OLR Bill Analysis

sHB 6582 (as amended by House “A”)*

AN ACT ESTABLISHING THE CONNECTICUT HEALTHCARE PARTNERSHIP.

SUMMARY:

This bill requires the comptroller to convert the state employee health insurance plan, excluding dental, to a self-insured arrangement for benefit periods beginning July 1, 2009 and later. (Pharmacy benefits are already self-insured. ) It authorizes her to merge, on or after January 1, 2010, any health benefit plans she arranges into the self-insured state plan. The bill requires that a company contracting with the state to provide administrative services for the self-insured state plan must charge the state its lowest available rate.

The bill requires the comptroller to offer employee and retiree coverage under the self-insured state plan, to (1) nonstate public employers beginning January 1, 2010; (2) municipal-related and nonprofit employers beginning July 1, 2010; and (3) small employers beginning January 1, 2011. She must do this (1) after the General Assembly receives written consent from the State Employees' Bargaining Agent Coalition (SEBAC) and (2) subject to specified requirements and conditions. Employers that apply and are approved for coverage must agree to benefit periods of at least two years. The bill authorizes the comptroller to adopt regulations related to opening the state plan to these other groups.

The bill requires a health care actuary to (1) review certain employer applications for coverage under the state plan and (2) certify to the comptroller in writing if the group will shift a significantly disproportionate share of its employees' medical risks to the state plan. If so, the bill requires the comptroller to decline the group coverage.

The bill:

1. requires the state to charge employers participating in the state plan the same premium rates the state pays, except it may adjust the rate for a small employer to reflect its group characteristics;

2. allows the comptroller to have state money withheld from a municipality participating in the state plan that fails to pay premiums and, with 10-days' notice, terminate any participating employer group that does not pay its premiums;

3. establishes a “state plan premium account” as a restricted grant fund, into which employer groups' premiums must be deposited and from which claims must be paid;

4. establishes two advisory committees to make recommendations to the Health Care Costs Containment Committee (HCCCC), a state labor and management committee that exists under agreement with SEBAC, about coverage for nonstate public employees and private sector employees;

5. permits two or more municipalities to enter into a written agreement to act as a single entity to obtain health insurance for their employees, subject to specified conditions, including insurance commissioner approval; and

6. excludes from the state insurance law definition of “small employer” a municipality obtaining health care benefits through the self-insured state plan.

The bill eliminates the dependent age limitation for certain children eligible for coverage under the state plan or a state-arranged plan. It conforms these plans to state insurance law that requires coverage for a child up to age 26 who meet certain criteria.

The bill also makes conforming and technical changes.

*House Amendment “A” makes a number of changes to the underlying bill by (1) requiring a health care actuary to determine if an employer applicant would disproportionately shift risk to the state plan, (2) allowing up to 60, rather than up to 30, days for the actuary to determine whether an application poses disproportionate risk shifting, (3) requiring the comptroller to consult with the actuary that will develop standards for assessing an employer's shift in medical risks to the state plan, (4) requiring the HCCCC to approve these standards before they are implemented, (5) authorizing the comptroller to charge a fluctuating reserve fee if she deems it necessary, (6) authorizing the comptroller to deny coverage to an employer if the coverage would affect the state plan's status under federal law, (7) removing the neutral chairperson, who must be an arbitrator, from each of the two advisory committees created, and (8) making technical and conforming changes.

EFFECTIVE DATE: July 1, 2009; except for the provisions about (1) self-insuring the state plan, (2) needing SEBAC's agreement before opening the state plan to other groups, (3) municipalities acting as a single entity to obtain employee health insurance, and (4) covering dependents to age 26 under the state plan, which are effective upon passage.

1 — CONVERT STATE PLAN TO SELF-INSURANCE

By law, the comptroller solicits bids and enters into contracts with insurance carriers to provide health insurance for state employees and retirees. The bill requires the comptroller to begin the process of converting the state employee health insurance plans, including pharmacy benefits but excluding dental benefits, to a self-insured arrangement for benefit periods beginning July 1, 2009 and later. The state began self-insuring pharmacy benefits July 1, 2008.

In 1997, the state and SEBAC reached a 20-year agreement regarding state employee health insurance and retirement benefits. That agreement called for fully-insured health insurance. Last year, the state and SEBAC entered into a memorandum of understanding (MOU) concerning certain health care issues. Among other things, the MOU (1) permitted the state to self-insure pharmacy benefits effective July 1, 2008 and (2) gives the state sole discretion to provide pharmacy benefits in the future on a fully-insured, self-insured, or other appropriate basis. It specifies that such a decision “shall not be appealed or arbitrated in any forum by SEBAC, any constituent union or state employee” (Section 2(A), MOU dated March 20, 2008).

Insurer Administering Self-Insured State Plan

The bill permits any licensed insurer in Connecticut to conduct business with the state with respect to the self-insured plan. Under the bill, the state's contract with an insurer for administrative services must require the insurer to charge the state its lowest rate available.

Merging State-Arranged Plans

The bill permits the comptroller to merge, on or after January 1, 2010, any benefit plans she arranges into the self-insured state plan.

Under the law's authority, she arranges hospital, medical, and surgical insurance for a person who (1) adopts a child from the state foster care system, (2) has been a foster parent for the Department of Children and Families for at least six months, or (3) is a parent in a permanent family residence for at least six months (see BACKGROUND). The law permits her to provide these people coverage through the state employee insurance plan.

The law also authorizes her to arrange coverage under the Municipal Employee Health Insurance Plan (MEHIP), on a fully-insured or risk-pooled (e. g. , self-insured) basis, for (1) employees of municipalities, nonprofit corporations, community action agencies, and small employers; (2) people eligible for a health coverage tax credit under federal law; (3) members of an association of personal care assistants; and (4) people eligible for a retirement benefit from the Connecticut municipal employees' retirement system. The comptroller currently offers a fully-insured MEHIP plan for these groups and a self-insured “enhanced MEHIP” plan for municipalities.

1 — COVERAGE FOR CERTAIN DEPENDENT CHILDREN

The bill eliminates the dependent age limitation for a child eligible for coverage under the state plan or a state-arranged plan, of (1) a state or local police officer, firefighter, or constable with criminal law enforcement duties who dies from injuries received on the job and (2) an adoptive or foster parent or a parent in a permanent family residence for at least six months. Current law ends dependent coverage at age 18 and, for a child of an adoptive or foster child or parent in a permanent family residence that has not finished college, age 21. (State insurance law requires coverage for a child until age 26, subject to certain criteria. )

2 — DEFINITIONS

The bill defines “nonstate public employer” as a municipality or other state political subdivision, including a board of education, quasi-public agency, or public library. A “nonstate public employee” is an employee or elected officer of a nonstate public employer.

A “municipal-related employer” is a property management, food service, or school transportation business that contracts with a nonstate public employer.

A “nonprofit employer” is (1) a nonprofit corporation organized under federal law (26 USC 501) that contracts with the state or receives a portion of its funding from a local, state, or federal government or (2) a tax-exempt organization under federal law (26 USC 501(c)(5)).

A “small employer” is a person, firm, corporation, limited liability company, partnership, or association actively engaged in business or self-employed for at least three consecutive months that, on at least 50% of its working days during the preceding 12 months, employed 50 or fewer employees most of whom are in Connecticut. When counting the number of employees, companies that are affiliates under state law or eligible to file a combined tax return are considered one employer.

3 — OPENING STATE EMPLOYEE PLAN TO OTHERS

The bill requires the comptroller to offer coverage under the self-insured state plan to certain employer groups that submit an application that is approved under the bill's provisions. She must offer coverage to:

1. nonstate public employers beginning January 1, 2010;

2. municipal-related and nonprofit employers beginning July 1, 2010; and

3. small employers beginning January 1, 2011.

The bill specifies that the comptroller does not have to offer coverage from every plan offered under the state plan to every employer.

Open Enrollment

Under the bill, initial open enrollment for nonstate public employers must be for coverage that begins January 1, 2010. After that initial open enrollment for nonstate public employers, subsequent enrollment periods must begin July 1. Open enrollment for municipal-related, nonprofit, and small employers must be for periods beginning January 1 and July 1.

Coverage Term, Renewal, and Withdrawal

In order for an employer group to participate in the self-insured state employee plan, the group must agree to benefit periods lasting at least two years. An employer may apply for renewal before the end of each benefit period.

The bill requires the comptroller to develop procedures for an employer group to (1) apply to participate in the plan, including procedures for nonstate public employers that are self-insured and for those that are fully insured, (2) apply for renewal, and (3) withdraw from participation in the state plan. The procedures must include the terms and conditions under which a group can withdraw before the benefit period ends and on how to obtain a refund for any unearned premiums paid. The procedures must provide that nonstate public employees covered under a collective bargaining agreement must withdraw in accordance with any applicable state collective bargaining laws for municipal employees and teachers.

Application Form

The bill requires the comptroller to create an application for employer groups seeking coverage under the state plan. In the application, the employer must disclose whether it will offer any other plan to the employees offered the state plan.

Status as a Governmental Health Plan Under Federal ERISA

It is unclear whether opening the state plan to private sector employers jeopardizes the plan's status as a “governmental plan” under the federal Employee Retirement Income Security Act (ERISA) (see BACKGROUND). ERISA sets certain fiduciary and disclosure standards for private sector health plans and exempts governmental plans from these requirements.

The bill authorizes the comptroller to deny an employer admission into the state health plan if she determines that granting coverage to the employer will affect the state plan's status as a governmental plan. In addition to denying coverage to an employer if the employer will affect the ERISA exemption status, she must stop accepting applications from municipal-related employers, nonprofit employers and small employers. Presumably, applications from municipal-related, nonprofit, and small employers that are approved, but for which coverage has not yet started, will be admitted to the plan.

The bill requires the comptroller to resume accepting applications from these employers if she determines that granting them coverage will not affect the plan's ERISA status. The bill does not set criteria for these decisions.

The comptroller must publicly announce any decision to stop accepting applications from certain employers or to resume accepting applications.

Taft-Hartley Exception

The bill prohibits an employee from enrolling in the state plan if he or she is covered through his or her employer under a health insurance plan or arrangement issued to, or in accordance with, a trust established through collective bargaining under the federal Labor Management Relations Act (i. e. , the Taft-Hartley Act).

4 — EMPLOYER GROUP PARTICIPATION

Permissive and Mandatory Collective Bargaining for Nonstate Public Employers

The bill makes a nonstate public employer group's initial participation in the state employee plan a permissive subject of collective bargaining. If the union and the employer agree in writing to bargain over the initial participation, then the decision to join the plan is subject to binding arbitration. Authorized union and employer representatives must sign the agreement.

The bill makes a nonstate public employer group's continuation in the state plan a mandatory subject of collective bargaining, subject to binding interest arbitration in accordance with applicable state collective bargaining laws for municipal employees and teachers.

The bill specifies that a board of education and a municipality are considered separate employers and must apply for coverage under the state plan separately.

Application and Decision Process for All Eligible Employers

The bill establishes two different processes for determining whether a nonstate public, municipal-related, nonprofit, or small employer group's application for coverage will be accepted, depending on whether the application covers all or some of the employees.

If the application covers all of an employer's employees, the bill requires the comptroller to accept the application for the next open enrollment period and give the employer written notice of when coverage begins. But if the application covers only some of an employer's employees or it indicates the employer will offer other health plans to employees offered the state health plan, the comptroller must forward the application to a health care actuary within five days of receiving it.

Within 60 days of receiving an application from the comptroller, the actuary must determine whether it will shift a significantly disproportionate part of the employer group's medical risks to the state plan. If so, the actuary must certify this in writing to the comptroller and include the specific reasons for the decision and the information relied upon in making it.

The bill requires the comptroller to consult with a health care actuary that will develop actuarial standards for assessing the shift in medical risks of an employer's employees to the state plan. The comptroller must present the standards to the HCCCC for its review and evaluation before the standards are used. (Presumably the comptroller will contract with an actuary for these services although the bill does not specify this. )

Under the bill, if the comptroller receives a disproportionate risk shift certification from the actuary, she must deny the application and give the employer written notice that includes specific reasons for denial. If the comptroller does not receive such a certification from the actuary, she must accept the application and give the employer written notice of when coverage begins.

Exceptions to Actuarial Review

The bill prohibits the comptroller from forwarding to the actuary an application that proposes to cover fewer than all of its employees because (1) the employer decides not to cover temporary, part-time, or durational employees or (2) individual employees decline coverage.

Regulations Regarding Actuarial Review

The bill authorizes the comptroller to adopt regulations in accordance with law to establish procedures for the actuary's application reviews and the standards used in the reviews.

Self-Insured Plan is Not Unauthorized Insurer or “MEWA”

The bill specifies that the self-insured state employee plan is not an unauthorized insurer or a “multiple employer welfare arrangement” (MEWA) (see BACKGROUND).

5 — RETIREES

Employer groups eligible to cover employees under the state plan also may seek coverage for their retirees. The bill states that it does not diminish any right to retiree health insurance under a collective bargaining agreement or state law.

The bill requires the employer to remit premiums for retirees' coverage to the comptroller in accordance with the bill's provisions. It specifies that a retiree's premiums for coverage under the state plan must be the same as those the state pays, including premiums retired state employees pay.

Application and Decision Process

The application process and decision notice requirements with respect to covering an employer's retirees, including actuarial review if the employer's application proposes to cover fewer than all retirees, is the same as for employees (described in 4 above).

Exceptions to Actuarial Review

The bill prohibits the comptroller from forwarding an application to the actuary when the only retirees an employer excludes from the proposed coverage are those who (1) decline coverage or (2) are Medicare enrollees.

6 — PREMIUMS, FEES, COST SHARING, AND STATE ACCOUNT

Premiums

The bill requires, with an exception for small employers, that the premiums an employer group pays to participate in the state plan must be the same as those the state pays, including any premiums state employees and retirees pay. The bill requires an employer to pay premiums to the comptroller monthly in an amount she determines for providing coverage for the group's employees and retirees, if any.

Small Employer Premiums. It permits the comptroller to adjust the premiums charged a small employer to reflect one or more group characteristics specified in state insurance law. These include:

1. age, but age brackets of fewer than five years are not permitted;

2. gender;

3. geographic area, but one smaller than a county is not permitted;

4. industry, within certain variation limits;

5. group size, within certain variation limits;

6. administrative costs saved by participating in the state plan, as long as they are measurable and realized on items such as marketing, billing, or claims paying functions, but not commissions;

7. savings realized by not paying a profit margin to an insurance carrier by participating in the state plan; and

8. family composition, including employee, employee plus family, employee and spouse, employee and child, employee plus one dependent, and employee plus two or more dependents.

Administrative Fee, Fluctuating Reserves Fee, and Employee Contribution

The bill authorizes the comptroller to charge employers an administrative fee calculated on a per member, per month basis. In addition, the comptroller is authorized to charge a fluctuating reserves fee that she deems necessary to ensure an adequate claims reserve. The bill provides no guidance on how she will determine this.

It permits an employer to require a covered employee or retiree to pay part of the coverage cost, subject to any applicable collective bargaining agreement.

Penalties for Late Payment of Premiums

Interest. If an employer does not pay its premiums by the 10th day after the due date, the bill requires the group to also pay interest, retroactive to the due date, at the prevailing rate, as the comptroller determines.

State Money Withheld. If a nonstate public employer fails to make premium payments, the bill authorizes the comptroller to direct the state treasurer, or any state officer who is the custodian of state money (i. e. , grant, allocation, or appropriation) owed the group, to withhold payment. The money must be withheld until (1) the group pays the comptroller the past due premiums or interest or (2) the treasurer or state officer determines that arrangements, satisfactory to the treasurer, have been made for paying the premiums and interest.

The bill prohibits the treasurer or state officer from withholding state money from the group if doing so impedes receiving any federal grant or aid in connection with it.

Terminate Plan Participation. With respect to a (1) nonstate public employer that is not owed state money or from which money is not withheld and (2) municipal-related, nonprofit, or small employer, the bill allows the comptroller to terminate the group's participation in the state plan for failure to pay premiums if she gives the group at least 10-days notice. The group can avoid termination by paying premiums and interest due in full before the termination effective date.

The bill allows the comptroller to ask the attorney general to bring an action in Hartford Superior Court to recover any premiums and interest owed or seek equitable relief from a terminated group.

State Plan Premium Account

The bill establishes a separate, nonlapsing State Plan Premium Account within the grants and restricted accounts fund. The comptroller, to whom employer groups remit premiums, must (1) deposit the premiums collected into this account and (2) administer the account to pay claims.

7 — ADVISORY COMMITTEES

Nonstate Public Health Care Advisory Committee

The bill establishes a 12-member Nonstate Public Health Care Advisory Committee, which must make recommendations to the HCCCC regarding health care coverage for nonstate public employees.

The committee consists of three representatives each of (1) municipal employers, (2) municipal employees, (3) board of education employers, and (4) board of education employees. Of the three representatives in each category, one must represent a town with (1) 100,000 or more people, (2) at least 20,000 but under 100,000 people, and (3) under 20,000 people. The comptroller appoints the committee members. The bill does not indicate who serves as chair or how the chair is selected.

Private Sector Health Care Advisory Committee

The bill establishes a 12-member Private Sector Health Care Advisory Committee, which must make recommendations to the HCCCC regarding health care coverage for private sector employees.

The committee consists of two representatives each of (1) municipal-related employers, (2) employees of municipal-related employers, (3) nonprofit employers, (4) employees of nonprofit employers, (5) small employers, and (6) employees of small employers. The comptroller appoints the committee members. The bill does not indicate who serves as chair or how the chair is selected.

8 — REGULATIONS

The bill authorizes the comptroller to adopt regulations in accordance with the law to implement and administer the state employee plan and the provisions regarding opening the plan to other groups.

9 — SEBAC CONSENT

The bill prohibits the comptroller from opening the state employee plan to the specified employer groups until SEBAC provides the House and Senate clerks written consent to incorporate the bill's terms into its collective bargaining agreement. (Presumably, SEBAC's written consent goes to the clerks for legislative action. By law, if the legislature does not take action within 30 days, the agreement is deemed approved (CGS 5-278(b). )

10 — JOINT MUNICIPAL HEALTH INSURANCE PURCHASES

The bill permits two or more municipalities to enter into a written agreement to act as a single entity to obtain health insurance for their employees. It specifies that such a group is not a fictitious group.

The bill requires the insurance commissioner to approve any such group, which must be fully insured (i. e. , not self-insured or using alternative financing methods). The municipalities' agreement must establish:

1. the group's membership,

2. the insurance coverage duration,

3. premium payment requirements,

4. procedures for a municipality to withdraw from the agreement, and

5. procedures for terminating the insurance coverage.

Related Law

By law, municipalities may jointly perform any function that each can perform separately under any law or special act, charter, or home rule ordinance (CGS 7-148cc). Each participating municipality must approve a joint agreement in the same manner as it approves an ordinance or, if it does not approve ordinances, the budget. Any such agreement must establish a withdrawal process and require the body that approved it to review the agreement at least once every five years.

11 — MUNICIPAL GROUP IS NOT A SMALL EMPLOYER

The bill excludes a municipality obtaining health care benefits through the self-insured state plan from the state insurance law definition of “small employer.

The law and the bill provide the same definition of “small employer” (see 2 -- Definitions).

BACKGROUND

Permanent Family Residence

The bill does not define “a parent in a permanent family residence. ” However, the child welfare statutes define “permanent family residence” as a child care facility the Department of Children and Families licenses, subject to specified criteria, to provide permanent care to handicapped children (CGS 17a-154). The law requires parents who intend to provide permanent foster care to a handicapped child to occupy, as their principal residence, a residential one- or two-family home that either the parents or a nonstock corporation that seeks to protect handicapped children owns or leases. At least one parent must, as his or her principal occupation, provide direct and regular care to the foster children placed in the residence.

ERISA

The federal Employee Retirement Income Security Act (ERISA, U. S. Code Title 29) governs certain activities of most private employers who maintain employee welfare benefit plans and preempts many state laws in this area.

ERISA-covered welfare benefit plans must meet a wide range of (1) fiduciary, reporting, and disclosure requirements and (2) benefit requirements (including benefits required under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), Health Insurance Portability and Accountability Act (HIPAA), Mental Health Parity Act, Newborns' and Mothers' Health Protection Act, and Women's Health and Cancer Rights Act. )

ERISA does not apply to a “governmental plan,” which it defines as “a plan established or maintained for its employees by the government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. ” If the state plan permits private sector employers to join, it may lose its status as a governmental plan, thereby subjecting it to the full requirements of ERISA, including federal oversight.

U. S. DOL Opinion Concerning ERISA Applicability. In 1999, the California School and Legal College Services of the Sonoma County Office of Education (the office) requested an advisory opinion from the U. S. Department of Labor (DOL) concerning the applicability of ERISA. Specifically, it asked if allowing 28 private sector employees to participate in the California Public Employees' Retirement System (CalPERS) would adversely affect CalPERS' status as a “governmental plan” within the meaning of ERISA.

In its opinion, DOL stated that “governmental plan status is not affected by participation of a de minimis number of private sector employees. However, if a benefit arrangement is extended to cover more than a de minimis number of private sector employees, the Department may not consider it a governmental plan” under ERISA (U. S. DOL Advisory Opinion 1999-10A, July 26, 1999). DOL further noted that its opinion related solely to the application of ERISA's provisions and “is not determinative of any particular tax treatment under the Internal Revenue Code. ” It advised the office to contact the IRS to clarify tax treatment of the proposed arrangement.

Multiple Employer Welfare Arrangement (MEWA)

An employer that self-insures a health benefit plan for its employees is generally not subject to state insurance laws because of federal pre-emption under ERISA. But a multiple employer plan may not have the same result.

ERISA defines “multiple employer welfare arrangement” as an employee welfare benefit plan, or any other arrangement that is established or maintained for the purpose of offering or providing benefits to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that it does not include a plan or arrangement established or maintained by a collective bargaining agreement, rural electrical cooperative, or rural telephone cooperative association (29 U. S. C. 1002(40)).

Congress amended ERISA in 1983 to provide an exception to ERISA's preemption provisions for the regulation of MEWAs under state insurance laws (P. L. 97-473). As a result, if an ERISA-covered employee welfare benefit plan is a MEWA, states may apply and enforce state insurance laws with respect to it.

COMMITTEE ACTION

Insurance and Real Estate Committee

Joint Favorable Substitute

Yea

14

Nay

5

(03/10/2009)

Planning and Development Committee

Joint Favorable

Yea

13

Nay

5

(04/06/2009)

Appropriations Committee

Joint Favorable

Yea

39

Nay

15

(04/15/2009)

Public Health Committee

Joint Favorable

Yea

23

Nay

7

(05/12/2009)