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COMMITTEE REPORT
February 28, 2002
S. 1020
S. Printed 2/28/02--S.
Read the first time February 14, 2002.
To whom was referred a Bill (S. 1020) to amend Section 38-74-10, Code of Laws of South Carolina, 1976, relating to definitions pertaining to the South Carolina Health Insurance Pool, etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass:
DAVID L. THOMAS for Committee.
REVENUE IMPACT1/
This bill is expected to reduce general fund revenue by an estimated $78,750 in FY 2002-03, by an estimated $828,750 in FY 2003-04, and by an estimated $1,342,500 in FY 2004-05.
Explanation
This bill would extend Medicare supplemental health insurance under the South Carolina Health Insurance Pool (SCHIP) to individuals that are under age 65 and are eligible for Medicare due to a disability. SCHIP is a program that provides limited health insurance coverage to certain "high risk" individuals that have been refused traditional health insurance coverage by insurance companies. Claims and other administrative expenses incurred by SCHIP are paid for in part by the state's insurance companies through annual assessments levied by the South Carolina Department of Insurance (DOI). Assessment of the state's insurers by DOI for SCHIP purposes occurs at the end of each state fiscal year (FYE). Current law allows insurance companies assessed by DOI for SCHIP purposes to claim non-refundable tax credits against those assessments. Collectively, credits cannot exceed $5 million in any one year for all insurers. This bill would raise the maximum credit allowed from $5 million to $10 million. According to DOI officials, tax credits claimed by insurers against SCHIP assessments can be expected to amount to an estimated 75 percent of SCHIP's total annual assessment. Based on data provided by DOI, the BEA estimates that SCHIP assessments levied on insurers by DOI will total an estimated $5 million at FYE '02, which is the amount at which the cap is currently set. Multiplying this estimated SCHIP assessment by 75 percent yields an estimated $3.75 million in credits to be claimed in FY 2002-03. Because insurers could collect these estimated credits under current law, these credits do not represent a reduction of FY 2002-03 general fund revenue. According to DOI officials, SCHIP assessments will exceed the current $5 million credit cap by $1 million at FYE '03 and by $2 million at FYE '04. Under this bill, credits could be claimed against assessments in excess of $5 million because the cap is raised from $5 million to $10 million. While credits for FYE '03 assessments would not be claimed in large part until calendar year 2004, the BEA estimates that 10.5 percent of taxpayers may adjust their estimated tax payments in FY 2002-03. Multiplying the estimated amount of FYE '03 credit in excess of the current cap by 75 percent and applying 10.5 percent of taxpayers reduces general fund revenue by an estimated $78,750 in FY 2002-03, which leaves an estimated $671,250 in additional credit to be claimed in FY 2003-04. Multiplying the estimated amount of FYE '04 credit in excess of the current cap by 75 percent and applying 10.5 percent of taxpayers reduces general fund revenue by an additional $157,500 in FY 2003-04, which leaves an estimated $1,342,500 in additional credit to be claimed in FY 2004-05. Collectively, this bill is expected to reduce general fund revenue by an estimated $78,750 in FY 2002-03, by an estimated $828,750 in FY 2003-04, and by an estimated $1,342,500 in FY 2004-05.
Approved By:
William C. Gillespie
Board of Economic Advisors
1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact, Section 2-7-76 for a local revenue impact, and Section 6-1-85(B) for an estimate of the shift in local property tax incidence.
EXPLANATION OF IMPACT:
The Department of Insurance has determined that Senate Bill 1020 would not have any additional costs to the department. The legislation adds coverage that can be written in the South Carolina Health Insurance Pool. It also doubles the maximum tax credit that can be taken by members of the pool (Section 38-74-80) which could affect general fund revenues in future years.
SPECIAL NOTES:
The Board of Economic Advisors is the appropriate agency to address any revenue impact of this legislation.
Approved By:
Don Addy
Office of State Budget
TO AMEND SECTION 38-74-10, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO DEFINITIONS PERTAINING TO THE SOUTH CAROLINA HEALTH INSURANCE POOL, SO AS TO MODIFY THE DEFINITIONS OF "HEALTH INSURANCE" AND "INDIVIDUAL MARKET"; TO AMEND SECTION 38-74-30, RELATING TO HEALTH INSURANCE POOL COVERAGE ELIGIBILITY, SO AS TO EXTEND MEDICARE SUPPLEMENT HEALTH INSURANCE COVERAGE TO THOSE INDIVIDUALS WHO ARE ELIGIBLE FOR MEDICARE DUE TO DISABILITY AND UNDER SIXTY-FIVE YEARS OF AGE; TO AMEND SECTION 38-74-60, RELATING TO MAJOR MEDICAL EXPENSE COVERAGE, SO AS TO EXTEND COVERAGE TO THOSE INDIVIDUALS WHO ARE ELIGIBLE FOR MEDICARE DUE TO DISABILITY AND UNDER SIXTY-FIVE YEARS OF AGE AND TO PROVIDE FOR THE TYPES OF BENEFIT PLANS TO BE OFFERED TO THESE INDIVIDUALS AND THE METHOD FOR ESTABLISHING PREMIUM RATES FOR THE COVERAGE; AND TO AMEND SECTION 38-74-80, RELATING TO TAX EXEMPTIONS AND CREDITS, SO AS TO PROVIDE THAT IF THE TOTAL ASSESSMENT FOR ALL MEMBERS OF THE POOL EXCEEDS TEN MILLION DOLLARS IN ANY ONE YEAR, THE CREDIT FOR ANY MEMBER SHALL BE LIMITED TO THE AMOUNT DETERMINED BY MULTIPLYING THE MEMBER'S ASSESSMENT BY A FRACTION, THE NUMERATOR OF WHICH EQUALS TEN MILLION DOLLARS AND THE DENOMINATOR OF WHICH EQUALS THE TOTAL ASSESSMENT IN THE YEAR FOR ALL MEMBERS OF THE POOL.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Section 38-74-10 of the 1976 Code is amended to read:
"Section 38-74-10. As used in this chapter:
(1) 'Pool' means the South Carolina Health Insurance Pool.
(2) 'Board' means the Board of Directors of the pool.
(3) 'Insured' means any individual resident of this State who is eligible to receive benefits from any insurer.
(4) 'Insurer' means any entity that provides health insurance in this State. For purposes of this section, insurer includes an insurance company, a health maintenance organization, and any other entity providing health insurance which is licensed to engage in the business of insurance in this State and which is subject to state insurance regulation.
(5) 'Health insurance' or 'health insurance coverage' means benefits consisting of medical care provided directly, through insurance or reimbursement, or otherwise and including items and services paid for as medical care under a hospital or medical service policy or certificate, hospital, or medical service plan contract, or health maintenance organization contract offered by an insurer, except:
(a) coverage only for accident, or disability income insurance, or any combination thereof;
(b) coverage issued as a supplement to liability insurance;
(c) liability insurance, including general liability insurance and automobile liability insurance;
(d) workers' compensation or similar insurance;
(e) automobile medical payment insurance;
(f) credit-only insurance;
(g) coverage for on-site medical clinics;
(h) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits;
(i) if offered separately:
(i) limited scope dental or vision benefits;
(ii) benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof;
(iii) such other similar, limited benefits as are specified in regulations;
(j) if offered as independent, noncoordinated benefits:
(i) coverage only for a specified disease or illness; and
(ii) hospital indemnity or other fixed indemnity insurance;
(k) if offered as a separate insurance policy:
(i) Medicare supplemental health insurance (as defined under Section 1882(g)(1) of the Social Security Act);
(ii) , coverage supplement to the coverage provided under Chapter 55, Title 10 of the United States Code; and
(iii) similar supplemental coverage under a group health plan.
(6) 'Medicare' means Title XVIII of the Social Security Act, 42 USC 1395, et seq., as amended.
(7) 'Physician' means any practitioner of the healing arts, other than an insured person or a person related to an insured person, who is legally licensed to perform any service for which benefits are provided by the insurance policy issued by the pool.
(8) 'Hospital' means an institution operated pursuant to law under the supervision of a staff of duly licensed physicians which is primarily and continuously engaged in providing or operating, either on its premises or in facilities available to the public on a prearranged basis, medical, diagnostic, and major surgical facilities for the medical care and treatment of sick or injured persons on an inpatient basis for which a charge is made and provides twenty-four-hour nursing service under the supervision of registered nurses.
(9) 'Health maintenance organization' means an organization as defined in section 38-33-20(7).
(10) 'Plan of operation' means the plan of operation of the pool, including articles, bylaws, and operating rules adopted by the board.
(11) 'Benefits plan' means the coverages to be offered by the pool to eligible persons.
(12) 'Department' means the South Carolina Insurance Department.
(13) 'Director' means the person who is appointed by the Governor upon the advice and consent of the Senate and who is responsible for the operation and management of the Department of Insurance, including all of its divisions. The director may appoint or designate the person or persons who shall serve at the pleasure of the director to carry out the objectives or duties of the department as provided by law. Furthermore, the director may bestow upon his designee or deputy director any duty or function required of him by law in managing or supervising the Insurance Department.
(14) 'Member' means each insurer participating in the pool.
(15) 'Net loss' means the excess of incurred claims plus expenses over the sum of earned premiums, accrued investment income, and other appropriate gains and losses.
(16) 'Affiliation period' means a period which, under the terms of the health insurance coverage offered by a health maintenance organization, must expire before the health insurance coverage becomes effective. The organization is not required to provide health care services or benefits during this period and no premium shall be charged to the participant or beneficiary for any coverage during the period. The period begins on the enrollment date and runs concurrently with any waiting period under the plan.
(17) 'Beneficiary' has the meaning given under Section 3(8) of the Employee Retirement Income Security Act of 1974.
(18) 'COBRA continuation provision' means:
(a) Part 6 of subtitle B of Title I of the Employee Retirement Income Security Act of 1974, other than Section 609 of the act;
(b) Section 4908B of the Internal Revenue Code of 1986, other than subsection (f)(1) of the section insofar as it relates to pediatric vaccines; or
(c) Title XXII of the Public Health Service Act.
(19) 'Church plan' has the meaning given the term under Section 3(33) of the Employee Retirement Income Security Act of 1974.
(20) 'Creditable coverage' means, with respect to an individual, coverage of the individual under any of the following:
(a) a group health plan;
(b) health insurance;
(c) Part A or B of Title XVIII of the Social Security Act;
(d) Title XIX of the Social Security Act, other than coverage consisting solely of benefits under Section 1928;
(e) Chapter 55, Title 10 of the United States Code;
(f) a medical care program of the Indian Health Service or of a tribal organization;
(g) a state health benefits risk pool, including the South Carolina Health Insurance Pool;
(h) a health plan offered under Chapter 89, Title 5 of the United States Code;
(i) a public health plan, as defined in regulations;
(j) a health benefit plan under Section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e)).
The term does not include coverage consisting solely of those benefits excepted from the definition of health insurance.
A period of creditable coverage shall not be counted if, after such period and before the enrollment date, there was a sixty-three-day period during all of which the individual was not covered under any creditable coverage. However, in determining whether there has been continuous coverage, no period shall be taken into account during which the individual is in a waiting period for any coverage under a group health plan or for group health insurance coverage or is in an affiliation period.
Periods of creditable coverage with respect to an individual shall be established through presentation of certifications as described in Section 38-71-850(D) or in a manner specified in regulations.
(21) 'Employee' has the meaning given the term under Section 3(6) of the Employee Retirement Income Security Act of 1974.
(22) 'Enrollment date' means, with respect to an individual covered under a group health plan or health insurance coverage, the date of enrollment of the individual in the plan or coverage or, if earlier, the first day of the waiting period for the enrollment.
(23) 'Federally defined eligible individual' means an individual:
(a) for whom, as of the date on which the individual seeks coverage under this chapter, the aggregate of the periods of creditable coverage is eighteen or more months;
(b) whose most recent prior creditable coverage was under a group health plan, governmental plan, or church plan or health insurance coverage offered in connection with one of these plans;
(c) who is not eligible for coverage under a group health plan, part A or part B of Title XVIII of the Social Security Act, or a state plan under Title XIX of the Social Security Act or any successor program and who does not have other health insurance coverage;
(d) with respect to whom the most recent coverage within the period of aggregate creditable coverage was not terminated based on a factor relating to nonpayment of premiums or fraud;
(e) who, if offered the option of continuation coverage under a COBRA continuation provision or under a similar state program, elected the coverage; and
(f) who, if the individual elected the continuation coverage, has exhausted the continuation coverage under the provision or program.
(24) 'Governmental plan' has the meaning given the term under Section 3(32) of the Employee Retirement Income Security Act of 1974 and any governmental plan established or maintained for its employees by the government of the United States or by an agency or instrumentality of the government.
(25) 'Group health insurance coverage' means, in connection with a group health plan, health insurance offered by an insurer in connection with the plan.
(26) 'Group health plan' means an employee welfare benefit plan, as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, to the extent that the plan provides medical care, including items and services paid for as medical care, to employees or their dependents, as defined under the terms of the plan, directly or through insurance, reimbursement, or otherwise.
(27) 'Individual market' means the market for health insurance coverage offered to individuals other than in connection with a group health plan. The term includes coverage offered in connection with a group health plan that has fewer than two participants as current employees on the first day of the plan year unless the State elects participants as current employees on the first day of the plan year unless the State elects to regulate the coverage as coverage issued to small employers as defined in Section 38-71-1330.
(28) 'Medical care' means amounts paid for:
(a) the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body;
(b) amounts paid for transportation primarily for and essential to medical care referred to in subitem (a); and
(c) amounts paid for insurance covering medical care referred to in subitems (a) and (b).
(29) 'Participant' has the meaning given the term under Section 3(7) of the Employee Retirement Income Security Act of 1974.
(30) 'Preexisting condition exclusion' means, with respect to coverage, a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for the coverage, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before the date. Genetic information may not be treated as a preexisting condition in the absence of a diagnosis of the condition related to the information.
(31) 'Waiting period' means, with respect to a group health plan and an individual who is a potential participant or beneficiary in the plan, the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan."
SECTION 2. Section 38-74-30 of the 1976 Code is amended to read:
"Section 38-74-30. (A) A person who is a resident of this State for thirty days, except that for a federally defined eligible individual, there shall not be a thirty-day requirement, and his newborn child is eligible for pool coverage:
(1) upon providing evidence of any of the following actions by an insurer on an application for health insurance comparable to that provided by the pool submitted on behalf of the person:
(a) a refusal to issue the insurance for health reasons;
(b) a refusal to issue the insurance except with a reduction or exclusion of coverage for a preexisting health condition for a period exceeding twelve months, unless it is determined that the person voluntarily terminated his or did not seek any health insurance coverage before being refused issuance except with a reduction or exclusion for a preexisting health condition, and then seeks to be eligible for pool coverage after the health condition develops. This determination must be made by the board;
(c) a refusal to issue insurance coverage comparable to that provided by the pool except at a rate exceeding one hundred fifty percent of the pool rate; or
(2) if the individual is a federally defined eligible individual, as defined in Section 38-74-10, who is and continues to be a resident of this State.; or
(3) if the individual is covered under Medicare Parts A and B due to disability and is under age sixty-five.
(B) A person whose health insurance coverage is terminated involuntarily for any reason other than nonpayment of premium may apply for coverage under the plan but shall submit proof of eligibility according to subsection (A) of this section. If proof is supplied and if coverage is applied for within sixty days after the involuntary termination and if premiums are paid for the entire coverage period, the effective date of the coverage is the date of termination of the previous coverage. Waiting period and preexisting condition exclusions are waived to the extent to which similar exclusions, if any, have been satisfied under the prior health insurance coverage. The waiver does not apply to a person whose policy has been terminated or rescinded involuntarily because of a material misrepresentation.
(C) A person who is paying a premium for health insurance comparable to the pool plan in excess of one hundred fifty percent of the pool rate or who has received notice that the premium for a policy would be in excess of one hundred fifty percent of the pool rate may make application for coverage under the pool. The effective date of coverage is the date of the application, or the date that the premium is paid if later, and any waiting period or preexisting condition exclusion is waived to the extent to which similar exclusions, if any, were satisfied under the prior health insurance plan. Benefits payable under the pool plan are secondary to benefits payable by the previous plan. The board shall require an additional premium for coverage effected under the plan in this manner notwithstanding the premium limitation stated in Section 38-74-60.
(D) The waiting period and preexisting condition exclusions are waived for a federally defined eligible individual.
(E) A person not eligible for pool coverage is one who meets any one of the following criteria:
(1) a person who has coverage under health insurance comparable to that offered by the pool from an insurer or any other source except a person who would be eligible under subsection (C) of this section;
(2) a person who is eligible for health insurance comparable to that offered by the pool from an insurer or any other source except a person who would be eligible for pool coverage under Section 38-74-30(A)(1)(b), 38-74-30(A)(1)(c), or 38-74-30(A)(2), or 38-74-30(A)(3);
(3) a person who at the time of pool application is eligible for health care benefits under state Medicaid or eligible for health care benefits under Medicare and age sixty-five or older;
(4) a person having terminated coverage in the pool unless twelve months have lapsed since termination unless termination was because of ineligibility, except that this item shall not apply with respect to an applicant who is a federally defined eligible individual;
(5) a person on whose behalf the pool has paid out one million dollars in benefits;
(6) inmates of public institutions and persons eligible for public programs, except that this item shall not apply with respect to an applicant who is a federally defined eligible individual;
(7) a person who fails to maintain South Carolina residency.
(F) A person who ceases to meet the eligibility requirements of this section may be terminated at the end of the policy period."
SECTION 3. Section 38-74-60 of the 1976 Code is amended to read:
"Section 38-74-60. (A)(1) Except as provided in Section 38-74-60(B), the pool shall offer major medical expense coverage to every eligible person. The coverage to be issued by the pool, its schedule of benefits, exclusions, and other limitations must be established by the board and approved by the director taking into consideration the advice and recommendations of the pool members.
(B)(2) In establishing and reviewing the pool pool's major medical expense coverage, the board shall take into consideration the levels of health insurance provided in the State and medical and economic factors considered appropriate and promulgate benefit levels, deductibles, coinsurance factors, exclusions, and limitations determined to be generally reflective of and commensurate with health insurance provided through a representative number of large employers in the State. At least one policy form of coverage must be comparable to comprehensive health insurance coverage offered in the individual market in this State or to the standard health insurance plan as defined in Section 38-71-1330.
(B) The pool shall offer Medicare supplemental health insurance coverage to every person covered under Medicare Parts A and B due to disability and who is under age sixty-five. The benefit plans to be offered shall include Medicare supplement plan A and plan C.
(C) The pool shall provide a choice of health insurance coverage to all eligible individuals.
(D)(1) Premium rates charged for pool coverage may not be unreasonable in relation to the benefits provided, the risk experience, and the reasonable expenses of providing the coverage. Separate schedules of premium rates based on age, sex, and geographical location may apply for individual risks.
(2) The board shall determine the standard risk rate for major medical expense coverage by taking into account the individual standard rate charged by the five largest insurers offering individual coverages in the State comparable to the pool coverage. If five insurers do not offer comparable coverage, the standard risk rate must be established using reasonable actuarial techniques and must reflect anticipated experience and expenses for coverage. Rates initially established for pool coverage are two hundred percent of rates established as applicable for individual standard risks. Rates subsequently established must provide fully for the expected costs of claims and expenses of operation taking into account investment income and any other cost factors, but may not exceed two hundred percent of rates established as applicable for individual standard risks subject to the limitations described in this section. If the total tax credit provided in Section 38-74-80 exceeds five million dollars in any one year for all members of the pool, the board shall establish a rate for all policies that may exceed, if necessary, the two hundred percent limitation as provided in this subsection so as to assure that the tax credit does not exceed five million dollars in the following year of operation. All rates and rate schedules must be submitted to the director or his designee for approval.
(3) Premium rates charged for Medicare supplemental insurance coverage may not be unreasonable in relation to the benefits provided, the risk experience, and the reasonable expenses of providing the coverage. Rates established must provide fully for the expected costs of claims and expenses of operation taking into account investment income and any other cost factors.
(E) Except as provided in Section 38-74-30(B), (C), and (D), pool coverage excludes charges or expenses incurred during the first six months following the effective date of coverage as to any condition which during the six-month period immediately preceding the effective date of coverage:
(1) had manifested itself in a manner so as to cause an ordinarily prudent person to seek diagnosis, care, or treatment; or
(2) for which medical advice, care, or treatment was recommended or received as to the condition.
(F)(1) A benefit otherwise payable under pool coverage for covered expenses must be reduced by all amounts paid or payable for the same expenses through any other health insurance or health coverage and by all hospital and medical expense benefits paid or payable under any workers' compensation coverage, automobile medical payment, or liability insurance whether provided on the basis of fault or nonfault, and by any hospital or medical benefits paid or payable under or provided pursuant to any state or federal law or program.
(2) The insurer or the pool has a cause of action against an eligible person for the recovery of the amount of benefits paid which are not for covered expenses. Benefits due from the pool may be reduced or refused as a setoff against any amount recoverable under this paragraph."
SECTION 4. Section 38-74-80 of the 1976 Code is amended to read:
"Section 38-74-80. The pool established pursuant to this chapter is exempt from all taxes and assessments. Any member subject to tax liability imposed by any state statute may take credit for any assessment paid to the pool in the previous year against its premium or income tax payable. The tax credit is in addition to any other tax credits to which the member may be entitled pursuant to South Carolina law, but the credit may not reduce the member's tax liability below zero. Any unused credit may be carried forward three years. The credits are subject to the provisions of Section 38-7-120(c). The members are responsible for any loss of the operation of the pool, including any loss in excess of assessments paid to the pool. This State is not responsible for any loss of the operation of the pool, and no state funds may be used to defray any loss. If the total assessment for all members of the pool exceeds ten million dollars in any one year, the credit for any member shall be limited to the amount determined by multiplying the member's assessment by a fraction, the numerator of which equals ten million dollars and the denominator of which equals the total assessment in the year for all members of the pool."
SECTION 5. This act takes effect January 1, 2003.
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