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.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           872
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   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 perquisites to its officers
 
15 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
 

 
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 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 must
 
 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,
 

 
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 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
 

 
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 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)  Require that the principal office be located in the
 
11           State; provided that branch offices may be located
 
12           outside the State to serve the membership;
 
13      (2)  Prohibit the alteration, amendment, addition, or repeal
 
14           of the constitution or bylaws, or both, except upon a
 
15           two-thirds vote of the members or their proxies,
 
16           present and constituting a quorum at any duly called
 
17           meeting of the membership;
 
18      (3)  Prohibit special meetings of the membership, except
 
19           upon the call of the chairperson of the board of
 
20           directors, upon the call of any five directors, or upon
 
21           the written request of the lesser of two hundred
 
22           members or one per cent of the enrolled members;
 
23      (4)  Require a published notice of all meetings of the
 

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

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

 
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 1 amended to read as follows:
 
 2      "[[]§432:1-405[]]  Annual audit.(a)  Annually on or before
 
 3 June 1, or such later date as the commissioner upon request or
 
 4 for cause may specify, each domestic mutual benefit society shall
 
 5 file an audit by a designated independent certified public
 
 6 accountant or accounting firm of the financial statements
 
 7 reporting the financial condition and the results of operations
 
 8 of the mutual benefit society.  The audit shall include, but not
 
 9 be limited to, the information specified under subsection (b) and
 
10 information contained in the annual exhibits under section
 
11 432:1-404.  The audited financial statement may use either
 
12 generally accepted accounting principles (GAAP) or statutory
 
13 accounting principles (SAP).  If the generally accepted
 
14 accounting principles method is used, a reconciliation of the
 
15 financial statement to the statutory accounting principles must
 
16 be provided to the commissioner.  The mutual benefit society, on
 
17 an annual basis and prior to the commencement of the audit, shall
 
18 notify the commissioner in writing of the name and address of the
 
19 person or firm retained to conduct the annual audit.  The
 
20 commissioner may disapprove the mutual benefit society's
 
21 designation within fifteen days of receipt of the mutual benefit
 
22 society's notice, and the mutual benefit society shall be
 
23 required to designate another independent certified public
 

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

 
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 1 societies.  For purposes of this subsection, the commissioner may
 
 2 consider matters of public interest to determine the scope of
 
 3 examinations."
 
 4      SECTION 6.  Statutory material to be repealed is bracketed.
 
 5 New statutory material is underscored.
 
 6      SECTION 7.  This Act shall take effect upon its approval.
 
 7 
 
 8                           INTRODUCED BY:  _______________________