THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY BARBIN, DeLUCA, FABRIZIO, PASHINSKI, V. BROWN, CALTAGIRONE, GOODMAN, HALUSKA, JOSEPHS, KORTZ, KULA, MATZIE AND READSHAW, FEBRUARY 28, 2011

REFERRED TO COMMITTEE ON INSURANCE, FEBRUARY 28, 2011  

AN ACT

Preventing illegal multiple employer welfare arrangements;

prohibiting other illegal health insurers; establishing

duties of the Insurance Department; and imposing penalties.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Short title.

This act shall be known as and may be cited as the Prevention

of Illegal Multiple Employer Welfare Arrangements and Other

Illegal Health Insurers Act.

Section 2.  Definitions.

"Admitted insurer."  An insurer licensed to do insurance

business in this Commonwealth.

"Arrangement."  A fund, trust, plan, program or other

mechanism by which a person provides, or attempts to provide,

health care benefits.

"Department."  The Insurance Department of the Commonwealth.

"Employee leasing arrangement."  A labor leasing, staff

leasing, employee leasing, professional employer organization,

contract labor, extended employee staffing or supply, or other

arrangement, under contract or otherwise, whereby one business

or entity represents that it leases or provides workers to

another business or entity.

"Employee welfare benefit plan" or "health benefit plan."  A

plan, fund or program which was or is established or maintained

by an employer or by an employee organization, or by both, to

the extent that the plan, fund or program was established or is

maintained for the purpose of providing for its participants or

their beneficiaries, through the purchase of insurance or

otherwise, medical, surgical or hospital care or benefits, or

benefits in the event of sickness, accident, disability, death

or unemployment.

"Fully insured."  For the health care benefits or coverage

provided or offered by or through a health benefit plan or

arrangement:

(1)  An admitted insurer is directly obligated by

contract to each participant to provide all of the coverage

under the plan or arrangement; and

(2)  The liability and responsibility of the admitted

insurer to provide covered services or for payment of

benefits is not contingent, and is directly to the individual

employee, member or dependent.

"Insurer."  A company or health insurance entity licensed in

this Commonwealth to issue any individual or group health,

sickness or accident policy or subscriber contract or

certificate or plan that provides medical or health care

coverage by a health care facility or licensed health care

provider that is offered or governed under or any of the

following:

(1)  The act of December 29, 1972 (P.L.1701, No.364),

known as the Health Maintenance Organization Act.

(2)  The act of May 18, 1976 (P.L.123, No.54), known as

the Individual Accident and Sickness Insurance Minimum

Standards Act.

(3)  40 Pa.C.S. Ch. 61 (relating to hospital plan

corporations) or 63 (relating to professional health services

plan corporations).

(4)  Article XXIV of the act of May 17, 1921 (P.L.682,

No.284), known as The Insurance Company Law of 1921.

"Licensee."  A person that is, or that is required to be,

licensed or registered under the laws of this Commonwealth as a

producer, third party administrator, insurer, employee leasing

arrangement or preferred provider organization.

"MEWA."  Multiple Employer Welfare Arrangements.

"MEWA contact."  The individual or position designated by the

Insurance Department to be the MEWA contact as identified on the

Insurance Department's publicly accessible Internet website.

"Nonadmitted insurer."  An insurer not licensed to do

insurance business in this Commonwealth.

"Preferred provider organization."  An entity that engages in

the business of offering a network of health care providers,

whether or not on a risk basis, to employers, insurers or any

other person who provides a health benefit plan.

"Producer."  A person required to be licensed under the laws

of this Commonwealth to sell, solicit or negotiate insurance.

"Professional employer organization."  An arrangement, under

contract or otherwise, whereby one business or entity represents

that it co-employs or leases workers to another business or

entity for an ongoing and extended, rather than a temporary or

project-specific, relationship.

"Third party administrator" or "administrator."  The term

shall have the meaning provided under the act of May 17, 1921

(P.L.789, No.285), known as The Insurance Department Act of

1921.

"Transacting of insurance."  The term includes:

(1)  Issuing a stop loss policy covering an employer

located in this Commonwealth. Stop loss policy coverage of an

employer for claims incurred under the employer's self-funded

health benefit plan is insurance, not reinsurance, regardless

of whether the contract is described by the insurer as

reinsurance;

(2)  Issuing a stop loss policy to a trust or trustee,

whether the trust or trustee is located in this Commonwealth

or otherwise, with an employer located in this Commonwealth

directly or indirectly the beneficiary of the trust;

(3)  Agreeing to loan or advance funds to pay claims

incurred under an employer's self-funded health benefit plan

if the availability of funds to advance is significantly

dependent on payment of contributions and the claims

experience of two or more employers who have entered into

similar loan or advance agreements; or

(4)  Engaging in a risk distribution arrangement

providing for compensation of loss through the provision of

services, including an arrangement established through

marketing or representations to consumers, without

specification in a contract.

"Unauthorized health insurance."

(a)  The term includes:

(1)  Health insurance offered by a nonadmitted insurer

except to the extent the laws of this Commonwealth allow the

coverage to be offered by an nonadmitted insurer licensed in

another state through an employer or group located out of

State; and

(2)  Health care benefits or coverage offered by a

professional employer organization or an employee leasing

arrangement that is not fully insured by an admitted insurer.

(b)  The term does not include:

(1)  Health care benefits or coverage under an employee

welfare benefit plan of the employees of two or more

employers (including one or more self-employed individuals),

that is established or maintained under or pursuant to a

collective bargaining agreement under the criteria provided

under 29 CFR 2510.3-40 (relating to definitions).

(2)  Health care benefits or coverage under an employee

welfare benefit plan established or maintained by a rural

electric cooperative or a rural telephone cooperative as

defined under the Employee Retirement Income Security Act of

1974 (Public Law 93-406, 29 U.S.C. § 1002(40)(B)).

(3)  Health care benefits or coverage under an employee

welfare benefit plan of the employees of two or more

employers but only if the employers are within the same

control group so the plan is deemed to be a single employer

plan under the Employee Retirement Income Security Act of

1974.

(4)  Health care benefits or coverage under a church plan

as defined under the Employee Retirement Income Security Act

of 1974.

Section 3.  Licensee reporting requirement.

(a)  General rule.--A licensee shall file a written report

with the department MEWA contact when a licensee knows a product

is, or is about to be, offered to the public in this

Commonwealth, and the licensee, based on the information known

to the licensee, reasonably should know the product is

unauthorized health insurance. Knowledge of a producer regarding

an unrelated unauthorized health insurance arrangement is not

imputed to licensed insurers represented by that producer.

(b)  Notice provisions.--Circumstances where a licensee knows

that a product is, or is about to be, offered to the public in

this Commonwealth, including when the licensee knows that any

person is:

(1)  recruiting producers to solicit or offer, or is

soliciting or offering, a health benefit plan generally to

the public in this Commonwealth; or

(2)  seeking an administrator for, or is administering a

health benefit plan that is intended to be offered generally

to the public in this Commonwealth.

(c)  Reasonable notice.--Circumstances where a licensee

reasonably should know that a product is unauthorized health

insurance include, but are not limited to, the following:

(1)  The licensee knows that the product is represented

to be a self-funded plan and that it is offered widely to the

multiple employers or generally to individuals.

(2)  The licensee knows that the product is a

professional employer organization self-funded plan and that

it is offered widely to multiple client employers.

(3)  The licensee knows that the plan is represented to

be a self-funded plan established or maintained pursuant to a

collective bargaining agreement and that the plan is offered

widely to multiple employers, or generally to individuals, or

both, through agents who are compensated on a commission or

similar basis.

(d)  Disclosure.--The following shall apply:

(1)  A report filed under this section is confidential

and privileged from disclosure in response to a subpoena or

otherwise under the act of February 14, 2008 (P.L.6, No.3),

known as the Right-to-Know Law, and shall not be subject to

discovery or admissible in evidence in any private action.

Nothing in this act shall limit the commissioner's authority

to use a report filed under this act in the furtherance of

any legal or regulatory action that the commissioner, in the

commissioner's sole discretion, determines to be necessary to

further the purposes of this act.

(2)  Nothing in this act shall prevent or be construed as

preventing the commissioner from disclosing the contents of a

report filed under this section to the insurance department

of any other state or agency of the Federal Government at any

time, or any other regulatory or law enforcement agency

provided the agency or office receiving the report or matters

relating thereto agrees to hold it confidential and in a

manner consistent with this regulation.

(e)  Immunity.--There is immunity from civil liability under

section 349.1 of the act of May 17, 1921 (P.L.682, No.284),

known as The Insurance Company Law of 1921.

(f)  Compliance.--A licensee complies with this section if

the licensee files the required report within 30 days or a

period reasonable under the circumstances, whichever is later.

Section 4.  Responsibility to exercise due diligence.

(a)  Soliciting producer.--

(1)  A producer, prior to engaging in or assisting any

person to engage in offering a health benefit plan to an

employer or person located in this Commonwealth, shall carry

out appropriate due diligence to establish that the health

benefit plan is not unauthorized health insurance, including

those measures reasonably appropriate to establish for any

insurance coverage that is represented as issued relating to

the health benefit plan:

(i)  the insurer issued the policy;

(ii)  the coverage is as represented;

(iii)  the insurer is an admitted insurer in this

Commonwealth; and

(iv)  the policy has been filed with, and approved

by, the department or is exempt from filing requirements.

(2)  For any health benefit plan that is represented as

established or maintained pursuant to a collective bargaining

agreement, the health benefit plan is established or

maintained under or pursuant to a collective bargaining

agreement under the criteria provided under 29 CFR 2510.3-40

(relating to definitions).

(3)  For any health benefit plan that is represented as

established or maintained by an employee leasing arrangement

or professional employer organization, the health benefit

plan is fully insured.

(4)  For any health benefit plan that is represented as

established by a single employer, the health benefit plan is

covering solely employees and their dependents, and the

employer controls and directs the work of the employee.

(b)  Stop loss policy producer.--

(1)  A producer, prior to submitting an application for a

stop loss policy to an insurer for a health benefit plan

offered to employees, employee dependents, or a person

located in this Commonwealth, shall carry out appropriate due

diligence to establish that the health benefit plan is not

unauthorized health insurance, including measures reasonably

appropriate to establish:

(i)  For any health benefit plan that is represented

as established or maintained pursuant to a collective

bargaining agreement, the health benefit plan is

established or maintained under or pursuant to a

collective bargaining agreement under the criteria

provided under 29 CFR 2510.3-40.

(ii)  The health benefit plan that is not offered by

an employee leasing arrangement or professional employer

organization to client employers.

(iii)  For any health benefit plan that is

represented as established by a single employer, that the

health benefit plan is covering solely employees, and

dependents of employees, of the employer and the employer

controls and directs the work of the employee.

(c)  Third party administrator.--A third party administrator,

prior to entering into any administrative contract for a health

benefit plan, and prior to assisting any person with

administration of a health benefit plan, covering employees of

an employer or a person located in this Commonwealth, shall

carry out appropriate due diligence to establish that the health

benefit plan is not unauthorized health insurance, including

those measures reasonably appropriate to establish:

(1)  Through initial inquiry, contract provisions and

measures to monitor and enforce compliance with the contract

provisions, that for any insurance coverage that is

represented as issued relating to the health benefit plan.

(i)  the insurer issued the policy;

(ii)  the coverage is as represented;

(iii)  the insurer is an admitted insurer in this

Commonwealth; and

(iv)  the policy has been filed with, and approved

by, the department or is exempt from filing requirements.

(2)  For any health benefit plan that is represented as

established or maintained pursuant to a collective bargaining

agreement, the health benefit plan is established or

maintained under or pursuant to a collective bargaining

agreement under the criteria provided under 29 CFR 2510.3-40.

(3)  For any health benefit plan that is represented as

established or maintained by an employee leasing arrangement

or professional employer organization, the health benefit

plan is fully insured.

(4)  For any health benefit plan that is represented as

established by a single employer, that the health benefit

plan is covering solely employees and their dependents, and

the employer controls and directs the work of the employee.

(d)  Insurer.--

(1)  An insurer, prior to issuing a stop loss policy for

a health benefit plan covering employees, employee

dependents, or individuals located in this Commonwealth,

shall carry out appropriate due diligence to establish that

the health benefit plan is not unauthorized health insurance,

including those measures reasonably appropriate to establish:

(i)  For any health benefit plan that is represented

as established or maintained pursuant to a collective

bargaining agreement, the health benefit plan is

established or maintained under or pursuant to a

collective bargaining agreement under the criteria

provided under 29 CFR 2510.3-40.

(ii)  The health benefit plan is not offered by an

employee leasing arrangement or professional employer

organization to client employers.

(iii)  For any health benefit plan that is

represented as established by a single employer, the

health benefit plan is covering solely employees, and

dependents of employees, of the employer and the employer

controls and directs the work of the employee.

(2)  An insurer shall not engage in the transacting of

insurance by issuing a stop loss policy unless the insurer is

an admitted insurer in this Commonwealth and the stop loss

policy form has been filed and approved by the department, or

the form is exempt from filing. The transacting of insurance

includes, but is not limited to:

(i)  Issuing a stop loss policy covering an employer

located in this Commonwealth. Coverage of an employer for

claims incurred under the employer's self-funded health

benefit plan with a stop loss policy is insurance, not

reinsurance, regardless of whether the contract is

described by the insurer as reinsurance.

(ii)  Issuing a stop loss policy to a trust or

trustee, whether the trust or trustee is located in this

Commonwealth or otherwise, when an employer located in

this Commonwealth is directly or indirectly the

beneficiary of the trust.

(3)  An insurer shall not engage in the transacting of

insurance in this Commonwealth by issuing a stop loss policy

unless, prior to issuing a contract for the stop loss policy,

the insurer discloses clearly and conspicuously to the

employer, in writing:

(i)  the employer is not covered for claims below the

stop loss attachment point;

(ii)  a description of the attachment point,

including the specific and aggregate attachment points;

and

(iii)  the insurer provides no other coverage of the

employer's retention.

(e)  Preferred provider organization.--

(1)  A preferred provider organization, prior to entering

into any contract with a person offering or providing a

health benefit plan in this Commonwealth, shall carry out

appropriate due diligence to establish that the health

benefit plan is not unauthorized health insurance, including

those measures reasonably appropriate to establish:

(i)  Through initial inquiry, contract provisions and

measures to monitor and enforce compliance with the

contract provisions, that for any insurance coverage that

is represented as issued relating to the health benefit

plan:

(A)  the insurer issued the policy;

(B)  the coverage is as represented;

(C)  the insurer is an admitted insurer in this

Commonwealth; and

(D)  the policy has been filed with and approved

by the department or is exempt from filing

requirements.

(2)  For any health benefit plan that is represented as

established or maintained pursuant to a collective bargaining

agreement, the health benefit plan is established or

maintained under or pursuant to a collective bargaining

agreement under the criteria provided under 29 CFR 2510.3-40;

(3)  For any health benefit plan that is represented as

established or maintained by an employee leasing arrangement

or professional employer organization, the health benefit

plan is fully insured.

(4)  For any health benefit plan that is represented as

established by a single employer, the health benefit plan is

covering solely employees and dependents of employees, of the

employer and the employer controls and directs the work of

the employee.

(f)  Defense.--

(1)  A licensee or other person who acts according to the

written advice of the MEWA contact has a defense to any

violation of this section if:

(i)  the information provided by the licensee or

other person to the MEWA contact, to the extent material

to the MEWA contact's advice, is accurate and complete;

and

(ii)  the information is provided by the licensee or

other person to the MEWA contact in writing.

(2)  For purposes of this act, the department's published

list of admitted insurers on its publicly accessible Internet

website is deemed to be accurate. A licensee or other person

has a defense to any allegation that a listed insurer is not

an admitted insurer. Nothing in this subsection relieves a

licensee or other person from conducting due diligence to

determine whether an entity is in fact the same entity as a

listed admitted insurer.

(3)  A violation of this section is mitigated, and the

department shall reduce or eliminate any sanction otherwise

applicable, if a licensee or other person demonstrates all of

the following:

(i)  It maintained supervisory procedures and

controls that complied with section 5.

(ii)  The violation occurred despite the maintenance

of those procedures and controls.

(iii)  It promptly reported the health benefit plan

to the MEWA contact once the licensee or other person had

actual knowledge that it was unauthorized health

insurance.

(iv)  It took prompt corrective action.

(g)  Due diligence.--Nothing in this section requires a

producer, third party administrator, insurer or preferred

provider organization to conduct due diligence with respect to a

health benefit plan that it is not assisting and with respect to

which it does not engage in the transacting of insurance.

Section 5.  Supervisory procedures and controls.

(a)  General rule.--A producer, third party administrator,

insurer, preferred provider organization or an agent of the same

shall establish and maintain documented supervision procedures

and controls that are reasonably designed to achieve compliance

with this regulation.

(b)  Procedures.--The supervisory procedures shall include:

(1)  Training.

(2)  Internal controls.

(3)  Periodic audits.

(4)  Supervisory review.

(5)  Monitoring and enforcement of contractual provisions

established under section 4(c) and (e).

(c)  Requirements.--The extent of the supervisory procedures

and controls a producer is required to maintain under this

section may appropriately reflect the size and complexity of the

producer's operations and the scope and nature of the producer's

insurance activities.

Section 6.  Licensing education requirements.

(a)  General rule.--A producer shall not be licensed in this

Commonwealth to sell health insurance unless the producer, prior

to licensing, receives not less than one hour of education in:

(1)  identification of unauthorized health insurance; and

(2)  the producer's responsibilities under this act.

(b)  Continuing education.--An insurer providing health

insurance in this Commonwealth shall require its listed

producers to obtain not less that one hour of continuing

education every four years covering:

(1)  identification of unauthorized health insurance; and

(2)  the producer's responsibilities under this

regulation.

(c)  Procedures and controls.--A third party administrator,

preferred provider organization or insurer shall include in its

application for a license a brief summary of its procedures and

controls required under section 5. A license may be denied if

the applicant fails to demonstrate that the applicant maintains

the required procedures and controls.

Section 7.  Penalties and liability.

(a)  Violation.--A person that violates this act is subject

to the act of July 22, 1974 (P.L.589, No.205), known as the

Unfair Insurance Practices Act.

(b)  Penalty.--A person who violates section 3 is subject to

a penalty of up to $1,000 for each violation.

Section 8.  Rules and regulations.

The department may promulgate all necessary regulations to

implement this act.

Section 9.  Effective date.

This act shall take effect in 60 days.