STAND. COM. REP. NO. 716

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 352
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Consumer Protection and Commerce, to which
was referred H.B. No. 352 entitled: 

     "A BILL FOR AN ACT RELATING TO INSURANCE,"

begs leave to report as follows:

     The purpose of this bill is ensure that entities offering
long-term care insurance policies do so in an arena with a level
playing field.  Specifically, this bill, as received, will
require mutual benefit societies that offer long-term care
insurance to:

     (1)  Pay taxes on long-term care policy premiums;

     (2)  Require their membership in the Hawaii Life and
          Disability Insurance Guaranty Association (Guaranty
          Association); and

     (3)  Be subject to Guaranty Association assessments,

along with for-profit insurers.

     The Hawaii State Association of Life Underwriters testified
in support of this bill.  The Hawaii Medical Service Association
supported the intent of the measure.  The Department of Commerce
and Consumer Affairs commented on the measure pointing out that a
tax exemption for mutual benefit societies would give them a
competitive advantage over other insurers.  In addition, the
Guaranty Association was established to provide relief to

 
 
                                 STAND. COM. REP. NO. 716
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consumers if an insurer becomes insolvent and exempting mutual
benefit societies from membership would leave their members
unprotected in case of an insolvency.

     Current law is ambiguous as to whether a mutual benefit
society would have to pay taxes on premiums received for long-
term care insurance.  HMSA is currently putting together a
proposal to offer its members long-term care insurance and
assumes its tax exempt status will apply to these premiums.

     Your Committee feels that it would be unwise to provide the
competitive advantage of tax-free premiums to mutual benefit
societies.

     However, rather than require mutual benefit societies to pay
taxes on long-term care premiums, your Committee has decided to
amend this bill to simply exempt all long-term care premiums from
taxation whether collected by a non-profit mutual benefit society
or by a for-profit insurer.  This provides an even playing field
for those who offer this coverage while preserving the non-
profit, tax-exempt status of mutual benefit societies, allowing
HMSA to continue with its long-term care offer without having to
amend it to reflect payment of insurance tax in the calculation
of premiums, thus encouraging and supporting the provision of
long-term care insurance.

     However, exempting insurers from participation in the
Guaranty Association would not serve consumers well.  If an
insurer were to become insolvent, without such participation,
their members could suffer great losses unmitigated by the safety
net of Guaranty Association membership.

     Your Committee has therefore retained the provision that
mutual benefit societies offering long-term care insurance are
not exempt from membership in the Guaranty Association.

     As affirmed by the record of votes of the members of your
Committee on Consumer Protection and Commerce that is attached to
this report, your Committee is in accord with the intent and
purpose of H.B. No. 352, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
352, H.D. 1, and be referred to the Committee on Finance.


 
 
 
 
 
 
                                 STAND. COM. REP. NO. 716
                                 Page 3

 
                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Consumer
                                   Protection and Commerce,



                                   ______________________________
                                   RON MENOR, Chair