REPORT TITLE:
Mutual Benefit Societies


DESCRIPTION:
Specifies duties under constitution and bylaws of mutual benefit
societies as to notice, proxies, and conduct of membership
meetings and special meetings; clarifies information to be
included in an audit; allows insurance commissioner to determine
matters in the public interest in deciding which powers and
duties to exercise.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                            829         
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO MUTUAL BENEFIT SOCIETIES. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that mutual benefit
 
 2 societies operating as nonprofit medical indemnity or hospital
 
 3 service associations or societies are provided an exemption from
 
 4 state, county and municipal taxes under section 432:1-403.  This
 
 5 exemption provides these societies a significant competitive
 
 6 advantage over for-profit health insurers, such as private health
 
 7 insurers that pay applicable taxes.
 
 8      The legislature further finds that the tax exemptions can be
 
 9 justified only if the entity provides superior medical and
 
10 hospital benefits to its members and with great efficiency, at
 
11 the very lowest feasible cost, without retaining excessive
 
12 surpluses or acquiring expensive assets not necessary to its
 
13 operations, and especially, without paying excessively high
 
14 compensation or providing unnecessary prerequisites to its
 
15 officers and directors.
 
16      At present, there is one mutual benefit society in Hawaii,
 
17 Hawaii Medical Services Association (HMSA), that enjoys the
 
18 greatest share of the health insurance market in the State,
 
19 exceeding sixty per cent.  Under the State's unique and important
 

 
Page 2                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1 prepaid health insurance law -- a model for the nation -- which
 
 2 ensures that citizens working twenty or more hours for an
 
 3 employer have health insurance, HMSA is one of the two health
 
 4 insurers (the other being Kaiser Permanente) whose health
 
 5 insurance plan serves as a standard which other insurers may
 
 6 adhere to in order to meet the requirements of the prepaid health
 
 7 law.  
 
 8      For purely historical reasons, relating to the creation of a
 
 9 health insurance plan to benefit Hawaii citizens at a time when
 
10 few citizens possessed health insurance, mutual benefit
 
11 societies, such as HMSA, were governed by a separate section of
 
12 the insurance code that, for all practical purposes, exempted
 
13 them from the kind of scrutiny, regulation, and control of the
 
14 insurance commissioner that is applicable to all other health
 
15 insurers and other insurance companies.
 
16      The legislature further finds that the last annual surplus
 
17 of HMSA, amounting to over $60,000,000 in a State as small as
 
18 Hawaii, raises serious questions about the amount of premiums
 
19 charged to employers and others, and about the policies and
 
20 practices of claim coverages and payments.  The legislature is
 
21 concerned that the insurance commissioner may not be able to
 
22 adequately investigate HMSA and monitor its operations to
 
23 determine if it is operating with a degree of circumspection,
 

 
Page 3                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1 economy, and fairness in terms of salaries, benefits,
 
 2 perquisites, acquisition of assets, reimbursement of providers,
 
 3 claims practices, and other relevant management decisions, to
 
 4 continue to justify the special treatment under Hawaii's tax
 
 5 laws.
 
 6      The legislature further finds that under recent attempts to
 
 7 revise its constitution and bylaws, HMSA has significantly
 
 8 reduced the power of its members, who are the beneficiaries of
 
 9 HMSA, leading to significant rancor and objection among members
 
10 and providers.  The amendments effectively reduced the power of
 
11 HMSA enrollees, who are the effective owners of HMSA and the
 
12 insureds of HMSA's medical plans.
 
13      The purpose of this Act is to protect members of mutual
 
14 benefit societies to ensure that their rights are not compromised
 
15 by questionable corporate practices.
 
16      SECTION 3.  Section 432:1-202, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "§432:1-202  Constitution and bylaws; officers; government
 
19 of society.(a)  Mutual benefit societies promising or offering
 
20 to pay death, sick, disability, or other benefits in an amount
 
21 equal to or in excess of $25 shall, subject to the approval of
 
22 the commissioner, have the power to make a constitution and
 
23 bylaws for the government of the society, the admission of its
 

 
Page 4                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1 members, the management of its affairs, and the fixing and
 
 2 readjusting of the rates of contribution of its members.  The
 
 3 societies shall have the power to amend the constitution and
 
 4 bylaws and such other powers as are necessary to carry into
 
 5 effect the object and purpose of the society, but shall not
 
 6 suspend temporarily any part of its constitution or bylaws as the
 
 7 same are governed by this article.
 
 8      (b)  The constitution and bylaws, as appropriate, shall
 
 9 contain provisions to:
 
10      (1)  Prohibit the alteration, amendment, addition, or repeal
 
11           of the constitution or bylaws, or both, except upon a
 
12           two-thirds vote of the members or their proxies,
 
13           present and constituting a quorum at any duly called
 
14           meeting of the membership;
 
15      (2)  Prohibit special meetings of the membership, except
 
16           upon the call of the chairperson of the board of
 
17           directors, upon the call of any five directors, or upon
 
18           the written request of the lesser of two hundred
 
19           members or one per cent of the enrolled members;
 
20      (3)  Require a published notice of all meetings of the
 
21           membership, stating the place, day and hour, and
 
22           whether the meeting is annual or special; provided that
 
23           for a special meeting, the notice shall state briefly,
 

 
Page 5                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1           clearly, and in plain language the business proposed to
 
 2           be transacted.  The notice shall be published twice in
 
 3           one or more newspapers of general circulation in the
 
 4           State, with the first publication to be not less than
 
 5           thirty days before the date of the meeting and with a
 
 6           written notice sent to each member by prepaid postage
 
 7           mail at the member's last known address as it appears
 
 8           in the records of the entity or with displaying the
 
 9           notice prominently in a published monthly or quarterly
 
10           publication of the entity;
 
11      (4)  Require that, not less than twenty days prior to a
 
12           membership meeting, each member be afforded an
 
13           opportunity to designate in writing another member as a
 
14           proxy to vote on a member's behalf at the meeting.  The
 
15           proxies shall be given effect and shall be counted as
 
16           votes of the members giving the proxy;
 
17      (5)  Require that at any meeting of the membership, a count
 
18           be taken of the votes pro and votes con if a motion for
 
19           a count is made and seconded with at least twenty votes
 
20           in favor of the counting;
 
21      (6)  Require that at any meeting of the membership, a
 
22           written ballot shall be taken on a particular issue if
 
23           a motion for a ballot is made and seconded with at lest
 

 
Page 6                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1           twenty votes in favor of the ballot; and
 
 2      (7)  Allow any member at any meeting of the membership, to
 
 3           nominate a person to fill a vacancy on the board if the
 
 4           member has provided evidence in writing, no less than
 
 5           forty days prior to a special meeting, that the member
 
 6           is eligible and is willing to serve.
 
 7      [(b)] (c)  Each mutual benefit society shall elect or
 
 8 otherwise appoint among its officers a president and a treasurer,
 
 9 who shall be residents of the State.
 
10      [(c)] (d)  After the organization of a society is completed
 
11 and a certificate of compliance with law is granted by the
 
12 commissioner, the society shall be governed by its administrative
 
13 board or body in accordance with its constitution and bylaws.
 
14      [(d)] (e)  Upon compliance with this article any society
 
15 engaged in transacting business or operating in this State may
 
16 exercise all of the rights conferred by this article, and all of
 
17 the rights, powers and privileges possessed by it under its
 
18 constitution and bylaws, rules and regulations, or articles of
 
19 incorporation or charter not inconsistent with this article."
 
20      SECTION 4.  Section 432:1-405, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "[[]§432:1-405[]]  Annual audit.(a)  Annually on or before
 
23 June 1, or such later date as the commissioner upon request or
 

 
Page 7                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1 for cause may specify, each domestic mutual benefit society shall
 
 2 file an audit by a designated independent certified public
 
 3 accountant or accounting firm of the financial statements
 
 4 reporting the financial condition and the results of operations
 
 5 of the mutual benefit society.  The audit shall include, but not
 
 6 be limited to, the information specified under subsection (b) and
 
 7 information contained in the annual exhibits under section
 
 8 432:1-404.  The audited financial statement may use either
 
 9 generally accepted accounting principles (GAAP) or statutory
 
10 accounting principles (SAP).  If the generally accepted
 
11 accounting principles method is used, a reconciliation of the
 
12 financial statement to the statutory accounting principles must
 
13 be provided to the commissioner.  The mutual benefit society, on
 
14 an annual basis and prior to the commencement of the audit, shall
 
15 notify the commissioner in writing of the name and address of the
 
16 person or firm retained to conduct the annual audit.  The
 
17 commissioner may disapprove the mutual benefit society's
 
18 designation within fifteen days of receipt of the mutual benefit
 
19 society's notice, and the mutual benefit society shall be
 
20 required to designate another independent certified public
 
21 accountant or accounting firm.
 
22      (b)  For every society organized and operating under this
 
23 article solely as a nonprofit medical indemnity or hospital
 

 
Page 8                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1 service association or society, or both, the audit under
 
 2 subsection (a) shall include the annual compensation and the
 
 3 benefits of each officer and director, by name, and a specific
 
 4 description and current market value of all assets held by the
 
 5 society, and other information that the insurance commissioner
 
 6 may request.
 
 7      [(b)] (c)  The commissioner may suspend or revoke the
 
 8 certificate of compliance of any mutual benefit society that
 
 9 fails to file any of the documents required in subsection (a).
 
10 In lieu of or in addition to suspension or revocation of the
 
11 certificate of compliance of any mutual benefit society, the
 
12 commissioner may impose on the mutual benefit society a penalty
 
13 in the amount of not less than $100 and not more than $500 for
 
14 each day of delinquency."
 
15      SECTION 5.  Section 432:1-501, Hawaii Revised Statutes, is
 
16 amended by amending subsection (a) to read as follows:
 
17      "(a)  The powers, authorities, and duties relating to
 
18 examinations vested in and imposed upon the commissioner under
 
19 article 2 of the insurance code are extended to and imposed upon
 
20 the commissioner in respect to examinations of mutual benefit
 
21 societies.  For purposes of this subsection, the commissioner may
 
22 consider matters of public interest to determine the scope of
 
23 examinations."
 

 
Page 9                                         829         
                                     H.B. NO.           
                                                        
                                                        

 
 1      SECTION 6.  Section 432D-5, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "[[]§432D-5[]]  Annual report.(a)  Every health
 
 4 maintenance organization shall annually, on or before March 1,
 
 5 file a report verified by at least two principal officers with
 
 6 the commissioner covering the preceding calendar year.  Such
 
 7 report shall comply with sections 431:3-301 and 431:3-302.  The
 
 8 commissioner may prescribe on which forms the reports are to be
 
 9 filed.  In addition, the health maintenance organization annually
 
10 shall file with the commissioner the following by the dates
 
11 specified:
 
12      (1)  An audit by a designated independent certified public
 
13           accountant or accounting firm of the financial
 
14           statements reporting the financial condition and
 
15           results of operations of the health maintenance
 
16           organization on or before June 1, or such later date as
 
17           the commissioner upon request or for cause may specify.
 
18           The health maintenance organization, on an annual basis
 
19           and prior to the commencement of the audit, shall
 
20           notify the commissioner in writing of the name and
 
21           address of the person or firm retained to conduct the
 
22           annual audit.  The commissioner may disapprove the
 
23           health maintenance organization's designation within
 

 
Page 10                                        829         
                                     H.B. NO.           
                                                        
                                                        

 
 1           fifteen days of receipt of the health maintenance
 
 2           organization's notice, and the health maintenance
 
 3           organization shall be required to designate another
 
 4           independent certified public accountant or accounting
 
 5           firm.
 
 6      (2)  A list of the providers who have executed a contract
 
 7           that complies with section 432D-8(d) on or before
 
 8           March 1; and
 
 9      (3)  A description of the grievance procedures, the total
 
10           number of grievances handled through those procedures,
 
11           a compilation of the causes underlying those
 
12           grievances, and a summary of the final disposition of
 
13           those grievances on or before March 1.
 
14      (b)  For every health maintenance organization organized and
 
15 operating as a nonprofit corporation, the audit report under
 
16 subsection (a) shall include the annual compensation and the
 
17 benefits of each officer and director, by name, and a specific
 
18 description and current market value of all assets held by the
 
19 society, and other information that the insurance commissioner
 
20 may request.
 
21      [(b)] (c)  The commissioner may require additional reports
 
22 as are deemed necessary and appropriate to enable the
 
23 commissioner to carry out the commissioner's duties under this
 

 
Page 11                                        829         
                                     H.B. NO.           
                                                        
                                                        

 
 1 chapter.
 
 2      [(c)] (d)  The commissioner may suspend or revoke the
 
 3 certificate of authority of any health maintenance organization
 
 4 who fails to file any of the documents required under subsection
 
 5 (a).  In lieu or in addition to the suspension or revocation of
 
 6 the certificate of authority of any health maintenance
 
 7 organization, the commissioner may fine the health maintenance
 
 8 organization not less than $100 and not more than $500 for each
 
 9 day of delinquency."
 
10      SECTION 7.  If any provision of this Act, or the application
 
11 thereof to any person or circumstance is held invalid, the
 
12 invalidity does not affect other provisions or applications of
 
13 the Act which can be given effect without the invalid provision
 
14 or application, and to this end provisions of this Act are
 
15 severable.
 
16      SECTION 8.  Statutory material to be repealed is bracketed.
 
17 New statutory material is underscored.
 
18      SECTION 9.  This Act shall take effect upon its approval.
 
19 
 
20                           INTRODUCED BY:  _______________________