STAND. COM. REP. NO.295-02
RE: H.B. No. 1761
Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twenty-First State Legislature
Regular Session of 2002
State of Hawaii
Your Committees on Consumer Protection and Commerce and Health, to which was referred H.B. No. 1761 entitled:
"A BILL FOR AN ACT RELATING TO INSURANCE,"
beg leave to report as follows:
The purpose of this bill is to allow the Insurance Commissioner (Commissioner) to regulate the rates of "managed care plans" (health plans), which include health insurers regulated under the Insurance Code, as well as health maintenance organizations and mutual benefit societies.
The bill establishes a prior approval system where proposed rates must be filed with the Commissioner and are subject to a 90-day waiting period before becoming effective. The Commissioner may disapprove rates that are inadequate, excessive, or unfairly discriminatory. The system is similar to that applicable to workers' compensation, motor vehicle, and other property and casualty insurance lines.
Rate filings are to be accompanied by statistical health plan experience, investment income, reserves, and other information and interpretation upon which they are based. The rate may be disapproved during the 90-day waiting period, which may be extended by 15 days by the Commissioner. Disapprovals may occur after the waiting period upon a contested case hearing. If a rate is disapproved, the Commissioner may set interim rates upon request by the affected health plan.
The bill also requires reserves exceeding 50 percent of a health plan's annual expenses to either be returned to enrollees or applied to stabilize or reduce the health plan's rates and other charges.
Testimony in support of this bill was received from the Insurance Division of the Department of Commerce and Consumer Affairs (DCCA), Hawaii State Teachers Association (HSTA), HSTA-Retired, ILWU Local 142, Hawaii State AFL-CIO, Hawaii Primary Care Association, Hawaii Independent Physicians Association, National Alliance for the Mentally Ill Oahu, Mental Health Association in Hawai'i, Equal Insurance Coalition, Hawaii Coalition for Health, Kokua Council, Advocates for Consumer Rights, Tsunami Marketing, and six concerned individuals. Comments were provided by the National Federation of Independent Business, HSTA Member Benefits Corporation, Legislative Information Services of Hawaii, and Benefit Plan Consultants(HI), Inc.
Testimony in opposition to this measure was submitted by Hawaii Medical Service Association, Kaiser Permanente, Hawaii Pacific Health, Royal State National Insurance Company, Ltd., Voluntary Employees' Benefit Association of Hawaii, Hawaii Medical Association, Healthcare Association of Hawaii, Maui Medical Group, Inc., Pacific Medical Administrative Group, Inc., Hawaii Management Alliance Association, Building Industry Association of Hawaii, Hawaii Business Rountable, Pharmacare, and several individuals. The Office of Information Practices opposed the informational practices provisions of the bill.
Your Committees heard testimony that this bill is needed because Hawaii's noncompetitive health plan market provides no incentive for health plan efficiency and product development. DCCA asked whether Hawaii's rates are actually lower than those of other states if our health plans are compared to plans with the same advantages of nonprofit status and the State's geographical compactness.
DCCA testified that the purpose of rate regulation is not to lower health care costs, although this may be its effect, but rather to make rate-making practices more transparent. Testifiers stated that this openness will:
(1) Encourage competition by assuring potential market entrants that existing plans do not underprice coverage or engage in predatory pricing;
(2) Ensure that rates are fair and not excessive for the benefits provided and that plans are solvent;
(3) Prevent cost shifting that discriminates against certain groups or services;
(4) Allow consumers to make informed purchases; and
(5) Give government information about the actual costs of medical benefits that may be used to focus regulatory policy.
DCCA also testified that the prior approval system proposed by this bill is one in a range of possible regulatory approaches. These include "file and use," which allows immediate rate implementation upon filing and subject to subsequent review and challenge, and "open competition," in which insurers use rates which are subject to review and invalidation if inadequate or discriminatory.
In addition, DCCA testified that 48 states have some form of health premium rate regulation, with most states using prior approval, file and use, and file only systems depending on the type of insurance product. DCCA stated that regulation has resulted in health premium decreases in other states.
Those opposed to the bill stated that regulation is unnecessary, and testified that:
(1) DCCA has existing authority over health plans including authority to ensure solvency;
(2) Regulation will not reduce health care costs which are driven by hospital care, drug, and mandated benefits costs, and high consumer expectations of care divorced from accountability for costs; and
(3) Rate decreases in other rate-regulated insurance industries were driven by factors not present in the health care arena.
Your Committees recognize that rate regulation cannot be ignored as a possible response to a number of trends that include the continuing upward climb in health insurance rates, the impending crisis in the property and casualty insurance market caused by the events of September llth, and the alarming trend in our state toward monopolies in our telephone, airline, gasoline, newspaper, and health industries.
Your Committees are seriously concerned about the potential impact of these trends on small employers and on the affordability and availability of health care in Hawaii in the near future. Your Committees find that the State must prepare for and try to minimize any future crisis. However, your Committees also recognize that an approach toward new regulation should be taken cautiously, and that even if adopted, rate regulation may only be a temporary and limited solution.
Your Committees find that discussion of the approach proposed by this bill should continue. Your Committees also request that in examining this bill other Committees seriously consider the measure as a means of implementing one testifier's suggestion that the bill provide a health insurance rate discount of ten percent for safety net employers who are nonprofits providing services to the physically, financially, and emotionally frail among us.
Your Committees have amended this measure by:
(1) Changing its effective date from upon approval to July 1, 2099, to encourage further discussion; and
(2) Making technical, nonsubstantive amendments for purposes of clarity, consistency, and style.
As affirmed by the records of votes of the members of your Committees on Consumer Protection and Commerce and Health that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 1761, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 1761, H.D. 1, and be referred to the Committee on Finance.
Respectfully submitted on behalf of the members of the Committees on Consumer Protection and Commerce and Health,
DENNIS A. ARAKAKI, Chair
KENNETH T. HIRAKI, Chair