Alabama Department of Insurance

DATE: October 6, 2000
RE: HIPAA / AHIP: Notice to Employees of Cancellation

This bulletin replaces the bulletin issued April 26, 2000.

The following has been submitted to the Commissioner for a response:

A small employer providing health insurance to its employees is subject to the requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The employees have paid premiums to the employer to be remitted to the insurance carrier. However, for several months, the employer has failed to remit the premiums to the insurer. On March 27, 2000, the insurer sent notice of cancellation which stated that the cancellation was to be effective as of January 1, 2000.

Individual employees are precluded from obtaining coverage under the Alabama Health Insurance Plan (AHIP) if a break in coverage has occurred of 63 or more days.

Are these employees ineligible for coverage under AHIP?

In 1996, Congress enacted HIPAA to provide for, among other things, improved portability and continuity of health insurance coverage in the group and individual insurance markets, including health coverage connected with employment. The provisions of HIPAA are designed to help individuals, including employees, to find health coverage when other coverage is cancelled.

AHIP was created to "provide health insurance coverage to eligible individuals as an alternative to federal oversight required in the Health Insurance Portability and Accountability Act of 1996." See Section 27-52-1 et seq., Code of Alabama 1975. Pursuant to the authority under Section 27-52-3, the Commissioner adopted Regulation No. 115. Pursuant to the federal and state statutes and regulations, employees who lose their health coverage provided through employment may seek coverage through AHIP.

Under both HIPAA and AHIP, eligibility for coverage is based upon the prerequisite of 18 months of prior continuous coverage, which is defined as having no break in coverage lasting 63 or more days.¹

In the above fact situation, the insurer provided notice of cancellation of coverage on March 27, 2000, but retroactively put the date of cancellation as of January 1, 2000. If the effective date of cancellation is January 1, then the employees are ineligible for AHIP as more than 63 days passed without coverage. This retroactive cancellation defeats the very purpose of HIPAA and the intent of Congress. Obviously, the employees must have adequate notice and an opportunity to locate other health coverage prior to the running of the 63 day limitation.

Under HIPAA, the above employees are entitled to receive within a reasonable time a certificate indicating prior creditable coverage. Under the above facts, the certificate could not, in my opinion, be issued within a reasonable time.

In order to implement the basic purpose of HIPAA and AHIP, it is the Commissioner's opinion that the employees are entitled to reasonable notice of cancellation so as to have an opportunity to seek other coverage. "Reasonableness" relating to the employees must necessarily take into account the 63 day limitation. Notice of cancellation shall be considered "reasonable" if such notice is provided to the small employer not later than one month subsequent to the date of coverage termination.

In the above scenario, the "retroactive" date of cancellation exceeding one month is unacceptable. As the notice of cancellation was dated March 27, 2000, the employees were entitled to a reasonable notice at that point. To be reasonable, the date of cancellation can be no earlier than February 27, 2000.

Further, it is recommended that insurers include in the notice to employer groups that federal law requires the employer to give notice to the covered employees that their coverage has been cancelled and that they will only be entitled to certain HIPAA protections if there is a break in coverage of less than 63 days.

¹ There are other criteria which must be satisfied to obtain coverage by AHIP. This bulletin addresses only the 63 day limitation.

DATE: September 21, 2000
RE: Surcharges for Accidents Caused by Defective Tires

Most of the country is aware that tire manufacturer Bridgestone/Firestone has issued a national and international recall of certain sizes of tires. The recall was prompted by consumer complaints and auto collision data that demonstrate that tread separation has caused serious and fatal automobile accidents in the United States and abroad. The insurance industry has been credited with stepping forward and alerting federal authorities to the correlation between insurance claims and defective tires. For these efforts, the insurance industry should be applauded.

In Alabama, insurers of private passenger-type automobiles are allowed to assess surcharges to insurance premiums following payment of certain claims. However, most insurance companies do not surcharge a policy if the driver is reimbursed by the person responsible for the accident. Companies also are not allowed to charge for collisions with animals, "hit and run" accidents, accidents where the insured automobile was lawfully parked and other circumstances in which the driver is not "at fault."

We have learned that some insurers are surcharging policies for accidents caused by defective tires. In light of the national recall and federal investigation, we believe such rating to be unfairly discriminatory, in violation of Sections 27-13-35 and 27-13-65, Code of Alabama 1975. Defective tires and the accidents they cause pose an insurance risk to United States insurers. However, those insurers have full right of subrogation of those losses and are encouraged to pursue the responsible parties. Policyholders should not be required to bear the burden of surcharges while waiting for the insurance industry to pursue their subrogation claims. Litigation surrounding this recall and investigation will take years.

We require that insurers authorized to do business in Alabama cease surcharging policies for accidents caused by defective tires, regardless of the brand, effective immediately. Insurers are further directed to remove such current surcharges and refund or credit the amount of the surcharge to the policyholders beginning from the inception of the surcharge. This directive applies to surcharges on current in-force policies and policies purchased after the date of this bulletin.

Questions on this matter can be directed to the Property and Casualty Division, Alabama Department of Insurance Department, 334-241-4174.

DATE: July 25, 2000
RE: Alabama Long-Term Care Insurance Minimum Standards Act - Revisions to Alabama Insurance Regulation No. 91

Please be advised that the Alabama Long-Term Care Insurance Minimum Standards Act becomes effective August 1, 2000. This new act is based on, and is substantially similar to, the model act developed by the National Association of Insurance Commissioners (NAIC).

New Section 27-19-107, Code of Alabama 1975, which becomes effective August 1, 2000, includes the NAIC model provisions requiring the offer of a policy containing nonforfeiture benefits when a long-term care policy is marketed. Subsection (c) of this statute requires the Commissioner to promulgate regulations specifying how the nonforfeiture benefit requirement is to be met.

A hearing is scheduled for August 16, 2000, to consider revisions to Alabama Insurance Regulation No. 91. The proposed revisions to this regulation are based on, and are substantially similar to, the model regulation developed by the NAIC.

The proposed revisions to Regulation No. 91 includes a new Section 25, which sets forth the nonforfeiture benefit requirements, and proposed new Section 26, which sets the standards for benefit triggers. Both of these sections provide for a one year delayed effective date, as is recommended in the NAIC model regulation.

The proposed effective date of the revisions to Regulation No. 91 is January 1, 2001. Therefore, the proposed effective date of new Section 25 and proposed new Section 26, is January 1, 2002.

Insurers with long-term care insurance policies previously approved for use in this state may continue to market those policies until the effective date of the revisions to Regulation No. 91. The provisions relating to nonforfeiture benefits and benefit triggers will not be enforced until January 1, 2002. All other provisions will be enforced beginning January 1, 2001.

DATE: July 17, 2000
RE: Installment Fee Plan Filing Requirements

In accordance with the authority set forth in Chapter 13 of Title 27, Code of Alabama 1975, property, casualty and surety insurers are required to file with this Department a copy of any and all insurance rules and rate manuals, etc., prior to using them in this state. These filings are deemed approved as filed if not disapproved by this Department within thirty (30) days of our receipt of the filing.

The Department has regulatory jurisdiction and authority to promulgate regulations and bulletins regarding premium installment fee plans. Until now, the Department has never issued any such regulations or bulletins. Historically, the Department has reviewed premium installment plans submitted by insurers, but the Department has informed insurers only on a case-by-case basis of its position regarding the review of filings for installment payment fees.

This bulletin shall serve as official notice to all property, casualty and surety insurers that the filing requirement set forth in Chapter 13 also includes premium installment fee plans insurers may offer their policyholders as an alternative to the advance payment of the entire annual or semi-annual premium. These fees are to be considered premium for purposes of premium tax and rate making. Installment fees should be disclosed in rate submissions for the same number of years as premium, loss and expense data.

Additionally, this Department requires the disclosure of the minimum premium to which the installment fee option may be applicable. In reviewing these rate filings for reasonableness, the Department applies the same standard applicable to premium finance companies under Section 27-40-9, Code of Alabama 1975. Thus, the installment fee can be a maximum of $9.00 per $100.00 per annum plus an additional charge not to exceed $15.00 per policy. The formulas that may be used to determine the minimum premium after downpayment for this purpose are as follows:

In the case of an annual policy:

((Installment fee x # of installments) - $15.00) / 0.09 = minimum premium after downpayment

In the case of a semi-annual policy:

((Installment fee x # of installments) - $15.00) / 0.045 = minimum premium after downpayment

Please make sure when filing your installment fee schedule that all the following components are indicated in the final printed manual: number of installments, installment fee amount, policy term, and minimum premium after downpayment allowed under your plan.

Installment fee plans currently in use, which have not been approved, must be submitted for approval within thirty (30) days.

DATE: July 3, 2000
RE: Sales of Unregistered Securities

State insurance regulators and federal regulators across the United States are alerting insurance agents to the dangers of selling certain non-insurance investment products. Licensed insurance agents recently have been recruited to market and sell unregistered securities such as investments in corporate promissory notes, pay phone sale and lease-back plans, time-share vacation properties, so-called foreign bank investments and viatical settlements.

These unregistered securities are sold in violation of state and federal securities laws. Worse yet, the promoters of these investments are engaged in "Ponzi" schemes and are committing fraud that will harm the investors. (In a Ponzi scheme, new investors' money is used to repay, or pay interest or "profits" to earlier investors. The enterprise is not intended to generate legitimate profits and eventually collapses, leaving the promoters with most of the money and most investors empty-handed.)

The firms that market these investments target insurance agents to do the selling by offering high commissions on sales and "rollovers", and false guarantees backed by offshore "insurers". The investments are promoted to agents through ads in insurance trade publications and by word-of-mouth. The agents usually are not licensed to sell securities and do not understand the risks involved. Besides the financial devastation they cause to customers, these agents risk losing their right to sell insurance.

Financial regulators say that "guarantees", high returns, complicated investment strategies, glossy brochures and other hype are warning signs not to be ignored. Agents should be cautious and contact the State Securities Commission and the Alabama Department of Insurance if they have any questions or to report these schemes and obtain information.

DATE: June 30, 2000
RE: Address Designations

As a part of the revision to our computer application, we are developing a list of contacts with companies for each of our divisions. All companies are required to provide the information requested on the attached form regarding an address for each area specified. Any change in the requested information shall be provided within ten (10) days of such a change. Henceforth, the Department will send all correspondence relating to a specific area to the address designated by the company.

The information requested on the attached form should be provided to the Insurance Department as soon as possible. To ensure the Department's year-end mailing is sent to the correct office of your company in a timely fashion, we request this information by August 1, 2000.

For a copy of the Address Designation form, click one of the following: Word | Adobe PDF

DATE: June 28, 2000
RE: Rate Manual Filing Requirements

In accordance with the authority set forth in Chapter 13 of Title 27, Code of Alabama 1975, property, casualty and surety insurers are required to file with this department a copy of any and all insurance rules and rate manuals, etc., prior to using them in this state. These filings are deemed approved as filed if not disapproved by this Department within thirty (30) days of our receipt of the filing.

Henceforth, when a rule and rate manual is being amended, insurers are required to file the proposed revisions, along with an explanatory memorandum. After the revisions have been approved, insurers shall then file a new, complete rule and rate manual with this office. Even when the revision or revisions are to a small portion of the manual, we expect a new rule and rate manual which completely supercedes the previously approved manual.

DATE: June 23, 2000
RE: Federal Health Insurance Requirements

All health insurance policies filed for use in the State of Alabama must comply with all federal health insurance requirements, including those required in the Health Insurance Portability and Accountability Act of 1996, the Newborns' and Mothers' Health Protection Act of 1996, the Mental Health Parity Act of 1996 and the Women's Health and Cancer Rights Act of 1998. Any policy or form filed with this Department that fails to meet these federal requirements will be disapproved for use in this state.