CHAPTER 340

FORMERLY

HOUSE BILL NO. 571

AS AMENDED BY HOUSE AMENDMENT NOS. 2, 1 AND 3

AN ACT TO AMEND CHAPTER 72, TITLE 18 OF THE DELAWARE CODE RELATING TO HEALTH INSURANCE FOR SMALL EMPLOYERS.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Chapter 72, Title 18 by deleting said chapter in its

entirety and inserting in lieu thereof the following:

"Chapter 72. Small Employer Wealth Insurance. §7201. Purpose

The purpose and intent of this chapter are to promote the availability of health insurance coverage to small employers regardless of their health status or claims experience, to prevent abusive rating practices, to require disclosure of rating practices to purchasers, to establish rules regarding renewability of coverage, to establish limitations on the use of preexisting condition exclusions, to provide for development of "basic" and "standard" health benefit plans to be offered to all small employers, to provide for establishment of a reinsurance program, and to improve the overall fairness and efficiency of the small group health insurance market.

This Chapter is not intended to provide a comprehensive solution to the problem of affordability of health care or health insurance.

§7202. Definitions

As used in this Chapter:

'Actuarial certification' means a written statement by a member of the American Academy of Actuaries or other individual acceptable to the commissioner that a small employer carrier is in compliance with the provisions of §7205 of this chapter, based upon an examination and including a review of the appropriate records and the actuarial assumptions and methods used by the small employer carrier in establishing premium rates for applicable health benefit plans.

'Affiliate' or 'affiliated' means any entity or person who directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a specified entity or person.

'Base premium rate' means, for each class of business as to a rating period, the lowest premium rate charged or that could have been charged under a rating system for that class of business by the small employer carrier to small employers with similar case characteristics for health benefit plans with the same or similar coverage.

'Basic health benefit plan' means a lower cost health benefit plan developed pursuant to §7211 of this title.

'Board' means the board of directors of the program established pursuant to §7210 of this title.

'Carrier' means any entity that provides health insurance in this state. For the purposes of this chapter, carrier includes an insurance company, health service corporation, health maintenance organization, and any other entity providing a plan of health insurance or health benefits subject to state insurance regulation.

'Case characteristics' means demographic or other objective
characteristics of a small employer that are considered by the small employer carrier in the determination of premium rates for the small employer, provided that claim experience, health status and duration of coverage shall not be case characteristics for the purposes of this

chapter. The small employer carrier shall not use case characteristics other than age, gender, industry, (subject to §7205(a)(6)) geographic area, family composition, unhealthy lifestyle choices, and group size without prior approval of the commissioner.

'Class of business' means all of a carrier's business unless more than one class is established pursuant to §7204 of this title.

'Commissioner' means the insurance commissioner of this state.

'Committee' means the Health Benefit Plan Committee created pursuant to §7211 of this title.

'Control' shall be defined in the same manner as in §5002 of this title.

(1) 'Dependent' means a spouse, an unmarried child under the age of eighteen (18) years, an unmarried child who is a full-time student under the age of twenty-five (25) years and who is financially dependent upon the parent, and an unmarried child of any age who is medically certified as totally disabled and dependent upon the parent.

'Eligible employee' means an employee who works on a full-time basis and has a normal work week of thirty (30) or more hours. The term includes a sole proprietor, a partner of a partnership, and an independent contractor, if the sole proprietor, partner or independent contractor is included as an employee under a health benefit plan of a small employer, but does not include an employee who works on a part-time, temporary or substitute basis.

'Established geographic service area' means a geographic area, as approved by the commissioner and based on the carrier's certificate of authority to transact insurance in this state, within which the carrier is authorized to provide coverage.

'Health benefit plan' means any hospital or medical policy or certificate, health service corporation subscriber contract, or health maintenance organization subscriber contract. Health benefit plan does not include accident-only, credit dental, vision, Medicare supplement, long-term care, or disability income insurance, coverage issued as a supplement to liability insurance, worker's compensation or similar Insurance, or automobile medical payment insurance.

'Index rate' means, for each class of business as to a rating period for small employers, the arithmetic average of the applicable base premium rate and the corresponding highest premium rate.

'Late enrollee' means an eligible employee or dependent who requests enrollment in a health benefit plan of a small employer following the initial enrollment period during which the individual is entitled to enroll under the terms of the health benefit plan, provided that the initial enrollment period is a period of at least thirty (30) days. However, an eligible employee or dependent shall not be considered a late enrollee if:

(1) The individual meets each of the following:

The individual was covered under qualifying previous coverage as defined in subparagraph (x), below, at the time of the initial enrollment;

The individual lost coverage under qualifying previous coverage as a result of termination of employment or eligibility, the involuntary termination of the qualifying previous coverage, death of a spouse or divorce; and

the individual requests enrollment within thirty (30) days after termination of the qualifying previous coverage;

(2) The individual is employed by an employer which offers multiple health benefit plans and the individual elects a different plan during an open enrollment period; or

(3) A court has ordered coverage be provided for a spouse or minor or dependent child under a covered employee's health benefit plan and request for enrollment is made within thirty (30) days after issuance of the court order.

(r) New business premium rate' means, for each class of business as to a rating period, the lowest premium rate charged or offered or which could have been charged or offered by the small employer carrier to small employers with similar case characteristics for newly issued health benefit plans with the same or similar coverage.

(s) 'Unhealthy lifestyle choices' means smoking or maintaining excessive weight, blood pressure or cholesterol, other than due to organic causes that are being treated by a physician, as those conditions or actions may be more fully defined by regulation by the commissioner.

(t) 'Plan of operation' means the plan of operation of the program established pursuant to §7210 of this title.

(u) 'Premium' means all monies paid by a small employer and eligible employees as a condition of receiving coverage from a small employer carrier, including any fees or other contributions associated with the health benefit plan.

(v) 'Producer' means agent and/or broker.

(w) 'Program' means the Delaware Small Employer Reinsurance Program created by §7210 of this title.

(x) 'Qualifying previous coverage' and 'qualifying existing coverage' mean benefits or coverage provided under:

Medicare or Medicaid;

An employer-based health insurance or health benefit arrangement that provides benefits similar to or exceeding benefits provided under the basic health benefit plan; or

An individual health insurance policy (including coverage
issued by a health maintenance organization, health service corporation and fraternal benefit society) that provides benefits similar to or exceeding the benefits provided under the basic health benefit plan, provided that such policy has been in effect for a period of at least one year.

(y) 'Rating period' means the calendar period for which premium rates
established by a small employer carrier are assumed to be in effect.

(z) 'Reinsuring carrier' means a small employer carrier participating in the reinsurance program pursuant to §7210 of this title.

(aa) 'Restricted network provision' means any provision of a health

benefit plan that conditions the payment of benefits, in whole or in part, on the use of health care providers that have entered into a contractual arrangement with the carrier pursuant to Chapter 64 or otherwise to provide health care services to covered individuals.

(bb) 'Risk-assuming carrier' means a small employer carrier whose

application is approved by the commissioner pursuant to §7209 of this title.

(cc) 'Small employer' means any person, firm, corporation, partnership

or association that is actively engaged in business that, on at least fifty percent (50%) of its working days during the preceding calendar quarter, employed no more than twenty-five (25) eligible employees, the majority of whom were employed within this state. In determining the number of eligible employees, companies that are affiliated companies, or that are eligible to file a combined tax return for purposes of state taxation, shall be considered one employer.

(dd) 'Small employer carrier' means a carrier that offers health benefit

plans covering eligible employees of one or more small employers in this state.

Except as provided in paragraph (2), for the purposes of this chapter, carriers that are affiliated companies or that are eligible to file a consolidated tax return shall be treated as one carrier and any restrictions or limitations imposed by this chapter shall apply as if all health benefit plans delivered or issued for delivery to small employers in this state by such affiliated carriers were issued by one carrier.

An affiliated carrier that is a health maintenance
organization having a certificate of authority under Chapter 64 of this title may be considered to be a separate carrier for the purposes of this chapter.

Unless otherwise authorized by the commissioner, a small
employer carrier shall not enter into one or more ceding arrangements with respect to health benefit plans delivered or issued for delivery to small employers in this state if such arrangements would result in less than fifty percent (501) of the insurance obligation or risk for such health benefit plans being retained by the ceding carrier. The provisions of §§910 and 4944 of this title shall apply if a small employer carrier cedes or assumes all of the insurance obligation or risk with respect to one or more health benefit plans delivered or issued for delivery to small employers in this State.

(ee) 'Standard health benefit plan' means a health benefit plan

developed pursuant to §7211 of this title.

§7203. Applicability and Scope.

This chapter shall apply to any health benefit plan provided by a small employer which provides coverage to the employees of such small employer in this state.

§7204. Establishment of Classes of Business.

(a) A small employer carrier may establish more than one class of business only to reflect substantial differences in expected claims experience or administrative costs related to the following reasons:

The small employer carrier uses more than one type of system for the marketing and sale of health benefit plans to small employers.

The small employer carrier has acquired a class of business from another small employer carrier; or

The small employer carrier provides coverage to one or more association groups that meet the requirements of §3506 of this title.

(b) A small employer carrier may establish no more than nine (9) classes of business under subsection (a) of this section, except as provided for in subsection (d) herein.

(c) The commissioner may establish regulations to provide for periods of transition in order for a small employer carrier to come into compliance with subsections (a) and (b) of this section in the instance of acquisition of a block of business from another small employer carrier.

(d) The commissioner may approve the establishment of more than nine (9) classes of business upon a finding that such action would enhance the efficiency and fairness of the small employer marketplace.

(e) A small employer carrier shall not transfer a small employer

involuntarily into or out of a class of business. A small employer carrier shall not offer to transfer a small employer into or out of a class of business unless such offer is made to transfer all small employers in the class of business without regard to case characteristics, claim experience, health status or duration of coverage since issue.

(f) A small employer carrier may establish one or more classes of

business, none of which shall be subject to the restrictions of §7205(a)(1) of this chapter, if each such class consists of small employers having fewer than three participants, and is one for which the carrier does not reject and has never rejected, small employers included within the definition of employers eligible for the class of business or otherwise eligible employees and dependents who enroll on a timely basis, based upon their claim experience or health status.

§7205. Restrictions Relating to Premium Rates.

(a) Premium rates for health benefit plans subject to this chapter shall be subject to the following provisions:

(1) The index rate for any class of business shall not exceed the index rate for similar coverage for any other class of business by more than twenty percent (20%) in any rating period.

(2) The premium rates for similar health benefit plans within a class of business shall not vary from the index rate by more than thirty—five percent (35%), with (i) an additional combined variation of no more than ten percent (10%) for gender and geography; and (ii) the actuarially justified adjustment for age and family composition, provided that the small employer carrier shall file a document as prescribed by the Commissioner setting out the age classes and family composition classes ued pursuant to this subparagraph, including actuarial certification of these classes.

(3) The percentage increase in the premium rate charged to a small employer for a new rating period may not exceed the sum of the following:

The percentage change in the new business premium rate calculated using premium rates on the first day of the prior rating period and the first day of the new rating period. In the case of a health benefit plan into which the small employer carrier is no longer enrolling new small employers, the small employer carrier shall use the percentage change in the new business premium rate for the most similar health benefit plan into which the small employer carrier is actively enrolling new small employers;

Any adjustment, not to exceed fifteen percent (15%) annually and adjusted pro rata for rating periods of less than one year, due to the claim experience, health status or duration of coverage of the employees or dependents of the small employer as determined from the small employer carrier's rate manual for the class of business; and

Any adjustment due to change in coverage or change in the case characteristics of the small employer as determined from the small employer carrier's rate manual for the class of business.

(4) Adjustments in rates for claim experience, health status and

duration of coverage shall not be charged to individual employees or dependents. Any such adjustment shall be applied uniformly to the rates charged for all employees and dependents of the small employer.

(5) Premium rates for health benefit plans shall comply with the

requirements of this section notwithstanding any assessments paid or payable by small employer carriers pursuant to §7210 of this title.

(6) A small employer carrier may utilize industry as a case

characteristic in establishing premium rates, provided that the highest rate factor associated with any industry classification shall not exceed the lowest rate factor associated with any industry classification by more than fifteen percent (15%).

(7) In the case of health benefit plans delivered or issued for

delivery prior to the effective date of this chapter, a premium rate for a rating period may exceed the ranges set forth in subsections (a)(1) and (2) of this section for a period of one (1) year following the effective date of this chapter. In such case, the percentage increase in the premium rate charged to a small employer for a new rating period shall not exceed the sum of the following:

The percentage change in the new business premium rate calculated using premium rates on the first day of the prior rating period and the first day of the new rating period. In the case of a health benefit plan into which the small employer carrier is no longer enrolling new small employers, the small employer carrier shall use the percentage change in the new business premium rate for the most similar health benefit plan into which the small employer carrier is actively enrolling new small employers.

Any adjustment due to change in coverage or change in the case
characteristics of the small employer as determined from the carrier's rate manual for the class of business.

a. Small employer carriers shall apply rating factors,
including case characteristics, consistently with respect to all small employers in a class of business. Rating factors
shall produce premiums for identical groups which differ only by the amounts attributable to plan design and do not reflect differences due to the nature of the groups assumed to select particular health benefit plans.

b. A small employer carrier shall treat all health benefit

plans issued or renewed in the same calendar month as having the same rating period.

For purposes of this subsection, a health benefit plan that
utilizes a restricted provider network shall not be considered similar coverage to a health benefit plan that does not utilize such a network, provided that utilization of the restricted provider network results in substantial differences in claims costs.

§7206. Renewability of coverage.

(a) A health benefit plan subject to this chapter shall be renewable with respect to all eligible employees or dependents, at the option of the small employer, except in any of the following cases:

(1) Nonpayment of the required premiums;

(2) Fraud or misrepresentation of the small employer or, with respect to coverage of individual insureds, the insureds or their representatives;

(3) Noncompliance with the carrier's minimum participation

requirements;

(4) Noncompliance with the carrier's employer contribution

requirements;

(5) Repeated misuse of a provider network provision;

(6) The small employer carrier elects to nonrenew all of its health benefit plans delivered or issued for delivery to small employers in this state. In such a case the carrier shall:

Provide advance notice of its decision under this paragraph to the commissioner in each state in which it is licensed; and

Provide notice of the decision not to renew coverage to all affected small employers and to the commissioner in each state in which an affected insured individual is known to reside at least 180 days prior to the nonrenewal of any health benefit plans by thecarrier. Notice to the commissioner under this subparagraph
shall be provided at least three (3) working days prior to the notice to the affected small employers; or

(7) The commissioner finds that the continuation of the coverage would:

Not be in the best interests of the policyholders or certificate holders;

Impair the carrier's ability to meet its contractual
obligations.

In such instance the commissioner shall assist affected small employers in finding replacement coverage.

(b) A small employer carrier that elects not to renew a health benefit plan under subsection (a)(6) of this section shall be prohibited from writing new business in the small employer market in this state for a period of five

years from the date of notice to the commissioner.

(c) In the case of a small employer carrier doing business in one

established geographic service area of the state, the rules set forth in this chapter shall apply only to the carrier's operations in that service area.

§7207. Availability of coverage; preexisting conditions; minimum

participation.

(a) (1) Subject to subsection (a)(4) herein, every small employer carrier shall, as a condition of transacting business in this state with small employers, actively offer to small employers at least two (2) health benefit plans. One health benefit plan offered by each small employer carrier shall be a basic health benefit plan and one plan shall be a standard health benefit plan.

(2Y a. A small employer carrier shall issue a basic health benefit plan or a standard health benefit plan to any small employer meeting the requirements of subsection (a)(3) herein that applies to either such plan and agrees to make the required premium payments and to satisfy the other reasonable provisions of the health benefit plan not inconsistent with this chapter.

b. In the case of a small employer carrier that establishes

more than one class of business pursuant to §7204 of this title, the small employer carrier shall maintain and issue to such small employers at least one basic health benefit plan and at least one standard health benefit plan in each class of business so established. A small employer carrier may apply reasonable criteria in determining whether to accept a small employer into a class of business, provided that:

The criteria are not intended to discourage or prevent
acceptance of small employers applying for a basic or standard health benefit plan;

The criteria are not related to the health status or
claim experience of the small employer;

The criteria are applied consistently to all small
employers applying for coverage in the class of business; and

The small employer carrier provides for the acceptance of all eligible small employers into one or more classes of business.

The provisions of this subparagraph shall not apply to a class of business into which the small employer carrier is no longer enrolling new small businesses.

A small employer is eligible under paragraph (2) of this section if it employed at least two (2) or more eligible employees within this state on at least fifty percent (50%) of its working days during the preceding calendar quarter.

The provisions of this section shall be effective 180 days after the commissioner's and Delaware Health Care Commission's approval of the basic health benefit plan and the standard health benefit plan developed pursuant to §7211 of this title;
provided,that if the Small Employer Health Reinsurance Program created pursuant to §7210 of this title is not yet operative on that date, the provisions of this paragraph shall be effective on the date that program begins operation.

(1) A small employer carrier shall file with the commissioner, in a format and manner prescribed by the commissioner, the basic health benefit plans and the standard health benefit plans to be used by the carrier within ninety (90) days after the commissioner establishes the guidelines thereof. A health benefit plan filed pursuant to this
paragraph may be used by a small employer carrier beginning thirty (30) days after it is filed unless the commissioner disapproves its use.

(2) The commissioner at any time may, after providing notice and an opportunity for a hearing to the small employer carrier, disapprove the continued use by a small employer carrier of a basic or standard health benefit plan on the grounds that the plan does not meet the requirements of this chapter.

Health benefit plans covering small employers shall comply with the following provisions:

(1) A health benefit plan shall not deny, exclude or limit

benefits for a covered individual for losses incurred more than twelve (12) months following the effective date of the individual's coverage due to a preexisting condition. A health benefit plan shall not define a preexisting condition more restrictively than:

A condition that would have caused an reasonably prudent person to seek medical advice, diagnosis, care or treatment during the six (6) months immediately preceding the effective date of coverage;

A condition for which medical advice, diagnosis, care or treatment was recommended or received during the six (6) months immediately preceding the effective date of coverage; or

A pregnancy existing on the effective date of coverage.

(2) A health benefit plan shall waive any time period applicable to a preexisting condition exclusion or limitation period with respect to particular services for the period of time an individual was previously covered by qualifying previous coverage that provided benefits with respect to such services, provided that the qualifying previous coverage was continuous to a date not more than sixty (60) days prior to the effective date of the new coverage, excluding any waiting period applicable to the new plan. This paragraph does not preclude application of any waiting period applicable to all new enrollees under the health benefit plan.

(3) A health benefit plan may either exclude coverage for late enrollees for eighteen (18) months or contain an eighteen-month preexisting condition exclusion; provided that if both a period of exclusion from coverage and a preexisting condition exclusion are applicable to a late enrollee, the combined period shall not exceed eighteen (18) months from the date the individual became eligible to enroll for coverage under the health benefit plan, except as provided in subsection (c)(1) of this section.

(4) a. Except as provided in subsection (d) of this section,

requirements used by a small employer carrier in determining whether to provide coverage to a small employer, including requirements for minimum participation of eligible employees shall be applied uniformly among all small employers with the same number of eligible employees applying for coverage or receiving coverage from the small employer carrier.

A small employer carrier may vary the application of minimum
participation requirements and minimum employer contribution requirements only by the size of the small employer group.

An employee who does not participate in the health benefit plan and who presents satisfactory evidence that he or she has coverage through a spouse shall not be counted by a small employer carrier with respect to number or percent participation requirements.

A small employer carrier shall not increase any requirement for
minimum employee participation or any requirement for minimum employer

contribution applicable to a small employer at any time after the small employer has contracted for coverage.

(5) a. If a small employer carrier offers coverage to a small

employer, the small employer carrier shall offer coverage to all of the eligible employees of a small employer and their dependents. A small employer carrier shall not offer coverage to only certain individuals in a small employer group or to only part of the group, except in the case of late enrollees as provided in subsection (c)(3) of this section.

b. A small employer carrier shall not modify a basic or standard health benefit plan with respect to a small employer or any eligible employee or dependent through riders, endorsements or otherwise, to restrict or exclude coverage for certain diseases or medical conditions otherwise covered by the health benefit plan.

(d)(1) A small employer carrier shall not be required to offer coverage or accept applications pursuant to subsection (a) of this section in the case of the following:

To a small employer, where the small employer is not physically located in the carrier's established geographic service area;

To an employee, when the employee does not work or reside
within the carrier's established geographic service area; or

Within an area where the small employer carrier reasonably

anticipates, and demonstrates to the satisfaction of the commissioner, that it will not have the capacity within its established geographic service area to deliver service adequately to the members of such groups because of its obligations to existing group policyholders and enrollees.

(2) A small employer carrier that cannot offer coverage pursuant to subsection (1)c of this subsection may not offer coverage in the applicable area to new cases of employer groups with more than twenty-five (25) eligible employees or to any small employer groups until the later of 180 days following each such refusal or the date on which the carrier notifies the commissioner that it has regained capacity to deliver services to small employer groups.

(e) A small employer carrier shall not be required to provide

coverage to its employers pursuant to subsection (a) of this section for any period of time for which the commissioner determines that requiring the acceptance of small employers in accordance with the provisions of subsection (a) of this section would place the small employer carrier in a financially impaired condition.

§7208. Notice of intent to operate as a risk-assuming carrier.

(a) (1) Each small employer carrier desiring to operate as a risk-assuming carrier shall make application to the commissioner within thirty (30) days of the effective date of this chapter to operate as a risk-assuming carrier, pursuant to §7209 of this title.

The commissioner may permit a carrier to modify its status at any time for good cause shown.

The commissioner shall establish an application process for small employer carriers seeking to change their status under this subsection.

(b) A reinsuring carrier that applies and is approved to operate as a risk-assuming carrier shall not be permitted to continue to reinsure any health benefit plan with the program. Such a carrier shall pay a prorated assessment based upon business issued as a reinsuring carrier for any portion of the year that the business was reinsured.

§7209. Application to become a risk-assuming carrier.

(a) A small employer carrier may apply to become a risk-assuming carrier by filing an application with' the commissioner in a form and manner prescribed by the commissioner.

(b) The commissioner shall consider the following factors in evaluating an application filed under subsection (a):

The carrier's financial condition;

The carrier's history or rating and underwriting small
employer groups;

The carrier's commitment to market fairly to all small
employers in the state or its established geographic service area, as applicable; and

The carrier's experience with managing the risk of small
employer groups.

The effect of approval and disapproval on the small employer insurance market and the Small Employer Carrier Reinsurance Program pursuant to §7210 of this title.

(c) The commissioner shall provide public notice of an application by a small employer carrier to be a risk-assuming carrier and shall provide at least a sixty-day period for public comment prior to making a decision on the application.

(d) The commissioner may rescind the approval granted to a risk-assuming carrier under this section if the commissioner finds that:

The carrier's financial condition will no longer support the
assumption of risk from issuing coverage to small employers in compliance with §7207 without the protection afforded by the program;

The carrier has failed to market fairly to all small employers in the state or its established geographic service area, as applicable; or

The carrier has failed to provide coverage to eligible small employers as required in §7207 of this title.

(e) A small employer carrier electing to be a risk-assuming carrier shall not be subject to the provisions of §7210 of this title.

§7210. Small employer carrier reinsurance program.

A reinsuring carrier shall be subject to the provisions of this section.

There is hereby created a nonprofit entity to be known as the Delaware Small Employer Health Reinsurance Program.

(1) The program shall operate subject to the supervision and control of the board. Subject to the provisions of paragraph (2) of this
subsection, the board shall consist of eight (8) members appointed by the Governor, plus the commissioner or his or her designated representative, who shall serve as an ex-officio member of the board. Of the 8 appointed members, at least 1 shall be a resident of each county. No more than 5 of the board members shall be of the same political party.

(2) a. In selecting the members of the board, the Governor shall

include representatives of small employers and small employer carriers and such other individuals determined to be qualified by the Governor. At least five (5) of the members of the board shall be representatives of reinsuring carriers and shall be selected from individuals nominated by small employer carriers in this state pursuant to procedures and guidelines developed by the commissioner.

b. In the event that the program becomes eligible for additional financing pursuant to subsection (1)(3) of this section, the board

shall be expanded to include two (2) additional members who shall be appointed by the Governor. In selecting the additional members of the board, the Governor shall choose individuals who represent carriers who are not small employer carriers. The expansion of the board under this subsection shall continue for the period that the program continues to be eligible for additional financing under subsection (1)(3) of this section.

The initial board members shall be appointed as follows: two (2)

of the members to serve a term of (1) year; three (3) of the members to serve a term of two (2) years; and three (3) of the members to serve a term of three (3) years. Subsequent board members shall serve for a term of three (3) years. A board member shall be eligible for reappointment. A board member's term shall continue until his or her successor is appointed.

(4) A vacancy in the board shall be filled by the Governor. A board member may be removed by the Governor for cause.

(d) Within sixty (60) days of the effective date of this chapter, each

small employer carrier shall make a filing with the commissioner containing the carrier's net health insurance premium derived from health benefit plans delivered or issued for delivery to small employers in this state in the previous calendar year.

(e) Within 180 days after the appointment of the initial board, the board shall submit to the commissioner a plan of operation and thereafter any amendments thereto necessary or suitable to assure the fair, reasonable and equitable administration of the program. The commissioner may, after notice and hearing, approve the plan of operation if the commissioner determines it to be suitable to assure the fair, reasonable and equitable administration of the program, and to provide for the sharing of program gains or losses on an equitable and proportionate basis in accordance with the provisions of this section. The plan of operation shall become effective upon written approval by the commissioner.

(f) If the board fails to submit a suitable plan of operation within 180 days after its appointment, the commissioner shall, after notice and hearing, adopt and promulgate a temporary plan of operation. The commissioner shall amend or rescind any plan adopted under this subsection at the time a plan of operation is submitted by the board and approved by the commissioner.

(g) The plan of operation shall:

Establish procedures for handling and accounting of program assets and monies and for an annual fiscal reporting to the commissioner;

Establish procedures for selecting an administering contractor and setting forth the powers and duties of the administering contractor;

Establish procedures for reinsuring risks in accordance with the provisions of this section;

Establish procedures for collecting assessments from reinsuring carriers to fund claims and administrative expenses incurred or estimated to be incurred by the program; and

Provide for any additional matters necessary for the
implementation and administration of the program.

(h) The program shall have the general powers and authority granted under the laws of this state to insurance companies, health maintenance organizations and health services corporations licensed to transact business, except the power to issue health benefit plans directly to either groups or individuals. In addition thereto, the program shall have the specific authority to:

(1) Enter into contracts as are necessary or proper to carry out the provisions and purposes of this chapter, including the authority, with the approval of the commissioner, to enter into contracts with similar programs of other states for the joint performance of common functions

or with persons or other organizations for the performance of administrative functions;

Sue or be sued, including taking any legal actions necessary or proper to recover any assessments and penalties for, on behalf of, or against the program or any reinsuring carriers;

Take any legal action necessary to avoid the payment of improper claims against the program;

Define the health benefit plans for which reinsurance will be provided, and to issue reinsurance policies, in accordance with the requirements of this chapter;

Establish rules, conditions and procedures for reinsuring risks under the program;

Establish actuarial functions as appropriate for the operation of the program;

Assess reinsuring carriers in accordance with the provisions of subsection (1) of this section, and to make advance interim assessments as may be reasonable and necessary for organizational and interim operating expenses. Any interim assessments shall be credited as
offsets against any regular assessments due following the close of the fiscal year;

Appoint appropriate legal, actuarial and other committees as necessary to provide technical assistance in the operation of the program, policy and other contract design, and any other function within the authority of the program;

Borrow money to effect the purposes of the program. Any notes or other evidence of indebtedness of the program not in default shall be legal investments for carriers and may be carried as admitted assets;

(i) A reinsuring carrier may reinsure with the program as provided for in this subsection:

With respect to a basic health benefit plan or a standard health benefit plan, the program shall reinsure the level of coverage provided and, with respect to other plans, the program shall reinsure up to the level of coverage provided in a basic or standard health benefit plan.

A small employer carrier may reinsure an entire employer group within sixty (60) days of the commencement of the group's coverage under a health benefit plan.

A reinsuring carrier may reinsure an eligible employee or dependent within a period of sixty (60) days following the commencement of or next renewal after enactment hereof of coverage with the small employer. A newly eligible employee or dependent of the reinsured
small employer may be reinsured within sixty (60) days of the commencement of his or her coverage.

a. The program shall not reimburse a reinsuring carrier with respect to the claims of a reinsured employee or dependent until the carrier has incurred an initial level of claims for such employee or dependent of $5,000 in a calendar year for benefits covered by the program. In addition, the reinsuring carrier shall be responsible for ten percent (10%) of the next $50,000 of benefit payments during a calendar year and the program shall reinsure the remainder. A reinsuring carriers'
liability under this subparagraph shall not exceed a maximum limit of $10,000 in any one calendar year with respect to any reinsured individual. Provided, however that the Board may

establish higher retention levels, percentages of responsibility, and maximum limits with respect to the claims of a reinsured employee or dependent who was covered by the subject carrier prior to the enactment hereof.

b. The board annually shall adjust the initial level of claims and the maximum limit to be retained by the carrier to reflect increases in costs and utilization within the standard market for health benefit plans within the state. The adjustment shall not be less than the annual change in the medical component of the "Consumer Price Index for All Urban Consumers" of the U.S. Department of Labor, Bureau of Labor Statistics, unless the board proposes and the commissioner approves a lower adjustment factor.

A small employer carrier may terminate reinsurance with the program for one or more of the reinsured employees or dependents of a small employer on any anniversary of the health benefit plan.

Premium rates charged for reinsurance by the program to a health maintenance organization that is federally qualified under 42 U.S.C. §300c(c)(2)(A), and as such is subject to requirements that limit the amount of risk that may be ceded to the program that is more restrictive than those specified in paragraph (4) of this subsection, shall be reduced to reflect that portion of the risk above the amount set forth in paragraph (4) of this subsection, that may not be ceded to the program, if any.

A reinsuring carrier shall apply all managed care and claims
handling techniques, including utilization review, individual case management, preferred provider provisions, and other managed care provisions or methods of operation consistently with respect to reinsured and nonreinsured business.

(j) (1) The board, as part of the plan of operation, shall establish a methodology for determining premium rates to be charged by the program for reinsuring small employers and individuals pursuant to this section. The methodology shall include a system for classification of small employers that reflects the types of case characteristics commonly used by small employer carriers in the state. The methodology shall provide for the development of base reinsurance premium rates which shall be multiplied by the factors set forth in paragraph (2) herein to determine the premium rates for the program. The base reinsurance premium rates shall be established by the board, subject to the approval of the commissioner, and shall be set at levels which reasonably approximate gross premiums charged to small employers by small employer carriers for health benefit plans with benefits similar to the standard health benefit plan (adjusted to reflect retention levels required under this chapter).

(2) Premiums for the program shall be as follows:

An entire small employer group may be reinsured for a rate that is one and one—half (1.5) times the base reinsurance premium rate for the group established pursuant to this paragraph, or such rate with respect to groups covered by the subject carrier prior to the enactment hereof as the Board shall determine, but in no event less than the rate set forth above.

An eligible employee or dependent may be reinsured for a rate that is five (5) times the base reinsurance premium rate for the individual established pursuant to this paragraph, or such rate with respect to employees or dependents covered by the subject carrier prior to the enactment herein as the board shall determine, but in no event less than the rate set forth above.

(3) The board periodically shall review the methodology

established under paragraph (1) of this subsection, including the system of classification and any rating factors, to assure that it reasonably reflects the claims experience of the program. The board may propose changes to the methodology which shall be subject to the approval of the commissioner.

(4) The board may consider adjustments to the premium rates

charged by the program to reflect the use of effective cost containment and managed care arrangements.

(5) Within twenty—four (24) months following enactment of this chapter, the board shall report to the Delaware Health Care Commission concerning the effects of any variation of reinsurance premium rates, retention levels, percentages of responsibility or maximum limits with respect to claims of a reinsured employee, dependent or group who was covered by the subject carrier prior to the enactment hereof. The commission shall report to the General Assembly within 60 days of receipt of such report with its conclusions from such report and recommended changes, if any, to the statutory mechanism provided hereunder.

(k) If a health benefit plan for a small employer is entirely or partially reinsured with the program, the premium charged to the small employer for any rating period for the coverage issued shall meet the requirements relating to premium rates set forth in §7205 of this title.

(1) (1) Prior to March 1 of each year, the board shall determine and

report to the commissioner the program net loss for the previous calendar year, taking into account investment income and other appropriate gains and losses.

(2) Any net loss for the year shall be recouped by assessments of reinsuring carriers.

a. The board shall establish, as part of the plan of operation, a formula by which to make assessments against reinsuring carriers. The assessment formula shall be based on:

Each reinsuring carrier's share of the total premiums
earned in the preceding calendar year from health benefit plans delivered or issued for delivery to small employers in this state by reinsuring carriers; and

Each reinsuring carrier's share of the premiums earned in the preceding calendar year from newly issued health benefit plans delivered or issued for delivery during the calendar year to small employers in this state by reinsuring carriers.

b. The formula established pursuant to subparagraph (a) of this subsection shall not result in any reinsuring carrier having an assessment share that is less than fifty percent (50%) nor more than 150 percent of an amount which is based on the proportion of (1) the reinsuring carrier's total premiums earned in the preceding calendar year from health benefit plans delivered or issued for delivery to small employers in this state by reinsuring carriers to (ii) the total premiums earned in the preceding calendar year from health benefit plans delivered or issued for delivery to small employers in this state by all reinsuring carriers.

c. The board may, with approval of the commissioner, change the assessment formula established pursuant to subparagraph (a) of this subsection from time to time as appropriate. The board may provide for the shares of the assessment base attributable to total premium and to the previous year's premium to vary during a transition period.

d. Subject to the approval of the commissioner, the board shall make an adjustment to the assessment formula for reinsuring carriers that are approved health maintenance organizations which are federally qualified under 42 U.S.C. §300, et seq., to the extent, if any, that restrictions are placed on them that are not imposed on other small employer carriers.

e. Premiums earned by a reinsuring carrier that are less than an amount determined by the board to justify the cost of assessment collection shall not be considered for purposes of determining assessments.

(3) a. Prior to March 1 of each year, the board shall determine and file with the commissioner an estimate of the assessments

needed to fund the losses incurred by the program in the previous calendar year.

If the board determines that the assessments needed to fund the losses incurred by the program in the previous calendar year will exceed the amount specified in subparagraph c of this subsection, the board shall evaluate the operation of the program and report its findings, including any recommendations for changes to the plan of operation, to the commissioner within ninety (90) days following the end of the calendar year in which the losses were incurred. The evaluation shall
include an estimate of future assessments and consideration ofthe administrative costs of the program, the appropriateness of the premiums charged, the level of insurer retention under the program and costs of coverage for small employers. If the board fails to file a report with the commissioner within ninety (90) days following the end of the applicable calendar year, the commissioner may evaluate the operations of the program and implement such amendments to the plan of operation the commissioner deems necessary to reduce future losses and assessments.

for any calendar year, the maximum assessment amount under this subparagraph is five percent (5%) of total premiums earned in the previous calendar year from health benefit plans delivered or issued for delivery to small employers in this state by reinsuring carriers.

(i) If assessments in each of two (2) consecutive calendar years exceed the amount specified in subparagraph c of this subsection, the program shall be eligible to receive additional financing as provided in item (ii) of this subparagraph.

The additional funding provided for in item (i) of this
subparagraph shall be obtained from assessments of health insurers, health maintenance organizations, and health service corporations as provided for in §707(a) of this title. The amount of additional financing to be provided to the program shall be equal to the amount by which total assessments in the preceding two (2) calendar years exceed five percent (5%) of total premiums earned during that period from small employers from health benefit plans delivered or issued for delivery in this state by reinsuring carriers. If the program has received additional financing in either of the two (2) previous calendar years pursuant to this provision, the amount of additional financing shall be subtracted from the amount of total assessments for the purpose of the calculation in the previous sentence.

Additional financing received by the program pursuant to this
subparagraph shall be distributed to reinsuring carriers in proportion to the assessments paid by such carriers over the previous two (2) calendar years.

If assessments exceed net losses of the program, the excess may be held at interest and used by the board to offset future losses or to reduce program premiums. As used in this paragraph, 'future
losses' includes reserves for incurred but not reported claims.

Each reinsuring carrier's proportion of the assessment shall be determined annually by the board based on annual statements and other reports deemed necessary by the board and filed by the reinsuring carriers with the board.

The plan of operation shall provide for the imposition of an interest penalty for late payment of assessments.

A reinsuring carrier may seek from the commissioner a deferment from all or part of an assessment imposed by the board. The
commissioner may defer all or part of the assessment of a reinsuring carrier if the commissioner determines that the payment of the assessment would place the reinsuring carrier in a

financially impaired condition. If all or part of an assessment

against a reinsuring carrier is deferred the amount deferred shall be assessed against the other participating carriers in a manner consistent with the basis for assessment set forth in this subsection. The reinsuring carrier receiving the deferment shall remain liable to the program for the amount deferred and may be prohibited by the commissioner from reinsuring any individuals or groups with the program until such time as it pays the assessments, and may be relieved by the commissioner of the requirements of §7205 of this title.

Neither the participation in the program as reinsuring carriers, the establishment of rates, forms or procedures, nor any other joint or collective action required by this chapter shall be the basis of any legal action, criminal or civil liability, or penalty against the program or any of its reinsuring carriers either jointly or separately.

The board, as part of the plan of operation, shall develop standards setting forth the manner and levels of compensation to be paid to producers for the sale of basic and standard health benefit plans. In establishing such standards, the board shall take into the
consideration the need to assure the broad availability of coverages, the objectives of the program, the time and effort expended in placing the coverage, the need to provide on-going service to the small employer, the levels of compensation currently used in the Industry and the overall costs of coverage to small employers selecting these plans.

The program shall be exempt from any and all state and local taxes. §7211. Health benefit plan committee.

The commissioner shall appoint a Health Benefit Plan Committee. The
committee shall be composed of representatives of carriers, small employers and employees, health care providers and producers.

The committee shall recommend the form and level of coverages to be made available by small employer carriers pursuant to §7207 of this title.

The committee shall recommend benefit levels, cost sharing levels, exclusions and limitations for the basic health benefit plan and the standard health benefit plan. The committee shall also design a basic health benefit plan and a standard health benefit plan which contain benefit and cost sharing levels that are consistent with the basic method of operation and the benefit plans of health maintenance organizations, including any restrictions imposed by federal law.

(1) The plans recommended by the committee may include cost containment features such as:

Utilization review of health care services, including review of medical necessity of hospital and physician services;

Case management;

Selective contracting with hospitals, physicians and other health care providers;

Reasonable benefit differentials applicable to providers that participate or do not participate in arrangements using restricted network provisions; and

Other managed care provisions.

(2) The committee shall submit the health benefit plans described in subparagraph (1) of this subsection to the commissioner and the Delaware Health Care Commission for approval within 180 days after the appointment of the committee.

§7212. Periodic market evaluation.

The board, in consultation with the committee, shall study and report at least every three (3) years to the commissioner on the effectiveness of this chapter. The report shall analyze the effectiveness of the chapter in promoting rate stability, product availability, and coverage affordability. The report may contain recommendations for actions to improve the overall effectiveness, efficiency and fairness of the small employer group health insurance marketplace. The report shall address whether carriers and producers are fairly and actively marketing or issuing health benefit plans to small employers in fulfillment of the purposes of the chapter. The report may contain recommendations for market conduct or other regulatory standards or action.

§7213. Waiver of certain state laws.

No law requiring the coverage of a health care service or benefit, or requiring the reimbursement, utilization or inclusion of a specific category of licensed health care practitioner, shall apply to a basic health benefit plan delivered or issued for delivery to small employers in this state pursuant to this chapter.

§7214. Administrative procedures.

The commissioner shall issue regulations in accordance with §314 of this title and 29 Del. C. Ch. 101, for the implementation and administration of this chapter.

§7215. Standards to assure fair marketing.

(a) Each small employer carrier shall actively market health benefit plan coverage, including the basic and standard health benefit plans, to eligible small employers in the state. If a small employer carrier denies coverage to a small employer on the basis of the health status or claims experience of the small employer or its employees or dependents, the small employer carrier shall offer the small employer the opportunity to purchase a basic health benefit plan and a standard health benefit plan.

(b) (1) Except as provided in paragraph (2) of this subsection, no small employer carrier or producer shall, directly or indirectly, engage in the following activities:

Encouraging or directing small employers to refrain from filing an application for coverage with the small employer carrier because of the health status, claims experience, industry, occupation or geographic location of the small employer.

Encouraging or directing small employers to seek coverage from another carrier because of the health status, claims
experience, industry, occupation or geographic location of the small employer.

(2) The provision of paragraph (1) of this subsection, shall not apply with respect to information provided by a small employer carrier or producer to a small employer regarding the established geographic service area or a restricted network provision of a small employer carrier.

(c) (1) Except as provided in paragraph (2) of this subsection, no small employer carrier shall, directly or indirectly, enter into any contract, agreement or arrangement with a producer that provides for or results in the compensation paid to a producer for the sale of a health benefit plan to be varied because of the health status, claims experience, industry, occupation or geographic area of the small employer.

(d) A small employer carrier shall provide reasonable compensation, as provided under the plan of operation of the program, to a producer, if any, for the sale of a basic or standard health benefit plan.

(e) No small employer carrier may terminate, fail to renew or limit its contract or agreement of representation with a producer for any reason related to the health status, claims experience, occupation or

geographic location of the small employers placed by the producer with the small employer carrier.

No small employer carrier or producer may induce or otherwise encourage a small employer to separate or otherwise exclude an employee from health coverage or benefits provided in connection with the employee's employment.

Denial by a small employer carrier of an application for coverage from a small employer shall be in writing and shall state the reason or reasons for the denial.

The commissioner may establish regulations setting forth additional standards to provide for the fair marketing and board availability of health benefit plans to small employers in this state.

(I) (1) A violation of this section by a small employer carrier or a producer shall be an unfair trade practice under §2303 and §2304 of this title.

(2) If a small employer carrier enters into a contract, agreement or other arrangement with a third-party administrator to provide administrative, marketing or other services related to the offering of health benefit plans to small employers in this state, the third-party administrator shall be subject to this section as if it were a small employer carrier.

§7216. Regulations; exceptions.

(a) The commissioner may establish regulations to implement the provisions of this section and to assure that rating practices used by small employer carriers are consistent with the purposes of this chapter, including regulations that:

Assure that differences in rates charged for health benefit plans by small employer carriers are reasonable and reflect objective differences in plan design (not including differences due to the nature of the groups assumed to select particular health benefit plans); and

Prescribe the manner in which case characteristics may be used by small employer carriers.

(b) The commissioner may suspend for a specified period the application of subsection (a)(1) of this section as to the premium rates applicable to one or more small employers included within a class of business of a small employer carrier for one or more rating periods upon a filing by the small employer carrier and a finding by the commissioner either that the suspension is reasonable in light of the financial condition of the small employer carrier or that the suspension would enhance the efficiency and fairness of the marketplace for small employer health insurance.

§7217. Disclosure of rating practices; certification of compliance.

(a) In connection with the offering for sale of any health benefit plan to a small employer, a small employer carrier shall make a reasonable disclosure, as part of its solicitation and sales materials, of all of the following:

The extent to which premium rates for a specified small employer are established or adjusted based upon the actual or expected variation in claims costs or actual or expected variation in health status of the employees of the small employer and their dependents;

The provisions of the health benefit plan concerning the small employer carrier's right to change premium rates and the factors, other than claim experience that affect changes in premium rates;

The provisions relating to renewability of policies and contract; and

The provisions relating to any preexisting condition provision.

Each small employer carrier shall maintain at its principal place of business a complete and detailed description of its rating practices and renewal underwriting practices, including information and
documentation that demonstrate that its rating methods and practices are based upon commonly accepted actuarial assumptions and are in accordance with sound actuarial principles.

Each small employer carrier shall file with the Commissioner annually on or before March 15, an actuarial certification certifying that the carrier is in compliance with this chapter and that the rating methods of the small employer carrier are actuarially sound. Such
certification shall be in a form and manner, and shall contain such information, as specified by the commissioner. A copy of the
certification shall be retained by the small employer carrier at its principal place of business.

A small employer carrier shall make information and documentation described in subsection b of this section available to the commissioner upon request. Except in cases of violations of this chapter, the

information shall be considered proprietary and trade secret information and shall not be subject to disclosure by the commissioner to persons outside of the Department except as agreed to by the small employer carrier or as ordered by a court of competent jurisidiction."

Section 2. If any provision of this chapter or the application thereof to any person or circumstances is for any reason held to be invalid, the remainder of the chapter and the application of its provisions to other persons or circumstances shall not be affected thereby.

Section 3. This chapter shall be effective on January 4, 1993.

Section 4. §7204(f) of this Title shall sunset and expire 3 years after the effective of this Act.

Approved July 9, 1992.