Indicates Matter Stricken
Indicates New Matter
The Senate assembled at 11:00 A.M., the hour to which it stood adjourned and was called to order by the ACTING PRESIDENT, Senator RYBERG.
The Joint Insurance Study Committee created in 1989 by Act 37, repealing Act 1143 of 1966 and Act 612 of 1971, submits herewith a report of its recent studies, recommendations, and activities.
SENATE MEMBERS HOUSE MEMBERS
Edward E. Saleeby, Chm. James J. Bailey
John C. Land, III Roland S. Corning
Glenn F. McConnell Joseph T. McElveen, Jr.
C. Tyrone Courtney Richard M. Quinn, Jr.
Luke A. Rankin John L. Scott
GOVERNOR'S APPOINTEES EX-OFFICIO MEMBER
Charles M. Potok John G. Richards
Dr. S. Travis Pritchett Chief Insurance
Ronald D. Scheetz Commissioner
Frank S. Smith, Jr.
Roland C. Young
STAFF
Mary Lou Price 503 Gressette Building
Director of Research Columbia, S.C. 29202
734-2845
SENATE MEMBERS:
/s/Senator Edward E. Saleeby
/s/Senator John C. Land, III
/s/Senator Glenn F. McConnell
/s/Senator C. Tyrone Courtney
/s/Senator Luke A. Rankin
HOUSE MEMBERS:
/s/Representative James J. Bailey
/s/Representative Roland S. Corning
/s/Representative Joseph T. McElveen, Jr.
/s/Representative Richard M. Quinn, Jr.
/s/Representative John L. Scott
GOVERNOR'S APPOINTEES:
/s/Mr. Charles M. Potok
/s/Dr. S. Travis Pritchett
/s/Mr. Ronald D. Scheetz
/s/Mr. Frank S. Smith, Jr.
/s/ Mr. Roland C. Young
EX-OFFICIO MEMBER
/s/Commissioner John G. Richards
STAFF:
Mary Lou Price
The Joint Insurance Study Committee was created by Act 37, 1989, which amended Act 612, 1971 and Act 1161, 1974, to make a continuous study and investigation of all facets of the insurance industry and related laws, including, but not limited to, the study of revisions to this state's insurance laws, and to the review of medical, automobile and property insurance premium rates so as to recommend appropriate statutory or regulatory controls. This study committee combined the Joint Legislative Automobile Liability Insurance Study Committee and The Insurance Law Study Committee and provides for its members, powers, duties, staff, and expenses to be similar to that of the aforementioned study committees.
1992 COMMITTEE LEGISLATION ENACTED
NAIC RECOMMENDATIONS FOR ACCREDITATION:
In 1988, the National Association of Insurance Commissioners began work on developing minimum standards for effective solvency regulation to ensure that all states had the essential statutes, regulations, and regulatory resources necessary to police the insurance industry. In 1989, the NAIC formally adopted these financial regulatory standards and in 1990, instituted a certification program where each state's compliance with the standards will be evaluated by an independent review team. In 1991, South Carolina became the third state in the nation to become accredited by the NAIC. To further the security of solvency, the NAIC continues to require states to adopt model legislation. These recommendations are brought before the study committee by the South Carolina Insurance Department annually.
STANDARD VALUATION MODEL LAW, H.4138, ACT 281 OF 1992
Many years ago, South Carolina adopted the Standard Valuation Model Act. It requires all life insurers doing business in this state to annually value reserves for all outstanding life insurance policies, annuities, and pure endowment contracts and specifies how such reserves shall be calculated. The Model Act is amended to also require that each life insurance company annually submit an opinion by a qualified actuary with respect to reserves, and in some cases, with respect to the assets supporting such reserves. An actuarial memorandum must also be submitted in support of the actuarial opinion. The enacted amendments to the Standard Valuation Law incorporate these changes.
STATUTORY DEPOSIT MODEL, H.4141, ACT 280 OF 1992
Insurers and Health Maintenance Organizations (HMO's), as a condition of doing business in South Carolina, are required to make statutory deposits of specified amounts with the Chief Insurance Commissioner for the protection of South Carolinians. This bill permits the Chief Insurance Commissioner to require deposits in excess of the statutorily prescribed amount in appropriate circumstances, permits the Chief Insurance Commissioner to require a statutory deposit from "qualified insurers" in appropriate circumstances, and requires that HMO's meet the same standards as an insurer for the return of statutory deposits.
REINSURANCE INTERMEDIARY ACT, S.1366, ACT 332 OF 1992
The Reinsurance Intermediary Model Act is designed to provide regulation of the activities of individuals who have the authority to cede or assume reinsurance on behalf of a reinsurer. Like an MGA, a reinsurance intermediary's actions can have a substantial impact on the financial condition of the reinsurer. Therefore, the Model Act requires: (1) that the reinsurance intermediary be licensed as an agent or broker in South Carolina, (2) that the responsibilities of the reinsurance intermediary and the reinsurer be established by contract, (3) that the reinsurance intermediary be subject to examination as if it were an insurer, (4) that the reinsurer utilizing a reinsurance intermediary annually file a statement of the financial condition of its reinsurance intermediary, which is prepared by a CPA, (5) that failure to comply with the provisions of the act shall result in the imposition of a fine and/or license revocation and reimbursement by the reinsurance intermediary to the reinsurer for losses incurred as a result of a violation by the reinsurance intermediary.
MANAGING GENERAL AGENTS ACT, S.1365, ACT 363 OF 1992
A number of insurers operate through MGA's, who have underwriting and binding authority for the insurer represented. As such, the actions of an MGA can have a significant impact on the financial condition of the insurer. To protect the insurer and its policyholders from the currently unregulated activities of MGA's, the model requires: (1) that MGA's be licensed in South Carolina as agents, (2) that the responsibilities of the MGA and the insurer be established by contract, (3) that the insurer file financial statements, prepared by a CPA, for each MGA with which it does business, (4) that an MGA be subject to examination of its financial condition as if it were an insurer, (5) that failure to comply with the provisions of the act shall result in the imposition of a fine and/or license revocation, and reimbursement to the insurer for losses incurred as a result of a violation by the MGA.
MEDICARE SUPPLEMENT INSURANCE REG., H.4136, ACT 283
Over the past several years, Congress has acted to pre-empt state regulation of insurance sold to supplement Medicare. It has developed minimum standards for coverages provided under such policies and has also undertaken the regulation of sales practices. Federal legislation passed in 1990, the Omnibus Budget Reconciliation Act of 1990, required that all states conform with federal guidelines for the content and sale of Medicare supplement policies, and required that states receive approval of their Medicare supplement insurance programs from the Health Care Financing Administration. In connection with this federal approval, South Carolina has identified one statutory change which should be made to assure compliance. This bill amends Section 38-71-730(6) which addresses Medicare supplement coverages provided under group policies to make it clear that the minimum standard applies to any person eligible for Medicare, not just a person who qualifies by reason of age.
MODEL LAW ON EXAMINATIONS, S.1262, ACT 286 OF 1992
The Chief Insurance Commissioner currently has the statutory authority to conduct financial examinations of insurers. The Model Act is similar in many respects to current law but also provides: 1) special criteria which may be considered in scheduling financial examinations, 2) that after January 1, 1994, examination reports of foreign insurers may only be accepted from insurance departments of accredited states or in circumstances in which examinations were performed with participation of examiners from an accredited state, 3) that the Chief Insurance Commissioner and his representatives and examiners shall be immune from liability for any statements made or conduct engaged in, which is performed in good faith in connection with a financial examination.
OTHER 1992 ENACTED COMMITTEE LEGISLATION
WINDSTORM & HAIL AMENDMENTS, H.4137, ACT 342 OF 1992
The amendments to the Wind & Hail Association statute: 1) give the association the right to rely on the member companies' annual statements when determining companies' participation, 2) impose a deadline for submissions for voluntary credits, 3) provide procedures for protesting an assessment and provide to the commissioner a means of enforcing those procedures, and 4) require member companies to exhaust administrative remedies before bringing suit in state court when appealing technical objections, such as those concerning rates, classification, assessments, voluntary credits, and underwriting.
SC HEALTH INSURANCE RISK POOL, S.1363, ACT 309 OF 1992
These amendments, submitted by the South Carolina Health Insurance Pool Board, are an effort to contain spiraling health insurance costs. These changes empower the board to take certain measures to keep costs down w still fulfilling the pool's statutory duty of providing health insurance to eligible South Carolina residents who otherwise could not procure such insurance.
The first amendment, derived from the Tennessee Health Pool Act, deleted the present statutory requirement of paying benefits according to a static formula. The result would be to grant general power to the pool for paying benefits without forcing adherence to a fixed formula. All changes in benefit levels, however, would be subject to prior approval by the commissioner.
The second amendment, adopted from the NAIC Model Act, added provisions granting authority to the pool to enact cost containment measures if the need arose. This approach gave needed flexibility to the pool to promulgate cost containment measures as needed but limited the pool's authority to those actions previously approved by the commissioner.
TEMPORARY WORKERS' COMPENSATION COVERAGE FOR APPLICANTS TO AN APPROVED SELF-INSURED FUND, S.1362, ACT 460
This legislation allows self-insured funds to provide temporary workers' compensation coverage to potential members. Since the Workers' Compensation Commission only considered applications one day each month, limited situations existed where a fund needed to provide temporary coverage in order to bridge the gap between the expiration of one policy period and the commission's approval of coverage as a member of a self-insured fund.
1993 PROPOSED COMMITTEE LEGISLATION
MEWA LEGISLATION, S.420
This bill requires agents, brokers, third party administrators and insurers which transact business for any multiple employer self-insured health plan to notify the commissioner that the plan is operating or proposing to operate in this State. The goal of this bill is to identify, early on, the existence of these self-insured multiple employer plans to ensure compliance with South Carolina law and to avoid the problems associated with multiple employer self-insured health plans which become insolvent, leaving South Carolinians with unpaid health claims.
AMENDMENTS TO SC HOLDING COMPANY ACT, S.421
This bill contains amendments, technical in nature, and corrects statutory references contained in the insurance investment code. It establishes standards to be applied in considering whether to approve the acquisition of a domestic insurer by a foreign controlling producer. These standards would be applied in circumstances in which the party seeking to acquire a South Carolina insurer is a foreign broker which controls or seeks to control a domestic insurer for which it places gross written premium of 5% or more of the admitted assets of the insurer. The bill amends the act with respect to the reporting and payment of dividends and distributions. It adds one additional consideration in determining the adequacy of an insurer's surplus, and amends the act with respect to notice and approval of extraordinary dividends.
SC HEALTH RISK POOL ASSESSMENT, S.460, H.3570
Under current law, all insurers with the authority to sell health insurance policies are members of the pool. As pool members, such insurers are subject to assessment for the losses generated by the pool, and are allowed a dollar-for-dollar credit for the amount of the assessment against premium or income taxes owed the State. The act creating the pool provided that, if any one year credits for the pool assessments exceed $5 million, the rates for the pool must be made self-sustaining.
The amount of the assessment levied by the pool in 1992 was $4 million, and it is anticipated that this amount will increase to $5 million in 1993. To avoid reaching the $5 million credit limitation and thus jeopardizing the affordability of this coverage to approximately 1,500 South Carolinians, this amendment proposes to change the method by which insurers take credit for pool assessments. Under this amendment, insurers would be allowed to take credit for pool assessments over a five-year, instead of a one-year period. If this amendment is adopted, the amount of credits taken by pool members in any one year against general fund revenue would be substantially reduced. Additionally, the threat of approaching the $5 million dollar limitation would be postponed.
This method of assessment and credit is similar to that utilized by the guaranty associations.
WORKERS' COMPENSATION STATE FUND FOR SELF-INSURED, S.392, H.3440
The Workers' Compensation system in our State can be described as shaky at best. Some 25% of the market is in the assigned risk plan, including many relatively small risks unable to find coverage in the voluntary market. In 1992, the National Council on Compensation (NCCI), asking for 40%, received a 22% rate increase for workers' compensation coverage and, asking for 18%, received a 12% rate increase for the loss component portion of coverage written on the voluntary market. And, as a part of that filing, the differential between voluntary and assigned risk was increased from 15% to 30%.
After USF&G withdrew from the voluntary market, rumors abounded that others, including a very large writer, may be considering the same course of action. It remains to be seen what effect the rate increase will have on their thinking but it will certainly increase rates substantially for small businesses.
Should circumstances develop that bring about a collapse of the market, particularly while the General Assembly is out of session, total chaos would result. Workers' compensation is a mandated coverage, and the assigned risk operates only voluntarily on the part of the companies which also participate in the voluntary market. This Bill would set up a plan to establish a "standby" system for continuation of workers' compensation coverage which is not only desirable, but necessary. This legislation would only venture into the private sector if and when a true collapse or crisis were declared.
SMALL EMPLOYER HEALTH INSURANCE AVAILABILITY ACT, S.541, H.3708
In 1991, the General Assembly enacted a package of reforms designed to improve the small group health insurance marketplace in South Carolina. These reforms included (1) a requirement that, if health insurance coverage is issued to a small group (25 employees or less) all members of the group be covered; (2) rating restrictions on the amount a small group's premium can increase each year; (3) restrictions on cancellation of renewal of a small group; and (4) portability requirements. At the time these reforms were considered, they were described as the first small step toward overall reform for the small group health insurance market, with the next step requiring that the small groups be guaranteed access to health insurance. The Small Employer Health Insurance Availability Act builds on these earlier reforms and provides that next step by requiring that small group health insurers guarantee issue two health insurance plans to small employers.
The Act provides:
1. that all small group insurers offer a "basic" and "standard" health insurance plan to any small employer that desires to purchase it;
2. that any small employer, that is an employer with 50 or less employees, is entitled to be issued a "basic" or "standard" plan;
3. that small employer insurers must elect to participate in this guarantee issue environment as either a risk-assuming insurer or as a reinsuring insurer;
4. that those small employer insurers which participate as reinsuring insurers may reinsure individual risks or entire small groups written on either the basic or the standard plan in a program known as the South Carolina Small Employer Insurer Reinsurance Program;
5. that the benefit levels for the basic and standard plans be developed and recommended by the Governor's Committee on Basic Health Services; and
6. that its effectiveness be reviewed and reported to the commissioner at least every three years.
WORKERS' COMPENSATION OMNIBUS BILL, S.540, H.3709
This massive piece of legislation epitomizes the efforts of a broad-based coalition, including the Workers' Compensation Task Force, representing the state's leading employers, the AFL-CIO, the SC Chamber of Commerce, the Carolina Alliance for Fair Employment, the National Federation of Independent Businesses, the SC Trial Lawyers Association, the SC Self-Insurers Association, the SC Hospital Association, the Governor's Advisory Committee for Improvements of the Workers' Compensation Laws, the SC Homebuilders Association, the Carolinas Branch Associated General Contractors, the SC Merchants Self-Insurance Trust Fund, the SC Automobile Dealers Self-Insurance Trust Fund, and the SC Workers' Compensation Commission.
Through compromise and consensus-building, the proposed legislation is intended to bring about needed change and improvement to workers' compensation programs in South Carolina. If enacted, the legislation will assure a greater equity within the system by closing the "opt out" loophole and providing for consistent and comprehensive fraud investigation and prosecution, better cost-effectiveness by reducing overhead costs associated with claims reporting and administration, and a more user-friendly system by establishing standards for prompt payment and responsible action.
The Bill itself encompasses thirteen proposals. These include the computation of average weekly wages. Current law uses the "previous 52 weeks" as the basis, while the bill uses the "previous 4 quarters" as reported on the Employer Contribution Reports. It clarifies work-related stress by adding a clarifying provision which states that such stress unaccompanied by physical injury is not compensable if it occurs during ordinarily personnel actions (such as demotions or terminations), unless the action is taken in an extraordinary or unusual manner. It requires all employers engaged in construction to have proof of coverage. It repeals the right to reject workers' compensation coverage. Currently, there are only three states which allow employers to opt-out of the system, Texas, New Jersey (where all employees must agree to opt-out), and South Carolina. Up until recently this provision has not been utilized in this state. Entrepreneurs from Texas who have been marketing the product have entered South Carolina where they are attempting to provide coverage for employers at a lower rate but not comparable to the benefits presently received under the current workers' compensation system. The legislation also increases the fine for failure to provide coverage, provides for exhaustion of all remedies prior to paying an Uninsured Employer's Fund claim, clarifies payments to be made by check, prohibits dunning letters, provides for timely payment of medical services, stipulates liability for structured settlements, establishes an Insurance Fraud Division of the Attorney General's Office as part of the Omnibus Insurance Fraud Act, amends the reporting requirements for accidents to allow for summary reporting and electronic data interchange, and allows the commission to review previously award claims at the request of the employer when fraud is suspected.
SAFETY LAWS LEGISLATION, S.391, H.3441
Since South Carolina ranks first in the nation for traffic deaths on rural highways and second in the United States for overall traffic deaths, the committee deemed it of utmost importance to re-introduce safety legislation. Because of the lack of funding, the members decided to delete the portion of last years' legislation calling for mandated driver's education for all first time drivers.
The present legislation raises the age of the first time driver. The Bill changes the age for a beginner's or instruction permit from fifteen to sixteen years of age. It changes the age for a special restricted driver's license from fifteen to sixteen years of age. It then raises the age for a regular license from sixteen to seventeen.
The legislation also includes primary enforcement of the seatbelt law. Currently, a person may not be stopped soley for not wearing a seatbelt. If he is stopped for another offense and it is noted that he is not wearing a seatbelt, he may then be ticketed and fined $10.
The legislation also requires the Chief Insurance Commissioner to review the effect of this act on private passenger automobile rates.
COMMITTEE AND STAFF ACTIVITIES:
NATIONAL CONFERENCE OF INSURANCE LEGISLATORS
Over the years, South Carolina has played an active part in the National Conference of Insurance Legislators (NCOIL). South Carolina has had two legislators who have served as President of NCOIL. Currently, two committee members, Senator Ed Saleeby and Senator Glenn McConnell, serve on the executive committee of this organization.
NCOIL is a national organization of state legislators working toward a better understanding of insurance, state insurance regulation and legislation, and against federal intervention into the rights of the states to regulate and legislate insurance matters. It provides its members with education and informational services to stay abreast of trends and to anticipate new developments. NCOIL also helps legislators in understanding the insurance industry, its impact on constituents, and consumer pressures. The importance of NCOIL to its members is underscored by the fact that insurance is one of the largest private industries regulated by the states, and in any typical legislative year some 25,000 insurance-related bills will be introduced in state legislatures.
South Carolina was selected to be the site for the 1992 NCOIL Annual Meeting. This meeting was held in November, 1992, in Charleston. The meeting was hosted by Senators Saleeby and McConnell and Representative Jimmy Bailey. It was organized and coordinated by the committee's staff. Over 400 state legislators and their spouses, along with several state insurance commissioners representing over thirty-five states attended. The meeting has been proclaimed by NCOIL as one of the most successful, so much so that the state of Louisiana, who will host the 1993 annual meeting, has contacted the committee's staff for aid in coordinating their meeting in November of 1993.
INTERAGENCY WORKING GROUP OF THE GOVERNOR'S STEERING COMMITTEE ON HEALTH POLICY AND DATA INTEGRATION
On July 30, 1991, Governor Campbell signed an Executive Order creating a two-tiered organization structure for moving the State substantially closer to the goal of effectively integrating health policy-making and quality health data. The structure includes the Governor's Steering Committee on Health Policy and Data Integration and an interagency working group. Because of the participation of the committee's staff as one of four voluntary staff members on the South Carolina Health Policy Council, the committee's staff also serves on the above-mentioned interagency working group that works in conjunction with the steering committee.
The Division of Research and Statistical Services is presently utilizing funding from the Robert Wood Johnson Foundation, supplemented with existing state funds and under the guidance and direction of the steering committee and interagency working group, to (1) complete a comprehensive review of the state's health information needs in support of health policy development and program management; (2) respond to major policy issues as determined by the Governor and the steering committee by developing data systems necessary to support, monitor, and evaluate the state's health policy initiatives and related question; (3) prioritize data systems improvements on the basis of the urgency of the data need, cost benefit of the improvement, and the time needed to make the improvement; (4) prepare a five-year health data system improvement plan with two-year and five-year goals to be reported annually to the Governor and the legislature; (5) develop a specific detailed proposal for enhancing existing data systems or for creating new systems to meet high priority health information needs; (6) recommend to the Governor and the legislature within twenty-four months a formalized method for on-going review, coordination, communication enhancement, and data system improvement and integration with health policy development; and (7) develop a system of communication and coordination among the health committees of the legislature, the Office of the Governor, and various state agencies and their boards and commissions in an effort to identify health policy data needs as early in the policy development process as possible.
GOVERNOR'S HEALTH INSURANCE REFORM COMMITTEE
Because the national debate on health policy has accelerated rapidly in recent months, the nation's traditional approach of providing health insurance through the workplace is undergoing considerable strain. Health insurance is growing inaccessible and unaffordable, particularly to small businesses where most of the job growth in the economy is. Individuals are having difficulty obtaining and affording health insurance and businesses are finding providing health insurance more costly.
Because Governor Campbell is committed at both the national and state levels to moving towards universal access to basic health care at an affordable cost, he has organized the Governor's Health Insurance Reform Committee. The Joint Insurance Study Committee's staff has been appointed to this committee.
The committee has been asked by the Governor to operate under the following assumptions: reform will occur within a managed care environment and there will be a role for private insurance. He has requested that the committee study the following issues concerning health insurance: making health insurance more available and affordable, requiring appropriate risk sharing and fairness, and assuring administrative efficiency and cost effectiveness. The committee works with the staff of the Governor's Division of Health and the University of South Carolina, College of Business Administration. The College of Business Administration is the contractor to the project. The committee coordinates with the Basic Benefits Committee.
The project will undertake an extensive literature review. The research staff also provides an overview of reform activities in other states. The committee acts as a sounding board for issues and ideas raised by the research staff and identifies issues and problems that the research staff should pursue.
The Governor's committee has been divided into five subcommittees: administrative issues, insurance pricing practices, risk selection, payment schedules and other caps on benefits, and health insurance financing issues. The Joint Insurance Study Committee's staff serves as the Facilitator of the Risk Selection Subcommittee. This subcommittee's charge is to discuss the process and criteria for selecting the insured to underwrite for individuals as well as small and medium-sized groups, decide if insurers should offer open enrollment on a continuous basis one month per year, or not at all, decide if pre-existing condition provisions should be allowed and, if so, for how long they could be excluded, discuss portability of insurance coverage across jobs, and make recommendations for improvements in risk selection in South Carolina.
The Governor's committee will issue a report to the Governor by August 31, 1993. This report may take a number of different forms depending upon the approach that the committee adopts and how its deliberations develop. The report should contain recommendations that will influence public policy, and the recommendations should particularly address regulations and legislation.
OTHER ACTIVITIES
Besides the activities stated above, the committee's staff continues to work closely with the Department of Insurance, attending the Insurance Commission's monthly meetings. The staff also attends the quarterly meetings of the South Carolina Health Insurance Pool, serving as a conduit between the board and the legislature. Staff also has made numerous speeches to various organizations and associations on committee and legislative activities. Attendance at the National Association of Insurance Commissioners' meetings has been invaluable because it presents the opportunity for the staff to follow the progress concerning insurance-related legislation in other states and to pass on to committee members and other legislators information on the progress of model acts which the NAIC produces and on which many of South Carolina's insurance laws are based.
Staff is also available and called upon throughout the session and interim to answer any constituent concerns for any member of the General Assembly on all insurance related matters.
(By prior motion of Senator SALEEBY, with unanimous consent, ordered printed in the Journal of Friday, May 14, 1993)
The following Bill was read the third time and ordered sent to the House of Representatives:
S. 769 -- Senator Martin: A BILL TO AMEND SECTION 7-7-450, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO VOTING PRECINCTS IN PICKENS COUNTY, SO AS TO REDESIGNATE THE PRECINCTS.
(By prior motion of Senator MARTIN)
The following Joint Resolution having been read the second time was ordered placed on the third reading Calendar:
S. 774 -- Senator Bryan: A JOINT RESOLUTION TO DISAPPROVE REGULATIONS OF THE BOARD OF PHARMACY, RELATING TO PATIENT COUNSELING, PROSPECTIVE DRUG REVIEW, AND PATIENT RECORDS, DESIGNATED AS REGULATION DOCUMENT NUMBER 1610, PURSUANT TO THE PROVISIONS OF ARTICLE 1, CHAPTER 23, TITLE 1 OF THE 1976 CODE.
(By prior motion of Senator MACAULAY)
At 11:15 A.M., on motion of Senator SETZLER, the Senate adjourned to meet next Monday, May 17, 1993, at 12:00 Noon.
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