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(d) other.

The methodology shall include a system for classification of small employers that reflects the types of case characteristics commonly used by small employer insurers in the State. The methodology shall provide for the development of base reinsurance premium rates which shall be multiplied by the factors set forth in paragraph (2) to determine the premium rates for the program. The base reinsurance premium rates shall be established by the board, subject to the approval of the commissioner, and shall be set at levels which reasonably approximate gross premiums charged to small employers by small employer insurers for health insurance plans with benefits similar to the standard health insurance plan.

(2) Premiums for the program shall be as follows:

(a) An entire small employer group may be reinsured for a rate that is one and one-half times the base reinsurance premium rate for the group established pursuant to this paragraph.

(b) An eligible employee or dependent may be reinsured for a rate that is five times the base reinsurance premium rate for the individual established pursuant to this paragraph.

(3) The board periodically shall review the methodology established under paragraph (1), including the system of classification and any rating factors, to assure that it reasonably reflects the claims experience of the program. The board may proposed changes to the methodology which shall be subject to the approval of the commissioner.

(J) If a health insurance plan for a small employer is entirely or partially reinsured with the program, the premium charged to the small employer for any rating period for the coverage issued shall meet the requirements relating to premium rates set forth in Section38-71-910, et seq. of the 1976 Code.

(K) (1) Before Marchfirst of each year, the board shall determine and report to the commissioner the program net loss for the previous calendar year, including administrative expenses and incurred losses for the year, taking into account investment income and other appropriate gains and losses.

(2) Any net loss for the year shall be recouped by assessments of reinsuring insurers.

(a) The board shall establish, as part of the plan of operation, a formula by which to make assessments against reinsuring insurers. The assessment formula shall be based on:

(i) each reinsuring insurer's share of the total premiums earned in the preceding calendar year from health insurance plans delivered or

(ii) each reinsuring insurer's share of the premiums earned in the preceding calendar year from newly-issued health insurance plans delivered or issued for delivery during the calendar year to small employers in this State by reinsuring insurers.

(b) The formula established pursuant to subparagraph (a) shall not result in any reinsuring insurer having an assessment share that is less than fifty percent nor more than one hundred fifty percent of an amount which is based on the proportion ofthe reinsuring insurer's total premiums earned in the preceding calendar year from health insurance plans delivered or issued for delivery to small employers in this State by reinsuring insurers to the total premiums earned in the preceding calendar year from health insurance plans delivered or issued for delivery to small employers in this State by all reinsuring insurers.

(c) The board may, with approval of the commissioner, change the assessment formula established pursuant to subparagraph (a) from time to time as appropriate. The board may provide for the shares of the assessment base attributable to total premium and to the previous year's premium to vary during a transition period.

(d) Subject to the approval of the commissioner, the board shall make an adjustment to the assessment formula for reinsuring insurers that are approved health maintenance organizations which are federally qualified under 42 U.S.C. Sec. 300, et seq., to the extent, if any, that restrictions are placed on them that are not imposed on other small employer insurers.

(3) (a) Before March first of each year, the board shall determine and file with the commissioner an estimate of the assessments needed to fund the losses incurred by the program in the previous calendar year.

(b) If the board determines that the assessments needed to fund the losses incurred by the program in the previous calendar year will exceed the amount specified in subparagraph (c), the board shall evaluate the operation of the program and report its findings, including any recommendations for changes to the plan of operation, to the commissioner within ninety days following the end of the calendar year in which the losses were incurred. The evaluation shall include an estimate of future assessments and consideration of the administrative costs of the program, the appropriateness of the premiums charged, the level of insurer retention under the program, and the costs of coverage for small employers. If the board fails to file a report with the commissioner within ninety days following the end of the applicable calendar year, the

(c) For any calendar year, the amount specified in this subparagraph is five percent of total premiums earned in the previous calendar year from health insurance plans delivered or issued for delivery to small employers in this State by reinsuring insurers.

(4) If assessments exceed net losses of the program, the excess shall be held at interest and used by the board to offset future losses or to reduce program premiums. As used in this paragraph, "future losses" includes reserves for incurred but not reported claims.

(5) Each reinsuring insurer's proportion of the assessment shall be determined annually by the board based on annual statements and other reports considered necessary by the board and filed by the reinsuring insurers with the board.

(6) The plan of operation shall provide for the imposition of an interest penalty for late payment of assessments.

(7) A reinsuring insurer may seek from the commissioner a deferment from all or part of an assessment imposed by the board. The commissioner may defer all or part of the assessment of a reinsuring insurer if the commissioner determines that the payment of the assessment would place the reinsuring insurer in a financially impaired condition. If all or part of an assessment against a reinsuring insurer is deferred, the amount deferred shall be assessed against the other participating insurers in a manner consistent with the basis for assessment set forth in this subsection. The reinsuring insurer receiving the deferment shall remain liable to the program for the amount deferred and shall be prohibited from reinsuring any individuals or groups with the program until such time as it pays the assessments.

(L) Neither the participation in the program as reinsuring insurers, the establishment of rates, forms, or procedures, nor any other joint or collective action required by this act shall be the basis of any legal action, criminal or civil liability, or penalty against the program or any of its reinsuring insurers either jointly or separately.

(M) The board, as part of the plan of operation, shall develop standards setting forth the manner and levels of compensation, if any, to be paid to agents for the sale of basic and standard health insurance plans. In establishing such standards, the board shall take into consideration the need to assure the broad availability of coverages, the objectives of the program, the time and effort expended in placing the coverage, the need to provide on-going service to the small employer, the levels of

(N) The program shall be exempt from any and all taxes./

Amend further, as and if amended, by striking SECTION 12 in its entirety, beginning at line 4 on page 20 and ending at line 7 on page 21, and inserting:

/SECTION 12. (A) The Governor shall appoint an advisory committee to the commissioner which shall recommend the form and level of coverages to be made available by small employer insurers pursuant to Section6. At least one member of the committee shall be a licensed independent insurance agent who represents multiple health and accident insurance carriers. In preparing its initial recommendations, the advisory committee shall build on the work of the Governor's Committee on Basic Health Services.

(B) The committee shall recommend benefit levels, cost-sharing levels, exclusions and limitations for the basic health insurance plan and the standard health insurance plan. The committee shall specifically recommend which, if any, mandated coverages of health care services or health care providers should be included in the basic and standard health insurance plans and shall recommend as well whether the plans should be exempt from any other statutory provisions otherwise applicable to group health insurance policies. Section 38-71-200 is applicable to the basic and standard health insurance plans and is not subject to exemption. The committee also shall design a basic health insurance plan and a standard health insurance plan which contain benefit and cost-sharing levels that are consistent with the basic method of operation and the benefit plans of health maintenance organizations, including any restrictions imposed by federal law.

(1) The plans recommended by the committee may include cost containment features such as:

(a) utilization review of health care services, including review of medical necessity of hospital and physician services;

(b) case management;

(c) selective contracting with hospitals, physicians, and other health care providers;

(d) reasonable benefit differentials applicable to providers that participate or do not participate in arrangements using restricted network provisions; and

(e) other managed care provisions.

(2) The committee shall submit the health insurance plans described in paragraphs (A) and (B) to the commissioner for approval by January 1,

Amend further, as and if amended, by striking SECTION 13 in its entirety, beginning at line 9 on page 21 and ending at line 24 on page 21, and inserting:

/SECTION 13. The board, in consultation with members of the committee, shall study and make a public report each year to the commissioner on the effectiveness of this act. The report shall analyze the effectiveness of the act in promoting rate stability, product availability, and coverage affordability. The report shall include the total number of basic and standard policies sold in the state noting whether these insureds have ever been denied coverage before the effective date of this act. The report shall contain a detailed analysis of the financial condition of the reinsurance pool including losses and assessments by year. The report may contain recommendations for actions to improve the overall effectiveness, efficiency, and fairness of the small group health insurance marketplace. The report shall address whether insurers and agents are fairly marketing or issuing health insurance plans to small employers in fulfillment of the purposes of the act. The report may contain recommendations for market conduct or other regulatory standards or action./

Amend further, as and if amended, by striking SECTION 14 in its entirety, beginning at line 26 on page 21 and ending at line 15 on page 23, and inserting:

/SECTION 14. (A) Each small employer insurer shall fairly market health insurance plan coverage, including the basic and standard health insurance plans, to eligible small employers in the State. If a small employer insurer denies coverage to a small employer on the basis of the health status or claims experience of the small employer or its employees or dependents, the small employer insurer shall offer the small employer the opportunity to purchase a basic health insurance plan and a standard health insurance plan. A small employer insurer shall not deny coverage to a small employer based solely on the employer's occupation.

(B) (1) Except as provided in paragraph (2), no small employer insurer or its agent shall, directly or indirectly, engage in the following activities:

(b) encouraging or directing small employers to seek coverage from another insurer because of the health status, claims experience, industry, occupation, or geographic location of the small employer.

(2) The provisions of paragraph (1) shall not apply with respect to information provided by a small employer insurer or agent to a small employer regarding the established geographic service area or a restricted network provision of a small employer insurer or health maintenance organization.

(C) (1) Except as provided in paragraph (2), no small employer insurer shall, directly or indirectly, enter into any contract, agreement, or arrangement with an agent that provides for or results in the compensation paid to an agent for the sale of a health insurance plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the small employer.

(2) Paragraph (1) shall not apply with respect to a compensation arrangement that provides compensation to an agent on the basis of percentage of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic area of the small employer.

(D) A small employer insurer shall provide reasonable compensation, if provided under the plan of operation of the program, to an agent, if any, for the sale of a basic or standard health insurance plan.

(E) No small employer insurer may terminate, fail to renew, or limit its contract or agreement of representation with an agent for any reason related to the health status, claims experience, occupation, or geographic location of the small employers placed by the agent with the small employer insurer.

(F) No small employer insurer or agent may induce or otherwise encourage a small employer to separate or otherwise exclude an employee from health coverage or benefits provided in connection with the employee's employment.

(G) Denial by a small employer insurer of an application for coverage from a small employer shall be in writing and shall state the reason or reasons for the denial.

(H) If a small employer insurer enters into a contract, agreement, or other arrangement with a third-party administrator to provide administrative, marketing, or other services related to the offering of

Amend further, as and if amended, by striking SECTION 15 in its entirety, beginning at line 17 on page 23 and ending at line 41 on page 23, and inserting:

/SECTION 15. Section 38-71-920 of the 1976 Code, as added by Act 131 of 1991, is amended to read:

"(1) `Small employer' means any person, firm, corporation, partnership, or association actively engaged in business, who, on at least fifty percent of its working days during the preceding year, employed no more than twenty-five fifty eligible employees. In determining the number of eligible employees, companies which are affiliated companies or which are eligible to file a combined tax return for purposes of state taxation must be considered one employer.

(2) `Insurer' means any person who provides health insurance in this State. For the purposes of this subarticle, insurer includes a licensed insurance company, a prepaid hospital or medical service plan, a health maintenance organization, a multiple employer welfare arrangement, or any other person providing a plan of health insurance subject to state insurance regulation.

(3) `Health insurance plan' or `plan' means any hospital or medical expense incurred policy or certificate, hospital, or medical service plan contract, or health maintenance organization subscriber contract. It includes the entire contract between the insurer and the insured, including the policy, riders, endorsements, and the application, if attached. Health insurance plan does not include accident-only, blanket accident and sickness, specified disease, credit, dental, vision, Medicare supplement, long-term care, or disability-income insurance; coverage issued as a supplement to liability or other insurance; coverage designed solely to provide payments on a per diem, fixed indemnity, or nonexpense incurred basis, coverage for Medicare or Medicaid services pursuant to a contract with state or federal government, workers' compensation or similar insurance; or automobile medical payment insurance.

(4) `Small employer insurer' means an insurer which offers health insurance plans covering the employees of a small employer.

(5) `Case characteristics' means the following demographic or other relevant characteristics of a small employer, as determined by a small employer insurer, which are considered by the insurer in the determination of premium rates for the small employer: age, gender, geographic area, industry and family composition. Geographic areas smaller than a county

(6) `Commissioner' means the Chief Insurance Commissioner.

(7) `Department' means the Department of Insurance.

(8) `Late enrollee' means an eligible employee or dependent who requests enrollment in a health insurance plan of a small employer following the initial enrollment period during which the individual is entitled to enroll under the terms of the health insurance plan, provided that the initial enrollment period is a period of at least thirty days. However, an eligible employee or dependent shall not be considered a late enrollee if:

(1) The individual meets each of the following:

(a) the individual was covered under qualifying previous coverage at the time of the initial enrollment;

(b) the individual lost coverage under qualifying previous coverage as a result of termination of employment or eligibility, the involuntary termination of the qualifying previous coverage, death of a spouse or divorce; and

(c) the individual requests enrollment within thirty days after termination of the qualifying previous coverage; or

(2) The individual is employed by an employer which offers multiple health insurance plans and the individual elects a different plan during an open enrollment period; or

(3) A court has ordered that coverage be provided for a spouse or minor or dependent child under a covered employee's health insurance plan and request for enrollment is made within thirty days after issuance of the court order.

`Base premium rate' means, for each class of business as to a rating period, the lowest premium rate charged or which could have been charged under a rating system for that class of business, by the small employer insurer to small employers with similar case characteristics for health insurance plans with the same or similar coverage.

(9) `Actuarial base rate' means the current estimated premium rate for a health insurance plan, based solely on the claim experience for all small employers insured by the insurer, on plan design, and without regard to the nature of the groups assumed to select particular health insurance plans. The insurer must be able to demonstrate a reasonable actuarial relationship between the estimated premium rate and the plan design.

`New business premium rate' means, for each class of business as to a rating period, the premium rate charged or offered by the small employer

(10) `Index rate' means for each class of business for small employers with similar case characteristics the arithmetic average of the applicable base premium rate and the corresponding highest premium rate.

(11) `Class of business' means all or a distinct grouping of small employers as shown on the records of the small employer insurer.

(a) A distinct grouping may be established only by the small employer insurer on the basis that the applicable health insurance plans:

(i) are marketed and sold through individuals and organizations which are not participating in the marketing or sale of other distinct groupings of small employers for such small employer;

(ii) have been acquired from another small employer insurer as a distinct grouping of plans;

(iii) are provided through an association with membership of not less than fifty small employers which have been formed for purposes other than obtaining insurance; or

(iv) are provided through a common group formed solely for the purpose of obtaining insurance as permitted by Section 38-71-730(1)(b) are in a class of business that meets the requirements for exception to the restrictions related to premium rates provided in Section 4(A)(1)(a).

(b) A small employer insurer may establish no more than two additional groupings under each subparagraphs in subitem (a) on the basis of underwriting criteria, such as group size, which are expected to produce substantial variation in administrative and marketing the health care costs.

(c) The commissioner may approve the establishment of additional distinct groupings upon application to the commissioner and a finding by the commissioner that action would enhance the efficiency and fairness of the small employer insurance marketplace.

(12 11) `Actuarial certification' means a written statement by a member of the American Academy of Actuaries or other individual acceptable to the commissioner that a small employer insurer is in compliance with the provisions of Section 38-71-940, based upon the person's examination, including a review of the appropriate records and of the actuarial assumptions and methods utilized by the insurer in establishing premium rates for applicable health insurance plans.

(13 12) `Rating period' means the calendar period for which premium rates established by a small employer insurer are assumed to be in effect, as determined by the small employer insurer."/

/SECTION 16. Section 38-71-960 of the 1976 Code, as added by Act 131 of 1991, is amended to read:

"Section 38-71-960. Each small employer insurer shall make reasonable disclosure in solicitation and sales materials provided to small employers of:

(1) the extent to which premium rates for a specific small employer are established or adjusted due to case characteristics, family composition, and class of business the claim experience, health status, or duration of coverage of the employees or dependents of the small employer;

(2) the provisions concerning the insurer's right to change premium rates and the factors, including case characteristics, which affect changes in premium rates;

(3) a description of the class of business in which the small employer is or will be included, including the applicable grouping of plans;

(4) the provisions relating to renewability of coverage."/

Amend further, as and if amended, by striking SECTION 17 in its entirety, beginning at line 33 on page 24 and ending at line 35 on page 25, and inserting:

/Section 17. Section 38-71-730 of the 1976 Code, as last amended by Act 131 of 1991, is further amended to read:

"Section 38-71-730. No policy of group health, group accident, or group accident and health insurance may be delivered or issued for delivery in this State unless it conforms to the following description:

(1) Except as provided in this item, the The policy is issued to a trust or to insure two or more persons who are associated in a common group for purposes other than the obtaining of insurance. , except that group

(a) Group policies of credit accident and health insurance may be issued to persons other than those in a common group.

(b) A common group of small employers may be formed solely for the purpose of obtaining insurance. Such a group must comply with the following provisions:

(i) It contains at least one thousand insured persons.

(ii) It establishes requirements for membership. However, the common group cannot exclude any small employer, which otherwise meets the requirements for membership, on the basis of claim experience or health status.

(iii) It holds an open enrollment period at least once a year during which new members can join the common group.

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