STAND. COM. REP. NO.2413

Honolulu, Hawaii

, 2002

RE: S.B. No. 2302

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committees on Commerce, Consumer Protection and Housing and Health and Human Services, to which was referred S.B. No. 2302 entitled:

"A BILL FOR AN ACT RELATING TO HEALTH INSURANCE,"

beg leave to report as follows:

The purpose of this measure is to require health insurers to file rate filings for health insurance rates and to return excess reserves to enrollees.

Your Committees received testimony in support of this measure from the following: Department of Commerce and Consumer Affairs, Insurance Commissioner, Health Insurance Branch Investigator, State Actuary, Office of Information Practices, Department of Labor and Industrial Relations, Hawaii State Teachers Association, Hawaii State AFL-CIO, NAMI Oahu, Mental Health Association in Hawaii, Hawaii Coalition for Health, Hawaii Psychiatric Medical Association, Benefit Plan Consultants (HI), Inc., ILWU Local 142, HSTA Member Benefits Corporation, the Kokua Council, and five individuals.

Testimony in opposition to the measure was received from the following: Hawaii Medical Service Association, Healthcare Association of Hawaii, Legislative Information Services of Hawaii, Hawaii Management Alliance Association, Maui Medical Group, Mutual Benefit Association of Hawaii, Royal State National Insurance Co., Ltd., Hawaii Business Roundtable, Kaiser Permanente, and Voluntary Employees' Benefit Association of Hawaii.

Currently, in Hawaii, health insurers set premium rates free from regulation or oversight and limited only by market forces. However, in a State where one health plan controls sixty-eight per cent of the private insurance market, excluding Medicare and Medicaid, and another health plan controls much of the remaining market, market forces do not operate to promote competitive pricing. Within the last five years, four health insurers have exited the Hawaii market. Without significant competition, Hawaii's consumers have little choice but to pay the rates set by the major health plans or go without essential health care services.

For some, this means accepting substantial premium increases in order to protect the health and welfare of their families. One of the State's largest unions testified that recent rate increases for their members ranged from almost fifteen per cent to over thirty-four per cent. For many of Hawaii's working class, gains in wage increases are offset by increases in health premiums.

While health plans have argued that premium rates are the lowest in the nation, the facts do not bear this out. A 1999 medical expenditure survey by the Kaiser Family Foundation showed that out of forty-seven states and the District of Columbia, fourteen states had average annual premiums lower than or equal to Hawaii's average annual premiums. This figure would probably be higher if health care plans in the other states were typically organized as not-for-profit mutuals and enjoyed the same type of tax treatment and other benefits accorded health plans in Hawaii.

Health plans in this State are organized as nonprofits and while they pay a reduced health plan fee, they pay no State taxes, pay reduced federal taxes, and have no shareholders. The State's largest mutual health plan paid State health plan fees of almost $400,000 in fiscal year 2000-2001, but was exempt from premium taxes that would have resulted in an assessment close to $50,000,000. Further, health insurers are exempted from most of the requirements imposed on insurance companies in Hawaii, including investment requirements, agent licensing, and rate filing.

Hawaii's health insurers collected over $2,000,000,000 in revenues in 2000. Without putting the ratemaking process in sunshine, the State lacks the ability to determine whether these revenues are the result of premium rates that are excessive or biased, or reasonable in relation to the benefits provided. This measure would allow the Commissioner to examine a health insurer's ratemaking methodologies and calculations by requiring health plans to make rate filings, as is done in other lines of insurance, and would prohibit excessive, inadequate, or unfairly discriminatory rates. In addition, this measure would require a health plan to return excess reserves to its enrollees or apply these amounts to effectuate rate reductions. Violators would be subject to monetary penalties or license suspension.

Your Committees find that rate review in other lines of insurance has resulted in lower premiums for consumers, and are not convinced, as asserted by opponents of this measure, that it would cause insurers to leave the market. Further, your Committees do not find that the Commissioner currently has the ability to examine the ratemaking process based on financial audits of health plans. These exams are conducted to assess an insurer's financial strength and do not involve an analysis of the insurer's ratemaking methodologies. Your Committees further find that health insurers have been reluctant to disclose information that would allow an analysis of their ratemarking, claiming that such information is proprietary in nature.

Over seventy-four per cent of uninsured adults report that they lack health insurance because of the cost. This measure would enable the Commissioner to examine health insurers' rates to determine whether the lack of affordable health care is due to excessive rates or other factors and to address the cost drivers that affect rates. Your Committees believe that Hawaii should join the forty-eight other states that protect its consumers against rising health care rates through rate oversight.

Your Committees have amended this measure to:

(1) Exclude life and disability insurers and labor union mutual benefit societies from the definition of "managed care plan" since the former are already regulated under the insurance code, and the latter may be exempted from chapter 432, Hawaii Revised Statutes, by the commissioner;

(2) Provide for an effective date of July 1, 2050; and

(3) Make technical, nonsubstantive changes for clarity and to reflect preferred drafting style.

As affirmed by the records of votes of the members of your Committees on Commerce, Consumer Protection and Housing and Health and Human Services that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2302, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2302, S.D. 1, and be referred to the Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Commerce, Consumer Protection and Housing and Health and Human Services,

____________________________

DAVID MATSUURA, Chair

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RON MENOR, Chair