Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection, and Housing, to which was referred S.B. No. 140, S.D. 1, entitled:

begs leave to report as follows:

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

Testimony in support of this measure was submitted by the Department of Commerce and Consumer Affairs, Pahio Resorts, Inc., and the Employers' Chamber of Commerce. Testimony in opposition to this measure was submitted by Kaiser Permanente, the Hawaii Medical Service Association, and the American Council of Life Insurers. Comments on this measure were also submitted by the America's Health Insurance Plans.

Your Committee finds that health care issues, including the rising costs of health care coverage, are of great concern to all, insurers, employers, and the insured alike. As a result, health care insurers seek broad discretionary authority in determining the scope of coverage within their policies so as to control costs. However, this broad discretionary authority may be and has been utilized to burden employers with excessive risks of liability. Although your Committee understands that the insurers need some degree of authority to determine which benefits should be covered, the extent of this authority should not be overly broad. Instead, your Committee determines that efforts must be made to balance the interests of all parties and that this measure is necessary in order to protect the interests of the employers and the insured. At the same time, insurers will still maintain the ability to more narrowly define areas of coverage to be included in any policy, contract, plan, or agreement.

However, your Committee is concerned that the measure may be interpreted to extend to life insurers based upon the creation of a new section within Chapter 431:10A, Hawaii Revised Statutes, which applies to accident and health or sickness insurance and also includes disability insurance issued by life insurers. Clarification may be necessary to ensure that this measure only addresses health insurers and not life insurers.

Accordingly, your Committee has amended this measure by including language to limit the applicability of the prohibition on discretionary authority clauses under the newly created section within Chapter 431:10A, Hawaii Revised Statutes, to exclude life insurance, annuities, disability income insurance, and long-term care insurance agreements.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 140, S.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 140, S.D. 2.