The 90 day legislative session in Maryland has concluded. The 2018 Session was memorable. 3,101 bills were introduced, of which 889 bills passed – a record number. Normally, an election year in the legislative cycle experiences fewer bills introduced than in other years, with even fewer controversial issues addressed. That is because, during election years, legislators often focus on introducing legislation to include on their campaign literature, irrespective of whether the legislation is likely to pass. In addition, fewer bills in an election year mean more time for legislators running for reelection to return home and campaign during the legislative session.
Such was not the case in 2018. With a divided government (Republican Governor and Democratic legislature) both parties were eager to pursue legislation that served their own political purposes. There was also a strong reaction by Maryland legislators to developments in Washington DC, both from the passage of federal tax reform and from President Trump’s actions on issues related to enforcement of federal health care and consumer financial protection laws. In addition, our most significant legislative objective this year took on both Planned Parenthood of Maryland and the Internal Revenue Service.
Our most significant legislative objective actually began two years ago, during the 2016 Session. That year, the General Assembly passed one of its many mandated health benefits. The Contraceptive Equity Act required that male sterilization services – vasectomies – would be covered, effective January 1, 2018, with no deductible or cost-sharing.
The JLC did not oppose this bill, nor did any health insurer. We did not realize, until the 2017 Session rolled around, that it might create a problem. The problem was explained to us by insurance industry representatives on Capitol Hill. In a nutshell, requiring vasectomies without cost-sharing could violate the provisions of high-deductible health plans under the federal Affordable Care Act. The problem was not a determination by the IRS that Maryland law actually does violate the ACA; instead, IRS regulations and other guidance were silent on this subject. In short, we simply did not know how the IRS might rule if the Maryland law were challenged.
The real problem in all of this was with the Health Savings Accounts (HSAs) that are associated with most high-deductible health plans. Here, the risk to consumers and businesses grew exponentially. As virtually every health insurance practitioner knows, high-deductible health plans coupled with HSAs are the preferred method of addressing the ever-increasing share of healthcare costs for consumers. We simply could not take the chance that the tax deductibility of HSAs in Maryland might be je
So, we acted. At our request, legislation was introduced in 2017 that would impose a deductible on vasectomies. It was not acted upon, because legislative leaders decided to ask the Maryland Insurance Administration to contact the Internal Revenue Service for guidance. The MIA made repeated requests throughout the balance of 2017 and we entered the 2018 with the issue unresolved.
It was time for us to put a coalition together, and we did so. JLC Co-Chair Jon Frank led the way and we quickly assembled an impressive array of interest groups that supported corrective legislation in 2018. The HSA Preservation Coalition included health insurance advocates, of course, but also CPAs, bankers, and financial planners. The legislation was introduced in the Senate by Senator Ed Reilly, and in the House by Delegate Terri Hill. The bill was introduced and passed as emergency legislation, and was signed by the Governor on April 10, 2018. That is the effective date.
Was our fear unfounded? Absolutely not. Late in the 2018 Session, the IRS finally issued its guidance. It found that such legislation as the Contraceptive Equity Act (other states have similar laws) does violate federal law, and must be changed if tax-deductibility is to be preserved. Thus, the HSA Preservation Coalition was aptly named.
Conclusion: Both bills were approved by the Governor on 4/10/18
For both insurance producers and advisors (indeed, anyone who provides advice on this subject) the inclusion of the fiduciary liability provisions in broader legislation that covers all manner of consumer financial transactions was troublesome. Without reviewing in detail our industry’s resistance to the federal imposition of fiduciary liability by the Department of Labor, suffice it to say that we and others engaged in the provision of financial services to our clients would oppose a fiduciary liability standard applied by Maryland. We did oppose it. It has been removed from HB 1634, and SB 1068. We should point out, however, that the Senate Bill still contains language requiring the Maryland Financial Consumer Protection Commission to “study” the subject. We will continue to keep a close eye on the study.
Conclusion: These bills passed with our amendment and were signed by the Governor on 5/15/18
Individual insurance problems continue – no surprise to JLC members. The legislature will apparently provide short-term relief to this market in the form of a reinsurance pool funded (for one year only) by replacing the federal health insurance tax with a flat 2.75% fee on all fully insured products. They can do so because the recent federal tax reform legislation will not charge that tax for this one-year period. Although strongly resisted by commercial carriers that do not participate in the individual market, the legislature is moving ahead with this “one-year fix.” Longer term, the idea is to submit a new waiver application to CMS that is expected to afford the state the ability to have a long-term funding source. There are still many moving pieces to this idea, but the legislature has been working closely with both the Hogan Administration and CMS on the outlines of these bills. There is also hope that a federal budget resolution, due later this month, will provide additional monies for this purpose.
Not that JLC members need to be reminded, but those who are in the individual market will know that producer compensation is going to be a future issue as well. Other states are looking closely at moving to a fee-based system, and we expect Maryland to do so as well. That’s an issue for the future.
Conclusion: These bills were approved by the Governor on 4/10/18
Life Insurance on a Minor – HB 27
This bill includes an amendment that the JLC supported. As introduced, it addressed a tragic situation where a parent applied for life insurance on the child and then murdered the child. The bill would have required a covered person from the age of 15 up to sign the application. Unfortunately, a document signed by a minor has no legal effect, as we pointed out to the Committee. This provision was removed.
Conclusion: This bills was passed and was signed by the Governor on 5/8/18.
Two years ago, the legislature passed SB 1007 which established a state-run savings plan for employees of small businesses. We had opposed similar legislation successfully in previous years, because it violated ERISA. We removed our opposition to this plan because it was greatly reduced in scale (IRAs only) and requires significant private sector involvement.
Throughout this process we have operated through another Coalition – the Retirement Planning Coalition. This has been a very effective group of entities not only from the financial services industry, but also including the Maryland Chamber of Commerce and the National Federation of Independent Business. We attend and monitor every meeting of this state Board, and we successfully sought an amendment to SB 1001 this year to ensure that the Board is not enlarging its scope of operations beyond the limited scope set forth in SB 1007.
Conclusion: This bill was passed with our amendment and was signed by the Governor on 5/15/18
The JLC also follows legislation that may impact the business operations of our members and their clients. This is one such bill. It would prohibit a prospective employer from inquiring about the salary history and other information from a job applicant. Businesses large and small protested that information about an applicant’s prior position, including job titles, responsibilities and salary information is essential in making an informed decision whether to offer employment to an applicant. We are pleased to report and these bills have not moved since their hearings in their respective Houses.
This bill did not make it out of Committee – Look for it again next year.
Motor Vehicle Insurance – Use of Credit History in Rating Policies – SB 72/HB 1670
Motor Vehicle Insurance – Discrimination in Underwriting and Rating – Use of Marital Status or Gender – HB 657
Motor Vehicle Insurance – Discrimination in Underwriting and Rating – Use of Occupation or Education Level – HB 656
Why does the JLC follow automobile insurance legislation? For two reasons. First, some of our members provide a wide variety of services to their clients, including life, health, property and casualty insurance. Obviously, this includes automobile insurance.
Second, and equally important, JLC members should have a general familiarity with how different insurance products are priced to offer greater value to their clients. Over the past several decades, the pricing of automobile insurance has evolved from the few original rating factors that determine premiums. Those few factors included territory (where a vehicle is kept when not in use), certain characteristics of the drivers (such as age, gender, marital status) and obviously, the driving record of those drivers (accidents and violations).
In recent years, other rating factors have arisen and have been approved by State insurance regulators. These include factors like the credit history of an insured, and their occupation and education.
Consumers, and many legislators, often do not understand how these new factors affect their insurance premiums, and they believe them to be unfair. Consumer protection groups have led the charge to prohibit these factors, as some of the above legislation sought to do. While the JLC did not play an active role in this particular debate (these bills did not pass, but were “placed in the drawer” for possible action in the future) we always watch them carefully. Generally, insurance producers support actions by insurers that make their products more competitive. Automobile insurance is highly competitive – just turn on your television during the evening news each night to see advertisement after advertisement for automobile insurance. At the same time, because JLC members are on the front line for consumer interaction, we must be sensitive to consumer concerns as well.
But this year’s legislation went farther, and this serves to illustrate the danger. One of these bills would also have prohibited the use of gender and marital status in automobile insurance rating. These were promoted as initiatives to assure gender equity. They ignored the fact that women sometimes pay higher automobile insurance rates because of gender, but at other times they pay lower rates – sometimes much lower. The point of insurance rating in any type of insurance is to find a rate that is fair and still allows the company to make a profit. Competition is the only way to assure that. If we allow legislatures to substitute their judgment for the judgement of insurance actuaries, we will all end up paying more than we should.
Thank you and we look forward to the 2019 Session! We will keep you posted throughout the summer and the fall on developments.
Bryson and Joan