SB2271.DOC

SECTION 1. The legislature finds that there is a vital need for employers and consumers to have a clear understanding of how health care premiums are allocated by health insurance companies in this State and particularly how much of their premium dollars are spent on health care services as opposed to administration, profit, or other purposes. Full transparency of how health care insurance premiums are spent will empower health insurance purchasers to make informed decisions and reward companies that minimize administrative waste.

According to the Kaiser Family Foundation, since 1999, health insurance premiums have increased one hundred and thirty one per cent – from $5,791 in 1999 to $13,375 in 2009 - as compared to a general inflation increase of only twenty-eight per cent and an average worker's earnings increase of thirty‑eight per cent. Worker premium contributions have similarly increased from $1,619 to $3,354 between 2000 and 2008.

According to the Commonwealth Fund, the fastest rising component of health care spending is administrative overhead. Between 2000 and 2005, the net insurance administrative overhead, including both administrative expenses and insurance industry profits, increased by twelve per cent per year. This increase is 3.4 percentage points faster than the average health expenditure growth of 8.6 per cent.

The legislature further finds that a minimum medical expense threshold is necessary to maximize the value of health insurance premiums and is an important step toward controlling spiraling health care costs, which are due, in part, to the dramatic rise in administrative costs and insurer profits.

The purpose of this Act is to require insurers to annually report how health care premiums are spent with emphasis on administrative and medical expenses and to designate a minimum medical expense threshold.

SECTION 2. Chapter 431:14G, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§431:14G- Medical expense threshold requirements. (a) Insurers shall spend a minimum of the health insurance premiums earned in a calendar year on medical expenses as follows:

(1) Eighty per cent of health insurance premiums collected from individual and small employer insureds for individual and small employer products; and

(2) Eighty-five per cent of health insurance premiums collected from large employer insureds for large employer products.

The instructions and methodology for calculating and reporting medical expense threshold levels and issuing dividends or credits shall be specified by the commissioner.

(b) In each case where the insurer fails to comply with the medical expense threshold requirements set forth in section (a), the insurer shall issue a dividend or credit toward future premiums for the policyholder that is not less than an amount that would meet the applicable minimum requirement.

(c) Prior to distributing any dividend or credit, an insurer shall provide the commissioner with its plan for the distribution of all required dividends and credits as part of the required annual medical expense threshold. No distributions of required dividends or credits may be made without prior approval from the commissioner.

(d) The dividend or credit required to be distributed pursuant to subsections (b) and (c) shall be determined by the commissioner.

(e) Insurers that issue health insurance policies through out-of-state trusts, purchasing alliances or other group purchasing organizations, associations, or other multiple employer arrangements shall specify in the plan for distribution of dividends or credits that the dividends or credits for the health insurance policies shall be paid or credited, as applicable, to the covered employers, not the trust, association, purchasing alliance or other group purchasing organization, or other multiple employer arrangement.

(f) If an insurer is required to issue a dividend or credit, the insurer shall include the insurer's calculations of the dividend or credits to be issued due to failure to satisfy the minimum medical expense threshold and an explanation of the insurer's plan to issue these dividends and credits in its annual premium transparency report.

(g) Any consumer or employer, or their representatives, shall be entitled to seek an injunction to enforce any obligation established by this section or any rule adopted pursuant to this section.

(h) Notwithstanding any provisions in this article to the contrary, any insurer failing or refusing to comply with the reporting requirements of this section or of any rules adopted pursuant to this section, shall be liable for a fine of no less than $1,000, and no more than $10,000, for each day of violation.

(i) For purposes of this section:

"Health insurer" means any entity, including an insurance company authorized to issue health insurance, a health maintenance organization, or any other entity providing a plan of health insurance, health benefits, or health care services, that is subject to the insurance laws and regulation of this State or subject to the jurisdiction of the commissioner.

"Medical expense" means the amount of money that the insurer spends on direct medical care services for enrollees during a calendar year. This includes the insurer's total financial obligation for physician services, non-physician health care professional services, hospital and other health facility services, drugs and medical devices, and other health care services that the health insurer incurs on behalf of its enrollees. It shall also include amounts paid to health care providers for pay-for-performance or other quality or efficiency enhancing initiatives. The term "medical expense" does not include amounts which are the financial responsibility of the enrollee, the insurer's administrative costs, or expenditures for which the insurer is reimbursed by an enrollee's other insurance coverage or other third party liability.

"Medical expense threshold" means the quotient, to the nearest one per cent, of the total medical expenses divided by the total premiums.

"Multiple employer arrangement" means an arrangement established or maintained to provide health benefits to employees, and their dependents, of two or more employers. In a multiple employer arrangement, the employer assumes all or a substantial portion of the risk and shall include a multiple employer welfare arrangement, multiple employer trust, or other form of benefit trust.

"Premiums" means the amount of money that the insurer earns in a calendar year from the sale of health insurance, excluding dividends or credits applicable to prior years.

§431:14G- Annual premium transparency report. (a) Insurers shall submit an annual premium transparency report disclosing how health insurance premiums are spent annually. The premium transparency report shall include information for each of the following categories of insurance provided by the insurer: preferred provider organization, health maintenance organization, point of service, and high deductible health plan. This report shall include the following information for each category of insurance:

(1) A specific breakdown of administrative costs for the preceding calendar year as follows:

(A) Chief executive officer and executive salaries and benefits;

(B) Commissions and other broker fees;

(D) Advertising and marketing expenses;

(E) Insurance, including the following categories of commercial insurance:

(i) Reinsurance;

(ii) General liability;

(iii) Professional liability insurer; and

(iv) Other insurance types;

(F) Taxes, including:

(i) State and local insurance taxes;

(ii) State premium taxes;

(iii) Payroll taxes;

(iv) Federal and state income taxes;

(v) Real estate taxes; and

(vi) Other taxes;

(G) Travel and entertainment expenses;

(H) State and federal lobbying expenses;

(I) Other expenses, including non-executive salaries, wages and other benefits; rent and real estate expenses; certification, accreditation, board, bureau and association fees; auditing and actuarial fees; collection and bank service charges; occupancy, depreciation and amortization; cost or depreciation of electronic data processing; claims and other services; regulatory authority licenses and fees; investment expenses; and aggregate write-ins for expenses; and

(J) Total expenses incurred in subparagraphs (A) to (I):

(2) The reporting insurer's name and address;

(3) The insurer's total earned premiums for the preceding calendar year, before dividends or credits applicable to prior years;

(4) The amount of interest earned on premiums for the preceding calendar year;

(5) The amount recovered from uninsured motorist insurance, accident insurance, workers' compensation insurance, and other third party liability during the preceding calendar year;

(6) The total medical expense incurred during the preceding calendar year;

(7) Certification by a member of the American Academy of Actuaries that the information provided in the report is accurate and complete and that the insurer is in compliance with this section and rules adopted pursuant to this section; and

(8) Other information as the commissioner may request.

(b) Insurers shall file the premium transparency report with the commissioner no later than March 1 of each year for the premiums earned for the immediately preceding calendar year.

(c) Notwithstanding any provisions in this article to the contrary, any insurer failing or refusing to comply with the reporting requirements of this section or of any rules adopted pursuant to this section, shall be liable for a fine of no less than $1,000, and no more than $10,000, for each day of violation.

(d) All data or information required to be filed with the commissioner pursuant to this section shall be deemed a public record.

(e) Any consumer, or employer, or their representatives, shall be entitled to seek an injunction to enforce any obligation established by this section or any rules adopted pursuant to this section.

(f) For purposes of this section:

"Administrative costs" means all expenditures associated with the administration of health benefit coverage, including costs associated with claims processing, collection of premiums, marketing, operations, taxes, general overhead, salaries and benefits, quality assurance, utilization review and management, pharmacy and other benefit management, network contracting and management, and state and federal regulatory compliance.

"Interest" means the interest earned on the premiums by the insurer.

"Premiums" means the amount of money that the insurer earns in a calendar year from the sale of health insurance, excluding dividends or credits applicable to prior years."

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2271
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII