H 3688 General Bill, By Harvin
 A Bill to amend Title 38, Code of Laws of South Carolina, 1976, relating to
 insurance, by adding Chapter 91 so as to enact provisions for health care
 purchasing alliances, and provide for related matters.

   02/23/95  House  Introduced and read first time HJ-29
   02/23/95  House  Referred to Committee on Labor, Commerce and
                     Industry HJ-29

A BILL

TO AMEND TITLE 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO INSURANCE, BY ADDING CHAPTER 91 SO AS TO ENACT PROVISIONS FOR HEALTH CARE PURCHASING ALLIANCES, AND PROVIDE FOR RELATED MATTERS.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION 1. Title 38 of the 1976 Code is amended by adding:

Section 38-91-10. The purpose and intent of this chapter is to increase the affordability, efficiency, and fairness of health care coverage for small employers.

The chapter promotes the development of voluntary purchasing alliances to provide affordable health care coverage for self-employed individuals and employees of participating small employers in the manner of large employer groups. The alliances will allow members to benefit from the contracting expertise and the administrative savings that can result from the pooling of small employers and self-employed individuals.

These alliances will make available through their contracting processes a choice of accountable health carriers that arrange for quality health services in a cost-effective manner. The chapter establishes rules for fair competition among competing accountable health carriers. These rules include the offering of comparable benefits by competing accountable health carriers, risk assessment, and risk adjustment to assure competition based on a fair allocation of risk among accountable health carriers, and the providing of data that measures clinical outcomes and other valid areas of accountable health carrier performance.

Carriers throughout the health care coverage market for small employers are required to use adjusted community rating, guarantee the continuity of coverage, adhere to limitations on the use of preexisting conditions, abolish individual medical underwriting, and follow rules limiting the use of participation requirements.

Section 38-91-20. As used in this chapter:

(1) `Accountable health carrier' means a carrier registered with the board pursuant to Section 38-91-60.

(2) `Adjusted community rating' means a method used to de- velop carrier premiums which spreads financial risk across a large population and allows adjustments only for the following demographic factors: age, gender, number of family members covered, and geographic areas.

(3) `Alliance' means a state-chartered, nonprofit organization that provides health insurance purchasing services to member small employers in a market area regarding qualified health care plans offered by accountable health carriers established pursuant to Section 38-91-90.

(4) `Alliance board' means the alliance board of directors for a market area established pursuant to Section 38-91-70.

(5) `Antitrust laws' means federal and state laws intended to protect commerce from unlawful restraints, monopolies, and unfair business practices.

(6) `Board' means the State Health Plan Purchasing Alliance Board.

(7) `Community sponsor' means an organization that assumes responsibility for serving as the host for an alliance in a market area.

(8) `Employee enrollee' means an eligible employee or depen- dent of an eligible employee who is enrolled in a qualified health care plan.

(9) `Fund' means the State Health Plan Purchasing Alliance Fund established under Section 38-91-150.

(10) `Grievance procedure' means an established set of rules that specify a process for appeal of an organizational decision.

(11) `Late enrollee' means an eligible employee or a dependent of an eligible employee who requests enrollment in a qualified health care plan after the initial enrollment period for a member small employer, provided the enrollment is consistent with the alliance's rules for initial enrollment and provided that the initial enrollment period shall extend for at least thirty consecutive calendar days. However, an eligible employee or dependent shall not be considered a late enrollee if:

(a) The individual was covered under a public or private health benefit plan that provided at least the minimum level of benefits in qualified health care plans at the time the individual was eligible to enroll and either:

(i) lost coverage under another health plan as a result of termination of employment, the termination of coverage under another health plan, or the death of a spouse or divorce and requests enrollment in a qualified health care plan within thirty days after termination of coverage, or

(ii) stated, in writing, during the enrollment period that coverage under another employer's health benefit plan was the reason for declining coverage;

(b) The individual elects a different health plan offered through an alliance during an open enrollment period;

(c) An eligible employee requests enrollment within thirty days of becoming an employee of a member small employer;

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

(e) The individual or employee enrollee makes a request for

enrollment of the spouse or child within thirty days of his

or her marriage or the birth or adoption of a child.

(12) `Lowest cost plan' means the lowest cost qualified health care plan selected by a member small employer and offered to the employer's employee enrollees.

(13) `Market area' means a clearly defined, nonoverlapping, and exclusive geographical area determined by the board for the purpose of defining the region in which an alliance shall operate.

(14) `Member small employer' means a small employer who enrolls in an alliance.

(15) `Qualified health care plans' means the basic or standard health care plans offered by an accountable health carrier to member small employers.

(16) `Risk adjustment mechanism' means the process established pursuant to Section 38-91-130.

(17) `Service area' means a geographic region in which a carrier is licensed to operate.

(18) `Small employer' means any individual actively engaged in business that, on at least fifty percent of its working days during the preceding calendar quarter, employed no more than forty-nine eligible employees, the majority of whom are employed within this State, and is not formed primarily for purposes of buying health insurance and in which a bona fide employer-employee relationship exists. In determining the number of eligible employees, companies that are affiliated companies, or that are eligible to file a combined tax return for purposes of taxation by this State, are considered one employer. Subsequent to the issuance of a health benefit plan to a small employer and for the purpose of determining eligibility, the size of a small employer shall be determined annually. Except as otherwise specifically provided, the provisions of this chapter that apply to a small employer shall continue to apply until the plan anniversary following the date the small employer no longer meets the requirements of this definition. For purposes of this chapter, the term small employer includes self-employed individuals.

Section 38-91-30. A health benefit plan is subject to this chapter if it provides health benefits for small employers and if any of the following conditions are met:

(1) any part of the premiums or benefits is paid by a small employer, or any covered individual is reimbursed, whether through wage or adjustments or otherwise, by a small employer for any portion of the premium;

(2) the health benefit plan is treated by the employer or any of the covered self-employed individuals as part of a plan or program for the purposes of Sections 106, 125, or 162 of the United States Internal Revenue Code; or

(3) the small employer has permitted payroll deductions for the eligible enrollees for the health benefit plans.

Section 38-91-40. Nothing in this chapter is considered to be in conflict with or in limitation of the duties and powers granted to the Director of the Department of Insurance. The board and alliances established under this chapter shall bring to the attention of the Department of Insurance any suspected or alleged violations of this chapter.

Section 38-91-50. (A) There is established the State Health Plan Purchasing Alliance Board. The board shall be established within the Department of Insurance for administrative, organizational, and budgetary purposes only. The Department of Insurance shall provide administrative and staff support to the board. The Department of Insurance shall provide technical assistance as requested by the board.

(B) The board shall consist of eleven members as follows:

(1) three appointed by the Governor, at least one of whom shall be an owner or manager of a member small employer of an alliance operating in South Carolina, and at least one of whom shall be an employee enrollee of an alliance operating in South Carolina;

(2) three appointed by the General Assembly upon the recommendation of the Speaker of the House of Representatives, at least one of whom shall be an owner or manager of a member small employer of an alliance operating in South Carolina, and at least one of whom shall be an employee enrollee of an alliance operating in South Carolina;

(3) three appointed by the General Assembly upon the recommendation of the President Pro Tempore of the Senate, at least one of whom shall be an owner or manager of a member small employer of an alliance operating in South Carolina, and at least one of whom shall be an employee enrollee of an alliance operating in South Carolina;

(4) the designee of the Lieutenant Governor; and

(5) the Director of the Department of Insurance or his designee.

(C) Members of the board who are not officers or employees of the State shall receive compensation of two hundred dollars for each day or part of a day of service plus reimbursement for travel and subsistence expenses at the rates allowed by law. Members of the board who are officers or employees of the State shall receive reimbursement for travel and subsistence at the rates allowed by law.

(D) Appointed members shall serve for four-year terms except that the initial terms of:

(1) two members appointed by the Governor, two members appointed by the General Assembly upon the recommendation of the President Pro Tempore of the Senate, and one member appointed by the General Assembly upon the recommendation of the Speaker of the House of Representatives shall expire July 1, 1997; and

(2) one member appointed by the Governor, one member appointed by the General Assembly upon the recommendation of the President Pro Tempore of the Senate, and two members appointed by the General Assembly upon the recommendation of the Speaker of the House of Representatives shall expire July 1, 1999.

(E) At the end of a term, a member shall continue to serve until a successor is appointed. A member who is appointed after a term has begun serves only for the remainder of the term and until a successor is appointed. A member who serves two consecutive full four-year terms shall not be reappointed until four years after completion of those terms. A vacancy in a legislative appointment shall be filled in the same manner as original appointment.

(F) The board shall elect officers biennially. Officers shall serve no more than two consecutive terms in an office.

(G) The board shall appoint an executive director who shall serve at the pleasure of the board. The executive director shall administer the affairs of the board. The executive director may employ and direct staff necessary to carry out the provisions of this chapter.

(H) The board shall meet as needed at the times and places it determines. A majority of the fully authorized membership of the board is a quorum.

(I) No board members or their spouses shall be employed by, affiliated with an agent of, or otherwise a representative of any carrier or health care provider.

(J) No individual shall be appointed to or remain a member of the board if the individual, the individual's spouse, or the individual and spouse together, held securities or are otherwise the beneficiaries of securities worth ten thousand dollars or more at fair market value as of December 31 of the preceding year in a single health care business or aggregated among multiple health care businesses. For the purposes of this subsection, the term, `health care business':

(1) includes an association, corporation, enterprise, joint venture, organization, partnership, proprietorship, trust, and every other business interest that provides or insures human health care; and

(2) does not include a widely held investment fund, regulated investment company, or pension or deferred compensation plan if neither the individual nor the individual's spouse has the ability to exercise control over the financial interests held by the fund.

Section 38-91-60. The board shall:

(1) establish no less than four and no more than twelve market areas in this State. In establishing such market areas, the board shall ensure that every location is a part of a market area. To the largest extent possible, the board should consider metropolitan standard areas and other existing markets. The board may redefine market areas where it determines there will be insufficient numbers of enrollees, health care providers, or qualifying accountable health carriers to make such requirements feasible. Any such modifications are subject to annual review by the board;

(2) accept applications by carriers to qualify as accountable health carriers, determine the eligibility of carriers to become accountable health carriers according to criteria described in Section 38-91-90, and designate carriers as accountable health carriers;

(3) establish alliances with community sponsors pursuant to Section 38-91-70 for each market area determined by the board;

(4) conduct annual reviews of the performance of each alliance to ensure that the alliance is in compliance with this chapter. To assist the board in its review, each alliance shall submit data to the board quarterly including, but not limited to, employer enrollment by employer size; industry sector, previous insurance status and number of employees within each insurance status; number of total eligible employers in the market area participating in the alliance; number of insured lives by county and insured category, including employees, dependents and other insured categories, represented by alliance members; profiles of potential employer membership by county; premium ranges for each qualified health care plan for alliance member categories; type and resolution of member grievances; surcharges; and alliance financial statements. A summary of this annual review shall be provided to the General Assembly and each alliance;

(5) develop standard enrollment procedures to be used in enrolling small employers and their eligible employees;

(6) establish conditions of participation for small employers and self-employed individuals which shall conform to the requirements of this chapter and include, but not be limited to, the following:

(a) assurances that the member small employer is a valid small employer group and is not formed for the purpose of securing health benefits coverage. This assurance must include requirements that sole proprietors and self-employed individuals have been in business for a reasonable period of time as established by the board, have provided filings to verify employment status, and have provided other evidence, in the board's discretion, to ensure that the individual is working;

(b) a member small employer who opts to pay seventy percent or more of the cost of coverage may choose to offer a single qualified health care plan to its eligible employees. Eligible employees of other member small employers shall have the choice of at least two qualified health care plans. All member small employers may offer the qualified health care plans of more than one accountable health carrier. The board and alliances shall encourage all member small employers to consider offering more than one accountable health carrier;

(c) minimum employer contribution requirements that shall be an amount not less than fifty percent of the premium for an employee's coverage of the lowest cost plan. The alliance shall require that the employer contribute the same dollar amount for each employee regardless of the qualified health care plan chosen by the employee;

(d) a mechanism that will provide for participation if an employer chooses not to participate but one hundred percent of the eligible employees who are not covered under a health benefit plan elect to purchase their coverage through the alliance; and

(e) prepayment of premiums or other mechanisms to assure that payment will be made for coverage;

(7) ensure that any small employer or any employee of a small employer who meets the requirements established by the board pursuant to subdivision (6) of this section may purchase health care coverage through an alliance;

(8) assure compliance with this chapter by alliances, small employers, and employee enrollees;

(9) have the authority to request carrier information about the financial condition of the carrier consistent with the financial information required to be submitted by the carrier to the Department of Insurance;

(10) assure fair and affirmative marketing of the qualified health care plans consistent with standards established by the Department of Insurance and Section 38-91-120;

(11) appoint advisory committees that shall include persons with expertise in health benefits management and representatives of accountable health carriers;

(12) develop uniform standards for the data that alliances collect from accountable health carriers. In formulating such standards, the board shall strive for consistency with health care data collection activities underway in South Carolina and nationally. Any data collection requirements promulgated by the board shall be based on a study of their feasibility and cost-effectiveness, including their consistency with national standards for electronic data interchange, and their necessity for supporting the evaluation of accountable health carriers and their provider networks with respect to cost containment, quality, control of expensive technology, and customer satisfaction. All enrollee satisfaction surveys employed by alliances shall be in a standardized format promulgated by the board;

(13) have the authority to sue or be sued, including taking action necessary for securing legal remedies on behalf of, or against alliances, member small employers, or employee enrollees and dependents of those employees;

(14) have the authority to receive and accept grants or funds from any public or private agency and receive and accept contributions from any source of money, property, labor, or any other thing of value;

(15) develop and implement standardized forms for use by accountable health carriers in conformance with applicable national standards;

(16) review, and limit if necessary, surcharges charged by each alliance for administrative costs;

(17) develop guidelines for any authorized marketing materials to be used in providing member small employers and their eligible employees with information regarding accountable health carriers and their respective qualified health care plans in accordance with Section 38-91-120. Such guidelines shall be consistent with standards established by the Department of Insurance;

(18) develop grievance procedures to be used in resolving dis- putes between member small employers and alliances. A member small employer alliance or accountable health carrier may appeal to the board any grievance that is not resolved;

(19) receive, review, and act on appeals of grievances not resolved;

(20) analyze information collected from accountable health carriers and other sources and report findings that assist consumers, alliances, accountable health carriers, or health care providers in improving the delivery or purchase of cost-effective health care;

(21) report annually on the operation of the board to the General Assembly and the Governor.

Section 38-91-70. (A) The board is authorized to create a single alliance within each designated market area for the benefit of its member small employers. Each alliance shall be operated as a state-chartered, nonprofit private organization.

(B) Each alliance shall operate under the supervision of an alliance board of directors, which shall consist of eleven members. The majority of members on each alliance board shall be small employers.

(1) The board shall initially appoint six members for a term of two years. The community sponsor shall initially appoint five members for a term of two years. In so doing, the board and community sponsor shall consider, among other things, whether all member small employers are fairly represented and assure that a majority of the alliance board shall be small employers.

(2) Subsequent members of the alliance board of directors shall be elected pursuant to the alliance board's bylaws.

(C) Each alliance board shall adopt bylaws that shall include a procedure for the election of alliance board members by the alliance's member small employers.

(D) Of the initially elected members of each alliance board, six members shall be designated to serve two-year terms and the remaining five members shall serve four-year terms. Thereafter, the term of an elected member shall be four years.

(E) Vacancies on an alliance board shall be filled for the remaining period of the term by a majority vote of the remaining board members. A member appointed to fill a vacancy may serve for the remainder of the term and until a qualified successor is elected for a new term.

(F) A member who serves two consecutive full four-year terms shall not be reelected for four years after completion of those terms.

(G) Members of the alliance board shall be bound by the financial interest restrictions set forth for board members in Section 38-91-50(I) and (J).

(H) The alliance board shall elect officers from among its members every two years. Officers shall not serve more than two consecutive terms in an office.

(I) The alliance board shall meet at times and places as it determines necessary to operate the alliance in accordance with this section and Section 38-91-80. Such meetings shall be governed by the procedures and policies set forth by the South Carolina Freedom of Information Act.

(J) There shall be no liability on the part of, and no cause of action of any nature shall arise against any member of the alliance board, or its employees or agents, for any action taken in good faith by them in the performance of their powers and duties as defined under Section 38-91-80.

(K) The alliance board shall have the powers and duties regard- ing operation of the alliance set forth in Section 38-91-60.

Section 38-91-80. An alliance shall have the following powers and duties:

(1) enter into contracts with accountable health carriers for the provision of qualified health care plans for members of the alliance pursuant to Section 38-91-90. Each alliance shall contract with all accountable health carriers which offer qualified health care plans operating in its market area and apply to serve member small employers;

(2) enter into contracts with small employers pursuant to Section 38-91-100;

(3) maintain eligibility records as appropriate to carry out the functions of this chapter;

(4) transmit enrollment and eligibility information to ac- countable health carriers on a timely basis;

(5) establish procedures for collection of premiums from mem- ber small employers, including the share of premiums paid by employee enrollees pursuant to Section 38-91-100;

(6) pay contracted rates to accountable health carriers on a monthly basis or as otherwise mutually agreed pursuant to Section 38-91-110;

(7) impose annual surcharges established at the beginning of the fiscal year to be paid monthly by member small employers for necessary costs incurred in connection with the operation of the alliance. The amount of annual surcharges shall cover any default on insurer premium payments by member small employers;

(8) provide that in the event a member small employer termi- nates coverage purchased through the alliance, the former member small employer shall be ineligible to purchase a qualified health care plan through the alliance for a period of two years, except as permitted by the alliance board and the board for good cause;

(9) contract, as authorized by the alliance board of directors, with a qualified third party for any service necessary to carry out the powers and duties as defined in this section, including contracts with agents to assist in contracting with accountable health carriers and small employers and to assist the alliance in undertaking activities necessary to administer the alliance, such as marketing and publicizing the availability of the qualified health care plans;

(10) provide to member small employers clear, standardized information on each accountable health carrier and qualified health care plans offered by each accountable health carrier, including information on price, enrollee costs quality, patient satisfaction, enrollment, and enrollee responsibilities and obligations, and provide qualified health care plan comparison sheets in accordance with board rules to be used in providing members and their employees with information regarding coverage that may be obtained through the accountable health carriers;

(11) appoint an executive director to serve as the chief operating officer of the alliance, who may employ other staff as needed to administer the alliance. The executive director shall serve at the pleasure of the alliance board;

(12) establish advisory boards as necessary to assist with carrying out the duties established pursuant to this section;

(13) establish administrative and accounting procedures for operating the alliance, providing services to member small employers and employee enrollees, and preparing an annual budget;

(14) prepare annual reports on the operations of the alliance including program and financial operations as required by the board, and provide for annual internal and independent audits;

(15) sue or be sued, including taking any legal actions necessary or proper for recovering any penalties for or on behalf of the alliance;

(16) maintain records and submit reports to the board as re- quired; and

(17) accept and expend funds received through grants, appropriations, or other appropriate and lawful means.

Section 38-91-90. (A) By July 1, 1997, the board shall establish a process whereby a carrier that fulfills the qualifications of subsection (B) of this section shall be designated as an accountable health carrier.

(B) In order to be eligible to be designated as an accountable health carrier, a carrier must be able to demonstrate the following operating characteristics to the board:

(1) licensure and in good standing with the Department of

Insurance;

(2) capacity to administer the qualified health care plans;

(3) in the case of a carrier with a contractual obligation to provide or arrange for the covered health services, the ability to provide enrollees with adequate access to covered services within the carrier's service area;

(4) grievance procedures, including the ability to respond to enrollees' calls, questions, and complaints;

(5) established utilization management procedures;

(6) ability to arrange and pay for the appropriate level and type of health care services;

(7) ability to monitor and evaluate the quality and cost-effectiveness of care;

(8) ability to assure enrollees with adequate numbers and

types of health care providers;

(9) ability to provide information on enrollee satisfaction

based on standard surveys prescribed by the board; and

(10) ability to provide information on the types of treatments and outcomes with respect to the clinical health, functional status, and well-being of the enrollees based on standard data elements prescribed by the board.

Carriers receiving accreditation by nationally recognized accreditation organizations including, but not limited to, the National Committee on Quality Assurance (NCQA) the Utilization Review Accreditation Commission (URAC), Joint Commission on Accreditation of Health Care Organizations (JCAHO), or qualification by federal agencies, is considered to be in compliance with the requirements of subdivisions (2) through (10) of this subsection as they pertain to the relevant accreditation activities of the organization.

(C) After notice and hearing, the board may suspend or revoke the designation as an accountable health carrier of any carrier that fails to maintain compliance with the requirements listed in subsections (B), (D), or (E) of this section.

(D) Each accountable health carrier shall:

(1) offer qualified health care plans;

(2) provide for the collection and reporting to the board and to the appropriate alliance of information on the performance of accountable health carriers regarding the effectiveness and outcomes in providing selected services; provided, however, that data reporting requirements adopted by the board shall be consistent with the method of operation of accountable health carriers, shall be consistent with national standards where available, and shall not impose an unreasonable cost for compliance;

(3) not deny, limit, or condition coverage under qualified health care plans based on health status, claims experience, receipt of health care, medical history, or lack of evidence of insurability of an eligible employee or dependent pursuant to the provisions of this chapter;

(4) establish premium rates for each qualified health care plan pursuant to the adjusted community rating method;

(5) comply with all rules regarding rating, underwriting claims handling, sales, solicitation, licensing, unfair trade practices, and other provisions in this chapter and Title 38;

(6) issue a qualified health care plan to any member small employer that elects to be covered under a qualified health care plan offered by an accountable health carrier during the open enrollment period established pursuant to subsection (E) of this section;

(7) renew each qualified health care plan with respect to any member small employer except in the following cases:

(a) nonpayment of the required premiums;

(b) fraud or material misrepresentation of the member small employer, or the employee enrollee, or a dependent of the member small employer or the employee enrollee;

(c) noncompliance by a small employer with requirements regarding employer contribution or participation as required by the board;

(d) repeated misuse of a provider network provision including, but not limited to, unreasonable refusal of the enrollee to follow a prescribed course of treatment, or violation of reasonable policies of an accountable health carrier;

(e) election by the accountable health carrier to terminate its contract with an alliance. In such a case, the accountable health carrier shall:

(i) provide advance notice of its decision in accordance with this sub-subdivision to the alliance and to the board;

(ii) provide notice of the decision at least one hundred eighty days before the nonrenewal of any qualified health care plan to the enrollees. Except as provided in sub-subdivision (f) of this subdivision an accountable health carrier that elects not to renew a qualified health care plan with an alliance shall be prohibited from writing new business with the alliance for a period of three years from the date of notice to the alliance or until the alliance invites the carrier to renew participation, whichever is sooner; and

(f) determination by an alliance, subject to review by the board, that continuation of coverage would not be in the best interest of the employee enrollees and member small employers or would impair the accountable health carrier's ability to meet its contractual obligations. In this instance, the alliance shall assist affected employee enrollees in finding replacement coverage; and

(8) provide a procedure for addressing grievances that arise between the accountable health carrier and the alliance, member small employers, or employee enrollees.

(E) Each accountable health carrier shall offer an open enrollment period to small employers at the anniversary date of the member small employers qualified health care plan. The open enrollment period shall be at least thirty consecutive calendar days. Member small employers may choose from the accountable health carriers selected from the qualified health care plans that are offered in the market area in which they reside. An accountable health carrier shall not be required to offer coverage or accept enrollments if:

(1) the eligible employee or dependent does not reside within the accountable health carrier's approved service area;

(2) an accountable health carrier provides ninety days' prior notice that lt will not have the capacity to deliver service adequately in a market area to additional enrollees because of its obligations to existing groups and enrollees; or

(3) the Director of the Department of Insurance determines that the acceptance of an application or applications would place an accountable health carrier in a financially impaired condition.

(F) An accountable health carrier that cannot offer coverage pursuant to subdivision (2) of subsection (E) of this section shall not offer coverage to or accept applications from a new employer group or an individual until the later of ninety days following such refusal or the date on which the accountable health carrier notifies the alliance and the board that it has regained capacity to deliver services to eligible employees and their dependents in the service area. An accountable health carrier that cannot offer coverage pursuant to subdivision (3) of subsection (E) of this section shall not offer coverage or accept applications for any individual or employer group until a determination by the Director of the Department of Insurance that acceptance of an application will not put the accountable health carrier in a financially impaired condition.

(G) Nothing in this chapter or any other provision of the Code of Laws shall prohibit an accountable health carrier from providing a qualified health care plan in an alliance through a managed-care system, and from contracting with particular health care providers or types, classes, or categories of health care providers.

Section 38-91-100. The contracts between alliances and member small employers and between accountable health carriers and alliances shall provide that payment of all premiums shall be transmitted by member small employers on their behalf and on behalf of the employee enrollee, directly to the alliance for the benefit of the accountable health carrier. Premiums shall be payable on a monthly basis. Alliances may provide for penalties and grace periods for late payment. Nonpayment of premiums by a member small employer or employee enrollee shall constitute a breach of contract and a breach of the insurance policy.

Section 38-91-110. (A) Under a contract between an accountable health carrier and an alliance, the alliance shall forward to each accountable health carrier with enrollees under a qualified health care plan an amount equal to:

(1) premiums determined by the accountable health carrier's contracted rates, and

(2) adjustments in payments, if any, resulting from a risk adjustment mechanism determined in accordance with Section 38-91-130.

(B) The alliances shall pay the accountable health carrier on a monthly basis.

Section 38-91-120. (A) Each alliance shall use efficient and standardized means to notify small employers of the availability of sponsored health coverage through the alliance.

(B) Each alliance shall make available to member small employers marketing materials accurately summarizing the benefit plans, rates, cost, and accreditation information that its accountable health carriers offer through the alliance.

(C) If authorized by the board, an accountable health carrier may provide, directly or through an agent, broker, or contractor marketing material relating to health plans offered through the alliance. Accountable health carriers shall not need authorization from an alliance for advertisement to the public at large through the means of mass media.

(D) Nothing in this section shall be construed to or explicitly prohibit an alliance or accountable health carrier from using the services of an agent or broker in order to assist in marketing. An accountable health carrier shall not vary compensation or commissions to such agents or brokers based, directly or indirectly, on the anticipated or actual claims experience or health status associated with particular small employers to which each plan is sold.

(E) No accountable health carrier, agent of an accountable health carrier or independent insurance agent shall engage, directly or indirectly, in any activity of marketing practices that would encourage member small employers or eligible employees to:

(1) refrain from enrolling in the accountable health carrier because of their health status or claim experience; or

(2) seek coverage from other accountable health carriers because of their health status or claim experience.

(F) An alliance shall notify the board of any marketing practices or materials that it finds contrary to the fair and affirmative mar- keting requirements of this chapter. Furthermore, the board shall monitor compliance with this section, including the conduct of ac- countable health carriers and their agents, brokers, or contractors and shall report to the Department of Insurance any unfair trade practices and misleading or unfair conduct that has been reported to the board by alliances, agents consumers, or any other individual. The Department of Insurance shall investigate all reports and, upon a finding of noncompliance with this section or of unfair and misleading practices, shall take action against violators as permitted under Title 38 or this chapter. The board shall forward all reports of cases of abuse to the Department of Insurance for investigation.

Section 38-91-130. (A) The board shall establish a payment mechanism to adjust for the amount of risk covered by each qualified health care plan offered by an accountable health carrier. Risk adjustment shall be based on prospectively determined factors that predict utilization of health care services.

(B) On an annual basis, the board shall establish a factor that represents the difference between the average risk of persons covered through the alliance and the risk covered by each qualified health care plan offered by each accountable health carrier through the alliance. The board shall apply that factor in determining amounts received by accountable health carriers. This may be done directly or it may be done indirectly by adjusting quoted premiums. The mechanism by which the adjustment is made shall be established after consultation with a technical advisory committee.

(C) In addition to the risk adjustment mechanism described in subsections (A) and (B) of this section, the board may develop a list of a limited number of high cost diagnoses. The board may develop a mechanism to protect an accountable health carrier that has a disproportionate share of one or more of the listed diagnoses.

(D) Any payments to accountable health carriers under this sec- tion shall be determined on an annual basis. No payments under this section shall be based on claims or the health care costs of an accountable health carrier.

Section 38-91-140. In addition to the duties described in Section 38-91-60, the board shall actively supervise the alliances to ensure that actions affecting market competition are not for private interests, but accomplish the legislative intent of this chapter. The board shall also monitor conduct throughout the small employer market to ensure that the legislative intent of this chapter to improve the competitiveness of the small employer health coverage market is not impeded.

Section 38-91-150. (A) There is established in the Office of the State Treasurer the State Health Plan Purchasing Alliance Fund. The Fund shall be placed in an interest-bearing account and any interest or other income derived from the Fund shall be credited to the Fund. Moneys in the Fund shall be spent only in accordance with subsection (B) of this section. The Fund shall be administered in accordance with the directives of the Budget and Control Board.

(B) All money credited to the Fund shall be used as set forth by the board.

(C) Moneys appropriated by the General Assembly shall be deposited in the Fund and shall become part of the budget of the Department of Insurance.

Section 38-91-160. (A) For member small employers not covered by Subtitle B of Title III, Public Law 100-647 (26 U.S.C. Section 4980B), enrollees who lose their health care coverage due to loss of employment shall be offered the option of continuing health care coverage for one year, provided such enrollee pays the entire required premium charged to the enrollee's former employer and remains a resident of the State. An enrollee shall transmit payment of premium payments through the enrollee's former employer, who shall submit it to the respective alliance.

(B) At the end of one year of continuation coverage, such enrollees shall be offered a conversion option if such option, where available, is available for former group enrollees."

SECTION 2. Except as otherwise specifically provided in this act, this act takes effect July 1, 1996.