2016 Legislative Summary

Health Insurance – Large Employers Disclosure of Aggregate Incurred Claims

Our first issue of the year was departmental legislation requiring insurers to provide aggregate claims data for large groups.  Commissioner Redmer had this legislation introduced at the request of a large group and its broker; however, the JLC did not have an opportunity to review the legislation prior to its initial bill hearing.  In our first meeting early in the legislative session, we discussed at length the value and use of aggregate claims data.  While transparency is always our primary goal, we agreed that the value of claims data can vary widely from group to group. Accordingly, we submitted written testimony reflecting our discussion in supporting the bill with an amendment that claims data should be supplied on groups above a certain size.  Eventually, the House Health and Government Operations Committee accepted alternative language from the Commissioner that would make claims data available upon request.  We supported that version of the legislation, which ultimately passed.

SB436/HB554 – Insurance – Surplus Lines – Short-Term Medical Insurance

This legislation continued our effort last year to expand the availability of certain insurance products (temporary medical insurance this year – disability insurance last year) from surplus lines insurers.

Life and health insurance producers are largely unfamiliar with the surplus lines insurance market.  Surplus lines are typically found in property and casualty insurance, and exist to serve the hard-to-place risk.  Surplus lines insurers do not obtain state licenses in the same manner as “admitted” insurers do.  While they are permitted to offer certain products on a state by state basis, they are lightly regulated.  Consequently, they have the flexibility to enter and leave insurance markets more easily.

Certain surplus lines insurers, such as Lloyd’s, have disability insurance products that can be written on individuals who do not medically qualify for standard disability coverage, or at higher limits than those available in standard disability markets.  We supported legislation in 2015 to allow such products to be sold in Maryland.

This year’s legislation followed the same path for temporary (short-term) medical insurance.  Often written in conjunction with overseas travel, the availability of short-term medical insurance has been dramatically reduced in recent years, especially following the passage of the Affordable Care Act.  A very small number of admitted insurers now write this coverage, and surplus lines insurers have products to fill the gap.

The Insurance Commissioner initially opposed this effort to expand the role of surplus lines.  JLC Co-Chair Willie Franklin testified in support of the bill, reasoning that more products would now be available to serve Maryland insurance consumers.  The legislative committees were persuaded by this argument, and the bill was reduced in scope to apply only to travel-related risks, with a further restriction to insure that they would not compete with either student health plans or ACA-compliant plans.  In this form, the legislation was passed.

Life Insurance – Freedom to Travel Act

Overseas travel has always been a factor in underwriting individual life insurance applications, and its importance has increased as certain areas of the world become more dangerous for travelers.  This legislation – similar to legislation introduced last year – addresses that subject.  It restricts the ability of the insurer to deny life insurance coverage exclusively for reasons related to the applicant’s lawful travel.

This was a highly contentious issue, and life insurers sought to protect their ability to underwrite applications as they see fit.  The JLC was contacted by bill sponsor Samuel (Sandy) Rosenberg, who fully appreciates our experience with this particular issue.  This year’s legislation tightens the restrictions slightly, and still allows insurers to act appropriately when applicants seek to travel to dangerous parts of the world.  The bill passed.

Civil Actions – Liability of Disability Insurer – Failure to Act in Good Faith

While we did not appear at the House hearing on this bill, we delivered very strong testimony in both the Senate Judicial Proceedings and Senate Finance Committees on this bill.

HB990 would add individual disability insurance to the current list of property and casualty insurance for which a bad faith action can be maintained against the insurer under the Unfair Claims Settlement Practices Act of the Insurance Article.

The JLC is not generally involved in situations where liability is an issue.  Here, however, we felt it necessary to explain to the two legislative committees that there is a relatively small number of individual disability insurers remaining in the market (10 is the estimate we’ve been given) and that this kind of legislation could have a chilling effect on an insurer’s willingness to either maintain an open market for individual disability insurance in Maryland, or to maintain its current underwriting standards.  In other words, an insurer could view this increased liability exposure and respond by reducing the availability of individual DI in the state.

The two Senate Committees responded quite differently to our arguments.  The Judicial Proceedings Committee was unpersuaded, and issued a favorable report on the bill by a vote of 10-1.    By contrast, the Finance Committee, which is the policy committee that considers all insurance issues, accepted our arguments and voted against the bill by a vote of 9-2.  Unfortunately, when the bill made it to the Senate floor the position of JPR prevailed and the bill was passed.

Labor and Employment – Maryland Healthy Working Families Act

One of the most controversial bills of 2016 was this legislation, which would mandate small business employers to provide broad sick leave benefits to employees.  The benefits would be paid sick leave for employers with more than 15 employees, and unpaid leave for employers with fewer than 15 employees.  Generally, benefits would be earned at 1 hour for each 30 hours work.

The JLC did not testify on the legislation, although we supported other business groups (e.g. The Maryland Chamber of Commerce and the National Federation of Independent Business) for whom opposing the bill was the top legislative priority.  The bill passed the House and came over to the Senate in the last week of session where a bill hearing was held with only two days to go in the session.  Business organizations had sharpened their arguments by this time and exposed a number of ambiguities and potential, unintended consequences in the bill.  Ultimately, the bill was not brought up for a vote in the Senate Finance Committee, and therefore it was not enacted.  Legislative leaders have vowed to bring the issue back in the next legislative session, and Senate President Mike Miller has even suggested a special session.  The JLC must review its position and determine whether it will take a more active role on this issue in the future.

Maryland Small Business Retirement Savings Program and Trust

A critically important issue for the JLC this year was legislation arising from previous efforts to establish a state-run retirement plan.  The issue is so far-reaching that JLC constituents NAIFA MD and MAHU have participated for the past several years in the Retirement Planning Coalition (RPC) which has become the most respected advocacy vehicle to address this legislative issue.  Former NAIFA Maryland President Paul Dougherty chairs the RPC and provided testimony on the bill, as did JLC Co-Chair Willie Franklin.

This year, we worked closely with Senator Doug Peters, the prime sponsor of SB1007, and his colleague Senator Andy Serafini, a financial advisor who is well respected by his fellow members of the Senate Budget and Taxation Committee.

With RPC guidance, the 2016 debate shifted from establishing a top-down, state-run retirement plan to creating an IRA plan for employees, with a very light employer mandate that is intended to comply with a proposed federal regulation establishing a “safe harbor” that would survive an ERISA preemption challenge.

While we would prefer no state-run plan, of any description that would compete in any way with the private market, this plan is scaled back considerably from previous versions.  In its final form, the bill should allow a substantial number of private sector competitors to offer their IRA products.  The bill is intended to work this way:  Employees of a participating employer could (but would not have to) send contributions to an IRA they choose from a list of private sector providers chosen by the Board to be created under the bill.  Insurance companies, for example, could offer their products subject to Board approval.  In this sense, the plan is similar to the Washington State “marketplace” distribution model.  Contributions would be bundled and sent to a Trust which would distribute them to various IRA providers in accordance with the instructions of the individual employee.  Hopefully, this program will allow our members an additional option to serve as advisors to the individual employees of businesses that do not currently have an ERISA plan.

Furthermore, the employer “mandate” under the bill is quite modest.  Basically, an employer who 1) possesses a payroll deduction capability and 2) makes it available for this purpose would be able to waive the $300 annual business license fee currently required under Maryland law.  (Businesses that sponsor ERISA plans will also receive this waiver). If an employer chooses not to participate, he would not receive the waiver.

Many questions remain with respect to the implementation of this legislation.  Will the Governor sign it?  Will there be sufficient funding to establish the program?  Will the Board created under the bill carry out the legislative intent completely?  At this point, we simply don’t know, but we will continue, through the RPC, to be actively engaged in this process.  It is our hope, and our goal, that the outcome will mean an additional opportunity for our members, additional revenue to be earned, and additional services that we can provide our clients