Bill 3216

                    Current Status

Bill Number:               3216
Ratification Number:       191
Act Number                 127
Introducing Body:          House
Subject:                   To create a health insurance pool

(A127, R191, H3216)

AN ACT TO CREATE A HEALTH INSURANCE POOL TO INCLUDE ALL INSURERS PROVIDING HEALTH INSURANCE AND INSURANCE ARRANGEMENTS FOR HEALTH PLAN BENEFITS, TO EXEMPT THE POOL FROM TAXATION, AND TO ALLOW A TAX CREDIT FOR ANY ASSESSMENT PAID TO THE POOL BY A MEMBER INSURER, AND TO AMEND SECTION 38-71-770, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO MANDATORY CONTINUATION AND CONVERSION PRIVILEGES OF GROUP HEALTH POLICIES, SO AS TO REVISE THESE CONTINUATION OR CONVERSION PRIVILEGES AND DELETE PROVISIONS RELATING TO MANDATORY CONVERSION OF GROUP HEALTH POLICIES.

Be it enacted by the General Assembly of the State of South Carolina:

Definitions

SECTION 1. As used in this act:

(1) "Pool" means the South Carolina Health Insurance Pool.

(2) "Board" means the Board of Directors of the pool, the members of which are members of the pool.

(3) "Insured" means any individual resident of this State who is eligible to receive benefits from any insurer.

(4) "Insurer" means any insurance company authorized to transact health insurance business in this State including a health maintenance organization.

(5) "Health insurance" means any hospital, surgical, or medical expense incurred policy, hospital service corporation plan contract, or health maintenance organization contract. Health insurance does not include accident only, disability income, hospital confinement indemnity, dental, or credit insurance, coverage issued as a supplement to liability insurance, insurance arising from workers' compensation provisions, automobile medical payment insurance, or any other specific limited coverage, or insurance under which benefits are payable with or without regard to fault and which is statutorily required to be contained in any liability insurance policy.

(6) "Medicare" means Title XVIII of the Social Security Act, 42 USC 1395, et seq., as amended.

(7) "Physician" means any practitioner of the healing arts, other than an insured person or a person related to an insured person, who is legally licensed to perform any service for which benefits are provided by the insurance policy issued by the pool.

(8) "Hospital" means an institution operated pursuant to law under the supervision of a staff of duly licensed physicians which is primarily and continuously engaged in providing or operating, either on its premises or in facilities available to the public on a prearranged basis, medical, diagnostic, and major surgical facilities for the medical care and treatment of sick or injured persons on an inpatient basis for which a charge is made and provides twenty-four hour nursing service under the supervision of registered nurses.

(9) "Health maintenance organization" means an organization as defined in Section 38-33-20(7) of the 1976 Code.

(10) "Plan of operation" means the plan of operation of the pool, including articles, bylaws, and operating rules adopted by the board.

(11) "Benefits plan" means the coverages to be offered by the pool to eligible persons.

(12) "Department" means the South Carolina Insurance Department.

(13) "Commissioner" means the Chief Insurance Commissioner.

(14) "Member" means each insurer participating in the pool.

(15) "Net loss" means the excess of incurred claims plus expenses over the sum of earned premiums, accrued investment income, and other appropriate gains and losses.

South Carolina Health Insurance Pool created

SECTION 2. (A) There is created a nonprofit entity to be known as the South Carolina Health Insurance Pool. All insurers authorized to issue or provide health insurance in this State on or after the effective date of this act are members of the pool.

(B) The commissioner shall give notice to all insurers of the time and place for the initial organizational meetings. The pool members shall select five members of the board of directors. The Governor shall appoint three members of the board of directors. One must be appointed to represent consumers and two must be appointed to represent businesses, other than the insurance industry. In the event of a tie vote of the board of directors on any matter, the issue must be presented to the commissioner for his approval or disapproval. The selection of the administering insurer is subject to approval by the commissioner. The board shall include, to the extent possible, at least two domestic insurance companies selling health insurance in South Carolina, including the domestic company selling the largest amount of health insurance.

(C) If, within sixty days of the organizational meeting the board is not selected, the commissioner shall appoint the initial board.

(D) The board shall submit to the commissioner a plan of operation for the pool and any amendments necessary or suitable to assure the fair, reasonable, and equitable administration of the pool. The commissioner shall approve the plan of operation provided it is determined to be suitable to assure the fair, reasonable, and equitable administration of the pool and provides for the sharing of pool gains or losses on an equitable basis. The plan of operation is effective upon approval in writing by the commissioner consistent with the date on which the coverage under this act must be made available. If the board fails to submit a suitable plan of operation within one hundred twenty days after the appointment of the board of directors, or at any time thereafter fails to submit suitable amendments to the plan, the commissioner, after notice and hearing, shall promulgate reasonable regulations necessary to effectuate the provisions of this act. The regulations shall continue in force until modified by the commissioner or superseded by a plan submitted by the board and approved by the commissioner.

(E) In its plan the board shall:

(1) establish procedures for the handling and accounting of assets and monies of the pool;

(2) select an administering insurer in accordance with Section 4 of this act and establish procedures for filling vacancies on the board of directors;

(3) establish procedures for the collection of assessments from all members to provide for claims paid under the plan and for administrative expenses incurred or estimated to be incurred during the period for which the assessment is made. The level of payments must be established by the board, pursuant to Section 5 of this act. Assessment occurs at the end of each fiscal year. The board may provide also for interim assessments against members of the pool if necessary to assure the financial capability of the pool. Assessments are due and payable within thirty days of receipt of the assessment notice;

(4) develop and implement a program to publicize the existence of the plan, the eligibility requirements, and procedures for enrollment, and to maintain public awareness of the plan.

(F) The pool has the general powers granted under the laws of this State to insurance companies licensed to transact the kinds of insurance defined under Section 1(1)(6) including, but not limited to, the specific authority to:

(1) enter into contracts necessary to carry out the provisions of this act, including the authority, with the approval of the commissioner, to enter into contracts with similar pools of other states for the joint performance of common administrative functions, or with persons or other organizations for the performance of administrative functions;

(2) sue or be sued, including taking any legal actions necessary or proper for recovery of any assessments for, on behalf of, or against pool members;

(3) take such legal action as necessary to avoid the payment of improper claims against the pool or the coverage provided by or through the pool;

(4) establish appropriate rates, rate schedules, rate adjustments, expense allowances, claim reserve formulas, and any other actuarial function appropriate to the operation of the pool;

(5) assess members of the pool in accordance with the provisions of this act;

(6) issue policies of insurance in accordance with the requirements of this act, payment of benefits at the rate of eighty percent of covered medical expenses which are in excess of a five hundred dollar deductible, until twenty percent of the expenses in a benefit period reaches one thousand five hundred dollars, after which benefits must be paid at the rate of one hundred percent during the remainder of the benefit period.

(7) appoint from among members appropriate legal, actuarial, and other committees as necessary to provide technical assistance in the operation of the pool, policy, and other contract design, and any other function within the authority of the pool;

(8) borrow money to effect the purposes of this act. Any notes or other evidence of indebtedness of the pool not in default are legal investments for domestic insurers and may be carried as admitted assets. The pool may not borrow money unless there is a net loss of the operation of the pool which exhausts the assessments of the pool for that year. No money may be borrowed in excess of the loss after assessments have been exhausted. No more than three million dollars may be borrowed in any one year, and the total amount borrowed at any one time may not exceed five million dollars. The members of the pool are responsible for any debt which is incurred by the pool;

(9) cause to be audited on an independent basis every two years the finances of the pool and submit the report of audit to the commissioner who shall submit it to the Chairman of the Senate Finance Committee and the Chairman of the House Ways and Means Committee with recommendations on the operations of the pool.

Eligibility

SECTION 3. (A) Any person who is a resident of this State for six months and his newborn child is eligible for pool coverage upon providing evidence of any of the following actions by an insurer on an application for health insurance comparable to that provided by the pool submitted on behalf of the person:

(1) a refusal to issue the insurance for health reasons;

(2) a refusal to issue the insurance except with a reduction or exclusion of coverage for a preexisting health condition for a period exceeding twelve months, unless it is determined that the person voluntarily terminated his or did not seek any health insurance coverage before being refused issuance except with a reduction or exclusion for a preexisting health condition, and then seeks to be eligible for pool coverage after the health condition develops. This determination must be made by the board;

(3) a refusal to issue insurance coverage comparable to that provided by the pool except at a rate exceeding one hundred and fifty percent of the pool rate.

(B) Any person whose health insurance coverage is involuntarily terminated for any reasons other than nonpayment of premium may apply for coverage under the plan but shall submit proof of eligibility according to subsection (A) of this section. If proof is supplied and if coverage is applied for within sixty days after the involuntary termination and if premiums are paid for the entire coverage period, the effective date of the coverage is the date of termination of the previous coverage. Waiting period and preexisting condition exclusions are waived to the extent to which similar exclusions, if any, have been satisfied under the prior health insurance coverage. The board shall require an additional premium for coverage effected under the plan in this manner notwithstanding the premium limitation stated in Section 6 of this act.

(C) A person who is paying a premium for health insurance comparable to the pool plan in excess of the pool rate or who has received notice that the premium for a policy would be in excess of the pool rate may make application for coverage under the pool. The effective date of coverage is the date of the application, or the date that the premium is paid if later, and any waiting period or preexisting condition exclusion is waived to the extent to which similar exclusions, if any, were satisfied under the prior health insurance plan. Any benefits payable under the pool plan are secondary to any benefits payable by the previous plan. The board shall require an additional premium for coverage effected under the plan in this manner notwithstanding the premium limitation stated in Section 6 of this act.

(D) A person not eligible for pool coverage is one who meets any one of the following criteria:

(1) any person who has coverage under health insurance from an insurer or any other source except a person who would be eligible under subsection (C) of this section;

(2) any person who is eligible for health insurance from an insurer or any other source except a person who would be eligible for pool coverage under Section 3(A)(2) or 3(A)(3);

(3) any person who is at the time of pool application eligible for health care benefits under state medicaid or medicare;

(4) any person having terminated coverage in the pool unless twelve months have lapsed since termination unless termination was because of ineligibility;

(5) any person on whose behalf the pool has paid out two hundred and fifty thousand dollars in benefits;

(6) inmates of public institutions and persons eligible for public programs;

(7) a person who fails to maintain South Carolina residency;

(8) any person who has been diagnosed as being infected with acquired immunodeficiency syndrome (AIDS).

(E) Any person who ceases to meet the eligibility requirements of this section may be terminated at the end of the policy period.

Administration of pool

SECTION 4. (A) The board shall select an insurer through a competitive bidding process to administer the pool. The board shall evaluate bids submitted based on criteria established by the board which includes:

(1) the insurer's proven ability to handle accident and health insurance;

(2) the efficiency of the insurer's claim-paying procedures;

(3) an estimate of total charges for administering the plan;

(4) the insurer's ability to administer the pool in a cost-efficient manner;

(B) (1) The administering insurer shall serve for a period of three years subject to removal for cause.

(2) At least one year prior to the expiration on each three-year period of service by an administering insurer, the board shall invite all insurers, including the current administering insurer, to submit bids to serve as the administering insurer for the succeeding three-year period. Selection of the administering insurer for the succeeding period must be made at least six months prior to the end of the current three-year period.

(C) (1) The administering insurer shall perform all eligibility and administrative claims payment functions relating to the pool.

(2) The administering insurer shall establish a premium billing procedure for collection of premium from insured persons. Billings must be made on a periodic basis as determined by the board.

(3) The administering insurer shall perform all necessary functions to assure timely payment of benefits to a covered person under the pool including:

(a) making available information relating to the proper manner of submitting a claim for benefits to the pool and distributing forms upon which submission must be made;

(b) evaluating the eligibility of each claim for payment by the pool.

(4) The administering insurer shall submit regular reports to the board regarding the operation of the pool. The frequency, content, and form of the report are determined by the board.

(5) Following the close of each fiscal year, the administering insurer shall determine the net loss for the year and report this information to the board and the department on a form prescribed by the commissioner.

(6) The administering insurer is paid as provided in the plan of operation for its expenses incurred in the performance of its services.

Insurer's assessment

SECTION 5. (A) Each insurer's assessment is determined by multiplying the net loss of pool operation by a fraction, the numerator of which equals that insurer's total premium and subscriber contract charges for health insurance written in the State during the preceding calendar year, and the denominator of which equals the total of all health premiums and subscriber contract charges written by all insurers in the State during the preceding calendar year. Health insurance premiums that are less than an amount determined by the board to justify the cost of collection are not considered for purposes of determining assessments.

(B) If assessments exceed the net loss of pool operation, the excess must be held at interest and used by the board to offset future losses or to reduce pool premiums. As used in this subsection, "future losses" includes reserves for incurred but not reported claims.

(C) (1) Each member's proportion of participation in the pool is determined annually by the board based on annual statements and other reports considered necessary by the board and filed by the member with it.

(2) Any deficit incurred by the pool may be recouped by assessments apportioned under subsection (A) of this section by the board among members.

(D) The board may abate or defer, in whole or in part, the assessment of a member if, in the opinion of the board, payment of the assessment would endanger the ability of the member to fulfill its contractual obligations. In the event an assessment against a member is abated or deferred in whole or in part, the amount by which the assessment is abated or deferred may be assessed against the other members in a manner consistent with the basis for assessments set forth in subsection (A) of this section. The member receiving abatement or deferment shall remain liable to the pool for the deficiency for four years.

Major medical expense coverage

SECTION 6. (A) The pool shall offer major medical expense coverage to every eligible person. The coverage to be issued by the pool, its schedule of benefits, exclusions, and other limitations must be established by the board and approved by the commissioner taking into consideration the advice and recommendations of the pool members.

(B) In establishing and reviewing the pool coverage, the board shall take into consideration the levels of health insurance provided in the State and medical and economic factors considered appropriate and promulgate benefit levels, deductibles, coinsurance factors, exclusions, and limitations determined to be generally reflective of and commensurate with health insurance provided through a representative number of large employers in the State.

(C) (1) Premium rates charged for pool coverage may not be unreasonable in relation to the benefits provided, the risk experience, and the reasonable expenses of providing the coverage. Separate schedules of premium rates based on age, sex, and geographical location may apply for individual risks.

(2) The board shall determine the standard risk rate by taking into account the individual standard rate charged by the five largest insurers offering individual coverages in the State comparable to the pool coverage. If five insurers do not offer comparable coverage, the standard risk rate must be established using reasonable actuarial techniques and must reflect anticipated experience and expenses for coverage. Rates initially established for pool coverage are two hundred percent of rates established as applicable for individual standard risks. Rates subsequently established must provide fully for the expected costs of claims and expenses of operation taking into account investment income and any other cost factors, but may not exceed three hundred percent of rates established as applicable for individual standard risks subject to the limitations described in this section. If the total tax credit provided in Section 8 exceeds five million dollars in any one year for all members of the pool, the board shall establish a rate for all policies which assures that the tax credit does not exceed five million dollars in the following year of operation. All rates and rate schedules must be submitted to the commissioner for approval.

(D) Except as provided in Section 3(D) pool coverage excludes charges or expenses incurred during the first six months following the effective date of coverage as to any condition which during the six-month period immediately preceding the effective date of coverage (1) had manifested itself in such a manner as would cause an ordinarily prudent person to seek diagnosis, care, or treatment or (2) for which medical advice, care, or treatment was recommended or received as to the condition.

(E) (1) A benefit otherwise payable under pool coverage for covered expenses must be reduced by all amounts paid or payable for the same expenses through any other health insurance or health coverage and by all hospital and medical expense benefits paid or payable under any workers' compensation coverage, automobile medical payment, or liability insurance whether provided on the basis of fault or nonfault, and by any hospital or medical benefits paid or payable under or provided pursuant to any state or federal law or program.

(2) The insurer or the pool has a cause of action against an eligible person for the recovery of the amount of benefits paid which are not for covered expenses. Benefits due from the pool may be reduced or refused as a setoff against any amount recoverable under this paragraph.

Immunity

SECTION 7. Neither the participation in the pool as members, the establishment of rates, forms, or procedures nor any other joint or collective action required by this act may be the basis of any legal action, criminal or civil liability, or penalty against the pool or any of its members.

Tax exemption and credits

SECTION 8. The pool established pursuant to this act is exempt from all taxes and assessments. Any member subject to tax liability imposed by any state statute may take credit for any assessment paid to the pool in the previous year against its premium or income tax payable. The tax credit is in addition to any other tax credits to which the member may be entitled pursuant to South Carolina law, but the credit may not reduce the member's tax liability below zero. Any unused credit may be carried forward three years. The credits are subject to the provisions of Section 38-7-120(c). The members are responsible for any loss of the operation of the pool, including any loss in excess of assessments paid to the pool. This State is not responsible for any loss of the operation of the pool, and no state funds may be used to defray any loss.

Continuation or conversion privileges revised

SECTION 9. Section 38-71-770 of the 1976 Code is amended to read:

"Section 38-71-770. A group policy issued for delivery or renewed in this State which provides hospital, surgical, or major medical expense insurance, or any combination of these coverages, on an expense incurred basis must provide that an employee or member who has been continuously insured under the group policy for at least six months whose insurance under the group policy has been terminated for any reason other than nonpayment of the required contribution is entitled to continue coverage under the group policy for the fractional policy month remaining at termination plus six additional policy months. The employee or member is not entitled to have his coverage continued if the employee or member was entitled under federal law to continuation of his coverage for a period of greater duration than provided herein. Continuation of coverage is subject to the group policy or a successor policy remaining in force and the employee paying the entire group premium, including any portion usually paid by the former employer, before the date each month that the group policy month begins. Policies which provide benefits for other than hospital, surgical, major medical, or which provide benefits for specific diseases or the accidental injuries only are not affected by this section.

A notification of the privilege to continue coverage after termination must be included in each certificate of coverage. In addition, the employer shall clearly and meaningfully advise an employee upon termination of the right to continue insurance and shall advise the employee of the amount of premium required and of the employee's responsibility to pay the premium each month before the date that the policy month begins. An employee is not entitled to continue coverage under the group if eligible for other group coverage which provides similar benefits nor if the person is eligible for medicare benefits provided by Title XVIII of the United States Social Security Act or of any successor acts. Any benefits, except extended benefits payable by the policy during the period of continuation, are considered secondary to benefits under any other group health policy that is in force on a person insured through this continuation privilege."

Applicability

SECTION 10. The provisions of Section 38-71-770 of the 1976 Code, as amended by Section 9 of this act, shall become effective upon the first annual renewal date after January 1, 1990, of any policy in existence on the effective date of this act. Until this date, the provisions of Section 38-71-770 prior to its amendment by Section 9 are operative.

Time effective

SECTION 11. This act takes effect upon approval by the Governor.