OLR Bill Analysis
AN ACT CONCERNING THE CONNECTICUT LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION.
This bill makes several substantive changes to the Connecticut Life and Health Insurance Guaranty Association (CLHIGA), which pays the valid claims of policyholders and certain other claimants when a member insurer defaults, generally up to a statutory maximum of $500,000 per individual and $5 million per plan sponsor for certain unallocated insurance contracts. These claims are paid through assessments on member insurers. The bill:
1. requires health care centers (i.e., HMOs) to participate in the association, which (a) broadens the scope of members who are assessed for an impairment or insolvency and (b) requires CLHIGA to cover HMO members and enrollees for impairment or insolvency;
2. equalizes the assessments for long-term care (LTC) insurer insolvencies between (a) accident and health insurers and (b) life and annuity insurers;
3. excludes from coverage Medicaid benefits and certain financial contracts and structured settlements;
4. increases the potential size of the association's board of directors;
5. includes government entities as people who can be protected under CLHIGA; and
6. makes several other related changes.
The bill also makes numerous minor, technical, and conforming changes.
EFFECTIVE DATE: July 1, 2018, with certain coverage and assessment provisions applicable to impairments and insolvencies occurring on or after that date.
§ 2 — NEW COVERAGE EXCLUSIONS
The bill excludes from CLHIGA coverage:
1. individuals who acquired rights to receive payment through structured settlement factoring transactions (e.g., an exchange of annuity rights for a lump sum payment), regardless of the transaction's effective date;
2. structured settlement annuity benefits transferred in a factoring transaction, regardless of the transaction's effective date;
3. any portion of policies or contracts for which federal or state law preempts guaranty association assessments; and
4. Medicaid benefits
§§ 3 & 4 — HEALTH CARE CENTERS
By law, CLHIGA generally covers policies and contracts that are issued by its members and meet certain other conditions. The bill (1) requires HMOs to be member insurers as a condition of conducting health care center business in the state and (2) expands CLHIGA coverage to HMO members and enrollees. Under the bill, health insurance covered under CLHIGA includes a health care center subscriber contract or certificate. It also makes conforming changes throughout the statutes.
§ 5 — BOARD OF DIRECTORS
The bill increases the (1) minimum number of board members from 5 to 7 and (2) maximum number of board members from 9 to 11. In practice, there are 9 member insurers on the board, excluding the insurance commissioner who serves as non-voting ex-officio member.
§ 6 — ALTERNATE POLICIES FOR INSOLVENT INSURER GROUP POLICIES
By law, an insolvent insurer's policies terminate no more than 45 days for group policies or one year for nongroup policies after the insurer is ordered liquidated. Under current law, CLHIGA must then (1) guarantee, assume, or reinsure an insolvent insurer's policies and contracts or otherwise assure payment of its obligations or (2) issue an alternative policy or otherwise provide the benefits and coverages that would have been payable under the policies or contracts while maintaining the same premium. The bill allows CLHIGA to fulfill this requirement by reissuing the insolvent insurer's policies. It also appears to eliminate the requirement that alternative coverage be offered at the same premium.
For certain group policies and contracts issued by the insolvent insurer that gave an insured the right to convert to individual coverage or continue a policy or annuity until a specific time during which the insurer was prohibited from making unilateral changes, the bill allows CLHIGA to offer alternative coverage at actuarially justified rates (presumably instead of the premium rate previously charged to the insured by the insolvent insurer).
Under the bill, alternative policies adopted by the association need the insurance commissioner's approval. Under current law, they require approval from the receivership court and the insurance commissioner of the insurer's domiciled state.
The bill makes a similar change to reissued policies. Under the bill, if CLHIGA reissues terminated coverage at a new premium rate, the new rate must be (1) actuarially justified in relation to the amount of insurance or coverage provided and (2) approved by the insurance commissioner, instead of the receivership court and the insurance commissioner of the insured's domiciled state.
The bill also allows CLHIGA to reissue an impaired insurer's policies.
The bill also allows the association to, unless otherwise prohibited by law and for any coverage it provides, file for an actuarially justified rate increase as long as the increase is in accordance with the policy's or contract's terms and conditions.
§ 6 — RIGHTS UNDER REINSURANCE
By law, CLHIGA may succeed to any rights and obligations of an insolvent or impaired member insurer that accrue on or after the date CLHIGA becomes responsible for its obligations. Under the bill, the association has no rights or obligations under a reinsurance contract if it does not elect to assume such contract's obligations within a year. If the association transfers its obligations to an assuming reinsurer, it must notify the affected reinsurer at least 30 days before the transfer.
By law, CLHIGA's obligations to an impaired or insolvent insurer cease after a reinsurance agreement is ceded to an assuming insurer. The bill eliminates a provision that exempts CLHIGA from existing reinsurance requirements if it expressly determines, in writing, that it will not transfer its obligations to an assuming insurer. Under current law, these provisions supersede any state law or reinsurance agreement that requires a payment on reinsurance proceeds due to losses or events occurring after CLHIGA assumes an insolvent insurer's obligation. The bill instead supersedes any such law or agreement requiring payment after a liquidation order.
The bill also specifies that provisions relating to CLHIGA powers and obligations do not (1) limit or affect the association's rights as a creditor of an estate or (2) apply to property and casualty risks.
§ 7 — EQUALIZED ASSESSMENTS FOR LONG TERM CARE INSURANCE
By law, CLHIGA may assess its members for (1) administrative costs and general expenses (“Class A” assessments) and (2) costs necessary to carry out the association's duties to guarantee an impaired or insolvent insurer's obligations (“Class B” assessments). By law, Class B assessments are allocated among the association's two accounts: the health insurance account (which the bill renames the “health account”) and the life insurance account. Assessments on individual insurers are generally proportional to the premiums they receive in the relevant lines of insurance.
The bill requires Class B assessments related to LTC insurance to be allocated (1) separately from other Class B assessments and (2) evenly between (a) accident and health member insurers and (b) life and annuity member insurers. The bill requires the allocation to be according to a methodology included in the plan of operation and approved by the insurance commissioner.
Interest on Returned Assessments (§ 7)
By law, member insurers may protest an assessment, and if successful, receive a refund on any erroneously paid amounts. The bill requires CLHIGA to pay interest on returned assessments at the rate it was earned to any insurer that successfully appealed, instead of any member that protests, as currently required.
Recovery of Assessments (§ 8)
Current law prohibits a stockholder distribution of an impaired insurer until and unless CLHIGA recoups the total amount of any assessment. The bill instead prohibits such distributions until all of CLHIGA's valid claims have been recovered with interest. The bill also extends this prohibition to insolvent, not just impaired, insurers.
The bill also applies, to insolvent rather than impaired insurers, provisions on (1) distributing ownership rights during liquidation, rehabilitation, or conservation proceedings and (2) the maximum amount of distributions recoverable by an appointed receiver. By law, an impaired insurer is an insurer placed under a rehabilitation or conservation order, and an insolvent insurer is an insurer placed under a liquidation order.
Interest Rate Limitations and LTC Riders (§ 2)
The law limits CLHIGA coverage in certain circumstances, including when a portion of a policy or contract included an interest rate that exceeds statutory limits. The bill excludes any health insurance or LTC insurance policies from this coverage limitation.
The bill also requires CLHIGA, when determining coverage, to consider an LTC rider on a life insurance policy or annuity contract as the same type of benefits provided by the underlying policy (e.g., a LTC rider on a life insurance policy would be considered, for coverage purposes, a life insurance benefit).
Health Care Providers (§ 2)
The bill also specifies that health care providers rendering services under a health insurance policy or contract covered by CLHIGA are eligible for coverage (e.g., reimbursement for services rendered).
Insurance and Real Estate Committee
Joint Favorable Substitute