CHAPTER 225

SB 125-FN – FINAL VERSION

03/24/05 0840s

04/07/05 1049s

06/09/05 1921eba

2005 SESSION

05-1009

01/09

SENATE BILL 125-FN

AN ACT repealing health status and geographic location as small group rating factors, clarifying certain other issues relating to small group insurance, and establishing a reinsurance mechanism.

SPONSORS: Sen. Gatsas, Dist 16; Sen. Barnes, Dist 17; Sen. Gallus, Dist 1; Sen. Green, Dist 6; Sen. Roberge, Dist 9; Rep. Stone, Rock 1; Rep. R. Wheeler, Hills 7; Rep. Wendelboe, Belk 1

COMMITTEE: Banks and Insurance

AMENDED ANALYSIS

This bill makes certain changes in the small employer health insurance law, including:

I. Repealing health status and geographic location as rating factors for small group health insurance.

II. Adding a definition of case characteristics and certain other definitions.

III. Clarifying overall premium rate variability in the small group health insurance market.

IV. Clarifying the small group health insurance law regarding premium rates for small employer groups with similar case characteristics.

V. Establishing the New Hampshire small employer health reinsurance pool to offer pool coverage to eligible employees of small employers.

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

03/24/05 0840s

04/07/05 1049s

06/09/05 1921eba

05-1009

01/09

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Five

AN ACT repealing health status and geographic location as small group rating factors, clarifying certain other issues relating to small group insurance, and establishing a reinsurance mechanism.

Be it Enacted by the Senate and House of Representatives in General Court convened:

225:1 Small Group Health Insurance; Definitions Added. RSA 420-G:2, I is repealed and reenacted to read as follows:

I. “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 health carrier is in compliance with the provisions of and the rules adopted by the commissioner, based upon the person’s examination, including a review of the appropriate records and of the actuarial assumptions and methods used by the small employer health carrier in establishing premium rates for applicable health benefit plans.

I-a. “Case characteristics” means demographic or other relevant characteristics of a small employer group that may be considered by the health carrier in the determination of premium rates for that group.

225:2 New Paragraph; Definition Added. Amend RSA 420-G:2 by inserting after paragraph II the following new paragraph:

II-a. “Composite billing” means a method of calculating premium rates for small employer groups in which each enrolled employee’s rate varies only by the enrolled employee’s family composition.

225:3 New Paragraph; Definition Added. Amend RSA 420-G:2 by inserting after paragraph VII the following new paragraph:

VII-a. “Family composition” means health plan membership type, including: enrollee only; enrollee and spouse; enrollee and children; enrollee, spouse, and children; and other similar membership types.

225:4 Definition Changed. Amend RSA 420-G:2, IX-a to read as follows:

IX-a. “Health coverage plan rate” means a rate that is uniquely determined for each of the coverages or health benefit plans a health carrier writes and that is derived from the [base] market rate through the application of plan factors that reflect actuarially demonstrated differences in expected utilization [or cost] and health care costs attributable to differences in the coverage design and/or the provider contracts that support the coverage and by including provisions for administrative costs and loads. The health coverage plan rate is periodically adjusted to reflect expected changes in the market rate, utilization, health care costs, administrative costs, and loads.

225:5 Definition Added. Amend RSA 420-G:2, XII-a to read as follows:

XII-a. “List billing” means a method of calculating premium rates for small employer groups in which each enrolled employee’s rate varies only by the enrolled employee’s attained age and the enrolled employee’s family composition.

XII-aa. “Loss information” means the aggregate claims experience and shall include, but not be limited to, the number of covered lives, the amount of premium received, the amount of total claims paid, and the claims loss ratio. “Loss information” shall not include any information or data pertaining to the medical diagnosis, treatment, or health status that identifies an individual covered under the group contract or policy. Catastrophic claim information shall be provided as long as the provision of this information would not compromise any covered individual’s privacy.

225:6 New Paragraph; Definition Added. Amend RSA 420-G:2 by inserting after paragraph XII-b the following new paragraph:

XII-c. “Market rate” means a single rate reflecting the carrier’s average cost of actual or anticipated claims for all health coverages or health benefit plans the carrier writes and maintains in a market, including the nongroup individual health insurance market and, separately, the small employer group health insurance market, and which is periodically adjusted by the carrier to reflect changes in actual or anticipated claims.

225:7 New Paragraph; Definition Added. Amend RSA 420-G:2 by inserting after paragraph XIV-a the following new paragraph:

XIV-b. “Premium rate” means the rates used by a carrier to calculate the premium. For group coverage, premium rates shall be expressed as a rate per enrolled employee.

225:8 New Paragraph; Definition Added. Amend RSA 420-G:2 by inserting after paragraph XV the following new paragraph:

XV-a. “Rating period” means the time period for which the premium rate charged by a health carrier to an individual or a small employer for a health benefit plan is in effect.

225:9 Premium Rates. Amend RSA 420-G:4, I(a) to read as follows:

(a) All [premiums] premium rates charged shall be guaranteed for a rating period of at least 12 months, [unless otherwise allowed by the commissioner] and shall not be changed for any reason, including but not limited to a change in the group’s case characteristics.

225:10 Small Group Insurance; Premium Rates. Amend RSA 420-G:4, I(e) and (f) to read as follows:

(e) In establishing the premium charged, health carriers [providing] offering coverage to small employers shall calculate [a rate] premium rates that [is] are derived from the health coverage plan rate [through the application of rating factors that the carrier chooses to utilize for age, group size, industry classification, geographic location, and health status] by making adjustments to reflect one or more case characteristics. Such [factors] adjustments from the health coverage plan rate may be [utilized] made only in accordance with the following limitations:

(1) [Carriers may use the attained age of covered persons as a rating factor. However, the maximum premium differential for age as determined by ratio shall be 4 to 1 beginning with age 19]. In establishing the premium rates, health carriers offering coverage to small employers may use only age, group size, and industry classification as case characteristics. No consideration shall be given to health status, claim experience, duration of coverage, geographic location, or any other characteristic of the group.

(2) Carriers [modifying such average premium] making adjustments from the health coverage plan rate for age may do so only by using the following age brackets:

0 - 18

19 - 24

25 - 29

30 - 34

35 - 39

40 - 44

45 - 49

50 - 54

55 - 59

60 - 64

65 +

(3) [Carriers may use group size as a rating factor. However, the highest factor based on group size shall not exceed the lowest factor based on group size by more than 20 percent; provided that for groups of one, an additional 10 percent rating factor shall be allowed from the highest factor.

(4) Carriers may use the small employer group’s industry classification as a rating factor. However, the highest factor based on industry classification shall not exceed the lowest factor based on industry classification by more than 20 percent.

(5) Carriers may use the small employer group’s geographic location as a rating factor. However, the highest factor based on geographic location shall not exceed the lowest factor based on geographic location by more than 15 percent.

(6) Carriers may use the health status of the small employer group as a rating factor. However, the application of a health status factor shall be subject to the following limitations:

(A) The health status factor may reflect health status of covered persons, the small employer’s claim experience, or the duration of coverage since health statements were last provided.

(B) Variations from the arithmetic average of the highest rate charged to the lowest rate charged shall not exceed 25 percent.

(C) Upon the renewal of a small employer policy, any increase in the premium rate that is solely attributable to changes in the health status factor from the prior year shall be no more than 15 percent.

(7) Upon the renewal of a small employer policy, a carrier is prohibited from increasing the premium rate by more than 25 percent of the rate that was charged in the preceding year. Such rate increase limitation shall not include any premium rate increase that is based on a carrier’s annual cost and utilization trends or changes in the rating factor for attained age of covered persons.] The maximum premium rate differential after adjusting for all case characteristics as determined by ratio shall be 3.5 to 1. This limitation shall not apply for determining premium rates for covered persons whose attained age is less than 19.

(4) In establishing the premium rates, health carriers offering coverage to small employers may make further adjustments based on family composition.

(5) The small employer health carrier shall set premium rates for small employers after consideration of case characteristics of the small employer group as well as family composition. No small employer health carrier shall inquire regarding health status or claims experience of the small employer or its employees or dependents until after the premium rates have been agreed upon by the carrier and the employer.

(6) Carriers may calculate premium rates using either list billing or composite billing. Carriers shall use the same billing method in all succeeding rating periods unless the small employer agrees to allow the carrier to change the methodology.

(7) The percentage increase in the premium rates used by a health carrier for a new rating period shall not exceed 20 percent of the premium rates used by that carrier in the preceding rating period. Such rate increase limitation shall not include any premium rate increase that is based on changes in the health coverage plan rate.

(f) Each rating factor that a carrier chooses to utilize in the individual market shall be reflective of claim cost variations that correlate with that factor independently of claim cost variations that correlate with any of the other allowable factors.

225:11 Medical Underwriting. Amend RSA 420-G:5, I to read as follows:

I. Health carriers providing health coverage for individuals [or small employer groups] may perform medical underwriting, including the use of health statements or screenings or the use of prior claims history, to the extent necessary to establish or modify premium rates as provided in RSA 420-G:4. The commissioner may allow group carriers to use standardized health statements. Small group carriers may use the standard reinsurance underwriting form for their reinsurance ceding decisions to the New Hampshire small employer health reinsurance pool, established in RSA 420-K:2, after premium prices have been agreed upon by the carrier and the small employer.

225:12 New Chapter; Small Employer Health Reinsurance Pool. Amend RSA by inserting after chapter 420-J the following new chapter:

CHAPTER 420-K

SMALL EMPLOYER HEALTH REINSURANCE POOL

420-K:1 Definitions. In this chapter:

I. “Assessment” means the liability of the member insurer to the reinsurance pool.

II. “Board” means the board of directors of the small employer health reinsurance pool.

III. “Commissioner” means the insurance commissioner.

IV. “Covered lives” means “covered lives” as defined in RSA 404-G:2, V.

V. “Health carrier” means any entity licensed pursuant to RSA 402, RSA 420-A, or RSA 420-B that delivers, issues for delivery or maintains in force policies of health insurance in New Hampshire.

VI. “Health insurance” means “health insurance” as defined in RSA 404-G:2, VII.

VII. “Plan of operation” means the plan of operation of the small employer health reinsurance pool, including articles, bylaws and operating rules, procedures and policies approved by the commissioner and adopted by the pool.

VIII. “Pool” means the small employer health reinsurance pool.

IX. “Small employer” means “small employer” as defined in RSA 420-G:2, XVI.

X. “Standard health benefit plan” means a health benefit plan developed pursuant to RSA 420-K:4, I.

420-K:2 Establishment of the Pool.

I. There is established a nonprofit entity to be known as the “New Hampshire small employer health reinsurance pool.” All health carriers, writers of health insurance, and other insurers issuing or maintaining health insurance in this state shall be members of the pool.

II. On or before July 1, 2005, the commissioner shall give notice to all members of the pool of the time and place for the initial organizational meeting, which shall take place by July 15, 2005. The members shall select the initial board, subject to approval by the commissioner. The board shall consist of at least 5 and not more than 9 representatives of members. There shall be no more than one board member representing any one member company. In determining voting rights at the organizational meeting, each member shall be entitled to vote in person or by proxy. The vote shall be proportional to the member’s covered lives. To the extent possible, at least 2/3 of the members of the board shall be small employer health carriers. At least one member shall be a small employer health carrier with less than $100,000,000 in net small employer health insurance premium in this state. The commissioner, or designee, shall be an ex-officio member of the board. In approving selection of the board, the commissioner shall assure that all members are fairly represented. The membership of all boards subsequent to the initial board shall be approved by the commissioner and shall, to the extent possible, reflect the same distribution of representation as is described in this paragraph.

III. If the initial board is not elected at the organizational meeting, the commissioner shall appoint the initial board within 15 days of the organizational meeting.

IV. Within 60 days after the appointment of such initial board, the board shall submit to the commissioner a plan of operation and thereafter any amendments to the plan necessary or suitable to assure the fair, reasonable, and equitable administration of the pool. The commissioner shall, after notice and hearing, approve the plan of operation provided he or she determines it 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 proportionate basis in accordance with the provisions of paragraph VI of this section. The plan of operation shall become effective upon approval in writing by the commissioner consistent with the date on which the coverage under this section shall be made available. If the board fails to submit a suitable plan of operation within 60 days after its appointment, or at any time thereafter fails to submit suitable amendments to the plan of operation, the commissioner shall, after notice and hearing, adopt and promulgate a plan of operation or amendments no later than October 1, 2005. The commissioner shall amend any plan adopted by him or her, as necessary at the time a plan of operation is submitted by the board and approved by the commissioner.

V. The board shall select reinsurance pool administrators through a competitive bidding process to administer the pool. The board shall evaluate bids submitted based on criteria established by the board. Each month, total payments to administrators shall not exceed the larger of $2,500 or an amount equal to $10 per life for which the reinsurance pool has any potential claims liability.

VI. The plan of operation shall establish procedures for:

(a) Handling and accounting of assets and moneys of the pool, and for annual fiscal reporting to the commissioner.

(b) Filling vacancies on the board, subject to the approval of the commissioner.

(c) Selecting an administrator and setting forth the powers and duties of the administrator.

(d) Reinsuring risks in accordance with the provisions of this chapter.

(e) Collecting assessments from all members to provide for claims reinsured by the pool and for administrative expenses incurred or estimated to be incurred during the period for which the assessment is made.

(f) Any additional matters at the discretion of the board.

420-K:3 Powers of the Pool.

I. The pool shall have the general powers and authority granted under the laws of New Hampshire to insurance companies licensed to transact health insurance.

II. In addition, the pool shall have the specific authority to:

(a) Enter into contracts as are necessary or proper to carry out the provisions and purposes of this chapter, including the authority, with the approval of the commissioner, to enter into contracts with programs of other states for the joint performance of common functions, or with persons or other organizations for the performance of administrative functions.

(b) Sue or be sued, including taking any legal actions necessary or proper for recovery of any assessments for, on behalf of, or against members.

(c) Take such legal action as necessary to avoid the payment of improper claims against the pool.

(d) Define the array of health coverage products for which reinsurance will be provided, and to issue reinsurance policies, in accordance with the requirements of this chapter.

(e) Establish rules, conditions, and procedures pertaining to the reinsurance of members’ risks by the pool.

(f) Establish appropriate rates, rate schedules, rate adjustments, rate classifications, and any other actuarial functions appropriate to the operation of the pool.

(g) Assess members in accordance with the provisions of this chapter, and to make advance interim assessments as may be reasonable and necessary for organizational and interim operating expenses. Any such interim assessments shall be credited as offsets against any regular assessments due following the close of the fiscal year.

(h) Appoint from among the 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.

(i) Borrow money to effectuate the purposes of the pool. Any notes or other evidence of indebtedness of the pool not in default shall be legal investments for insurers and may be carried as admitted assets.

(j) Develop a standard health benefit plan.

420-K:4 Standard Health Benefit Plan.

I. The board shall:

(a) Develop a standard health benefit plan which shall contain benefit and cost sharing levels that reflect the health coverages most commonly sold by small employer carriers in the state.

(b) Develop base reinsurance premium rates for the standard health benefit plan. The base reinsurance premium rates shall be set at levels which reasonably approximate gross premiums charged to small employers by small employer carriers for health benefit plans with benefits similar to the standard health benefit plan. The base premium rates shall be subject to approval of the commissioner.

(c) Establish a methodology for determining premium rates to be charged by the pool to reinsure small employer groups and individuals. The methodology shall include a system for classification of small employers that reflects the types of case characteristics commonly used by small employer carriers in establishing premium rates.

II. The standard health benefit plan, base reinsurance premium rates, and the rating methodology shall be submitted to the commissioner for approval within 45 days after the appointment of the board and shall subsequently be revised as necessary and appropriate.

420-K:5 Eligibility, Coverage, and Rates. Beginning January 1, 2006, members may reinsure with the pool health coverage provided to small employers as follows:

I. The pool shall reinsure the level of coverage provided up to, but not exceeding, the level of coverage provided in the standard health benefit plan or the actuarial equivalent thereof as defined and authorized by the board.

II. The pool shall not reimburse a ceding carrier with respect to claims of a reinsured employee or dependent until the carrier has incurred an initial level of claims for such employee or dependent of at least $5,000 in a calendar year for benefits covered by the standard health benefit plan. The amount of the deductible shall be periodically reviewed by the board and may be adjusted upward as determined by the board.

III. A member may reinsure an entire small employer group within a period of 60 days following the small employer’s health insurance policy issue or renewal date.

IV. A member may reinsure an eligible employee or dependent of a small employer group within a period of 60 days following the small employer’s health insurance policy issue or renewal date.

V. A member may reinsure a newly eligible employee or dependent of a small employer group within a period of 60 days following the commencement of his or her coverage.

VI. Reinsurance coverage may be terminated for each reinsured employee or dependent on any plan anniversary.

VII. Reinsurance of newborn dependents shall be allowed only if the mother of any such dependent is reinsured as of the date of birth of such child, and all newborn dependents of reinsured persons shall be automatically reinsured as of their date of birth.

VIII. Notwithstanding the provisions of paragraphs III and IV:

(a) Coverage for eligible employees and their dependents provided under a group policy covering 2 or more small employers shall not be eligible for reinsurance when such coverage is discontinued and replaced by a group policy of another carrier covering 2 or more small employers, unless coverage for such eligible employees or dependents was reinsured by the prior carrier; and

(b) At the time coverage is assumed for such group by a succeeding carrier, such carrier shall notify the pool of its intention to provide coverage for such group and shall identify the employees and dependents whose coverage will continue to be reinsured. The time limitations for providing such notice shall be established by the pool.

IX. The board, as part of the plan of operation, shall establish a methodology for determining premium rates to be charged for reinsuring small employers and individuals. The methodology shall include a system for classification of small employers that reflects the way case characteristics are commonly used by small employer carriers in the state. Pool reinsurance premiums shall be established at the following percentages of the base reinsurance premium rate established by the pool for that classification of small employers with similar case characteristics:

(a) An entire small employer group consisting of 2 or more employees may be reinsured for a rate that is 150 percent of the applicable base reinsurance premium rate for the group established pursuant to RSA 420-K:4, II; and

(b) An eligible employee or dependent may be reinsured for a rate that is 500 percent of the applicable base reinsurance premium rate for the individual established pursuant to RSA 420-K:4, II.

X. On or before December 1, 2005, the board shall establish, subject to the approval of the commissioner, a standard reinsurance underwriting form for use by small employer carriers in ceding risks to the pool. The form may be amended from time to time as the board deems necessary, subject to the approval of the commissioner.

420-K:6 Assessments.

I. Following the close of each fiscal year, the administrator shall determine the net premiums, the pool expenses of administration and the incurred losses for the year, taking into account investment income and other appropriate gains and losses.

(a) Each member’s assessment for the reinsurance pool shall be based on its number of covered lives times a specified assessment rate. The board of directors shall specify the basis used to set the assessment rate. The board of directors shall establish a regular assessment rate, which shall be:

(1) Calculated on a calendar year basis based on the net losses from the audited financial statements of the prior fiscal year;

(2) Established no later than November 1 in the current fiscal year; and

(3) Anticipated to be sufficient to meet the pool’s funding needs.

(b) In addition to the regular assessment rate, the board may establish a special assessment rate for organizational expenses. Notwithstanding RSA 420-G:4, a writer of health insurance may increase the premiums charged by the amount of the special assessment. Any assessment may appear as a separate line item on a policyholder’s bill.

(1) The board shall only establish an interim assessment if the board determines that its funds are or will become insufficient to pay the reinsurance pool’s expense in a timely manner.

(2) The regular assessment rate, and any special assessment rate, shall be subject to the approval of the commissioner. The commissioner shall approve the rate if he or she finds that the amount is required to fulfill the purpose of the reinsurance pool. For the purpose of making this determination, the commissioner may, at the expense of the pool, seek independent actuarial certification of the need for the proposed rate.

(c) The board shall impose and collect assessments on members of the pool.

(d) If the assessment exceeds the amount actually needed, the excess shall be held and invested and, with the earnings and interest thereon, be used to offset future net losses. Each covered life shall be included in the assessment on an aggregate basis and procedures shall be maintained to ensure that no covered life is counted more than once.

II. Provision shall be made in the plan of operation for the imposition of an interest penalty for late payment of assessments.

III. The board may defer, in whole or in part, the assessment of a member insurer if, in the opinion of the board, payment of the assessment would endanger the ability of the insurer to fulfill its contractual obligations. In the event an assessment against a member insurer is deferred in whole or in part, the amount by which such assessment is deferred may be assessed against the other members in a manner consistent with the basis for assessments set forth in this chapter. The member insurer receiving such deferral shall remain liable to the pool for the amount deferred. The board may attach appropriate conditions to any such deferral.

420-K:7 Immunity and Indemnification.

I. 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 chapter shall be the basis of any legal action against the pool or any of its members.

II. Any person or member made a party to any action, suit, or proceeding because the person or member served on the board or on a committee or was an officer or employee of the pool shall be held harmless and be indemnified by the pool against all liability and costs, including the amounts of judgments, settlements, fines or penalties, and expenses and reasonable attorney’s fees incurred in connection with the action, suit, or proceeding. The indemnification shall not be provided on any matter in which the person or member is finally adjudged in the action, suit, or proceeding to have committed a breach of duty involving gross negligence, dishonesty, willful misfeasance, or reckless disregard of the responsibilities of office. Costs and expenses of the indemnification shall be prorated and paid for by all members. The commissioner may retain actuarial consultants necessary to carry out his or her responsibilities pursuant to this chapter and such expenses shall be paid by the pool established in this chapter.

225:13 Repeal. RSA 420-G:4, I(e)(7), relative to increasing the premium rate for small employers at successive rating periods, is repealed.

225:14 New Hampshire Small Employer Health Reinsurance Pool; Ceding at Renewal Restricted. Amend RSA 420-K:5, III and IV to read as follows:

III. A member may reinsure an entire small employer group within a period of 60 days following the small employer’s health insurance policy issue [or renewal] date.

IV. A member may reinsure an eligible employee or dependent of a small employer group:

(a) Within a period of 60 days following the small employer’s health insurance policy issue [or renewal] date; or

(b) On the first plan anniversary after the coverage has been in effect for a period of 3 years, and every third plan anniversary thereafter; provided, that reinsurance pursuant to this subparagraph shall only be permitted with respect to eligible employees and their dependents of a small employer which has no more than 5 eligible employees as of the applicable anniversary.

225:15 Reference Change. Amend RSA 420-G:4, I(b) to read as follows:

(b) [Base rate] Market rate shall be established by each health carrier for all of its health coverages offered to individuals and, separately, for all of its health coverages offered to small employers.

225:16 Effective Date.

I. Section 12 of this act shall take effect July 1, 2005.

II. Sections 13 and 14 of this act shall take effect January 1, 2007.

III. The remainder of this act shall take effect January 1, 2006.

(Approved: July 5, 2005)

(Effective Date: I. Section 12 shall take effect July 1, 2005

II. Sections 13 and 14 shall take effect January 1, 2007

III.Remainder shall take effect January 1, 2006)