AN ACT CONCERNING THE LICENSING AND REGULATION OF THIRD-PARTY ADMINISTRATORS.

AN ACT CONCERNING THE LICENSING AND REGULATION OF THIRD-PARTY ADMINISTRATORS.

This bill establishes a licensing system for third-party administrators (TPA), requiring them to submit an application to the insurance commissioner including organizational documents, internal affairs documents, biographical affidavits, audited financial statements, a statement describing their business plan, and other pertinent information. It requires licensees to maintain a surety bond, submit annual financial reports, and pay application and annual fees. It authorizes the commissioner to collect $ 500 for each license issued, $ 350 for each license renewal, and $ 100 for each annual report filed.

The bill requires a TPA to enter a written agreement with a insurer before performing duties on the insurer's behalf and hold certain amounts in a fiduciary capacity. It prohibits a TPA from entering into an agreement that would make the TPA's commissions, fees, or charges contingent on savings in the adjustment, settlement, or payment of losses.

The bill requires a TPA to maintain books and records of transactions made on the insurer's behalf and make them available to the insurer for inspection for at least five years after creation. The insurer owns any record the TPA generates pertaining to the insurer.

The bill authorizes the insurance commissioner to suspend or revoke a TPA's license, or issue a cease and desist order if the TPA does not have a license, after notice and hearing. It also authorizes him to adopt implementing regulations.

The bill requires insurers, health care centers, hospital service corporations, medical service corporations, or other entities delivering, issuing, renewing, amending, or continuing group insurance policies to disclose, upon request, utilization data, claims and premiums paid, the number of insureds.

*House Amendment “A” (1) makes changes to definitions, (2) eliminates some obligations with respect to the written agreement, and (3) eliminates certain fiduciary duties.

*House Amendment “B” requires disclosure of utilization data, claims and premiums paid, the number of insureds by insurers, health care centers, hospital service corporations, medical service corporations, or other entities.

EFFECTIVE DATE: October 1, 2009, except the provisions requiring disclosure of utilization data, claims and premiums paid, the number of insureds by insurers, health care centers, hospital service corporations, medical service corporations, or other entities, which are effective July 1, 2009.

The bill defines a TPA as a person who, for certain insured or self-insured programs, directly or indirectly (1) underwrites, (2) collects charges or premiums, or (3) adjust or settles claims on Connecticut residents.

1. an employer administering its employee benefit plan or that of an affiliated employer under common management and control;

2. a union administering a benefit plan on its members' behalf;

3. an insurer licensed in Connecticut or acting as an authorized insurer with respect to insurance lawfully issued to cover a Connecticut resident, and its sales representatives;

4. an insurance producer licensed to sell life, annuity, or health coverage in this state, whose activities are limited exclusively to the sale of insurance;

5. a creditor acting on its debtors' behalf with respect to insurance covering a debt between the creditor and its debtors;

6. a trust and its trustees and agents acting pursuant to a trust established under federal law which restricts financial transactions with labor organizations;

7. A tax-exempt trust (see BACKGROUND) and its trustees, or a custodian and the custodian's agents acting pursuant to an account meeting federal requirements for custodial accounts and contracts treated as qualified trusts;

8. A mortgage lender, credit union, or financial institution subject to supervision or examination by federal or state banking authorities, when collecting or remitting premiums to licensed insurance producers, limited lines producers, or authorized insurers in connection with loan payments;

9. a credit card company advancing or collecting insurance premiums or charges from its credit card holders who have authorized collection;

10. an attorney adjusting or settling claims in the normal course of his or her practice or employment who does not collect charges or premiums in connection with life, annuity, or health coverage;

11. an adjuster licensed in Connecticut or not subject to state license requirements whose activities are limited to adjusting claims;

12. a for-profit or nonprofit business entity, defined as a corporation, a limited liability company, or similar form of business organization affiliated with a licensed insurer that only acts as a TPA for the direct and assumed insurance business of the affiliated insurer;

13. an insurance producer who is licensed in this state and acting as a managing general agent, (the law defines a “managing general agent” as any person, firm, association or corporation who manages all or part of the insurance business of an insurer, who, with or without the authority, produces, directly or indirectly, and underwrites an amount of gross direct written premium which is equal to or more than five per cent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following activities related to the business produced: (1) adjusts or pays claims in excess of an amount determined by the commissioner or (2) negotiates reinsurance on behalf of the insurer. Notwithstanding the above, the following persons shall not be considered as managing general agents for the purposes of sections 38a-90 to 38a-90h, inclusive: (1) Any employee of the insurer; (2) a United States manager of the United States branch of an alien insurer, as defined in section 38a-1; (3) an underwriting manager which, pursuant to contract, manages all or part of the insurance operations of the insurer, is under common control with the insurer, subject to the Holding Company Regulatory Act, and whose compensation is not based on the volume of premiums written; and (4) the attorney-in-fact authorized by and acting for the subscribers of a reciprocal insurer or inter insurance exchange under powers of attorney), whose activities are limited exclusively to those;

14. a business entity that is affiliated with an insurer licensed in this state and that undertakes activities as a third-party administrator only for the direct and assumed insurance business of the affiliated insurer;

15. a consortium of federally qualified health centers funded by the state, providing services only to the recipients of programs administered by the Department of Social Services;

16. a pharmacy benefits manager registered with the insurance commissioner (the law defines a “pharmacy benefits manager” as any person who administers the prescription drug, prescription device, pharmacist services, or prescription drug and device and pharmacist services portion of a health benefit plan on behalf of plan sponsors, such as self-insured employers, insurance companies, labor unions, and health care centers (i. e. ; HMO));

17. an entity providing administrative services to the Health Reinsurance Association; and

18. a nonprofit association or one of its direct subsidiaries that provides access to insurance as part of the benefits or services such association or subsidiary makes available to its members.

The bill defines “underwriting” as (1) accepting applications from employers or individuals for coverage in accordance with the written rules of the insurer, association, trust, or self-funded plan and (2) the overall planning and coordination of a benefits program.

The bill defines “adjuster” as a person who investigates or settles loss claims, not including an insurer's employee who investigates or settles claims incurred under insurance contracts the insurer or an affiliated insurer writes.

The bill defines an “insurer” as a person or people doing insurance business, including a captive insurer, a licensed insurance company, a medical or hospital service corporation, an HMO, or a consumer dental plan, that provides employee welfare benefits on a self-funded basis. It excludes a fraternal benefit society.

The bill prohibits a person from offering to act as, or hold himself out to be, a TPA in Connecticut unless he or she is licensed or exempt from licensure under the bill. This requirement does not apply to a TPA's employee to the extent that his or her activities are under the TPA's supervision and control. The authority the bill gives to a TPA does not exempt him or her from the licensing requirements regarding public adjusters, casualty adjusters, motor vehicle physical damage appraisers, certified insurance consultants, surplus lines brokers, or any other insurance-related occupation for which the commissioner deems a license necessary.

An insurer that underwrites; collects charges, collateral, or premiums from; or adjusts or settles claims, except for its policyholders, subscribers, and certificate holders, is subject to the bill's requirements. These insurers will be subject to the provisions of the Connecticut Unfair Insurance Practices Act (CUIPA), respond to all complaint inquiries received from the Insurance Department within 10 days of receipt of the complaint, and obtain a customer's prior written consent for advertising mentioning the customer.

No TPA may act without a written agreement with the insurer. The agreement must be kept as part of the official records of both the TPA and the insurer until five years after the contract ends. The agreement must contain all of the following provisions, except to the extent they do not apply to the functions the TPA performs.

The written agreement must include (1) a statement of activities that the TPA must perform on the insurer's behalf (or anyone else utilizing the services of the TPA); (2) the lines, classes, or types of insurance the TPA is authorized to administer; (3) a provision requiring the TPA to render an accounting, on an agreed frequency, detailing all transactions performed by the TPA pertaining to the businesses underwritten by the insurer; (4) the procedures for any withdrawals to be made, including remittance, deposits, transfer to and deposits in a claims-paying account, payment to a group policyholder, payment to the TPA for commissions, fees, or charges, and remittance of return premiums; (5) procedures and requirements for disclosures; and (6) termination provisions and dispute resolution procedure.

A TPA may terminate the written agreement for cause as provided in the agreement, and the insurer may also suspend the underwriting authority of the TPA during the pendency of any dispute regarding the cause for termination of the agreement. If there is a dispute between the TPA and the insurer regarding the fulfillment of a lawful obligation with respect to a policy, certificate, or claim subject to the written agreement, the insurer must fulfill the obligation.

The bill specifies that any insurance premiums or charges paid or collateral furnished to a TPA by an insured party or on its behalf are deemed to have been received by the insurer. The return of collateral or the payment of “return premiums” or claims the insurer forwards to the TPA are not deemed to have been paid to the insured party or claimant until the insured party or claimant receives them. The bill specifies that it does not limit an insurer's rights against the TPA resulting from the TPA's failure to pay the insurer, insured parties, or claimants.

The bill requires a TPA to maintain and make available to a insurer with which it contracts complete books and records of all transactions performed on the insurer's behalf. The books and records must be maintained (1) in accordance with prudent standards of insurance recordkeeping and (2) for at least five years after they were created.

Under the bill, the insurer owns any records the TPA generates pertaining to the insurer, except that the TPA retains the right to access the books and records to fulfill its contractual obligations to insured parties, claimants, and the insurer.

If the insurer or TPA cancels the agreement, the TPA may, by written agreement with the insurer, transfer all records to a new TPA instead of retaining them for five years. The new TPA must acknowledge, in writing, that it is responsible for retaining these records.

If a written agreement is terminated, the third-party administrator may, by a separate written agreement with the insurer or other person utilizing the services of the third-party administrator, transfer all books and records to a new third-party administrator. The new third-party administrator must acknowledge to the insurer or other person utilizing the services of the new third-party administrator, in writing, that the new third-party administrator shall be responsible for retaining the books and records of the prior third-party administrator.

An insurer that is affiliated with a a for-profit or nonprofit business entity, defined as a corporation, a limited liability company, or similar form of business organization affiliated with a licensed insurer that only acts as a TPA for the direct and assumed insurance business of the affiliated insurer is responsible for the acts of that business entity to the extent of the business entity's activities as a TPA for such insurer. The insurer is responsible for furnishing the books and records of all transactions performed on behalf of the insurer to the commissioner upon the commissioner's request.

The commissioner must have access to exam, audit and inspect books and records maintained by a TPA. Any documents, materials or other information in the possession or control of the commissioner that are furnished by a TPA, insurer, insurance producer or employee or agent acting on behalf of the TPA, insurer or insurance producer, or obtained by the commissioner in an investigation are (1) confidential by law and privileged, (2) not subject to disclosure under the Freedom of Information Act, (3) not subject to subpoena, and (4) not subject to discovery or admissible in evidence in any private civil action. The commissioner may use these documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner's official duties.

Neither the commissioner nor any person who receives documents, materials or other information may testify or be required to testify in any private civil action concerning such documents, materials or information.

The commissioner may (1) share and receive documents, materials or materials or other information deemed confidential and privileged with other state, federal and international regulatory agencies, the National Association of Insurance Commissioners (NAIC) or its affiliates or subsidiaries and state, federal and international law enforcement authorities, provided the recipient of such documents, materials or other information agrees to maintain the confidentiality and privileged status of such documents, materials or other information and (2) enter into agreements governing the sharing and use of information consistent with this subsection.

Disclosure to the commissioner or sharing documents, material, or other information is not a waiver of any applicable privilege or claim of confidentiality. The bill does not prohibit the commissioner from releasing final, adjudicated actions, including for cause terminations of licenses issued to third-party administrators, to a database or other clearinghouse service maintained by the NAIC or its affiliates or subsidiaries.

The bill requires a TPA who advertises on an insurer's or professional employer organization's behalf to use only advertising that the insurer approved, in writing, before its use. A TPA that mentions any customer in its advertising must obtain the customer's prior written consent.

Each insurer or other person utilizing the services of a third-party administrator is responsible for determining the benefits, premium rates, underwriting criteria, and claims payment procedures for the lines, classes or types of insurance such third-party administrator is authorized to administer, and for securing reinsurance. The insurer or other person utilizing the services of a TPA must provide to the TPA, in writing, procedures pertaining to administration of benefits, premium rates, underwriting criteria, and claims payment. Each insurer or other person utilizing the services of a TPA is responsible for the competent administration of the insurer's or other person's benefit and service programs.

If the TPA administers benefits for more than 100 certificate holders on behalf of an insurer or other person utilizing the services of a TPA, the insurer or other person must, at least semiannually, conduct a review of the operations of the TPA. At least one such review shall be an on-site audit of the operations of the TPA.

The bill requires that funds be (1) immediately returned to the person entitled to them or (2) deposited promptly in a fiduciary account the TPA establishes and maintains in a federally insured financial institution. The written agreement between the TPA and the insurer must provide for the TPA to render a periodic accounting to the insurer, detailing all transactions the TPA performed pertaining to the insurer's business.

The bill requires the TPA to keep clear records of deposits and withdrawals and copies of all records of any fiduciary account it maintained or controlled on a insurer's behalf and, at a insurer's request, give the insurer copies of the deposit and withdrawal records. If funds deposited in a fiduciary account have been collected on behalf of, or for more than one, insurer, or for the payment of claims associated with more than one policy, the TPA must keep records clearly recording the account deposits and withdrawals on each insurer's behalf relating to each policyholder.

The bill prohibits a TPA from paying any claim from its own funds or by withdrawing funds from a fiduciary account in which premiums or charges are deposited. It requires that withdrawals from such an account be made as provided in the TPA's written agreement and only for the following purposes:

The TPA must pay claims from funds collected for or on behalf of a insurer only as the insurer authorizes. Payments from an account in which such funds are deposited and that the TPA maintains and controls must be made only to:

The bill prohibits a TPA from entering into an agreement or understanding with a insurer that makes or has the effect of making the TPA's commissions, fees, or charges contingent upon savings effected in the adjustment, settlement, or payment of losses covered by the insurer's obligations. The bill specifies that this prohibition does not prevent a TPA from receiving performance-based compensation, as defined in the written agreement, for providing (1) hospital or other auditing services or (2) providing managed care or related services.

A insurer may not enter into an agreement with a TPA that violates this prohibition. The bill specifies that this prohibition does not prevent a TPA's compensation from being based on premiums or charges collected or the number of claims paid or processed.

The bill requires that when a TPA's services are used, the TPA must provide a written, insurer-approved notice to covered individuals advising them of its identity and the relationship among the TPA, policyholder, and insurer.

The bill requires a TPA, when it collects funds, to inform the insured person of the reasons for the fund. It must show these charges separately from any premium. Additional charges are prohibited to the extent the insurer has paid for the services.

The bill requires the TPA to disclose to the insurer all charges, fees, and commissions that it receives arising from services it provides the insurer, including any fees or commissions paid by insurers providing reinsurance or stop loss coverage.

The bill requires a TPA to deliver promptly written communications on the insurer's behalf. The TPA must deliver, promptly after receiving instructions from the insurer, any policies, certificates, booklets, termination notices, or other written communications the insurer delivers to the TPA for delivery to insured parties or covered individuals.

The bill requires a TPA applying for a license to (1) submit a completed application to the commissioner (by using the current version of the “National Association of Insurance Commissioners' (NAIC) Uniform Application for Third Party Administrators”) and (2) pay the required fee.

The application must include or be accompanied by the following information and documents:

1. the applicant's basic organizational documents, including any articles of incorporation or association; partnership, trust, or shareholder agreement; trade name certificate; and other applicable documents;

2. the bylaws, rules, regulations, or similar documents regulating the applicant's internal affairs;

3. an NAIC biographical affidavit for the people responsible for the applicant's affairs, including (a) all members of the board of directors, board of trustees, executive committee, or other governing board or committee; (b) the principal officers in the case of a corporation, or the partners or members in the case of a partnership, association, or limited liability company; (c) any shareholder or member directly or indirectly holding 10% or more of its stock, securities, or interest; and (d) any other person who exercises control or influence over the applicant's affairs;

4. audited annual financial statements or reports for the two most recent fiscal years that prove the applicant has a positive net worth (see below);

5. a statement describing the business plan, which must include (a) information on staffing levels and activities proposed in Connecticut and nationwide and (b) provide details setting forth the applicant's capability for providing a sufficient number of experienced and qualified personnel for claims processing, recordkeeping, and underwriting; and

6. other pertinent information the commissioner may require.

If the applicant has been in existence for less than two fiscal years, the uniform application must include financial statements or reports, certified by an officer of the applicant and prepared in accordance with generally accepted accounting principles, for any completed fiscal years and for any month during the current fiscal year for which such financial statements or reports have been completed. An audited annual financial statement or report prepared on a consolidated basis must include a “columnar consolidating or combining worksheet” that must be filed with the report and include the following:

The bill requires a TPA applying for a license to make available for the commissioner's inspection copies of all contracts with insurers or others using the TPA services.

A TPA applying for licensure must produce its accounts, records, and files for examination and make its officers available to give information concerning its affairs, as often as the commissioner reasonably requires.

Any license issued to a TPA is in force until September 30^th in each year, unless revoked or suspended before that date. The commissioner, at his discretion, may renew a TPA license on payment of the required fee without having the TPA reapply.

A TPA licensed or applying for licensure must immediately notify the commissioner of any material change in its ownership, control, or other fact or circumstance affecting its qualification for a license.

A TPA licensed or applying for a license that administers or will administer self-insured government or church plans must maintain a surety bond, for use by the commissioner and the insurance regulatory authority of any additional state in which the TPA is authorized to conduct business, to cover people who have remitted premiums, insurance charges, or other money to the TPA in the course of the TPA's business, in an amount equal to the greater of: (1) $ 100,000 or (2) 10% of the aggregate total amount of self-funded coverage under government or church plans handled in Connecticut and all additional states in which the TPA is authorized to conduct business.

A person who is not required to be licensed as a TPA who directly or indirectly underwrites, collects charges or premiums from, or adjusts or settles claims for, Connecticut residents, only in connection with life, annuity, or health coverage a self-funded plan provides, other than government or church plans, must annually register with the commissioner by October 1 on a form he designates.

Each licensed TPA must file an annual report with the commissioner for the preceding calendar year by July 1 each year or within an extension of time the commissioner may grant for good cause. The annual report must include a financial statement audited by an independent certified public accountant. The bill requires that an audited annual financial statement or report prepared on a consolidated basis must include a “columnar consolidating or combining worksheet” that must be filed with the report and include the following:

The report must be in the form, and contain the information as, the commissioner prescribes. At least two officers of the TPA must verify it.

The annual report must include the complete names and addresses of all insurers with which the TPA had agreements during the preceding fiscal year. The TPA must pay the required filing fee when the annual report is filed.

The bill requires the commissioner to review each TPA's most recently filed annual report on or before September 1 of each year. After its review, the commissioner must:

The bill requires the commissioner to suspend or revoke a TPA's license, or issue a cease and desist order if the TPA does not have a license, after notice and hearing, if he finds that the TPA:

The bill authorizes the commissioner to (1) suspend or revoke a TPA's license, or issue a cease and desist order if the TPA does not have a license, after notice and hearing, (2) impose other penalties the law allows, (3) impose a fine of $ 50,000 for each violation, or (4) any combination of these, if he finds that the TPA is not exempt from the bill's provisions and:

1. has violated any (a) lawful rule or order of the commissioner or (b) provision of applicable Connecticut insurance laws;

2. has refused to give information with respect to its affairs;

3. has refused to perform any legal obligation with respect to an examination the commissioner requires; or

4. has refused to be examined or produce its accounts, records, and files, or any individual responsible for its affairs for examination, including (a) members of the board of directors, board of trustees, executive committee, or other governing board or committee; (b) the principal officers in the case of a corporation or the partners or members in the case of a partnership, association, or limited liability company; (c) any 10% shareholder or member; and (d) any other person who exercises control or influence over its affairs;

5. has, without just cause, refused to pay proper claims or perform services arising under its contracts or caused covered individuals to accept less than the amount due or employ attorneys or bring suit against the TPA to secure full payment or settlement of the claims;

6. is required to have a license and fails at any time to meet any license qualification, unless the commissioner issued a license with knowledge of the ground for disqualification and had the authority to waive it;

7. has a person responsible for its affairs, including (a) members of the board of directors, board of trustees, executive committee, or other governing board or committee; (b) the principal officers in the case of a corporation or the partners or members in the case of a partnership, association, or limited liability company; (c) any 10% shareholder or member; and (d) any other person who exercises control or influence over its affairs, who has been convicted of, or pled guilty or no contest to, a felony, without regard to whether adjudication was withheld;

8. is under suspension or revocation in another state; or

9. has failed to file an annual report in a timely manner.

The commissioner may, without advance notice and before a hearing, issue an order immediately suspending a TPA's license, or a cease and desist order if the TPA does not have a license, if he finds that:

When the commissioner issues an order suspending a license, or issues a cease and desist order, he must serve notice to the TPA that it may request a hearing within 10 business days after receiving the order. If a hearing is requested, the commissioner must schedule a hearing within 10 business days after receiving the request. If a hearing is not requested and the commissioner does not choose to hold one, the order remains in effect until the commissioner modifies or vacates it.

The bill authorizes the insurance commissioner to adopt implementing regulations.

The bill authorizes the commissioner, as often as he deems it expedient, to examine the market conduct of any insurance company, health care center, third-party administrator, or fraternal benefit society doing business in Connecticut.

The bill requires each insurer, health care center, hospital service corporation, medical service corporation or other entity delivering, issuing, renewing, amending, or continuing any group health insurance policy in Connecticut that covers (1) basic hospital expenses; (2) basic medical-surgical expenses; (3) major medical expenses; and (4) hospital or medical services, including coverage under an HMO plan to disclose to certain employers the following information in writing, via email or a transfer protocol site, or a secured website of portal:

Covered employers include any town, city, borough, school district, taxing district or fire district employing more than 50 employees. “Claims paid” means the amounts paid for the covered employees of an employer or governmental entity by an insurer, health care center, hospital service corporation, medical service corporation or other entity for medical services and supplies and for prescriptions filled, excluding expenses for stop-loss coverage, reinsurance, enrollee educational programs or other cost containment programs or features, administrative costs or profit.

Employers must request the information, which can be provided for the most recent 36-month period or for the entire period of coverage, whichever is shorter, ending not more than 60 days prior to the date of the request.

An insurer, health care center, hospital service corporation, medical service corporation or other entity is not be required to provide such information to the employer more than once in any twelve-month period.

Each insurer, health care center, hospital service corporation, medical service corporation or other entity that is requested by the employer for the information must include only health information that has had identifiers removed, as set forth in 45 CFR 164. 514, and is not individually identifiable, as defined in 45 CFR 160. 103, and is permitted to be disclosed under the Health Insurance Portability and Accountability Act of 1996, P. L. 104-191.

Any information submitted to an employer in accordance with this section shall be confidential by law and privileged and shall not be (1) subject to disclosure under the Connecticut Freedom of Information Act, subpoena, or discovery or (2) admissible in evidence in any private civil action, except that the exclusive bargaining representative of the employees of such employer must be entitled to receive claim information from such employer in order to fulfill its duties to bargain collectively.

Employers may only use the information to obtain competitive quotes for group health insurance or to promote wellness initiatives for their employees.

Section 501 of the Internal Revenue Code establishes categories of tax-exempt entities, including charities; fraternal benevolent societies; certain retirement funds; recreational clubs; state-sponsored health coverage organizations; civic leagues; religious and apostolic organizations; and qualified pension, profit-sharing, and stock bonus plans.