Report Title:

Hawaii Employer Mutual Health Insurance Company


Establishes the Hawaii Employer Mutual Health Insurance Company to provide health insurance to Hawaii employers.


H.B. NO.









relating to health insurance.



SECTION 1. Chapter 431, Hawaii Revised Statutes, is amended by adding a new article to be appropriately designated and to read as follows:



431:   -101 Purpose. The Hawaii employers' mutual health insurance company is established to provide health insurance coverage to employers of the State at the highest level of service with the lowest possible cost, consistent with reasonable and applicable actuarial standards and the sound financial integrity of the company. The purposes of the company are to provide the highest standard of health benefits and to be responsive to each policyholder's experience, practice, and operating effectiveness.

431:   -102 Definitions. As used in this article:

"Administrator" means the president and chief executive officer of the Hawaii employers' mutual health insurance company.

"Board" means the board of directors of the Hawaii employers' mutual health insurance company.

"Company" means the Hawaii employers' mutual insurance company established by this article.

"Council" means the Hawaii employers' mutual health insurance company oversight council.

"Investment manager" means any fiduciary, who has been designated by the board to manage, acquire, or dispose of the company's assets, a bank as defined by law, or an insurance company qualified to perform services under the laws of more than one state.

"Qualified actuary" means a member of the American Academy of Actuaries who is either a fellow of the Casualty Actuarial Society or an Associate of the Casualty Actuarial Society who has five or more years of experience.

431:   -103 Hawaii employers' mutual health insurance company, established. (a) The Hawaii employers' mutual health insurance company is established as an independent corporation to provide health insurance to Hawaii employers. The company may be reorganized as a nonprofit corporation under chapter 414D.

(b) The company shall be organized and operated as a domestic mutual insurance company. The company shall comply with, unless specifically excluded, all requirements of the insurance code regarding a domestic mutual insurance company. The company shall not be an agency of the State. The company or its liabilities shall not be deemed to constitute debts or liabilities of the State of Hawaii or pledges of the full faith and credit of the State. The company shall write health insurance policies covering Hawaii employers as required or authorized by law and employers' liability to the same extent as any other private insurer. The company shall not write other lines of insurance, reinsurance, or excess insurance.

(c) The company's assets shall consist of real and personal property and shall include all premiums and other moneys paid to the company, all property, and other income acquired, earned, or otherwise gained by the use of premiums and other moneys paid to the company by deposits, investments, exchanges, and other transactions. The company's assets shall be the sole property of the company and shall be used exclusively by the company for the operation and obligations of the company.

(d) Notwithstanding any other law to the contrary, the company shall be excluded from the surplus requirements of domestic mutual insurers from January 1, 2004, through December 31, 2014. The company is also excluded during this time period from any assessments by the Hawaii hurricane relief fund otherwise required by section 431P-5(b)(8); provided that the exclusion shall apply to the first $25,000,000 of written premiums in each calendar year; and provided further that annual written premiums in excess of $25,000,000 shall be assessed in accordance with section 431P-5(b)(8).

(e) The company is exempt from participation, and shall not join, contribute financially to, nor be entitled to the protection of, any plan, association, guaranty, insolvency fund, or education and training fund authorized or required by this chapter. Notwithstanding the foregoing exemptions, beginning January 1, 2015, the company shall participate in the property and liability insurance guaranty association, pursuant to sections 431:16-101 to 431:16-117; provided that the company shall meet the surplus requirements applicable to all other domestic insurers under chapter 431 effective January 1, 2008.

(f) On or after January 1, 2004, the company shall provide health coverage to Hawaii employers otherwise entitled to coverage but not able to or not electing to purchase coverage in the voluntary insurance market, and are not authorized, either individually or as a part of a group, to self-insure. An authorized self-insured is eligible for coverage upon termination of self-insurance.

431:   -104 Board of directors, established. (a) The board of directors of the company shall be responsible for the organization, management, policies, and activities of the company. The board shall consist of nine voting members and one nonvoting member. The voting members shall consist of the following:

(1) Eight directors who shall be owners, officers, or employees of policyholders of the company; and

(2) One director who shall be a public, at-large member elected by the board of directors.

The administrator shall be the nonvoting member of the board.

(b) The initial eight directors shall be appointed by the governor within sixty days of June 19, 2003, and shall serve for terms of one year each. The governor shall ensure adequate representation from the major sectors of the economy and workforce in the State.

The public, at-large member initially elected by the board shall serve for a term of one year.

The initial board of directors shall determine the staggering and length of future directors' terms; provided that no term shall exceed three years. Upon the expiration of the terms of the initial division directors, the company's policyholders in the division represented by the director shall elect the directors. Each director shall serve for terms as specified by the board unless sooner removed for cause pursuant to rules adopted by the board. Each director shall hold office until a successor is elected as provided in this section. No person shall serve more than two full terms as director. Any other law to the contrary notwithstanding, the election and composition of the board of directors as provided in this section shall be deemed adequate to qualify the company as a mutual insurer under chapter 431.

(c) A vacancy on the board shall be filled by appointment of the governor or insurance commissioner in the case of appointed directors, or by election by the company's policyholders or the board of directors in the case of positions formerly occupied by a director elected by the company's policyholders or by the board of directors, respectively. The person appointed to fill a vacancy shall serve for the remainder of the term of the person's predecessor.

(d) Within one year after appointment, each director shall be a member or an employee of a policyholder of the company and shall continue in such status during the director's term of office. Any director representing a member that fails to maintain health insurance from the company shall be disqualified from serving on the board.

(e) Each director shall receive necessary traveling and board expenses incurred in the performance of duty as director and a fee commensurate with the duties expected of actual attendance at board meetings.

(f) No person shall be a director who has a direct and substantial interest in a competing insurer as:

(1) A stockholder (excluding the holding of less than one per cent of the outstanding shares in a publicly traded insurer);

(2) An employee;

(3) An attorney; or

(4) A contracting party (excluding an independent contractor or business owner who does less than twenty- five per cent of its total annual volume of business per year with competing insurers).

431:   -105 Powers; generally. Except as otherwise limited by this chapter, the company may:

(1) Sue, be sued, complain, and defend, in its corporate name;

(2) Have a corporate seal, which may be altered at pleasure, and use the seal by causing it, or a facsimile thereof, to be impressed, affixed, or in any other manner reproduced;

(3) Purchase, take, receive, lease, take by gift, devise, or bequest, or otherwise acquire, own, hold, improve, use, and otherwise deal in and with real or personal property, or any interest therein, wherever situated;

(4) Sell, convey, mortgage, pledge, lease, exchange, transfer, and otherwise dispose of all and any part of its property and assets;

(5) Make contracts and incur liabilities, borrow money at such rates of interest as the board may determine, issue guaranty capital shares and surplus notes, require capital contributions, issue its notes, debenture bonds, and other obligations, secure any of its obligations by mortgage or pledge of all or any portion of its property or income, and secure financing by any board approved mechanism;

(6) Allocate fiduciary responsibilities among the directors and designate other persons to carry out fiduciary responsibilities;

(7) Collect, receive, hold, and disburse all money payable to or by the company;

(8) Deposit the company's money in banks or depositories selected by the board and withdraw the company's money from such banks or depositories; provided that the withdrawal shall be made or authorized only upon the signatures of at least two persons approved by the board;

(9) Pay money from the company to effectuate the company's purpose and administration, including amounts for costs incurred to establish the company; and

(10) Exercise all powers necessary or convenient to effect the purposes of the company.

431:   -106 Duties and responsibilities. (a) All corporate powers shall be exercised by or under the authority of the board, unless otherwise provided in this chapter or in the articles of incorporation.

(b) The board shall discharge its duties:

(1) In accordance with the company's purpose;

(2) With the care, skill, prudence, and diligence under the circumstances that a prudent director, acting in a like capacity and familiar with such matters would use in conducting a similar enterprise and purpose;

(3) By diversifying the company's investments to minimize the risk of losses, unless it is prudent not to do so;

(4) In accordance with governing legal documents;

(5) By having an annual audit of the company by an independent certified public accountant;

(6) By securing a fidelity bond for the administrator and in its discretion for other agents dealing with the company's assets at the company's expense;

(7) By purchasing liability insurance for errors and omissions for the board, each director, and any other fiduciary employed or contracted by the company to cover liability or losses caused by the act or omission of a fiduciary;

(8) By maintaining proper books of accounts and records of the company's administration;

(9) By carrying out the reporting and disclosure requirements required by law;

(10) By appointing a qualified actuary to develop and recommend a responsible schedule of premium rates with consideration of the company's investment income or refunds, or both, and to provide actuarial certification of the company's loss reserves; and

(11) By cooperating with and assisting the council in its duties and responsibilities.

(c) Except as otherwise provided by law, the board may:

(1) Transact health insurance policies required or authorized by state law to the same extent as any other insurer;

(2) Provide the terms and conditions of an insurance policy;

(3) Provide that any written instrument be executed for the company by the administrator or the administrator's agent;

(4) Enter into agreements to reinsure all or part of the company's exposure to loss and to limit the risk to the company; and

(5) Employ persons to administer the company, including legal counsel, accountants, insurance consultants, administrators, qualified actuaries, investment managers, adjustors, other experts, and clerical employees and pay compensation and expenses in connection therewith.

431:   -107 Administrator; appointment; duties. (a) The board shall hire an administrator, who shall serve at the pleasure of the board. The administrator shall be the president of the company and the chief executive officer, who shall be responsible for the day-to-day operations and management of the company.

(b) The administrator shall have proven successful experience as an executive at the general management level in the insurance business. The administrator shall manage and conduct the business of the company according to the board's direction and policies. The administrator shall receive compensation authorized by the board.

(c) Before entering the duties of office, the administrator shall give a fidelity bond in an amount and with sureties approved by the board. The premium for the bond shall be paid by the company.

(d) The administrator shall be an ex officio, nonvoting member of the board.

431:   -108 Financial management. (a) The board shall select a custodial trustee to collect, receive, hold, or disburse moneys payable to or by the company.

(b) The board shall invest the company's principal and income without distinction between principal and income and keep the company's assets invested in real or personal property or other securities. The board may retain cash temporarily awaiting investment or to meet contemplated payments without liability for interest thereon.

(c) The board shall manage the company's assets, except to the extent that the authority to manage the company's assets is delegated to other qualified investment managers. The board may appoint investment managers to manage, acquire, or dispose of any of the company's assets. An investment manager may be designated as an "investment agent". The investment manager shall acknowledge in writing that he or she is a fiduciary under the company.

(d) The board may:

(1) Sell the company's securities. No purchaser of the company's securities is bound to see to the application of the purchase money or inquire as to the validity of such sale;

(2) Vote on behalf of any stocks, bonds, or securities of any corporation or issuer held in the company or request any action to such corporation or issuer. The board may give general or special proxies or powers of attorney with or without powers of substitution;

(3) Participate in reorganizations, recapitalization, consolidations, mergers, and similar transactions for stocks, bonds, or other securities of any corporation that are held by the company, and accept and retain any property received thereunder for the company;

(4) Exercise any subscription rights and conversion privileges for the company's stocks or securities;

(5) Compromise, compound, and settle any debt or obligation due to or from the company; reduce the amount of principal and interest, damages, and costs of collection in settling such debts;

(6) Cause securities held by it to be registered in its own name or in the name of a nominee without indicating that the securities are held in a fiduciary capacity and to hold any securities in bearer form. The company's records, however, shall show that such investments are part of the company;

(7) Delegate its investment powers to investment managers of the company to expedite the purchase and sale of securities. The purchase or sale of securities by these managers shall be in the name selected by the board. The authority of these managers to purchase or sell securities for the company shall be evidenced by written authority executed by the administrator. The board shall require these managers to keep it currently informed as to the nature and amount of the investments made for the company by them. The board may enter into appropriate agreements with these managers setting forth their investment powers and limitations. The board may terminate the services of these managers. These managers shall be subject to the board's instructions;

(8) Pay taxes or assessments that are assessed against the company;

(9) Require any applicant or policyholder to furnish the board with such information necessary for the company's administration; and

(10) Delegate its authority to the administrator or any authorized representative to maintain any legal proceedings necessary to protect the company or the directors or to secure payment due to the company. In connection with this delegation, the board or the administrator or their representative may compromise, settle, or release claims on behalf of or against the company or the board.

431:   -109 Premium rates, determination. (a) The board shall establish the premium rates to be charged for insurance sold by the company. The company shall comply with the requirements set forth in article 14 of this chapter. Premium rates shall be set at levels sufficient, when invested, to carry all claims to maturity, to meet the reasonable expenses for administering the company, and to maintain a reasonable surplus.

(b) The board shall hire a qualified actuary to assist with the development of sound premium rates.

431:   -110 Reserves, investment. The board may invest or reinvest any surplus or reserves within the limitations established for insurance companies under chapter 431.

431:   -111 Financial statements and other reports. (a) The company shall submit to the commissioner an annual statement of financial condition audited by an independent certified accountant. The audit report shall contain an actuarial opinion prepared by a qualified actuary on the company's claims reserves and expenses. The financial statement shall be on a form prescribed by the commissioner and shall include actuarially appropriate reserves for:

(1) Known claims and associated expenses;

(2) Claims incurred but not reported and associated expenses;

(3) Unearned premiums; and

(4) Bad debts, reserves for which shall be shown as liabilities.

(b) The company shall compile and maintain statistical and actuarial data relating to the determination of premium rate levels, the incidence of benefit claims, and the cost of benefit claims. The compiled information shall be submitted annually to the commissioner and to the director of labor and industrial relations.

431:   -112 Annual accounting; dividends. (a) The company shall conduct an annual accounting of its incurred loss experience and expenses.

(b) The board may declare and apportion reasonable dividends to policyholders, determined by an actuarial opinion prepared by a qualified actuary after evaluating the impact of the dividends on the solvency of the company. The dividends may be paid or credited to policyholders according to classifications of policies established by the board.

(c) No dividends shall be:

(1) Paid or credited in a manner that unfairly discriminates between policies within the same classification;

(2) Made contingent upon payment of any renewal premium on any policy; or

(3) Paid or credited in the first three years of operation of the company.

431:   -113 Audits. The administrator, or designated representative, shall have reasonable access to any policyholder's payroll and employment records during regular working hours to carry out audits of payroll reported, the number of employees on the payroll, and other information necessary for the administration of this article.

431:   -114 Denial, cancellation, and termination. The company may deny coverage or renewal of an existing policy or may terminate an existing policy of a policyholder or applicant for:

(1) Nonpayment of an undisputed premium; or

(2) Failure to accurately disclose information concerning the applicant's or policyholder's ownership, change of ownership, operations, or payroll, including the allocation of payroll among state and federal compensation programs, and other information necessary for the board to determine premium rates."

SECTION 2. The Hawaii employers' mutual insurance company may issue debentures one time in an amount not exceeding $10,000,000, payable solely from premiums received from insurance polices and other revenues received by the company for the initial operating expenses of the company. The debentures shall be issued in the name of the company and not in the name of the State. The final maturity date of the debentures shall not exceed ten years from the date of issuance. The board shall set aside and pledge revenues from premiums and other sources for the payment of the principal and interest on the bonds debentures.

SECTION 3. Relief. (a) Except as otherwise provided in this Act, all rates or loss costs for health insurance shall comply with the provisions contained in chapter 431, Hawaii Revised Statutes. Any insurer or rating organization which contends that the rate provided for in this Act is inadequate shall state in its filing the rate it contends is appropriate and shall state with specificity the factors or data which it contends should be considered in order to produce such appropriate rate. The insurer shall be permitted to use all of the generally accepted actuarial techniques in making any filing pursuant to this subsection. It shall be the insurer's or rating organization's burden to actuarially justify any rate increase from the reduced rates provided for in this Act.

(b) A filing shall be deemed to meet the health insurance rate filing requirements unless disapproved by the commissioner within the waiting period or any extension thereof. All filings submitted under this Act shall be deemed public records. All filings submitted under this Act shall be exempt from chapter 92-41, Hawaii Revised Statutes. The public hearing notice shall be filed with the office of the lieutenant governor at least six calendar days before the public hearing.

(c) If the filing is approved under this Act, a contested case hearing in accordance with chapter 91, Hawaii Revised Statutes, may be convened. Notwithstanding any law to the contrary, a petition and demand for hearing shall not stay the implementation of the rates approved by the commissioner or the rates currently in effect, whichever is higher. A final order of the commissioner may be appealed in accordance with chapter 91, Hawaii Revised Statutes.

(d) If a filing is disapproved in whole or in part, a petition and demand for a contested case hearing may be filed in accordance with chapter 91, Hawaii Revised Statutes. The insurer or rating organization shall have the burden of proving that the disapproval is not justified. While the action of the commissioner in disapproving the rate filing is being challenged, the aggrieved insurer shall be entitled to the rates currently established or the filed rates, whichever is lower.

(e) With respect to any approval or disapproval by the commissioner regarding any rate filing focusing upon a reduction, the aggrieved insurer shall be entitled to charge the current filed rates while the action of the commissioner is being challenged and contested.

(f) Upon final disposition, pursuant to chapter 91, Hawaii Revised Statutes, or by a court of competent jurisdiction of the insurance commissioner's approval or disapproval of the rates, the insurance commissioner shall immediately determine and order that the insurer make the appropriate rebates of premiums to policyholders or allow the insurer to exact a surcharge on premiums.

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. This Act shall take effect upon its approval.