South Carolina General Assembly
110th Session, 1993-1994

Bill 3708


Indicates Matter Stricken
Indicates New Matter


                    Current Status

Introducing Body:               House
Bill Number:                    3708
Primary Sponsor:                J. Bailey
Committee Number:               26
Type of Legislation:            GB
Subject:                        Small Employer Health
                                Insurance Availability Act
Residing Body:                  House
Current Committee:              Labor, Commerce and Industry
Companion Bill Number:          541
Computer Document Number:       BBM/10347JM.93
Introduced Date:                19930315
Last History Body:              House
Last History Date:              19930315
Last History Type:              Introduced, read first time,
                                referred to Committee
Scope of Legislation:           Statewide
All Sponsors:                   J. Bailey
                                McElveen
                                Corning
                                Quinn
                                Scott
Type of Legislation:            General Bill



History


Bill  Body    Date          Action Description              CMN  Leg Involved
____  ______  ____________  ______________________________  ___  ____________

3708  House   19930315      Introduced, read first time,    26
                            referred to Committee

View additional legislative information at the LPITS web site.


(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

A BILL

TO ENACT THE "SMALL EMPLOYER HEALTH INSURANCE AVAILABILITY ACT", INCLUDING AMENDING SECTIONS 38-71-920, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO DEFINITIONS FOR SMALL GROUP HEALTH INSURANCE PURPOSES, SO AS TO MAKE CERTAIN CHANGES TO THE DEFINITIONS OF "SMALL EMPLOYER" AND "HEALTH INSURANCE PLAN" OR "PLAN", AND TO PROVIDE A DEFINITION FOR "LATE ENROLLEE"; 38-71-730, AS AMENDED, RELATING TO REQUIREMENTS FOR GROUP ACCIDENT, GROUP HEALTH, AND GROUP ACCIDENT AND HEALTH INSURANCE POLICIES, SO AS TO DELETE CERTAIN LANGUAGE AND PROVISIONS, INCLUDING THE PROVISION THAT, FOR GROUPS OF TEN OR LESS PERSONS, EVIDENCE OF INDIVIDUAL INSURABILITY MAY BE REQUIRED FOR PERSONS FIRST BECOMING ELIGIBLE FOR INSURANCE AFTER THE EFFECTIVE DATE OF THE POLICY, AND ADD

CERTAIN PROVISIONS; 38-70-10, RELATING TO DEFINITIONS FOR THE PROVISIONS OF LAW ON UTILIZATION REVIEWS AND PRIVATE REVIEW AGENTS IN CONNECTION WITH THE ALLOCATION OF HEALTH CARE RESOURCES AND SERVICES FOR A PATIENT OR GROUP OF PATIENTS, SO AS TO DELETE CERTAIN LANGUAGE AND PROVISIONS FROM THE DEFINITION OF "PRIVATE REVIEW AGENT"; 38-70-15, RELATING TO THE APPLICABILITY OF CHAPTER 70 OF TITLE 38 (UTILIZATION REVIEWS AND PRIVATE REVIEW AGENTS), SO AS TO PROVIDE THAT THE CHAPTER APPLIES TO INSURANCE COMPANIES, ADMINISTRATORS OF INSURANCE BENEFIT PLANS, AND HEALTH MAINTENANCE ORGANIZATIONS LICENSED AND REGULATED BY THE DEPARTMENT OF INSURANCE, AND PROVIDE THAT SUCH INSURANCE COMPANIES, ADMINISTRATORS, AND HEALTH MAINTENANCE ORGANIZATIONS ARE EXEMPT FROM CERTAIN PROVISIONS OF LAW; AND 38-71-940, RELATING TO SMALL GROUP HEALTH INSURANCE AND PREMIUM RATES, RATING FACTORS, AND THE PROHIBITION ON THE INVOLUNTARY TRANSFER OF A SMALL EMPLOYER INTO OR OUT OF A CLASS OF BUSINESS, SO AS TO DELETE CERTAIN PROVISIONS, PROVIDE THAT SMALL EMPLOYER INSURERS SHALL NOT USE CASE CHARACTERISTICS, OTHER THAN AGE, GENDER, INDUSTRY, GEOGRAPHIC AREA, FAMILY COMPOSITION, AND GROUP SIZE WITHOUT PRIOR APPROVAL OF THE CHIEF INSURANCE COMMISSIONER, AND PROVIDE THAT IF A SMALL EMPLOYER INSURER USES INDUSTRY AS A CASE CHARACTERISTIC IN ESTABLISHING PREMIUM RATES, THE HIGHEST RATE FACTOR ASSOCIATED WITH ANY INDUSTRY CLASSIFICATION SHALL NOT EXCEED THE LOWEST RATE FACTOR ASSOCIATED WITH ANY INDUSTRY CLASSIFICATION BY MORE THAN FIFTEEN PERCENT; AND TO PROVIDE FOR THE SEVERABILITY OF THE PROVISIONS OF THIS ACT.

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

SECTION 1. This act shall be known and may be cited as the "Small Employer Health Insurance Availability Act".

SECTION 2. The purpose and intent of this act is to promote the availability of health insurance coverage to small employers regardless of their health status or claims experience, to provide for development of "basic" and "standard" health insurance plans to be offered to all small employers, to provide for establishment of a reinsurance program, and to improve the overall fairness and efficiency of the small group health insurance market.

SECTION 3. As used in this act:

(A) "Basic health insurance plan" means a lower cost health insurance plan developed pursuant to Section 12.

(B) "Board" means the board of directors of the program established pursuant to Section 11.

(C) "Commissioner" means the Chief Insurance Commissioner of this State.

(D) "Committee" means the Governor's Committee on Basic Health Services referred to in Section 12.

(E) "Dependent" means a spouse; an unmarried child under the age of nineteen years; an unmarried child who is a full-time student between the ages of nineteen and twenty-two and who is financially dependent upon the parent; and an unmarried child of any age who is medically certified as disabled and dependent upon the parent.

(F) "Eligible employee" means an employee as defined in Section 38-71-710(1) of the 1976 Code of Laws who works on a full-time basis and has a normal work week of thirty or more hours.

(G) "Health insurance plan" means any hospital or medical policy or certificate, major medical expense insurance, or health maintenance organization subscriber contract. Health insurance plan does not include accident-only, credit, dental, vision, Medicare supplement, long-term care, or disability income insurance, coverage issued as a supplement to liability insurance, workers' compensation or similar insurance, or automobile medical payment insurance.

(H) "Insurer" means any entity that provides health insurance in this State. For the purposes of this act, insurer includes an insurance company, a health maintenance organization, and any other entity providing a plan of health insurance or health benefits subject to state insurance regulation, including multiple employer self-insured health plans licensed pursuant to Section 38-41-10, et seq.

(I) "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.

(J) "Plan of operation" means the plan of operation of the program established pursuant to Section 11.

(K) "Program" means the South Carolina Small Employer Insurer Reinsurance Program created by Section 11.

(L) "Qualifying previous coverage" means benefits or coverage provided under:

(1) Medicare or Medicaid; or

(2) an employer-based health insurance or health benefit arrangement that provides benefits similar to or exceeding benefits provided under the basic health insurance plan; or

(3) an individual health insurance policy, including coverage issued by a health maintenance organization, that provides benefits similar to or exceeding the benefits provided under the basic health insurance plan, provided that such policy has been in effect for at least one year.

(M) "Reinsuring insurer" means a small employer insurer participating in the reinsurance program pursuant to Section 11.

(N) "Risk-assuming insurer" means a small employer insurer whose application is approved by the commissioner pursuant to Section 9.

(0) "Small employer" means any person, firm, corporation, partnership, or association that is actively engaged in business that, on at least fifty percent of its working days during the preceding calendar year employed no more than fifty eligible employees. 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 state taxation, shall be considered one employer.

(P) "Small employer insurer" means an insurer that offers health insurance plans covering eligible employees of one or more small employers in this State.

(Q) "Standard health insurance plan" means a health insurance plan developed pursuant to Section 12.

SECTION 4. (A) Except as provided in subsection (B), the provisions of this act apply to any health insurance plan which provides coverage to one or more employees of a small employer.

(B) The provisions of this act do not apply to individual health insurance policies which are subject to policy form and premium rate approval as may be provided in Title 38 of the 1976 Code of Laws.

SECTION 5. Premium rates for health insurance plans subject to this act are governed by the rating restrictions contained in Section 38-71-910, et seq., of the 1976 Code of Laws and the following provisions:

(1) Adjustments in rates for claim experience, health status and duration of coverage shall not be charged to individual employees or dependents. Any such adjustment shall be applied uniformly to the rates charged for all employees and dependents of the small employer.

(2) Premium rates for health insurance plans shall comply with the requirements of this section notwithstanding any reinsurance premiums or assessments paid or payable by small employer insurers pursuant to Section 11.

(3) The small employer insurer shall not use case characteristics, other than age, gender, industry, geographic area, family composition and group size without prior approval of the commissioner.

(4) If a small employer insurer utilizes industry as a case characteristic in establishing premium rates, the highest rate factor associated with any industry classification shall not exceed the lowest rate factor associated with any industry classification by more than fifteen percent.

(5) Small employer insurers shall apply rating factors, including case characteristics, consistently with respect to all small employers in a class of business. Rating factors shall produce premiums for identical groups which differ only by the amounts attributable to plan design and do not reflect differences due to the nature of the groups assumed to select particular health insurance plans.

SECTION 6. (A) (1) Every small employer insurer shall, as a condition of transacting business in this State with small employers, fairly market to small employers at least two health insurance plans. One health insurance plan offered by each small employer insurer must be a basic health insurance plan and one plan must be a standard health insurance plan.

(2) Coverage under the basic or standard health insurance plan must be offered to all eligible employees of a small employer and their dependents. A small employer insurer may not offer coverage only to certain individuals in a small employer group, or to only part of the group, except as provided in Section 7B.

(3) Except with respect to applicable preexisting condition limitation periods or late enrollees as provided in Section 7B, a small employer insurer shall not modify a health insurance plan with respect to a small employer or any eligible employee or dependent through rider, endorsements, or otherwise, to restrict or exclude coverage or benefits for specific diseases, medical conditions or services otherwise covered under the plan.

(4) (a) A small employer insurer shall issue a basic health insurance plan or a standard health insurance plan to any eligible small employer that applies for either such plan and agrees to make the required premium payments and to satisfy the other reasonable provisions of the health insurance plan not inconsistent with this act.

(b) In the case of a small employer insurer that establishes more than one class of business pursuant to Section 38-71-920(11) of the 1976 Code of Laws, the small employer insurer shall maintain and issue to eligible small employers at least one basic health insurance plan and at least one standard health insurance plan in each class of business so established. A small employer insurer may apply reasonable criteria in determining whether to accept a small employer into a class of business, provided that:

(i) The criteria are not intended to discourage or prevent acceptance of small employers applying for a basic or standard health insurance plan;

(ii) The criteria are not related to the health status or claim experience of the small employer;

(iii) The criteria are applied consistently to all small employers applying for coverage in the class of business; and

(iv) The small employer insurer provides for the acceptance of all eligible small employers into one or more classes of business.

The requirement to offer at least two health insurance plans to small employers shall not apply to a class of business into which the small employer insurer is no longer enrolling new small businesses.

(5) The provisions of this subsection A of this Section shall be effective one hundred eighty days after the commissioner's approval of the basic health insurance plan and the standard health insurance plan developed pursuant to Section 12; provided, that if the Small Employer Insurer Reinsurance Program created pursuant to Section 11 is not yet operative on that date, the provisions of this paragraph shall be effective on the date that the program begins operation.

(B) (1) After the commissioner's approval of the basic health insurance plan and the standard health insurance plan developed pursuant to Section 12, a small employer insurer shall file with the commissioner, in the form and manner prescribed by the commissioner, the basic and standard health insurance plans to be used by the insurer. The insurer shall certify to the commissioner that the plans as filed are in substantial compliance with the provisions as approved by the commissioner. Upon the commissioner's receipt of the certification, the insurer may use the certified plans unless their use is disapproved by the commissioner.

(2) The commissioner may, at any time, after providing notice and an opportunity for hearing, disapprove the continued use by a small employer insurer of a basic or standard health insurance plan on the grounds that the plan does not meet the requirements of this act.

(C) (1) A health maintenance organization shall not be required to offer coverage or accept applications pursuant to subsection (A) in the case of the following:

(a) to a small employer, where the small employer is not physically located in the health maintenance organization's established geographic service area;

(b) to an employee, when the employee does not work or reside within the health maintenance organization's established geographic service area; or

(c) within an area where the health maintenance organization reasonably anticipates, and demonstrates to the satisfaction of the commissioner, that it will not have the capacity within its established geographic service area to deliver service adequately to the members of such groups because of its obligations to existing group policyholders and enrollees.

(2) A health maintenance organization that cannot offer coverage pursuant to paragraph (1)(c) may not offer coverage in the applicable area to new cases of employer groups with more than fifty eligible employees or to any small employer groups until the later of one hundred eighty days following each such refusal or the date on which the health maintenance organization notifies the commissioner that it has regained capacity to deliver services to small employer groups.

(D) A small employer insurer may not be required to provide coverage to small employers pursuant to subsection (A) for any period of time for which the commissioner determines that requiring the acceptance of small employers in accordance with the provisions of subsection (A) would place the small employer insurer in a financially impaired condition.

SECTION 7. (A) Except to the extent inconsistent with specific provisions of this act, all provisions of Article 5 of Chapter 71 of Title 38 of the 1976 Code of Laws are applicable to the basic and standard health insurance plans required to be offered by small employer insurers.

(B) Late enrollees may be excluded from coverage for the greater of eighteen months or an eighteen-month preexisting condition exclusion; provided that if both a period of exclusion from coverage and a preexisting condition exclusion are applicable to a late enrollee, the combined period shall not exceed eighteen months.

SECTION 8. (A) (1) Within sixty days after the plan of operation is approved by the commissioner under Section 11, each small employer insurer shall notify the commissioner of the insurer's intention to operate as a risk-assuming insurer or a reinsuring insurer. A small employer insurer seeking to operate as a risk-assuming insurer shall make an application pursuant to Section 9.

(2) The decision shall be binding for a five-year period except that the initial decision shall be binding for two years. The commissioner may permit an insurer to modify its decision at any time for good cause shown.

(3) The commissioner shall establish an application process for small employer insurers seeking to change their status under this subsection. In the case of a small employer insurer that has been acquired by another such insurer, the commissioner may waive or modify the time periods established in paragraph (2).

(B) A reinsuring insurer that applies and is approved to operate as a risk-assuming insurer shall not be permitted to continue to reinsure any health insurance plan with the program. Such an insurer shall pay a prorated assessment based upon business issued as a reinsuring insurer for any portion of the year that the business was reinsured.

SECTION 9. (A) Any small employer insurer may elect to become a risk-assuming insurer upon application to and approval by the commissioner. A small employer insurer shall not be approved as a risk-assuming insurer if the commissioner finds that the insurer is not capable of assuming that status pursuant to the criteria set forth in subsection (B) of this section. The insurer shall provide public notice of its application to become a risk-assuming insurer. A small employer insurer's application to be a risk-assuming insurer shall be approved unless disapproved by the commissioner within sixty days after the insurer's application. A small employer insurer that has had its application to be a risk-assuming insurer disapproved may request and shall be granted a public hearing within sixty days after the disapproval.

(B) In determining whether or not to approve an application by a small employer insurer to become a risk-assuming insurer, the commissioner shall consider the insurer's financial condition and the financial condition of its parent or guaranteeing corporation, if any; its history of assuming and managing risk; its ability to assume and manage the risk of enrolling small employers without the protection of the reinsurance provided in Section 11; and its commitment to fairly market to all small employers.

SECTION 10. (A) A small employer insurer may elect to become a reinsuring insurer and operate under the provisions of this section and Section 11.

(B) Each reinsuring insurer shall conduct business with its members and subscribers, and administer claims for coverage reinsured by the program, in the same manner as it would administer health claims that it writes without reinsurance.

SECTION 11. (A) There is hereby created a nonprofit entity to be known as the South Carolina Small Employer Insurer Reinsurance Program, which shall become operational on January 1, 1995.

(B) (1) The program shall operate subject to the supervision and control of the board. Subject to the provisions of paragraph (2), the board shall consist of eight members appointed by the commissioner plus the commissioner or his or her designated representative, who shall serve as an ex officio member of the board.

(2) In selecting the members of the board, the commissioner shall include representatives of small employers and small employer insurers and such other individuals determined to be qualified by the commissioner. At least five members of the board shall be representatives of insurers and shall be selected from individuals nominated in this State pursuant to procedures and guidelines developed by the commissioner.

(3) The initial board members shall be appointed as follows: two of the members to serve a term of two years; three of the members to serve a term of four years; and three (3) of the members to serve a term of six years. Subsequent board members shall serve for a term of three years. A board member's term shall continue until his or her successor is appointed.

(4) A vacancy in the board shall be filled by the commissioner. A board member may be removed by the commissioner for cause.

(C) Within sixty days of the effective date of this act, each small employer insurer shall make a filing with the commissioner containing the insurer's net health insurance premium derived from health insurance plans delivered or issued for delivery to small employers in this State in the previous calendar year.

(D) Within one hundred eighty days after the appointment of the initial board, the board shall submit to the commissioner a plan of operation and thereafter any amendments thereto necessary or suitable to assure the fair, reasonable and equitable administration of the program. The commissioner may, after notice and hearing, approve the plan of operation if the commissioner determines it to be suitable to assure the fair, reasonable, and equitable administration of the program, and to provide for the sharing of program gains or losses on an equitable and proportionate basis in accordance with the provisions of this section. The plan of operation shall become effective upon written approval by the commissioner.

(E) If the board fails to submit a suitable plan of operation within one hundred eighty days after its appointment, the commissioner shall, after notice and hearing, adopt and promulgate a temporary plan of operation. The commissioner shall amend or rescind any plan adopted under this subsection at the time a plan of operation is submitted by the board and approved by the commissioner.

(F) The plan of operation shall:

(1) establish procedures for handling and accounting of program assets and monies and for an annual fiscal reporting to the commissioner;

(2) establish procedures for selecting an administering insurer and setting forth the powers and duties of the administering insurer;

(3) establish procedures for reinsuring risks in accordance with the provisions of this section;

(4) establish procedures for collecting assessments from reinsuring insurers to fund claims and administrative expenses incurred or estimated to be incurred by the program;

(5) establish a methodology for applying the dollar thresholds contained in this section in the case of insurers that pay or reimburse health care providers though capitation or salary; and

(6) provide for any additional matters necessary for the implementation and administration of the program.

(G) The program shall have the general powers and authority granted under the laws of this State to insurance companies and health maintenance organizations licensed to transact business, except the power to issue health insurance plans directly to either groups or individuals. In addition thereto, the program shall have the specific authority to:

(1) enter into contracts as are necessary or proper to carry out the provisions and purposes of this act, including the authority, with the approval of the commissioner, to enter into contracts with similar programs of other states for the joint performance of common functions or with persons or other organizations for the performance of administrative functions;

(2) sue or be sued, including taking any legal actions necessary or proper to recover any assessments and penalties for, on behalf of, or against the program or any reinsuring insurers;

(3) take any legal action necessary to avoid the payment of improper claims against the program;

(4) define the health insurance plans for which reinsurance will be provided, and to issue reinsurance policies, in accordance with the requirements of this act;

(5) establish rules, conditions, and procedures for reinsuring risks under the program;

(6) establish actuarial functions as appropriate for the operation of the program;

(7) assess reinsuring insurers in accordance with the provisions of subsection (K), and to make advance interim assessments as may be reasonable and necessary for organizational and interim operating expenses. Any interim assessments shall be credited as offsets against any regular assessments due following the close of the fiscal year;

(8) appoint appropriate legal, actuarial, and other committees as necessary to provide technical assistance in the operation of the program, policy and other contract design, and any other function within the authority of the program;

(9) borrow money to effect the purposes of the program. Any notes or other evidence of indebtedness of the program not in default shall be legal investments for insurers and may be carried as admitted assets;

(H) A reinsuring insurer may reinsure with the program as provided for in this subsection:

(1) With respect to a basic health insurance plan or a standard health insurance plan, the program shall reinsure the level of coverage provided.

(2) A small employer insurer may reinsure an entire employer group within sixty days of the commencement of the group's coverage under a health insurance plan.

(3) A reinsuring insurer may reinsure an eligible employee or dependent within a period of sixty days following the commencement of the coverage with the small employer. A newly eligible employee or dependent of the reinsured small employer may be reinsured within sixty days of the commencement of his or her coverage.

(4) (a) The program shall not reimburse a reinsuring insurer with respect to the claims of a reinsured employee or dependent until the insurer has incurred an initial level of claims for such employee or dependent of five thousand dollars in a calendar year for benefits covered by the program. In addition, the reinsuring insurer shall be responsible for ten percent of the next fifty thousand dollars of benefit payments during a calendar year and the program shall reinsure the remainder. A reinsuring insurers' liability under this subparagraph shall not exceed a maximum limit of ten thousand dollars in any one calendar year with respect to any reinsured individual.

(b) The board annually shall adjust the initial level of claims and the maximum limit to be retained by the insurer to reflect increases in costs and utilization within the standard market for health insurance plans within the State. The adjustment shall not be less than the annual change in the medical component of the "Consumer Price Index for All Urban Consumers" of the Department of Labor, Bureau of Labor Statistics, unless the board proposes and the commissioner approves a lower adjustment factor.

(5) A small employer insurer may terminate reinsurance with the program for one or more of the reinsured employees or dependents of a small employer on any anniversary of the health insurance plan.

(6) A reinsuring insurer shall apply all managed care and claims handling techniques, including utilization review, individual case management, preferred provider provisions, and other managed care provisions or methods of operation consistently with respect to reinsured and nonreinsured business.

(I) (1) The board, as part of the plan of operation, shall establish a methodology for determining premium rates to be charged by the program for reinsuring small employers and individuals pursuant to this section. The methodology must contain a provision surcharging the reinsurance premium rate of a small employer insurer which does not employ effective cost containment and managed care arrangements including, but not limited to:

(a) preferred provider organizations;

(b) utilization review;

(c) case management;

(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 propose 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 Section 38-71-910, et seq. of the 1976 Code of Laws.

(K) (1) Prior to March first 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 issued for delivery to small employers in this State by reinsuring insurers; and

(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 of

(i) the 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

(ii) 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) Prior to 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 commissioner may evaluate the operations of the program and implement such amendments to the plan of operation the commissioner considers necessary to reduce future losses and assessments.

(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 compensation currently used in the industry, and the overall costs of coverage to small employers selecting these plans.

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

SECTION 12. (A) The Governor's Committee on Basic Health Services shall recommend the form and level of coverages to be made available by small employer insurers pursuant to Section 6.

(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. The committee shall also 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 within one hundred eighty days after the passage of this act. If, for any reason, the committee does not provide the commissioner with a recommendation as to the form and level of coverages to be made available pursuant to this act, the board shall make such recommendation to the commissioner. If, subsequent to the approval of the benefit levels of the basic and standard health insurance plans, amendments to the plans should become necessary, the board shall make such recommendations to the commissioner for his approval.

SECTION 13. The board, in consultation with members of the committee, shall study and report at least every three years 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 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.

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.

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

(a) encouraging or directing small employers to refrain from filing an application for coverage with the small employer insurer because of the health status, claims experience, industry, occupation, or geographic location of the small employer;

(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 health insurance plans to small employers in this State, the third-party administrator shall be subject to this act as if it were a small employer insurer.

SECTION 15. Sections 38-71-920(1) and (3)of the 1976 Code, as added by Act 131 of 1991, are amended to read:

"(1) `mall 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.

(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. Health insurance plan does not include accident-only, credit, dental, vision, Medicare supplement, long-term care, or disability-income insurance; coverage issued as a supplement to liability insurance; workers' compensation or similar insurance; or automobile medical payment insurance."

SECTION 16. Section 32-71-920 of the 1976 Code, as added by Act 131 of 1991, is amended by adding:

(14) `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."

Section 17. Section 38-71-730(3) and (4) of the 1976 Code, both as last amended by Act 131 of 1991, are further amended to read:

"(3) Except as hereinafter provided, For all groups, no evidence of individual insurability may be required at the time the person first becomes eligible for insurance or within thirty-one days thereafter. Nothing in this section precludes the obtaining of medical information with respect to the members of the group for use in determining the insurability of the group, but the information may not be used to exclude an individual from coverage. However, for groups of ten or less persons, evidence of individual insurability may be required for persons first becoming eligible for insurance after the effective date of the policy. An insurer may exclude these persons from coverage or may impose those condition riders, preexisting condition limitations, or waiting periods as are in accordance with law.

(4) The policies may contain a provision limiting coverage for preexisting conditions. The preexisting conditions must be covered no later than twelve months without medical care, treatment, or supplies ending after the effective date of the coverage or twelve months after the effective date of the coverage, whichever occurs first. Preexisting conditions are defined as `those conditions for which medical advice or treatment was received or recommended no more than twelve months before the effective date of a person's coverage'. However, whenever a covered person moves from one insured group to another, and is neither excluded from coverage nor subject to the imposition of preexisting condition limitations as permitted by Section 38-71-730(3), the insurer of the group to which the covered person moves shall give credit for the satisfaction of the preexisting condition period or portion thereof already served under the prior plan if the coverage is selected when the person first becomes eligible and the coverage is continuous to a date not more than thirty days prior to the effective date of the new coverage. Service under a probationary waiting period required by the employer is not considered to interrupt continuous service."

SECTION 18. Section 38-70-10(2) of the 1976 Code, as added by Act 311 of 1990, is amended to read:

"(2) `Private review agent' means a person performing utilization reviews who is either under contract with or acting on behalf of, but not employed by:

(a) a South Carolina business entity;

(b) the State of South Carolina; or

(c) a hospital;.

(d) a third party that provides or administers health care benefits to citizens of this State. These third parties include but are not limited to:

(i) a health maintenance organization to which this chapter applies; or

(ii) a health insurer, hospital service corporation or preferred provider organization to which this chapter applies offering health benefits in this State."

SECTION 19. Section 38-70-15 of the 1976 Code, as added by Act 311 of 1990, is amended to read:

"Section 38-70-15. This chapter does not apply applies to insurance companies, administrators of insurance benefit plans, and health maintenance organizations licensed and regulated by the South Carolina Department of Insurance. Insurance companies, administrators of insurance benefit plans, and health maintenance organizations so regulated are exempt from the provisions of Sections 38-70-20(A) and (B), 38-70-30, and 38-70-50."

SECTION 20. Section 38-71-940(B) of the 1976 Code, as added by Act 131 of 1991, is amended to read:

"(B) Nothing in this section is intended to affect the use by a small employer insurer of legitimate rating factors other than claim experience, health status or duration of coverage in the determination of premium rates. Small employer insurers shall apply rating factors, including case characteristics, consistently with respect to all small employers in a class of business.

Small employer insurers shall not use case characteristics, other than age, gender, industry, geographic area, family composition, and group size without prior approval of the commissioner. If a small employer insurer uses industry as a case characteristic in establishing premium rates, the highest rate factor associated with any industry classification shall not exceed the lowest rate factor associated with any industry classification by more than fifteen percent."

SECTION 21. If any provision of this act or the application thereof to any person or circumstances is for any reason held to be invalid, the remainder of the act and the application of its provisions to other persons or circumstances shall not be affected thereby.

SECTION 22. Except as may otherwise be provided in this act, this act takes effect January 1, 1995.

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