ASSEMBLY, No. 794
STATE OF NEW JERSEY
Introduced Pending Technical Review by Legislative Counsel
PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION
By Assemblywoman FARRAGHER
An Act authorizing local units of government to self-insure for certain purposes and regulating the business of administrators of such self-insurance, amending N.J.S.40A:10-6 and N.J.S.40A:10-10 and supplementing chapter 10 of Title 40A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. N.J.S.40A:10-6 is amended to read as follows:
40A:10-6. Establishment of insurance fund; appropriations. The governing body of any local unit may establish an insurance fund for the following purposes:
a. To insure against any loss or damage however caused to any property, motor vehicles, equipment or apparatus owned by it, or owned by or under the control of any of its departments, boards, agencies or commissions;
b. To insure against liability resulting from the use or operation of motor vehicles, equipment or apparatus owned by or controlled by it, or owned by or under the control of any of its departments, boards, agencies or commissions;
c. To insure against liability for its negligence and that of its officers, employees and servants, whether or not compensated or part-time, who are authorized to perform any act or services, but not including an independent contractor within the limitations of the "New Jersey Tort Claims Act" (N.J.S.59:1-1 et seq.);
d. To insure against health care expenses, including hospital, medical, surgical, or dental expenses, prescription drugs, or other health care expenses or any combination thereof, of the local unit's employees or its employees' dependents, or both, on a contributory or non-contributory basis.
The governing body may appropriate the moneys necessary for the purposes of this section.
(cf: N.J.S.40A:10-6)
2. N.J.S.40A:10-10 is amended to read as follows:
40A:10-10. Powers and authority of the commissioners. The commissioners shall have the following powers and authority:
a. Employ necessary clerical assistants, whose compensation shall be fixed and paid by the governing body of the local unit in the same manner as is that of other employees of the local unit;
b. Invest the fund and all additions and accretions thereto in such securities as they shall deem best suited for the purposes of this article;
c. Adopt rules and regulations for the control and investment of the fund;
d. Keep on hand at all times sufficient money, or have the same invested in such securities as can be immediately sold for cash, for the payment of losses to any buildings or property of the local unit or of a county college which participates in the fund pursuant to P.L.1988, c.144 (C.18A:64A-25.40 et al.) or of a county vocational school which participates in the fund pursuant to P.L.1988, c.143 (C.18A:18B-8 et al.), or liability resulting from the operation of publicly owned motor vehicles, equipment or apparatus or health care expenses of employees or their dependents, or both;
e. Fix reasonable rates of premium for all insurance carried by the insurance fund, and shall effect all insurance in the insurance fund or with any insurance company or companies authorized to do business in this State;
f. Premiums for insurance, whether carried in the insurance fund or placed with insurance companies, shall be paid to the commissioners by the board, commission, department, committee or officer having charge or control of the property insured;
g. All insurance upon property owned or controlled by a local unit or any of its departments, boards, agencies or commissions, or by a board of education of a participating county vocational school or by a board of trustees of a participating county college shall be placed and effected by the commissioners. All insurance for health care expenses of employees or their dependents, or both, of a local unit or any of its departments, boards, agencies or commissions, or by a board of education of a participating county vocational school or by a board of trustees of a participating county college shall be placed and effected by the commissioners;
h. If provided by the rules and regulations of the commission, the secretary to the insurance fund commission shall be entrusted with the daily operation of the insurance fund and shall submit a report to the commissioners at least once a month;
i. If provided by the rules and regulations of the commission, the daily operation of the insurance fund with respect to insurance for health care expenses of employees or their dependents, or both, may be entrusted to an administrator to which a valid certificate of authority has been issued pursuant to section 14 of P.L. , c. (C. ) (now before the Legislature as this bill) pursuant to an agreement entered into by the commissioners and the administrator, which agreement and administrator have been approved by the Commissioner of Insurance in connection therewith as provided in P.L. , c. (C. ) (now before the Legislature as this bill).
(cf: P.L.1988, c.143/144, s.5)
3. (New section) a. No local unit shall establish a self-insured plan, as defined in section 4 of P.L. , c. (C. ) (now before the Legislature as this bill), or amend a self-insured plan until the commissioner has certified that:
(1) The local unit has sufficient financial resources and reserves to meet the needs of claimants; and
(2) The local unit has established a mechanism for the transfer of the funds to the administrator, if any, which shall permit the administrator to pay all approved claims as they become due and payable in accordance with the claims payment schedule provided in the written agreement between the local unit and the administrator.
b. The local unit shall annually, on the anniversary date of the establishment of the self-insured plan, submit any and all documents required by the commissioner for the purposes of this act to the commissioner for his approval or disapproval.
c. A local unit shall submit to the commissioner a self-insured plan, and any amendments thereto, for his approval or disapproval. The plan and any amendments thereto shall become effective upon the commissioner's written approval or at the expiration of 60 days after submission if it has not been disapproved. If the commissioner disapproves of all or any part of the proposed plan, he shall return it to the local unit with a statement, in writing, of the reasons for his disapproval and any recommendations he may wish to make. The local unit may accept the commissioner's recommendations or submit a new plan, which recommendations or plan shall be submitted to the commissioner within 30 days after the return of a disapproved plan. The plan or amendments thereto approved pursuant to this section shall continue in force until amended or superseded by a plan submitted by the local unit and approved by the commissioner according to the provisions of this section.
d. The plan shall include, but shall not be limited to:
(1) A plan of risk management;
(2) A claims payment schedule which requires claims to be paid or denied within 30 days of their submission;
(3) A procedure for the resolution of disputed claims, which shall include the opportunity to be heard by a neutral third party and shall include the suspension of collection activities while that claim is being considered for resolution;
(4) A procedure for the transfer of funds from the local unit to the administrator, if any, which funds shall be sufficient for the administrator to pay claims as they become due;
(5) Provision for the annual publication of any formulae used in determining annual premiums, estimates of future premiums and premiums for retired employees;
(6) A mechanism for all interested parties, including but not limited to the representatives of any recognized collective bargaining unit, to inspect the books and records related to the operation of that plan by the administrator and the local unit's funding of the plan; and
(7) A demonstration of sufficient reinsurance or other provision for the cost of claims received in excess of expectations or if the funds for the plan are exhausted.
4. (New section) As used in sections 5 through 19 of this act:
"Administrator" means a person who, with respect to self-insured plans, directly or indirectly solicits or effects coverage of, underwrites, collects charges or premiums from, or adjusts or settles claims on, covered individuals of a local unit.
"Commissioner" means the Commissioner of Insurance.
"Covered individual" means an active or retired employee of a local unit or his or her dependents, or both, covered by a self-insured plan.
"Department" means the Department of Insurance.
"Local unit" means a county or municipality or any departments, boards, agencies or commissions thereof, or a board of education of a county vocational school which participates in an insurance fund pursuant to P.L.1988, c.143 (C.18A:18B-8 et al.) or by a board of trustees of a county college which participates in an insurance fund pursuant to P.L.1988, c.144 (C.18A:64A-25.40 et al.).
"Self-insured plan" means an insurance fund, or that portion of such a fund, established to insure against health care expenses, including hospital, medical, surgical, or dental expenses, prescription drugs, or other health care expenses or any combination thereof, of a local unit's employees or its employees' dependents, or both, on a contributory or non-contributory basis, as provided in subsection d. of N.J.S.40A:10-6.
5. (New section) a. No person shall act as the administrator of a self-insured plan on behalf of any local unit without a valid certificate of authority as an administrator issued by the commissioner in accordance with section 14 of this act or without the approval of the commissioner as the administrator for each type of self-insured plan covered by this act prior to entering into a written agreement to administer such a plan.
b. No local unit shall establish a self-insured plan nor amend such a plan with an administrator unless the plan or amendment and the written agreement between the local unit and the administrator establishing that plan or making that amendment have been approved by the commissioner in accordance with this act.
6. (New section) a. No administrator shall act as such without a written agreement between the administrator and the local unit, which written agreement shall be retained as part of the official records of both the local unit and administrator for the duration of the agreement and for five years thereafter. The agreement shall contain all provisions required by this act, except insofar as those provisions do not apply to the functions performed by the administrator.
b. The written agreement shall include a statement of duties which the administrator is expected to perform on behalf of the local unit and shall specify all the lines, classes or types of insurance which the administrator is authorized to administer.
c. The written agreement shall include, but shall not be limited to:
(1) A plan of risk management;
(2) A claims payment schedule which requires claims to be paid or denied within 30 days of their submission;
(3) A procedure for the resolution of disputed claims, which shall include the opportunity to be heard by a neutral third party and shall include the suspension of collection activities while that claim is being considered for resolution;
(4) A procedure for the transfer of funds from the local unit to the administrator, which funds shall be sufficient for the administrator to pay claims as they become due;
(5) Provision for the annual publication of any formulae used in determining annual premiums, estimates of future premiums and premiums for retired employees;
(6) A mechanism for all interested parties, including but not limited to the representatives of any recognized collective bargaining unit, to inspect the books and records related to the operation of that plan by the administrator and the local unit's funding of the plan; and
(7) A demonstration of sufficient reinsurance or other provision for the cost of claims received in excess of expectations or if the funds for the plan are exhausted.
d. The local unit or the administrator may, upon written notice, terminate the written agreement for cause as provided in the agreement. The local unit may suspend the underwriting authority of the administrator during the pendancy of any dispute regarding the cause for termination of the written agreement. The local unit shall fulfill any lawful obligations with respect to policies affected by the written agreement, regardless of any dispute between the insurer and the administrator.
e. A local unit shall submit to the commissioner the written agreement, and any amendments thereto, for his approval or disapproval. The agreement and any amendments thereto shall become effective upon the commissioner's written approval or at the expiration of 60 days after submission if it has not been disapproved. If the commissioner disapproves of all or any part of the written agreement, he shall return it to the local unit with a statement, in writing, of the reasons for his disapproval and any recommendations he may wish to make. The local unit may accept the commissioner's recommendations or submit a new agreement, which recommendations or agreement shall be submitted to the commissioner within 30 days after the return of a disapproved agreement. The agreement or amendments thereto approved pursuant to this section shall continue in force until amended or superseded by an agreement submitted by the local unit and approved by the commissioner according to the provisions of this section.
7. (New section) a. If a local unit utilizes the services of an administrator, the local unit shall be responsible for determining the benefits, underwriting criteria and claims payment procedures applicable to the coverage and for securing reinsurance, if any. The rules pertaining to these matters shall be provided, in writing, by the local unit to the administrator. The responsibilities of the administrator as to any of these matters shall be set forth in the written agreement between the administrator and the local unit.
b. It shall be the sole responsibility of the local unit to provide for competent administration of its programs.
c. In cases where an administrator administers benefits for more than 100 covered individuals on behalf of the local unit, the local unit shall, at least semiannually, conduct a review of the operations of the administrator. At least one such review shall be an on-site audit of the operations of the administrator.
8. (New section) a. Every administrator shall maintain and make available to the local unit complete books and records of all transactions performed on behalf of the local unit. The books and records shall be maintained in accordance with prudent standards of insurance record keeping and shall be maintained for a period of not less than five years from the date of their creation.
b. The commissioner shall have access to books and records maintained by an administrator for the purposes of examination, audit and inspection. Any trade secrets contained in such books and records, including the identity and addresses of policyholders and certificateholders, shall be kept confidential, except that the commissioner may use that information in any proceeding instituted against the administrator.
c. The local unit shall own the records generated by the administrator pertaining to the local unit, except that the administrator shall retain the right to continuing access to books and records to permit the administrator to fulfill all of its contractual obligations to covered individuals and the local unit.
d. If the local unit or the administrator cancel their agreement, notwithstanding the provisions of subsection a. of this section, the administrator may, by written agreement with the local unit, transfer all records to a new administrator rather than retain them for five years as othewise provided in this section. In such cases, the new administrator shall acknowledge in writing that it is responsible for retaining the records of the prior administrator as required in subsection a.
9. (New section) a. All insurance charges or premiums collected by an administrator on behalf of or for a local unit, and the return of premiums received from that local unit, shall be held by the administrator in a fiduciary capacity. Those funds shall be immediately remitted to the persons entitled to them or shall be promptly deposited in a fiduciary account established and maintained by the administrator in a federally insured financial institution. In addition to the requirements of section 6 and any other requirements of this act, the written agreement between the administrator and the local unit shall provide for the administrator to periodically render an accounting to the local unit detailing all transactions performed by the administrator pertaining to the business underwritten by the local unit.
b. If charges or premiums deposited in a fiduciary account have been collected on behalf of or for one or more local units, the administrator shall keep records clearly recording the deposits in and withdrawals from the account on behalf of or for each local unit. The administrator shall keep copies of all the records and, upon request of a local unit, shall furnish the local unit with copies of the records pertaining to those deposits.
c. The administrator shall not pay any claim by withdrawals from a fiduciary account in which premiums or charges are deposited. Withdrawals from that account shall be made as provided in the written agreement between the administrator and the local unit. The written agreement shall address, but shall not be limited to, the following:
(1) Remittance to a local unit entitled to remittance;
(2) Deposit in an account maintained in the name of the local unit;
(3) Transfer to and deposit in a claims-paying account, with claims to be paid as provided for in subsection d. of this section;
(4) Payment to a group policyholder for remittance to the local unit entitled to that remittance;
(5) Payment to the administrator of its commissions, fees or charges, including any producer commissions paid by the administrator or the local unit to a producer of record; and
(6) Remittance of return premium to the persons entitled to that return premium.
d. All claims paid by the administrator from funds collected on behalf of or for the local unit shall be paid only on drafts or checks of, and as authorized by, the local unit.
e. The written agreement between the local unit and the administrator shall provide that, if the local unit or the administrator cancel their agreement, the administrator shall, upon written request of the local unit, transfer all funds held on behalf of the local unit, and any authority to administer those funds, to a new administrator as directed by the local unit.
10. (New section) If a local unit uses the services of an administrator, the payment to the administrator of any premiums or charges for insurance by or on behalf of a covered individual shall be deemed to have been received by the local unit, and the payment of return premiums or claim payments forwarded by the local unit to the administrator shall not be deemed to have been paid to the covered individual, or paid to a health care provider on behalf of the covered individual, as the case may be, until those payments are received by the covered individual or the health care provider. Nothing in this section shall limit any right of the local unit against the administrator resulting from the failure of the administrator to make payments to the local unit, covered individual or health care provider.
11. (New section) Notwithstanding any other provision of this act to the contrary, a local unit shall not pre-fund or otherwise pay an administrator an amount in excess of $50,000 in advance for the payment of claims of covered individuals unless the administrator demonstrates, to the satisfaction of the commissioner, that the administrator is financially able to pay those claims secured by the pre-funded or advanced amount. The commissioner shall require as evidence of that ability to pay those claims: (1) a bond issued by a surety authorized to transact business in this State; (2) an irrevocable letter of credit issued by a bank; or (3) the deposit with the commissioner of securities, moneys, or other security acceptable to him, in an amount not less than 25% of the amount the local unit is to pre-fund or advance the administrator.
12. (New section) a. An administrator shall not enter into any agreement or understanding with a local unit the effect of which is to make the amount of the administrator's commissions, fees, or charges contingent upon savings effected in the adjustment, settlement and payment of losses covered by the local unit's obligations. This provision shall not prohibit an administrator from receiving performance-based compensation for providing hospital or other auditing services.
b. This section shall not prevent the compensation of an administrator from being based on premiums or charges collected or the number of claims paid or processed.
13. (New section) a. When the services of an administrator are utilized, the administrator shall provide a written notice approved by the local unit to covered individuals advising them of the identity of, and relationship between, the administrator and the local unit.
b. When an administrator collects funds, the reason for collection of each item shall be identified to the insured party and each item shall be shown separately from any premium. Additional charges may not be made for services to the extent the services have been paid for by the local unit.
c. The administrator shall disclose to the local unit all charges, fees, and commissions received from all services in connection with the provision of administrative services for the local unit, including (1) any fees or commissions paid by an insurer providing reinsurance; and (2) any producer fees or commissions paid, directly or indirectly, by the administrator or the local unit, to a producer of record.
14. (New section) a. Applicants to be an administrator shall make an application to the commissioner upon a form approved by him and shall pay the application fee established by him pursuant to section 19 of this act. The application shall include or be accompanied by the following information and documents:
(1) All basic organizational documents of the administrator, including any articles of incorporation, articles of association, partnership agreement, trade name certificate, trust agreement, shareholder agreement or other applicable documents and all amendments thereto;
(2) The bylaws, rules, regulations and other similar documents regulating the internal affairs of the administrator;
(3) The names, addresses, official positions and professional qualifications of the individuals who are responsible for the conduct of affairs of the administrator, including all members of the board of directors, board of trustees, executive committee or other governing board or committee, the principal officers in the case of a corporation or the partners or members in the case of a partnership or association, shareholders directly or indirectly holding ten percent or more of the voting shares of the administrator, and any other person who exercises control or influence over the affairs of the administrator;
(4) Annual financial statements or reports for the two most recent years and such information as the commissioner may require in order to review the current financial condition of the applicant and determine whether the applicant is solvent;
(5) A statement describing the business plan of the administrator including information on staffing levels and activities proposed in this State and nationwide. The plan shall provide details setting forth the administrator's capability for providing a sufficient number of personnel experienced and qualified in the areas of claims processing, record keeping and underwriting; and
(6) Such other pertinent information as may be required by the commissioner.
b. The applicant shall make available for inspection by the commissioner copies of all contracts with other local units, self-insurers or insurers utilizing the services of the administrator.
c. The commissioner may refuse to issue a certificate of authority if the commissioner determines that the administrator, or any other individual responsible for the conduct of affairs of the administrator as defined in paragraph (3) of subsection a. of this section is not competent, trustworthy, financially responsible or of good personal and business reputation, or has had an insurance or insurance producer or an administrator license or, certificate denied, suspended or revoked for cause by any state.
d. A certificate of authority issued under this act shall remain valid, unless surrendered, suspended or revoked by the commissioner, for so long as the administrator continues in business in this State and remains in compliance with this act.
e. An administrator shall immediately notify the commissioner of any material change in its ownership, control or other fact or circumstance affecting its qualifications for a certificate of authority in this State.
f. No bonding shall be required by the commissioner of any administrator except as provided in section 11 of this act.
15. (New section) a. Each administrator shall file an annual report for the preceding calendar year with the commissioner on or before March 1 of each year, or within such extensions of time therefor as the commissioner, for good cause, may grant. The report shall be in the form and contain such matters as the commissioner prescribes and shall be verified by at least two officers of the administrator.
b. The annual report shall include the complete names and addresses of all local units with which the administrator had an agreement during the preceding fiscal year.
c. At the time of filing its annual report, the administrator shall pay a filing fee as established by the commissioner pursuant to section 19 of this act.
16. (New section) a. The certificate of authority of an administrator shall be suspended or revoked if the commissioner finds that the administrator:
(1) Is in an unsafe or unsound financial condition;
(2) Is using methods or practices in the conduct of its business so as to render its further transaction of business in this State hazardous or injurious to covered individuals, local units or the public;
(3) Has failed to pay any judgment rendered against it in this State within 60 days after the judgment has become final; or
(4) Has made material misrepresentations in the application for the certificate of authority.
b. The commissioner may, in his discretion, suspend or revoke the certificate of authority of an administrator if the commissioner finds that the administrator:
(1) Has violated any rule or order of the commissioner or any provision of the insurance laws of this State;
(2) Has refused to be examined or to produce its accounts, records and files for examination, or if any of its officers has refused to give information with respect to its affairs or has refused to perform any other legal obligation as to such examination, when required by the commissioner;
(3) Has, without just cause, refused to pay proper claims or perform services arising under its contracts or has, without just cause, caused covered individuals or health care providers to employ attorneys or bring suit against the administrator to secure full payment or settlement of such claims;
(4) Is affiliated with or under the same general management or interlocking directorate or ownership as another administrator or insurer which unlawfully transacts business in this State without having a certificate of authority;
(5) At any time fails to meet any qualifications for which issuance of the certificate of authority could have been refused had that failure then existed and been known to the department;
(6) Has been convicted of, or has entered a plea of guilty or nolo contendere to, a crime of the first, second or third degree without regard to whether adjudication was withheld; or
(7) Is under suspension or revocation in another state.
c. The commissioner may, in his discretion, and without advance notice or hearing thereon, immediately suspend the certificate of any administrator if the commissioner finds that one or more of the following circumstances exist:
(1) The administrator is impaired or insolvent;
(2) A proceeding for receivership, conservatorship, rehabilitation, or other delinquency proceeding regarding the administrator has been commenced in any state;
(3) The financial condition or business practices of the administrator otherwise pose an imminent threat to the public health, safety or welfare of the residents of this State.
d. If the commissioner finds that one or more grounds exist for the suspension or revocation of a certificate of authority issued under this section, the commissioner may, in lieu of such suspension or revocation, impose a fine upon the administrator pursuant to rules promulgated in accordance with section 20 of this act.
17. (New section) The declaration of insolvency or bankruptcy of the administrator or the plan shall not relieve the local unit of its obligations to pay any approved claim when due.
18. (New section) Any documents filed with the commissioner pursuant to this act shall be deemed to be public documents and available for inspection during normal business hours at the department.
19. (New section) The commissioner shall, pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) promulgate the rules and regulations necessary to effectuate the provisions of this act, including a schedule of any fees or penalties required by this act.
20. This act shall take effect immediately.
STATEMENT
This bill allows a single local unit to self-insure for health benefits for its employees and their dependents.
The bill also provides for the regulation by the Department of Insurance of third party administrators of local unit self-insurance funds established for the purpose of providing health benefits coverages. In addition to other requirements under the bill, all insurance charges or premiums collected by an administrator on behalf of a local unit are to be held by the administrator in a fiduciary capacity; and a local unit must not pre-fund or otherwise pay an administrator an amount in excess of $50,000 in advance for the payment of claims of covered individuals unless the administrator demonstrates to the Commissioner of Insurance that the administrator is financially able to pay those claims. The commissioner must require as evidence of that ability to pay claims: a bond, an irrevocable letter of credit or a deposit of securities in an amount of not less than 25% of the pre-funded amount.
The bill also provides that a local unit may not establish a self-insured plan for health benefits unless it can demonstrate to the Commissioner of Insurance that it has sufficient financial resources and reserves to meet the needs of its claimants. In addition, the self-insured health plan must be submitted to the commissioner for his approval according to the requirements set forth in the bill. If the local unit wishes to assign the responsibilities of a self-insured health plan to an administrator, both the written agreement pursuant to which the administrator will administer the self-insured health plan and the administrator itself must be approved by the commissioner with respect to that plan, as well.
Authorizes local units to self-insure for employee health benefits coverage and regulates administrators of such plans.