Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Health, to which was referred S.B. No. 140 entitled:

begs leave to report as follows:

The purpose of this measure is to prohibit the inclusion of any clause that allows an insurer, mutual benefit society, or health maintenance organization full discretionary authority to set type and scope of medical coverage to be provided in health insurance contracts with employers issued after December 31, 2005.

The Insurance Commissioner, Pahio Resorts, Inc., the Hawaii Coalition for Health, and the Employers' Chamber of Commerce submitted testimony in support of this measure. Kaiser Permanente, the Hawaii Medical Service Association, and America's Health Insurance Plans submitted testimony in opposition.

Your Committee finds that certain health insurers in the State employ a variety of clauses in their health insurance contracts with employers that unfairly burden Hawaii employers with risk of liability. One such clause requires employers to pay for legal and medical expenses if a worker appeals a denial of medical coverage to the State's external review panel or court and the insurer loses. Another clause allows broad discretionary authority to insurers to set the type and scope of medical coverage provided to Hawaii employers.

Your Committee notes that according to the Office of the Insurance Commissioner, the "discretionary authority" clause that gives insurers broad powers to define medical coverage is illegal in Maine and Minnesota.

Upon further consideration, your Committee has amended this measure by deleting the word "full" as it relates to "discretionary authority" to avoid any misinterpretation that degrees of discretionary authority less than "full" discretionary authority are not precluded.

As affirmed by the record of votes of the members of your Committee on Health that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 140, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 140, S.D. 1, and be referred to the Committee on Commerce, Consumer Protection, and Housing.