Today's Law As Amended


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SB-26 Insurance: multiple employer welfare arrangements.(2007-2008)



As Amends the Law Today


SECTION 1.

 Section 742.20 of the Insurance Code is amended to read:

742.20.
 The Legislature finds and declares the following:
(a) An alternative to insurance programs, health care maintenance organizations, and panel provider organizations was established by Congress in 1974 through the Employee Retirement Income Security Act (ERISA). Among the various employee benefit programs established and governed by ERISA are multiple employer welfare arrangements (MEWA), which are subject as well to state regulatory and fiscal standards not inconsistent with ERISA. MEWAs permit employer members of  trade associations to create trust funds for the purpose of offering and providing health care benefits to employer members for  their employees. MEWAs can be created as fully insured or self-funded or partially self-funded benefit programs.
(b) The Legislature recognizes that some MEWAs provide an alternative mechanism to traditional health insurance for small employers. It is the intent of the Legislature to ensure the financial integrity of those  MEWA programs that are already in existence  by requiring self-funded or partially self-funded MEWAs to obtain a certificate of compliance from the Department of Insurance. In order for the Department of Insurance to grant a certificate of compliance, the MEWA must adhere to standards set forth in this act which article that  are not inconsistent with the provisions of ERISA. Further, it is the intent of the Legislature to provide the Department of Insurance with the authority to levy monetary penalties and to revoke certificates of compliance from MEWAs that violate the provisions of this act. article. 
(c) The Legislature has passed significant reforms in the area of small group health insurance. This article, in no manner, circumvents these reforms nor is it intended to be a precedent to do so. Therefore, the small group reform legislation applies to MEWAs to the extent it is not inconsistent with ERISA.
(d) The provisions of this article are consistent with and authorized by ERISA, which confers upon the states limited authority to regulate MEWAs.

SEC. 2.

 Section 742.215 of the Insurance Code is amended to read:

742.215.
 Except as provided in Section 743, the following definitions apply for purposes of this article:
(a) “Self-funded” means a multiple employer welfare arrangement that undertook at all times and for a continuous period of five years to reimburse health benefit costs incurred by covered persons pursuant to the benefits and coverages provided by their plan exclusively from plan assets.
As  (b)  used in this article, “self-funded” means a multiple employer welfare arrangement that undertook at all times and for a continuous period of five years to reimburse health benefit costs incurred by covered persons pursuant to the benefits and coverages provided by their plan exclusively from plan assets.  “Partially self-funded” means a multiple employer welfare arrangement that undertook at all times and for a continuous period of five years to reimburse health benefit costs incurred by covered persons pursuant to the benefits and coverages provided by their plan exclusively from plan assets, provided, however, that these benefits are reimbursable to the multiple employer welfare arrangement by stop loss insurance only to the extent that the benefits exceed fifty thousand dollars ($50,000) per claim.

SEC. 3.

 Section 742.24 of the Insurance Code is amended to read:

742.24.
 To  Except as specified in Sections 743 to 743.02, inclusive, to  be eligible for a certificate of compliance, a self-funded or partially self-funded multiple employer welfare arrangement shall meet all of the following requirements:
(a) Be nonprofit.
(b) Be established and maintained by a trade association, industry association, professional association, or by any other business group or association of any kind that has a constitution or bylaws specifically stating its purpose, and have been organized and maintained in good faith with at least 200 paid members and operated actively for a continuous period of five years, for purposes other than that of obtaining or providing health care coverage benefits to its members. An association is a California mutual benefit corporation comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria, which do not condition membership directly or indirectly on the health or claims history of any person, and which uses membership dues solely for and in consideration of the membership and membership benefits.
(c) Be organized and maintained in good faith with at least 2,000 employees and 50 paid employer members and operated actively for a continuous period of five years.
(d) Have been operating in compliance with ERISA on a self-funded or partially self-funded basis for a continuous period of five years pursuant to a trust agreement by a board of trustees that shall have complete fiscal control over the multiple employer welfare arrangement, and that shall be responsible for all operations of the multiple employer welfare arrangement. The trustees shall be selected by vote of the participating employers and shall be owners, partners, officers, directors, or employees of one or more employers participating in the multiple employer welfare arrangement. A trustee may not be an owner, officer, or employee of the insurer, administrator, or service company providing insurance or insurance-related services to the association. The trustees shall have authority to approve applications of association members for participation in the multiple employer welfare arrangement and to contract with an authorized administrator or service company to administer the day-to-day affairs of the multiple employer welfare arrangement.
(e) Benefits shall be offered only to association members.
(f) Benefits may be offered only through life agents, as defined in Section 1622, licensed in the state whose names, addresses, and telephone numbers have been filed with the commissioner as licensed life agents for the multiple employer welfare arrangement.
(g) Be operated in accordance with sound actuarial principles and conform to the requirements of Section 742.31.
(h) File an application with the department for a certificate of compliance no later than November 30, 1995. compliance. 
(i) The multiple employer welfare arrangement shall at all times maintain aggregate stop loss insurance providing the arrangement with coverage with an attachment point which that  is not greater than 125 percent of annual expected claims. The commissioner may, by regulation, define “expected claims” for purposes of this subdivision and provide for adjustments in the amount of the percentage in specified circumstances in which the arrangement specifically provides for and maintains reserves in accordance with sound actuarial principles as provided in Section 742.31.
(j) The multiple employer welfare arrangement shall establish and maintain specific stop loss insurance providing the arrangement with coverage with an attachment point that is not greater than 5 percent of annual expected claims. The commissioner may, by regulation, define “expected claims” for purposes of this subdivision and provide for adjustments in the amount of that percentage as may be necessary to carry out the purposes of this subdivision determined by sound actuarial principles as provided in Section 742.31.
(k) The multiple employer welfare arrangement shall establish and maintain appropriate loss and loss adjustment reserves determined by sound actuarial principles as provided in Section 742.31.
( (l) 
l
)  The association has within its own organization adequate facilities and competent personnel to serve the multiple employer welfare arrangement, or has contracted with a licensed third-party administrator to provide those services.
(m) The association has established a procedure for handling claims for benefits in the event of the dissolution of the multiple employer welfare arrangement.
(n) On and after January 1, 2003, in addition to the requirements of this article, maintain a surplus of not less than one million dollars ($1,000,000), and that this amount be increased as follows: one million seven hundred fifty thousand dollars ($1,750,000) by January 1, 2004; two million five hundred thousand dollars ($2,500,000) by January 1, 2005; three million two hundred fifty thousand dollars ($3,250,000) by January 1, 2006; and four million dollars ($4,000,000) by January 1, 2007.
(o) Submit all proposed rate levels to the department for informational purposes no later than 45 days prior to their implementation. The proposed rates shall contain an aggregate benefit structure which that  has a loss ratio experience of not less than 80 percent. The loss ratio experience shall be calculated as claims paid during the contract period plus a reasonable estimate of claims liability for the contract period at the end of the current year divided by contributions paid or collected for the contract period minus unearned contributions at the end of the current year.
(p) Comply with the investment requirements of Section 724.245. 742.245. 

SEC. 4.

 Section 742.245 of the Insurance Code is amended to read:

742.245.
 (a) A self-funded or partially self-funded multiple employer welfare arrangement shall maintain at least 25 percent of the surplus required by subdivision (n) of Section 742.24 or by subdivision (b) of Section 743.02  in investments specified in Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1  and in Section 1192.5.
(b) The balance of the assets of a self-funded or partially self-funded multiple employer welfare arrangement may be invested in the following:
(1) An open-ended diversified management company, as defined in the federal Investment Company Act of 1940 (15 U.S.C. Sec.  80a-1 et seq.), that meets all of the following requirements:
(A) It is registered with, and reports to, the Securities and Exchange Commission.
(B) It is domiciled in the United States.
(C)  Substantially all of its investments consist of investment grade debt instruments and cash.
(D) All of its assets are held in the United States by a bank, trust company, or other custodian chartered by the United States, its states, or territories.
(2) An amount not to exceed 75 percent of any excess of invested assets over the sum of the reserves and related actuarial items held in support of policies and contracts, plus the surplus required by subdivision (n) of Section 742.24,  742.24 or by subdivision (b) of Section 743.02,  may be invested in the following:
(A) An open-ended diversified management company, as defined in the federal Investment Company Act of 1940 (15 U.S.C. Sec.  80a-1 et seq.), that meets all of the following requirements:
(i) It is registered with, and reports to, the Securities and Exchange Commission.
(ii) It is domiciled in the United States.
(iii) Its investments consist of common and preferred stocks and cash.
(iv) All of its assets are held in the United States by a bank, trust company, or other custodian chartered by the United States, its states, or territories.
(B) Corporate notes, bonds, and preferred stocks that meet all of the following requirements:
(i) The issuer is domiciled in the United States or Canada.
(ii) The investments are rated investment grade or better by at least two of the following rating agencies, or their successors:
(I) Standard & Poor’s.
(II) Moody’s.
(III) Fitch.
(iii) The investments are exchange-traded. “Exchange-traded” as used in this clause means listed and traded on the National Market System of the NASDAQ Stock Market or on a securities exchange subject to regulation, supervision, or control under a statute of the United States and acceptable to the commissioner.
(C) An investment in a single issuer made pursuant to subparagraph (B) shall not exceed in the aggregate 10 percent of the multiple employer welfare arrangement’s funds described in this paragraph.
(3) An investment made pursuant to paragraph (1) or subparagraph (A) of paragraph (2) shall be made in, at minimum, three of the companies described in those provisions.
(4) An office building or buildings that will be used for the multiple employer welfare arrangement’s principal operations and business if both of the following requirements are met:
(A) The multiple employer welfare arrangement obtains prior written approval from the commissioner.
(B) The office building or buildings are treated on the financial statements filed with the commissioner pursuant to Section 742.31 as nonadmitted assets.
(c) The commissioner may, in his or her discretion and after a hearing, require by written order disposal of an investment made either in violation of, or no longer in compliance with, this section. The commissioner may also, after a hearing, require the disposal of any investment made pursuant to paragraph (2) of subdivision (b) if the multiple employer welfare arrangement has failed to maintain cash or liquid assets sufficient to meet its claims and any other contractual obligations. The commissioner may also for good cause and after a hearing, by written order require the disposal of an investment described in subdivision (b).

SEC. 5.

 Section 742.25 of the Insurance Code is amended to read:

742.25.
 In determining the qualification of a multiple employer welfare arrangement, the commissioner will consider, among other things:
(a) The history of the multiple employer welfare arrangement. arrangement, other than one for which application was made pursuant to Section 743. 
(b) The competency, character, integrity, responsibility, and general fitness of the management and administration.
(c) Financial stability.
(d) Whether claims were promptly and fairly adjusted and are promptly and fully paid in accordance with the law and the terms of the plan. plan, other than one for which application was made pursuant to Section 743. 
(e) Fairness and honesty of methods of doing business.
(f) Hazard to covered employees or creditors.

SEC. 6.

 Section 742.29 of the Insurance Code is amended to read:

742.29.
 An association seeking to establish an employee welfare benefit plan by the use of a self-funded or partially self-funded multiple employer welfare arrangement shall apply for a certificate of compliance on a form prescribed by the commissioner. The application shall be completed and submitted to the commissioner along with all of the following:
(a) Copies of all articles, bylaws, agreements, or other documents or instruments describing the rights and obligations of the employers, employees, and beneficiaries of the association with respect to the multiple employer welfare arrangement.
(b) Current audited financial statements and Internal Revenue Service Form number 5500  of the association and the multiple employer welfare arrangement,  for the last five years and, other than an association applying pursuant to Section 743, current audited financial statements  and Internal Revenue Service Form number 5500 of the multiple employer welfare arrangement  for the last five years.
(c) Proof of a fidelity bond in an amount equal to 10 percent of the funds handled annually by the multiple employer welfare arrangement.  arrangement or that will be handled annually by the multiple employer welfare arrangement of an association applying pursuant to Section 743.  In no case may the amount of the bond be less than fifty thousand dollars ($50,000) nor more than five hundred thousand dollars ($500,000).
(d) A fiduciary liability policy with limits of not less than five hundred thousand dollars ($500,000).
(e) A statement showing in full detail the benefit plan upon which the association has established and maintained the multiple employer welfare arrangement.
(f) A copy of all contracts or other instruments that it makes with or issues to the association members, together with a copy of its plan description and the printed material which was used in enrolling members during 1993 and 1994. description. 
(g) Proof of aggregate and specific stop loss insurance with an insurer licensed to do business in this state.
(h) A copy of all contracts or other instruments that were used with administrators and producers during 1993 and 1994. the two years preceding the date of application. 
(i) Biographical affidavits for the trustees, plan administrators of the multiple employer welfare arrangement, officers and directors of the association, other persons acting in a fiduciary capacity and any third-party administrators performing services on behalf of the multiple employer welfare arrangement.

SEC. 7.

 Section 742.30 of the Insurance Code is amended to read:

742.30.
 The commissioner shall not issue a certificate of compliance to a self-funded or partially self-funded multiple employer welfare arrangement unless the employers participating in the multiple employer welfare arrangement are members of a bona fide trade, industrial, or professional association as described in subdivision (b) of Section 742.24. 742.24 or an association as described in paragraph (1) of subdivision (b) of Section 743 that satisfies the criteria set forth in Section 743.01. 

SEC. 8.

 Section 743 is added to the Insurance Code, to read:

743.
 (a) An association that satisfies the criteria of Section 743.01 may apply to the commissioner for a certificate of compliance for a self-funded or partially self-funded multiple employer welfare arrangement established by the association on or after January 1, 2008.
(b) The following definitions apply for purposes of this section:
(1) “Association” means a California mutual benefit corporation comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria, which do not condition membership directly or indirectly on the health or claims history of any person, and which uses membership dues solely for and in consideration of the membership and membership benefits.
(2) “Partially self-funded” means a multiple employer welfare arrangement that reimburses health benefit costs incurred by covered persons pursuant to the benefits and coverage provided by their plan exclusively from plan assets, provided, however, that these benefits are reimbursable to the multiple employer welfare arrangement by stop loss insurance only to the extent that the benefits exceed fifty thousand dollars ($50,000) per claim.
(3) “Self-funded” means a multiple employer welfare arrangement that reimburses health benefit costs incurred by covered persons pursuant to the benefits and coverage provided by their plan exclusively from plan assets.

SEC. 9.

 Section 743.01 is added to the Insurance Code, to read:

743.01.
 To be eligible to apply for a certificate of compliance pursuant to Section 743, the association shall satisfy the following criteria:
(a) Maintain a constitution or bylaws specifically stating its purpose.
(b) Have been organized and maintained in good faith and operated actively for purposes other than that of providing health care coverage benefits to its members for a continuous period of five years immediately preceding the date of its application.
(c) Have, at minimum, 200 paid members at the time of its application.

SEC. 10.

 Section 743.02 is added to the Insurance Code, to read:

743.02.
 An association applying for a certificate of compliance pursuant to Section 743 shall establish that its self-funded or partially self-funded multiple employer welfare arrangement satisfies all of the requirements of Section 742.24, other than the requirements set forth in subdivisions (b), (c), (d), and (n) of that section, and the following additional requirements:
(a) Operate in compliance with ERISA on a self-funded or partially self-funded basis pursuant to a trust agreement by a board of trustees that shall have complete fiscal control over the multiple employer welfare arrangement, and that shall be responsible for all operations of the multiple employer welfare arrangement. The trustees shall be selected by vote of the participating employers and shall be owners, partners, officers, directors, or employees of one or more employers participating in the multiple employer welfare arrangement. A trustee may not be an owner, officer, or employee of the insurer, administrator, or service company providing insurance or insurance-related services to the association. The trustees shall have authority to approve applications of association members for participation in the multiple employer welfare arrangement and to contract with an authorized administrator or service company to administer the day-to-day affairs of the multiple employer welfare arrangement.
(b) In addition to the requirements of this article, maintain a surplus of not less than four million dollars ($4,000,000).