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91_HB2271eng HB2271 Engrossed LRB9104872JSpc 1 AN ACT to create the Small Employer Health Insurance 2 Rating Act. 3 Be it enacted by the People of the State of Illinois, 4 represented in the General Assembly: 5 Section 1. Short title. This Act may be cited as the 6 Small Employer Health Insurance Rating Act. 7 Section 5. Purpose. The legislature recognizes that all 8 too often, small employers are forced to increase employee 9 co-pays and deductibles or drop health insurance coverage 10 altogether because of unexpected rate increases as a result 11 of one major medical problem. It is the intent of this Act 12 to improve the efficiency and fairness of the small group 13 health insurance marketplace. 14 Section 10. Definitions. For purposes of this Act: 15 "Actuarial certification" means a written statement by a 16 member of the American Academy of Actuaries or other 17 individual acceptable to the Director that a small employer 18 carrier is in compliance with the provisions of Section 30 of 19 this Act, based upon an examination which includes a review 20 of the appropriate records and of the actuarial assumptions 21 and methods utilized by the small employer carrier in 22 establishing premium rates for the applicable health benefit 23 plans. 24 "Base premium rate" means for each class of business as 25 to a rating period, the lowest premium rate charged or which 26 could be charged under a rating system for that class of 27 business by the small employer carrier to small employers 28 with similar case characteristics for health benefit plans 29 with the same or similar coverage. 30 "Carrier" means any entity which provides health HB2271 Engrossed -2- LRB9104872JSpc 1 insurance in this State. For the purposes of this Act, 2 carrier includes a licensed insurance company, a prepaid 3 hospital or medical service plan, a health maintenance 4 organization, a multiple-employer welfare arrangement, or any 5 other entity providing a plan of health insurance or health 6 benefits subject to state insurance regulation. 7 "Case characteristics" means demographic, geographic or 8 other objective characteristics of a small employer, that are 9 considered by the small employer carrier, in the 10 determination of premium rates for the small employer. Claim 11 experience, health status, and duration of coverage shall not 12 be characteristics for the purposes of the Small Employer 13 Health Insurance Act. 14 "Class of business" means all or a separate grouping of 15 small employers established pursuant to Section 25. 16 "Director" means the Director of Insurance. 17 "Department" means the Department of Insurance. 18 "Eligible employee" means an employee who works on a 19 full-time basis for the small employer, with a normal week of 20 30 or more hours, and has satisfied the waiting period and is 21 a member of the class eligible for insurance. Eligible 22 employee may also include a sole proprietor, a partner of a 23 partnership or an independent contractor, provided such sole 24 proprietor, partner or independent contractor is included as 25 an employee under a health benefit plan of a small employer. 26 It does not include an employee who works on a part-time, 27 temporary, seasonal or substitute basis. 28 "ERISA" means the Employee Retirement Income Security Act 29 of 1974, as amended. 30 "Health benefit plan" or plan shall mean any hospital or 31 medical expense-incurred policy or certificate, hospital or 32 medical service plan contract, or health maintenance 33 organization subscriber contract. Health benefit plan shall 34 not include individual, accident-only, credit, dental, HB2271 Engrossed -3- LRB9104872JSpc 1 vision, medicare supplement, hospital indemnity, long term 2 care or disability income insurance, coverage issued as a 3 supplement to liability insurance, workers' compensation or 4 similar insurance, or automobile medical payment insurance. 5 "Index rate" means, for each class of business as to a 6 rating period for small employers with similar case 7 characteristics, the arithmetic average of the applicable 8 base premium rate and the corresponding highest premium rate. 9 "Late enrollee" means an eligible employee or dependent 10 who requests enrollment in a health benefit plan of a small 11 employer following the initial enrollment period during which 12 the individual is entitled to enroll under the terms of the 13 health benefit plan, provided that the initial enrollment 14 period is a period of at least 30 days. However, an eligible 15 employee or dependent shall not be considered a late enrollee 16 if: 17 (1) the individual meets each of the following: 18 (A) the individual was covered under an 19 employer based health benefit plan at the time of 20 the initial enrollment; 21 (B) the individual lost coverage under 22 qualifying previous coverage as a result of 23 termination of employment or eligibility, the 24 involuntary termination of the qualifying previous 25 coverage, death of a spouse or divorce; and 26 (C) the individual requests enrollment within 27 30 days after the termination of the qualifying 28 previous coverage; 29 (2) the individual is employed by an employer which 30 offers multiple health benefit plans and the individual 31 elects a different plan during an open enrollment period; 32 or 33 (3) a court has ordered coverage be provided for a 34 spouse or minor or dependent child under a covered HB2271 Engrossed -4- LRB9104872JSpc 1 employee's health benefit plan and request for enrollment 2 is made within 30 days after issuance of the court order. 3 "MEWA" means a "multiple-employer welfare arrangement" as 4 defined in Section 3 of ERISA, as amended, except for any 5 arrangement which is fully insured within the meaning of 6 Section 514(b)(6) of ERISA, as amended. 7 "New business premium rate" means, for each class of 8 business as to a rating period, the lowest premium rate 9 charged or offered or which could have been charged or 10 offered by the small employer carrier to small employers with 11 similar case characteristics for newly issued health benefit 12 plans with the same or similar coverage. 13 "Preexisting condition" means a condition which, during a 14 12 month period immediately preceding the effective date of 15 coverage, had manifested itself in such a manner as would 16 cause an ordinarily prudent person to seek medical advice, 17 diagnosis, care or treatment or for which medical advice, 18 diagnosis, care, or treatment was recommended or received, or 19 a pregnancy existing on the effective date of coverage. 20 "Premium" means all monies paid by a small employer and 21 eligible employees as a condition of receiving coverage from 22 a small employer carrier, including any fees or other 23 contributions associated with the health benefit plan. 24 "Rating period" means the calendar period for which 25 premium rates established by a small employer carrier are 26 assumed to be in effect. 27 "Small employer" means any person, firm, corporation, 28 partnership, or association that is actively engaged in 29 business that, on at least 50% of its working days during the 30 preceding calendar quarter, employed at least 2 but no more 31 than 25 eligible employees, the majority of whom were 32 employed in this State. In determining the number of 33 eligible employees, companies that are affiliated companies, 34 or that are eligible to file a combined tax return for HB2271 Engrossed -5- LRB9104872JSpc 1 purposes of state taxation, shall be considered one employer. 2 "Small employer carrier" means a carrier that offers 3 health benefit plans covering eligible employees of one or 4 more small employers in this State. 5 Section 15. Applicability and Scope. 6 (a) This Act shall apply to each health benefit plan for 7 a small employer that is delivered, issued for delivery, 8 renewed or continued in this State after January 1, 2000. 9 For purposes of this Section, the date a plan is continued 10 shall be the first rating period which commences after 11 January 1, 2000. 12 The Act shall apply to any such health benefit plan which 13 provides coverage to employees of a small employer, except 14 that the Act shall not apply to individual health insurance 15 policies. 16 (b)(1) Except as provided in paragraph (2) for the 17 purposes of this Act, carriers that are affiliated companies 18 or that are eligible to file a consolidated tax return shall 19 be treated as one carrier and any restrictions or limitations 20 imposed by this Act shall apply as if all health benefit 21 plans delivered or issued for delivery to small employers in 22 this State by such affiliated carriers were issued by one 23 carrier. 24 (2) An affiliated carrier that is a health maintenance 25 organization having a certificate of authority under Section 26 2-1 of the Health Maintenance Organization Act may be 27 considered to be a separate carrier for the purposes of this 28 Act. 29 Section 20. Underwriting Provisions. 30 Health benefit plans covering small employers and, to the 31 extent permitted by ERISA, other benefit arrangements 32 covering small employers shall be subject to the following HB2271 Engrossed -6- LRB9104872JSpc 1 provisions, as applicable: 2 (1) Preexisting condition limitation: No policy 3 provision shall exclude or limit coverage for a 4 preexisting condition for a period beyond 12 months 5 following the effective date of a person's coverage. 6 (2) Portability of coverage: The preexisting 7 condition limitation period shall be reduced to the 8 extent a person was covered under a prior employer-based 9 health benefit plan if: 10 (A) the person is not a late enrollee; and 11 (B) the prior coverage was continuous to a 12 date not more than 30 days prior to the effective 13 date of the new coverage, exclusive of any 14 applicable waiting period. 15 (3) If a small employer carrier offers coverage to 16 a small employer, the small employer carrier shall offer 17 coverage to all of the eligible employees of a small 18 employer and their dependents. A small employer carrier 19 shall not offer coverage to only certain individuals in 20 an eligible class of a small employer group, except in 21 the case of late enrollees. Persons lawfully excluded by 22 a carrier prior to the effective date of this Act may 23 continue to be excluded by that carrier. 24 (4) A small employer carrier shall not modify a 25 health benefit plan with respect to a small employer or 26 any eligible employee or dependent, except that for 27 employees to whom the preexisting condition 28 limitations may apply, a small employer carrier may 29 restrict or exclude coverage or benefits for a specific 30 condition for a maximum period of 12 months from the 31 effective date of the eligible employee's or dependent's 32 coverage by way of rider or endorsement. As to employees 33 to whom the portability of coverage provisions apply, no 34 riders or endorsements may reduce or limit benefits to be HB2271 Engrossed -7- LRB9104872JSpc 1 provided under the portability of coverage provisions. 2 Any modification legally implemented by a carrier prior 3 to the effective date of this Act may be continued by 4 that carrier. 5 Section 25. Establishment of Class of Business. 6 (a) A small employer carrier may establish a separate 7 class of business only to reflect substantial differences in 8 expected claims experience or administrative costs related to 9 the following reasons: 10 (1) the small employer carrier uses more than one 11 type of system for the marketing and sale of health 12 benefit plans to small employers; 13 (2) the small employer carrier has acquired a class 14 of business from another small employer carrier; or 15 (3) the small employer carrier provides coverage to 16 one or more association groups. 17 (b) A small employer carrier may establish up to 3 18 separate classes of business under subsection (a). 19 (c) The Director may establish regulations to provide 20 for a period of transition in order for a small employer 21 carrier to come into compliance with subsection (b) in the 22 instance of acquisition of an additional class of business 23 from another small employer carrier. 24 (d) The Director may approve the establishment of 25 additional classes of business upon application to the 26 Director and a finding by the Director that such action would 27 enhance the efficiency and fairness of the small employer 28 marketplace. 29 Section 30. Premium Rates. 30 (a) Premium rates for health benefit plans subject to 31 this Act shall be subject to all of the following provisions: 32 (1) The index rate for a rating period for any HB2271 Engrossed -8- LRB9104872JSpc 1 class of business shall not exceed the index rate for any 2 other class of business by more than 20%. 3 (2) For a class of business, the premium rates 4 charged during a rating period to small employers with 5 similar case characteristics for the same or similar 6 coverage, or the rates that could be charged to such 7 employers under the rating system for that class of 8 business, shall not vary from the index rate by more than 9 30% of the index rate for the first rating period 10 following January 1, 2000, by more than 20% of the index 11 rate for the second rating period following January 1, 12 2000, nor by more than 10% of the index rate for any 13 subsequent rating period. 14 (3) The percentage increase in the premium rate 15 charged to a small employer for a new rating period shall 16 not exceed the sum of the following: 17 (A) the percentage change in the new business 18 premium rate measured from the first day of the 19 prior rating period to the first day of the new 20 rating period. In the case of a health benefit plan 21 into which the small employer carrier is no longer 22 enrolling new small employers, the small employer 23 carrier shall use the percentage change in the base 24 premium rate; 25 (B) an adjustment, not to exceed 15% annually 26 and adjusted pro rata for rating periods of less 27 than one year, due to claim experience, health 28 status, or duration of coverage of the employees or 29 dependents of the small employer as determined from 30 the small employer carrier's rate manual for the 31 class of business; and 32 (C) any adjustment due to change in coverage 33 or change in the case characteristics of the small 34 employer as determined from the small employer HB2271 Engrossed -9- LRB9104872JSpc 1 carrier's rate manual for the class of business. 2 (4) Adjustments in rates for a new rating period 3 due to claim experience, health status and duration of 4 coverage shall not be charged to individual employees or 5 dependents. Any such adjustment shall be applied 6 uniformly to the rates charged for all employees and 7 dependents of the small employer. 8 (5) In the case of health benefit plans delivered 9 or issued for delivery prior to the effective date of 10 this Act, a premium rate for a rating period may exceed 11 the ranges set forth in items (1) and (2) of subsection 12 (a) for a period of 3 years following the effective date 13 of this Act. In such case, the percentage increase in 14 the premium rate charged to a small employer for a new 15 rating period shall not exceed the sum of the following: 16 (A) the percentage change in the new business 17 premium rate measured from the first day of the 18 prior rating period to the first day of the new 19 rating period; in the case of a class of business 20 into which the small employer carrier is no longer 21 enrolling new small employes, the small employer 22 carrier shall use the percentage change in the base 23 premium rate, provided that such change does not 24 exceed, on a percentage basis, the change in the new 25 business premium rate for the most similar class of 26 business into which the small employer carrier is 27 actively enrolling new small employers; and 28 (B) any adjustment due to change in coverage 29 or change in the case characteristics of the small 30 employer as determined from the carrier's rate 31 manual for the class of business. 32 (6) Small employer carriers shall apply rating 33 factors, including case characteristics, consistently 34 with respect to all small employers in a class of HB2271 Engrossed -10- LRB9104872JSpc 1 business. A small employer carrier shall treat all health 2 benefit plans issued or renewed in the same calendar 3 month as having the same rating period. 4 (7) For the purposes of this subsection, a health 5 benefit plan that contains a restricted network provision 6 shall not be considered similar coverage to a health 7 benefit plan that does not contain such a provision, 8 provided that the restriction of benefits to network 9 providers results in substantial differences in claim 10 costs. 11 (b) A small employer carrier shall not transfer a small 12 employer involuntarily into or out of a class of business. A 13 small employer carrier shall not offer to transfer a small 14 employer into or out of a class of business unless such offer 15 is made to transfer all small employers in the class of 16 business without regard to case characteristics, claim 17 experience, health status or duration of coverage since 18 issue. 19 (c) The Director may suspend for a specified period the 20 application of item (1) of subsection (a) as to the premium 21 rates applicable to one or more small employers included 22 within a class of business of a small employer carrier for 23 one or more rating periods upon a filing by the small 24 employer carrier and a finding by the Director either that 25 the suspension is reasonable in light of the financial 26 condition of the small employer carrier or that suspension 27 would enhance the efficiency and fairness of the marketplace 28 for small employer health insurance. 29 Section 35. Rating and underwriting records. 30 (a) A small employer carrier shall maintain at its 31 principal place of business a complete and detailed 32 description of its rating practices and renewal underwriting 33 practices, including information and documentation that HB2271 Engrossed -11- LRB9104872JSpc 1 demonstrates that its rating methods and practices are based 2 upon commonly accepted actuarial assumptions and are in 3 accordance with sound actuarial principles. 4 (b) A small employer carrier shall file with the 5 Director annually on or before March 15, an actuarial 6 certification certifying that the carrier is in compliance 7 with this Act, and that the rating methods of the small 8 employer carrier are actuarially sound. Such certification 9 shall be in a form and manner, and shall contain such 10 information, as specified by the Director. A copy of the 11 certification shall be retained by the small employer carrier 12 at its principal place of business. 13 (c) A small employer carrier shall make the information 14 and documentation described in subsection (a) available to 15 the Director upon request. Except in cases of violations of 16 this Act, the information shall be considered proprietary and 17 trade secret information and shall not be subject to 18 disclosure by the Director to persons outside of the 19 Department except as agreed to by the small employer carrier 20 or as ordered by a court of competent jurisdiction. 21 Section 40. Suspension of Rate Requirements. The 22 Director may suspend all or any part of Section 30 as to the 23 premium rates applicable to one or more small employers for 24 one or more rating periods upon a filing by the small 25 employer carrier and a finding by the Director that either 26 the suspension is reasonable in light of the financial 27 condition of the carrier or the suspension would enhance the 28 efficiency and fairness of the small employer health 29 insurance marketplace. 30 Section 45. Director's Regulatory Authority. The 31 Director may adopt and promulgate rules and regulations to 32 carry out the provisions of this Act. HB2271 Engrossed -12- LRB9104872JSpc 1 Section 99. Effective date. This Act takes effect 2 January 1, 2000.