South Carolina General Assembly
109th Session, 1991-1992

Bill 519


Indicates Matter Stricken
Indicates New Matter


                    Current Status

Introducing Body:               Senate
Bill Number:                    519
Primary Sponsor:                Saleeby
Type of Legislation:            GB
Subject:                        Insurance, major medical expense
                                coverage
Residing Body:                  Senate
Companion Bill Number:          3325
Computer Document Number:       519
Introduced Date:                Jan 22, 1991
Last History Body:              Senate
Last History Date:              Apr 10, 1991
Last History Type:              Committee Report:   majority
                                                         favorable, with amendment, minority
                                                         unfavorable
Scope of Legislation:           Statewide
All Sponsors:                   Saleeby
                                Land
                                McConnell
                                Mullinax
                                Pope
Type of Legislation:            General Bill



History


 Bill  Body    Date          Action Description              CMN
 ----  ------  ------------  ------------------------------  ---
 519   Senate  Apr 10, 1991  Committee Report: majority      02
                             favorable, with amendment,
                             minority unfavorable
 519   Senate  Jan 22, 1991  Introduced, read first time,    02
                             referred to Committee

View additional legislative information at the LPITS web site.


(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

Indicates Matter Stricken
Indicates New Matter

COMMITTEE REPORT

April 10, 1991

S. 519

Introduced by SENATORS Saleeby, Land, McConnell, Mullinax and Pope

S. Printed 4/10/91--S.

Read the first time January 22, 1991.

THE COMMITTEE ON BANKING AND INSURANCE

To whom was referred a Bill (S. 519), to amend the Code of Laws of South Carolina, 1976, by adding Section 38-71-325, etc., respectfully

REPORT:

That they have duly and carefully considered the same, and recommend that the same do pass with amendment:

Amend the bill, as and if amended, by striking all after the enacting words and inserting therein:

/ SECTION 1. Subarticle 1, Article 3, Chapter 71, Title 38 of the 1976 Code is amended by adding:

"Section 38-71-325. On the effective date of this section, in addition to any other requirements of law, no new individual major medical expense coverage policy, as defined in regulations promulgated by the Commissioner, may be approved unless:

(1) Premium rates, after appropriate allowance for the actuarial value of the difference in benefits, for any such policy form first approved for use by the insurer in South Carolina within the two-year period immediately prior to the effective date of this section and any such policy form first approved for use after the effective date of this section do not exceed the premium rates for any other such policy form first approved for use during this period by more than thirty percent;

(2) The actuarial value of the difference in benefits set out in such policy forms of the insurer, as specified in an opinion by a qualified actuary or other qualified person acceptable to the Commissioner, is reported not less often than once a year to the Commissioner and used in demonstrating compliance with item (1) above.

(3) The anticipated (target) loss ratio for the combined experience for all such policy forms specified in item (1) must be equivalent to or greater than the most recent loss ratios detailed within the National Association of Insurance Commissioner's `Guidelines for Filing of Rates for Individual Health Insurance Forms' or successor publications. The anticipated (target) loss ratio for the combined experience is defined as the average anticipated (target) loss ratio for all such policy forms included in the combined experience weighted by premium volume.

With respect to any such policy form, the insurer shall have the right to file a loss ratio guarantee in accordance with the procedures specified in Section 38-71-310(E) or to request approval of any rate change before the use thereof, but the anticipated loss ratios of each policy form whether or not a loss ratio guarantee has been filed shall be combined as provided in the preceding item (3).

The initial policy form proposed to be used by a domestic insurer after its organization under the laws of this State and the initial policy form proposed to be used by a foreign insurer after authorization by the Commissioner to do business in this State may be disapproved by the Commissioner if he determines that the rates proposed to be used with the policy form are set at a level substantially less than rates charged by other insurers in this State offering comparable coverage.

Nothing contained in this section may be construed to prevent the use of age, sex, area, industry, occupational, and avocational factors or to prevent the use of different rates for smokers and nonsmokers or for any other habit or habits of an insured person which have a statistically proven effect on the health of the person and are approved by the Commissioner. Also, nothing contained in this section shall preclude the establishment of a substandard classification based upon the health condition of the insured, but the initial classification may not be changed adversely to the applicant after initial issue.

The Commissioner has the right, upon application by any insurer, to grant relief, for good cause shown, from any requirement of this section."

SECTION 2. Subarticle 5, Article 3, Chapter 71, Title 38 is amended by adding:

"Section 38-71-650. Any person purchasing an individual accident, health, or accident and health insurance policy after July 1, 1991, shall have the right to transfer to any individual policy of equal or lesser benefits offered for sale by the insurer at the time the transfer is sought. Any special provision excluding coverage for a specified condition may remain after transfer, and any waiting period or preexisting condition period specified in the policy to which the transfer is made may be required to be served after the transfer."

SECTION 3. Sections 38-71-710 through 38-71-810 are designated as Subarticle 1, General Provisions, Article 5.

SECTION 4. Article 5, Chapter 71, Title 38 of the 1976 Code is amended by adding:

"Subarticle 3

Small Group Health Insurance

Section 38-71-910. The intent of this subarticle is to promote the availability of health insurance coverage to small employers, to prevent abusive rating practices, to require disclosure of rating practices to purchasers, to establish rules for continuity of coverage for employers and covered individuals, and to improve the efficiency and fairness of the small group health insurance marketplace.

Section 38-71-920. As used in this subarticle:

( 1) "Small employer" means any person, firm, corporation, partnership, or association actively engaged in business who, on at least fifty percent of its working days during the preceding year, employed no more than twenty-five eligible employees. In determining the number of eligible employees, companies which are affiliated companies or which are eligible to file a combined tax return for purposes of state taxation must be considered one employer.

( 2) "Insurer" means any person who provides health insurance in this State. For the purposes of this subarticle, insurer includes a licensed insurance company, a prepaid hospital or medical service plan, a health maintenance organization, a multiple employer welfare arrangement, or any other person providing a plan of health insurance subject to state insurance regulation.

( 3) "Health insurance plan" or "plan" means any hospital or medical expense incurred policy or certificate, hospital, or medical service plan contract, or health maintenance organization subscriber contract. Health insurance plan does not include accident-only, credit, dental, or disability-income insurance; coverage issued as a supplement to liability insurance; worker's compensation or similar insurance; or automobile medical-payment insurance.

( 4) "Small employer insurer" means an insurer which offers health insurance plans covering the employees of a small employer.

( 5) "Case characteristics" means demographic or other relevant characteristics of a small employer, as determined by a small employer insurer, which are considered by the insurer in the determination of premium rates for the small employer. Claim experience, health status, and duration of coverage since issue are not case characteristics for the purposes of this subarticle.

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

( 7) "Department" means the Department of Insurance.

( 8) "Base premium rate" means, for each class of business as to a rating period, the lowest premium rate charged or which could have been charged under a rating system for that class of business, by the small employer insurer to small employers with similar case characteristics for health insurance plans with the same or similar coverage.

( 9) "New business premium rate" means, for each class of business as to a rating period, the premium rate charged or offered by the small employer insurer to small employers with similar case characteristics for newly issued health insurance plans with the same or similar coverage.

(10) "Index rate" means for each class of business for small employers with similar case characteristics the arithmetic average of the applicable base premium rate and the corresponding highest premium rate.

(11) "Class of business" means all or a distinct grouping of small employers as shown on the records of the small employer insurer.

(a) A distinct grouping may be established only by the small employer insurer on the basis that the applicable health insurance plans:

( i) are marketed and sold through individuals and organizations which are not participating in the marketing or sale of other distinct groupings of small employers for such small employer insurer;

( ii) have been acquired from another small employer insurer as a distinct grouping of plans;

(iii) are provided through an association with membership of not less than fifty small employers which have been formed for purposes other than obtaining insurance; or

( iv) are in a class of business that meets the requirements for exception to the restrictions related to premium rates provided in Section 4(A)(1)(a).

(b) A small employer insurer may establish no more than two additional groupings under each of the subparagraphs in subitem (a) on the basis of underwriting criteria which are expected to produce substantial variation in the health care costs.

(c) The commissioner may approve the establishment of additional distinct groupings upon application to the commissioner and a finding by the commissioner that that action would enhance the efficiency and fairness of the small employer insurance marketplace.

(12) "Actuarial certification" means a written statement by a member of the American Academy of Actuaries or other individual acceptable to the Commissioner that a small employer insurer is in compliance with the provisions of Section 38-71-940, based upon the person's examination, including a review of the appropriate records and of the actuarial assumptions and methods utilized by the insurer in establishing premium rates for applicable health insurance plans.

(13) "Rating period" means the calendar period for which premium rates established by a small employer insurer are assumed to be in effect, as determined by the small employer insurer.

Section 38-71-930. (A) Except as provided in subsection (B), the provisions of this subarticle apply to any health insurance plan which provides coverage to one or more employees of a small employer.

(B) The provisions of this subarticle do not apply to individual health insurance policies which are subject to policy form and premium rate approval as may be provided in Title 38 of the 1976 Code.

Section 38-71-940. (A) Premium rates for health insurance plans subject to this subarticle are subject to:

(1) The index rate for a rating period for any class of business may not exceed the index rate for any other class of business by more than twenty percent.

The provisions of this item do not apply to a class of business if all of the following apply:

(a) the class of business is one for which the insurer does not reject, and never has rejected, small employers included within the definition of employers eligible for the class of business or otherwise eligible employees and dependents who enroll on a timely basis, based upon their claim experience or health status.

(b) The insurer does not transfer involuntarily, and never has involuntarily transferred, a health insurance plan into or out of the class of business.

(c) The class of business is currently available for purchase.

(2) For a class of business, the premium rates charged during a rating period to small employers with similar case characteristics for the same or similar coverage, or the rates which could be charged to these employers under the rating system for that class of business, may not vary from the index rate by more than twenty-five percent of the index rate.

(3) The percentage increase in the premium rate charged to a small employer for a new rating period may not exceed the sum of the following:

(a) The percentage change in the new business premium rate measured from the first day of the prior rating period to the first day of the new rating period. In the case of a class of business for which the small employer insurer is not issuing new policies, the insurer shall use the percentage change in the base premium rate.

(b) An adjustment, not to exceed fifteen percent annually and adjusted pro rata for rating periods of less than one year, due to the claim experience, health status, or duration of coverage of the employees or dependents of the small employer as determined from the insurer's rate manual for the class of business.

(c) Any adjustment due to change in coverage or change in the case characteristics of the small employer as determined from the insurer's rate manual for the class of business.

(4) In the case of health insurance plans issued prior to the effective date of this subarticle, a premium rate for a rating period may exceed the ranges described in subsection (A)(1) or (2) for five years following the effective date of this subarticle. In that case, the percentage increase in the premium rate charged to a small employer in such a class of business for a new rating period may not exceed the sum of the following:

(a) The percentage change in the new business premium rate measured from the first day of the prior rating period to the first day of the new rating period. In the case of a class of business for which the small employer insurer is not issuing new policies, the insurer shall use the percentage change in the base premium rate.

(b) Any adjustment due to change in coverage or change in the case characteristics of the small employer as determined from the insurer's rate manual for the class of business.

(B) Nothing in this section is intended to affect the use by a small employer insurer of legitimate rating factors other than claim experience, health status, or duration of coverage in the determination of premium rates. Small employer insurers shall apply rating factors, including case characteristics, consistently with respect to all small employers in a class of business.

(C) A small employer insurer may not transfer involuntarily a small employer into or out of a class of business. A small employer insurer may not offer to transfer involuntarily a small employer into or out of a class of business, unless the offer is made to transfer all small employers in the class of business without regard to case characteristics, claim experience, health status, or duration since issue.

Section 38-71-950. (A) Except as provided in subsection (B), a health insurance plan subject to this subarticle is renewable to all eligible employees and dependents at the option of the small employer, except for:

(1) nonpayment of required premiums;

(2) fraud or material misrepresentation of the small employer, or, with respect to coverage of an insured individual, fraud, or material misrepresentation by the insured individual or the individual's representative. If the fraud or material misrepresentation is made by a person with respect to any person's prior health condition, the insurer shall have the right also to deny coverage to that person or to impose as a condition of continued coverage the exclusion of the condition misrepresented.

(3) noncompliance with plan provisions;

(4) the number of individuals covered under the plan is less than the number or percentage of eligible individuals required by percentage requirements under the plan; or

(5) the small employer is no longer actively engaged in the business in which it was engaged on the effective date of the plan.

(B) A small employer insurer may cease to renew all plans under a form within a class of business or may cease to renew all plans under a class of business. In either case the insurer shall provide notice to all affected health insurance plans and to the commissioner in each state in which an affected insured individual is known to reside at least ninety days before termination of coverage. An insurer which exercises its right to cease to renew all plans under a form within a class of business may not transfer or otherwise provide coverage to any of the employers from the nonrenewed form or class of business unless the insurer offers to transfer or provide coverage to all affected employers and eligible employees and dependents without regard to case characteristics, claim experience, health status, or duration of coverage. In addition, any insurer which exercises its right to cease to renew all plans within a class of business may not establish a new class of business for a period of five years after the nonrenewal of the plans without prior approval of the commissioner.

Section 38-71-960. Each small employer insurer shall make reasonable disclosure in solicitation and sales materials provided to small employers of the following:

(1) the extent to which premium rates for a specific small employer are established or adjusted due to the claim experience, health status, or duration of coverage of the employees or dependents of the small employer;

(2) the provisions concerning the insurer's right to change premium rates and the factors, including case characteristics, which affect changes in premium rates;

(3) a description of the class of business in which the small employer is or will be included, including the applicable grouping of plans;

(4) the provisions relating to renewability of coverage.

Section 38-71-970. (A) A small employer insurer shall maintain at its principal place of business a complete and detailed description of its rating practices and renewal underwriting practices, including information and documentation which demonstrate that its rating methods and practices are based upon commonly accepted actuarial assumptions and are in accordance with sound actuarial principles.

(B) Each small employer insurer shall file each March first with the commissioner an actuarial certification certifying that the insurer is in compliance with this section and that the rating methods of the insurer are actuarially sound. A copy of the certification must be retained by the insurer at its principal place of business.

(C) A small employer insurer shall make the information and documentation described in subsection (A) available to the commissioner upon request. The information must be considered proprietary and trade secret information and is not subject to disclosure by the commissioner to persons outside of the department except as agreed to by the insurer or as ordered by a court of competent jurisdiction.

Section 38-71-980. The commissioner may suspend all or any part of Section 38-71-940 as to the premium rates applicable to one or more small employers for one or more rating periods upon a filing by the small employer insurer and a finding by the commissioner that either the suspension is reasonable in light of the financial condition of the insurer or that the suspension would enhance the efficiency and fairness of the marketplace for small employer health insurance.

Section 38-71-990. The provisions of this subarticle apply to each health insurance plan for a small employer that is delivered, issued for delivery, renewed, or continued in this State after the effective date of this subarticle. For purposes of this section, the date a plan is continued is the first rating period which commences after the effective date of this subarticle."

SECTION 5. Section 38-71-760(m) of the 1976 Code is amended to read:

"(m) This subsection applies to all groups. with thirteen or more enrolled employees. It also applies to all groups with less than thirteen employees unless a prominent notice which has been filed with and approved by the Commissioner as to form is given to and signed by the policyholder which serves to warn the policyholder that this subsection does not apply.

(1) Each person who is eligible for coverage in accordance with the succeeding carrier's plan of benefits with respect to classes eligible and activity at work and nonconfinement rules must be covered by that carrier's plan of benefits.

(2) Each person not covered under the succeeding carrier's plan of benefits in accordance with item (1) of this subsection (m) nevertheless must be covered by the succeeding carrier in accordance with the following rules if the individual was validly covered, including benefit extension, under the prior plan on the date of discontinuance and if the individual is a member of the class of individuals eligible for coverage under the succeeding carrier's plan. Any reference in the following rules to an individual who was or was not totally disabled is a reference to the individual's status immediately prior to the date the succeeding carrier's coverage becomes effective.

(A) The minimum level of benefits to be provided by the succeeding carrier must be the applicable level of benefits of the succeeding carrier's plan reduced by any benefits payable by the prior plan.

(B) Coverage must be provided by the succeeding carrier until at least the earliest of the following dates:

(i) The date the individual becomes eligible under the succeeding carrier's plan as described in item (1) of this subsection (m).

(ii) For each type of coverage, the date the individual's coverage would terminate in accordance with the succeeding carrier's plan provisions applicable to individual termination of coverage, such as at termination of employment or ceasing to be an eligible dependent, as the case may be.

(iii) In the case of an individual who was totally disabled, and in the case of a type of coverage for which subsections (f) through (j) of this section require an extension of accrued liability, the end of any period of extension or accrued liability which is required of the prior carrier by those subsections or, if the prior carrier's policy or contract is not subject to those subsections, would have been required of that carrier had its policy or contract been subject to those subsections at the time the prior plan was discontinued and replaced by the succeeding carrier's plan.

(3) In the case of a preexisting conditions limitation included in the succeeding carrier's plan, the level of benefits applicable to preexisting conditions of persons becoming covered by the succeeding carrier's plan in accordance with this subsection (m) during the period of time this limitation applies under the new plan must be the lesser of:

(A) The benefits of the new plan determined without application of the preexisting conditions limitation; and

(B) The benefits of the prior plan.

(4) The succeeding carrier, in applying any deductibles or waiting periods in its plan, shall give credit for the satisfaction or partial satisfaction of the same or similar provisions under a prior plan providing similar benefits. In the case of deductible provisions, the credit must apply for the same or overlapping benefit periods and must be given for expenses actually incurred and applied against the deductible provisions of the prior carrier's plan during the ninety days preceding the effective date of the succeeding carrier's plan but only to the extent these expenses are recognized under the terms of the succeeding carrier's plan and are subject to similar deductible provisions.

(5) In any situation where a determination of the prior carrier's benefit is required by the succeeding carrier, at the succeeding carrier's request the prior carrier shall furnish a statement of the benefits available or pertinent information sufficient to permit verification of the benefit determination or the determination itself by the succeeding carrier. For the purposes of this section, benefits of the prior plan are determined in accordance with all of the definitions, conditions, and covered expense provisions of the prior plan rather than those of the succeeding plan. The benefit determination must be made as if coverage had not been replaced by the succeeding carrier."

SECTION 6. Section 38-71-730(3) of the 1976 Code is amended to read:

"(3) For groups of twenty-five or more persons no evidence of individual insurability may be required at the time the person first becomes eligible for insurance or within thirty-one days thereafter except for any insurance supplemental to the basic coverage for which evidence of individual insurability may be required. With respect to trusteed groups the phrase 'groups of twenty-five' must be applied on a participating unit basis for the purpose of requiring individual evidence of insurability. Except as hereinafter provided, for all groups, no evidence of individual insurability may be required at the time the person first becomes eligible for insurance or within thirty-one days thereafter. Nothing in this section precludes the obtaining of medical information with respect to the members of the group for use in determining the insurability of the group, but the information may not be used to exclude an individual from coverage. Provided however, that for groups of ten or less persons, evidence of individual insurability may be required for persons first becoming eligible for insurance after the effective date of the policy. An insurer may exclude such persons from coverage or may impose such condition riders, preexisting condition limitations or waiting periods as are in accordance with law."

SECTION 7. Section 38-71-730(4) of the 1976 Code is amended to read:

"(4) The policies may contain a provision limiting coverage for preexisting conditions. The preexisting conditions must be covered no later than twelve months without medical care, treatment, or supplies ending after the effective date of the coverage or twelve months after the effective date of the coverage, whichever occurs first. Preexisting conditions are defined as `those conditions for which medical advice or treatment was received or recommended no more than twelve months prior to before the effective date of a person's coverage.' However, whenever a covered person moves from one insured group to another, and is neither excluded from coverage nor subject to the imposition of preexisting condition limitations as permitted by Section 38-71-730(3), the insurer of the group to which the covered person moves shall give credit for the satisfaction of the preexisting condition period or portion thereof already served under the prior plan if the coverage is selected when the person first becomes eligible and the coverage is continuous. Service under a probationary period required by the employer is not considered to interrupt continuous service."

SECTION 8. Section 38-71-760(k) of the 1976 Code is amended to read:

"(k) The carrier responsible for liability in those instances in which one carrier's contract replaces a plan of similar benefits of another must be indicated. A replacement carrier is considered to be a succeeding carrier within the meaning of this section if the effective date of the coverage provided by it is sixty-two days or less after the date of termination of coverage of the prior carrier."

The first paragraph of Section 38-71-770 of the 1976 Code, as last amended by Act 127 of 1989, is further amended to read:

"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 continuously 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. A group policy is considered to be a successor policy within the meaning of this section if the effective date of the coverage provided by it is sixty-two days or less after the date of termination of coverage of the prior carrier. 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 by this section. 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."

SECTION 9. The provisions of SECTION 1, SECTION 2 and SECTION 4 of this Act take effect January 1, 1992. The remaining provisions of this Act take effect upon approval of the Governor./

Amend title to conform.

Majority favorable. Minority unfavorable.

JOHN A. MARTIN HERBERT U. FIELDING

For Majority. THEO W. MITCHELL

For Minority.

A BILL

TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 38-71-325 SO AS TO PROVIDE FOR ADDITIONAL REQUIREMENTS FOR THE APPROVAL OF INDIVIDUAL MAJOR MEDICAL EXPENSE COVERAGE POLICIES.

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

SECTION 1. The 1976 Code is amended by adding:

"Section 38-71-325. On the effective date of this section, in addition to any other requirements of law, no new individual major medical expense coverage policy, as defined in regulations promulgated by the Commissioner, may be approved unless:

(1) Premium rates, after appropriate allowance for the actuarial value of the difference in benefits, for any such policy form first issued and used by the insurer in South Carolina within the two-year period immediately prior to the effective date of this section and any such policy form first issued after the effective date of this section do not exceed the premium rates for any other such policy form first issued during this period by more than thirty percent;

(2) The actuarial value of the difference in benefits set out in such policy forms of the insurer, as specified in an opinion by a qualified actuary or other qualified person acceptable to the Commissioner, is reported not less often than once a year to the Commissioner and used in demonstrating compliance with item (1) above; and

(3) The insurer files a loss ratio guarantee in accordance with the procedures specified in Section 38-71-310(E) with those changes as may be necessary. The loss ratio for the combined experience for all such policy forms specified in item (1) must be equivalent to or greater than the most recent loss ratios detailed within the National Association of Insurance Commissioner's `Guidelines for Filing of Rates for Individual Health Insurance Forms' or successor publications. The anticipated (target) loss ratio for the combined experience is defined as the average anticipated (target) loss ratio for all such policy forms included in the combined experience weighted by premium volume.

The initial policy form proposed to be used by a domestic insurer after its organization under the laws of this State and the initial policy form proposed to be used by a foreign insurer after authorization by the Commissioner to do business in this State may be disapproved by the Commissioner if he determines that the rates proposed to be used with the policy form are set at a level substantially less than rates charged by other insurers in this State offering comparable coverage.

Nothing contained in this section may be construed to prevent the use of age, sex, area, industry, occupational, and avocational factors or to prevent the use of different rates for smokers and nonsmokers or for any other habit or habits of an insured person which have a statistically proven effect on the health of the person and are approved by the Commissioner. Also, nothing contained in this section shall preclude the establishment of a substandard classification based upon the health condition of the insured, but the initial classification may not be changed adversely to the applicant after initial issue.

The Commissioner has the right, upon application by any insurer, to grant relief, for good cause shown, from any requirement of this section."

SECTION 2. This act takes effect upon approval by the Governor.

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