Effective January 1, 2007, requires that the application of all Medicare fee schedules, rather than just the Medicare Resource Based Relative Value Scale, apply to workers' compensation claims. Required workers' compensation insurers to identify overall cost savings and apply them to rates on new and renewal policies issued between February 1, 2007 and January 31, 2010. (HB2450 HD1)

A BILL FOR AN ACT

SECTION 1. The legislature finds that the workers' compensation insurance market is necessary for the economic welfare of the state, and that without adequate and affordable workers' compensation insurance, the orderly growth and economic development of the state would be impeded. Adequate and affordable insurance for workers' compensation is also necessary to enable employers to satisfy their legal obligations under chapter 386, Hawaii Revised Statutes (HRS).

For these reasons, the legislature enacted Act 261, Session Laws of Hawaii (SLH) 1996, to replace the existing workers' compensation assigned risk pool with a statutorily established nonprofit corporation known as the Hawaii Employers' Mutual Insurance Company (HEMIC). The purpose of HEMIC is to provide workers' compensation coverage for Hawaii employers, including employers who have in good faith, but without success, sought workers' compensation insurance in the voluntary market.

Act 261 also required insurers in the voluntary market and rating organizations to identify the overall cost savings resulting from this law and to incorporate the savings into the rates for new and renewal policies issued between July 1, 1996, to January 31, 2000. The legislature intended these provisions to provide desperately-needed premium relief to employers while the legislation establishing HEMIC was implemented.

Act 261 had a dramatic impact on the workers' compensation insurance industry. Total premiums paid and losses experienced were reduced from a high of $339,000,000 and $223,000,000, respectively, in 1993, to lows in 1999 of $157,000,000 and $110,000,000.

However, once the period during which cost savings were to be incorporated into rates ended, total premiums paid rose drastically. Between 1999 and 2003, total premiums collected increased from $157,000,000 to $308,000,000, an increase of ninety-six per cent. During that same time, loss costs experienced only a modest adjustment, increasing from $116,000,000 in 2001 to $128,000,000 in 2003, or roughly ten per cent.

The legislature further finds that the insurance commissioner is empowered to initiate proceedings for appropriate relief, including but not limited to proceedings to roll back rates whenever it appears to the commissioner that an insurer or other interested person regulated under article 14 of chapter 431, HRS, affecting workers' compensation insurance rates has set or applied any rate, classification, charge, or rule affecting workers' compensation insurance that is unreasonable. Despite having this authority, the insurance commissioner has allowed workers' compensation insurance premium rates to increase by ninety-six per cent regardless of the fact that loss costs rose only ten per cent during that same time period.

While the statute specifically references a particular medicare fee schedule, there are numerous other fee schedules that apply to hospital inpatient, hospital outpatient, ambulatory care, and others. For many of these types of services, because the other fee schedules are not specifically referenced, physicians and other health care providers are able to charge fees at usual and customary prices which in turn raises the cost for employers.

The legislature believes that the application of all medicare fee schedules would further reduce loss costs in workers' compensation cases. However, to ensure that these savings will be passed on to employers, statutory mechanisms must also be established to require insurers and rating organizations to incorporate these savings in future rate filings.

Accordingly, the purpose of this Act is to apply all medicare fee schedules in workers' compensation cases and establish mechanisms to ensure that the resulting cost savings are reflected in future premium rates.

SECTION 2. Section 386-21, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The liability of the employer for medical care, services, and supplies shall be limited to the charges computed as set forth in this section. The director shall make determinations of the charges and adopt fee schedules based upon those determinations. Effective January 1, 1997, and for each succeeding calendar year thereafter, the charges shall not exceed one hundred ten per cent of fees prescribed [in] by the Medicare Resource Based Relative Value Scale system applicable to Hawaii [as prepared] and administered by the United States Department of Health and Human Services, except as provided in this subsection. Effective January 1, 2007, and for each succeeding calendar year thereafter, the charges shall not exceed one hundred ten per cent of fees prescribed by the medicare system applicable to Hawaii and administered by the United States Department of Health of Health and Human Services, except as provided in this subsection. The rates or fees provided for in this section shall be adequate to ensure at all times the standard of services and care intended by this chapter to injured employees.

If the director determines that an allowance under the medicare program is not reasonable, or if a medical treatment, accommodation, product, or service existing as of June 29, 1995, is not covered under the medicare program, the director may, at any time, establish an additional fee schedule or schedules not exceeding the prevalent charge for fees for services actually received by providers of health care services to cover charges for that treatment, accommodation, product, or service. If no prevalent charge for a fee for service has been established for a given service or procedure, the director shall adopt a reasonable rate that shall be the same for all providers of health care services to be paid for that service or procedure.

The director shall update the schedules required by this section every three years or annually, as required. The updates shall be based upon:

When a dispute exists between an insurer or self-insured employer and a medical service provider regarding the amount of a fee for medical services, the director may resolve the dispute in a summary manner as the director may prescribe; provided that a provider shall not charge more than the provider's private patient charge for the service rendered."

SECTION 3. (a) Commencing February 1, 2007, all authorized insurers transacting workers' compensation insurance in this state shall identify overall cost savings resulting from the implementation of this Act and shall apply the cost savings as a reduction of the rates for all policies containing workers' compensation coverage in effect on January 31, 2007, for each new and renewal policy, and provide that the new rates shall be in effect and filed during the period February 1, 2007, to January 31, 2008. The cost savings identified shall have been applied equitably to all policyholders. There shall be no exception to the requirements of this subsection unless the commissioner pursuant to an insurer's petition shall find that the use of the rates required by an insurer will be inadequate to the extent that the rates jeopardize the solvency of the insurer required to use such rates.

(b) Commencing February 1, 2008, all authorized insurers transacting workers' compensation insurance in this state shall identify overall cost savings resulting from the implementation of this Act and shall apply the cost savings as a reduction of the rates for all policies containing workers' compensation coverage in effect on January 31, 2008, for each new and renewal policy, and provide that the new rates shall be in effect and filed during the period February 1, 2008, to January 31, 2009.

(c) Commencing February 1, 2009, all authorized insurers transacting workers' compensation insurance in this state shall identify overall cost savings resulting from the implementation of this Act and shall apply the cost savings as a reduction of the rates for all policies containing workers' compensation coverage in effect on January 31, 2009, for each new and renewal policy, and provide that the new rates shall be in effect and filed during the period February 1, 2009, to January 31, 2010.

SECTION 4. (a) Commencing November 1, 2006, any workers' compensation rating or advisory organization shall identify overall cost savings resulting from the implementation of this Act and shall apply the cost savings to a prospective loss cost which shall be in effect and filed during the period from November 1, 2006, to October 31, 2007. The cost savings shall be applied equitably to all policyholders.

(b) Commencing November 1, 2007, any workers' compensation rating or advisory organization shall identify overall cost savings resulting from the implementation of this Act and shall apply the cost savings to a prospective loss cost which shall be in effect and filed during the period from November 1, 2007, to October 31, 2008.

(c) Commencing November 1, 2008, any workers' compensation rating or advisory organization shall identify overall cost savings resulting from the implementation of this Act and shall apply the cost savings to a prospective loss cost which shall be in effect and filed during the period from November 1, 2008, to October 31, 2009.

SECTION 5. (a) Except as otherwise provided in this Act, all rates or loss costs for workers' compensation 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 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 increase above the reduced rates provided for in this Act. The insurer or rating organization shall include in the filing the expected impact of this Act, where appropriate, on losses, expenses, and rates.

(b) Any rate filing in which it is contended that the rates established in this Act are inadequate shall be filed no later than sixty days prior to the applicable filing date for those rates. The insurance commissioner shall review and approve or disapprove the rate filing not later than thirty days prior to the applicable filing date.

(c) A filing shall be deemed to meet the workers' compensation 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.

(d) If a 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 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.

(e) If a filing is disapproved in whole or in part, the insurer or rating organization may file a petition and demand contested case hearing 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 charge the rates currently in effect 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 6. 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 the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 7. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect upon its approval.