Department sends notice to the Insurer under
Subsection (c), the Insurer may either make necessary adjustments
to its rate filing to bring the rates into the percentage range for
Cap Savings determined by the Department, may create an Escrow
Account as defined in Section 7 of this article and use the filed
rates or may appeal the Department's decision.
(e) An appeal of the Department's decision under Subsection
(d), on issuance of an order by the Commissioner denying the
disputed portion of the rate filing, is a contested case under
Chapter 2001, Government Code. Only that portion of a rate filing
that is in dispute under this article may be appealed under this
section. The State Office of Administrative Hearings shall take
all necessary steps to expedite a hearing and decision under this
subsection.
Sec. 7. ESCROW ACCOUNT. (a) An Insurer may satisfy the
Department's objections to Cap Savings in the letter under Section
6(c) and implement rates in its rate filing by establishing and
maintaining an Escrow Account separate from other funds of the
Insurer. The Insurer may not use any funds in the account for any
purpose other than for investment until such funds are distributed
in accordance with Section 8.
(b) The Insurer shall control and invest funds in the Escrow
Account in accordance with this article and in accordance with laws
governing the Insurer and company policies and procedures to the
extent that those laws, policies and procedures are not in conflict
with this article.
(c) An Insurer shall deposit in the Escrow Account the
percentage of premium on a Professional Liability Insurance policy
as earned which constitutes the difference between premium charged
by the Insurer under its rate filing for the Professional Liability
Insurance policy and the premium that would be charged by the
Insurer if using rates calculated using Cap Savings as projected by
the Department. All funds in the Escrow Account must be maintained
as unencumbered funds and used for no other purpose.
(d) In addition to reflecting the funds being maintained in
the Escrow Account on annual and quarterly financial statements and
other required filings with the Department, the Insurer shall file
with the Senior Associate Commissioner of the Property and Casualty
Program at the Department an annual report relating to the Escrow
Account, which sets out the amounts of premium collected and
amounts of earned premium, on policies covered by the Escrow
Account, amounts deposited in the Escrow Account, formulas used to
determine amounts of deposits, interest earned on amounts deposited
in the Escrow Account, claims and loss information under the
policies covered by the Escrow Account and any other information
that the Department, may require to be filed under this section.
The report shall be submitted in the form and in the format required
by the Department and shall be filed not later than January 31,
2004, and on January 31, in each succeeding year until all money in
the Escrow Account is distributed. If a rate filing takes effect on
a date different from January 1, the report under this subsection
shall be filed not later than the last day of the 13th month
following the date on which the rate filing took effect and on that
date for each subsequent year.
(e) An Escrow Account created by an Insurer under this
article shall be used only for deposit of funds relating to the
specific rate filing which neccessitated the creation of such
account. If the Insurer makes a subsequent rate filing for
Professional Liability Insurance and the Insurer and the Department
do not agree to the Cap Savings percentage for that subsequent rate
filing and the Insurer decides to use an Escrow Account to resolve
issues with the Department regarding premium rates, a separate
Escrow Account must be established and maintained for the disputed
Cap Savings in accordance with this article.
Sec. 8. POLICYHOLDER PREMIUM REFUND. (a) On approval of
the Commissioner of Insurance, not earlier than two years after a
rate filing takes effect and not later than three years after such
date, the Insurer shall determine the actual Cap Savings based on
data available at that time and make Policyholder Premium Refunds
as indicated.
(b) A distribution of Cap Savings shall be based on an
actuarial calculation of the actual Cap Savings that have resulted
under the Professional Liability Insurance policies delivered,
issued for delivery or renewed under the rate filing.
(c) If the actuarial calculation of actual Cap Savings when
factored into the rates reflects that the rates used to calculate
the original premium for the Professional Liability Insurance
policies were in excess of the amount that would produce rates that
reflect the actual Cap Savings for those policies based on current
data, information and actual losses, the Insurer shall pay to each
Physician, Hospital or Health Care Provider who is entitled to a
refund, a Policyholder Premium Refund. Any Policyholder Premium
Refund under this subsection shall be made not later than 30 days
after the date on shich the Commissioner approves the amount of
distribution or not later than 30 days after the 60-day period for
Department review and Commissioner approval expires under this
section, whichever shall first occur.
(c) If the amount to be distributed as a Policyholder
Premium Refund to Providers, Hospitals and/or Health Care Providers
is more than has been maintained in an Escrow Account less interest,
the Insurer shall pay any additional amount necessary to fully fund
the Policyholder Premium Refund. However, if the amount to be
distributed to Physicians, Hospitals and/or Health Care Providers
is less than the total amount in an Escrow Account, the remaining
amount in the Escrow Account is considered earned premium of the
Insurer and may be distributed from the Escrow Account to the
Insurer and used and expended as other earned premium of the
Insurer.
(d) In making distributions under this section, each
Physician, Hospital and/or Health Care Provider is entitled to
receive an amount equal to any interest earned on the amount of the
Policyholder Premium Refund.
(e) Subject to the time limitations stated in Subsection
(a), when an Insurer has sufficient experience data available to
make an actuarial determination of actual Cap Savings for
Professional Liability Insurance, the Insurer shall have an
actuarial determination of the Cap Savings made and shall file with
the Department its calculation of Cap Savings, its determination of
appropriate Policyholder Premium Refunds and supporting
information as may be required by the Department. If the
Commissioner approves this filing or if the Department fails to
take action on this filing within 60 days from the date the filing
is made with the Department, the Insurer may proceed to make
distributions in accordance with the distribution filing. If the
Department believes the distributions or part of the distributions
proposed in the distribution filing do not correctly reflect Cap
Savings for purposes of distribution, the Department shall notify
the Insurer in writing of the changes that the Department considers
necessary to establish the amount of distribution and shall provide
any supporting calculations or other information requested by the
Insurer in support of such position. If the Commissioner does not
act on a rate distribution filing within 60 days from the date of
the filing, the filing is deemed approved.
(f) If the Department issues a written notice to the Insurer
that the distribution filing does not correctly reflect the actual
Cap Savings for purposes of distribution, the Insurer may amend its
distribution filing to reflect the Department's determinations or
determination the parties agree to be correct. If the Insurer does
not amend the filing, the Commissioner may issue an order denying
the filing. If the Commissioner denies the filing, the Insurer may
appeal the Commissioner's determination.
(g) An appeal of the Commissioner's decision under
Subsection (f) is a contested case under Chapter 2001, Government
Code. Only that portion of a distribution filing that is in dispute
under this section may be appealed under this section. The State
office of Administrative Hearings shall take all necessary steps to
expedite a hearing and decision under this subsection.
(h) If the Department determines that only a part of the
distributions proposed by a distribution filing do not reflect in
the distribution filing actual Cap Savings, the Commissioner shall
approve the distributions that reflect actual Cap Savings and the
Insurer shall make those approved distributions in accordance with
the filing and this section.
Sec. 9. EFFECT OF ARTICLE ON OTHER LAW. (a) The provisions
of this article authorize the Commissioner of Insurance and the
Department to approve or disapprove rates and rate filings only to
the extent necessary to assure that proper recognition of Cap
Savings are incorporated in filed rates and does not otherwise give
the Commissioner or the Department the power to prescribe uniform
or absolute rates or to prevent filing of different rates for risks
in a given classification or modified rates for individual risks
made in accordance with rating plans so long as those different or
modified rates take into account reasonable projections of Cap
Savings.
Sec. 10. RULES AND FORMATS. (a) The Commissioner of
Insurance may adopt necessary rules to carry out the provisions of
this article.
(b) Except for financial information required to be
incorporated in regulatory annual and quarterly financial
statements, any information required to be filed with the
Department by an Insurer under this article other than the regular
rate filing is privileged and confidential and is excepted from
disclosure pursuant to Section 552.138, Government Code.
Sec. 11. REPORT TO LEGISLATURE. Not later than December 31,
of each year, the Department shall submit a report to each house of
the Legislature regarding the operation of the program under this
article.
SECTION 2. Subchapter C, Government Code, is amended by
adding Section 552.138 to read as follows:
Section 552.138. EXCEPTION: CERTAIN CAP SAVINGS
INFORMATION FILED WITH THE TEXAS DEPARTMENT OF INSURANCE. (a)
Information is excepted from the requirements of Section 552.021 if
it is information that is filed with the Texas Department of
Insurance under Article 5.134, Insurance Code other than
information specifically excepted in Article 5.134, Section 9(b),
Insurance Code.
SECTION 3. Article 5.134, Insurance Code and Section
552.138, Government Code, expire on January 1, 2008.
SECTION 4. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provide by Section 39, Article III, Texas Constitution. If this Act
does not receive the vote necessary for immediate effect, this Act
takes effect September 1, 2003.