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ARIZONA STATE SENATE |
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45TH LEGISLATURE SECOND REGULAR SESSION
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MINUTES OF COMMITTEE ONBANKING AND INSURANCE |
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DATE: |
February 7, 2002 |
TIME: 1:30 p.m. |
ROOM: SHR 2 |
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CHAIRMAN: |
Senator Cirillo |
VICE CHAIRMAN: |
Senator Valadez |
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ANALYST: |
Todd Madeksza |
COMMITTEE SECRETARY: |
Nancy L. DeMichele |
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INTERN: |
Stephan Robertson |
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ATTENDANCE |
BILLS |
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Committee Members |
Pr |
Ab |
Ex |
Bill Number |
Disposition |
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Senator Gerard |
X |
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SB 1098 |
HELD |
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Senator Martin |
X |
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SB 1100 |
DPA |
Senator Richardson |
X |
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SB 1162 |
DPA |
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Senator Yrun |
X |
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SB 1196 |
DP |
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Senator Valadez, Vice Chair |
X |
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SB 1229 |
HELD |
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Senator Cirillo, Chair |
X |
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GOVERNOR'S APPOINTMENTS |
Name |
Position |
Recommendation |
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Senator Cirillo called the meeting to order at 1:38 p.m., and attendance was noted. For additional attendees, see Sign-In Sheet (Attachment A).
APPROVAL OF MINUTES
Senator Cirillo announced, without objection, the minutes of the meeting of January 31, 2002, are approved as distributed.
CONSIDERATION OF BILLS
SB 1229 – health insurance; physical therapists – HELD
Senator Cirillo announced that SB 1229 will be held to be heard next week.
SB 1196 – insurance producer licensing; conforming changes – DO PASS
Todd Madeksza, Research Banking and Insurance Analyst, explained SB 1196 makes conforming changes to Arizona Revised Statutes (A.R.S.) regarding insurance producers. He pointed out that during the last session, SB 1336 passed the adopted model legislation to conform Arizona statute to federal legislation. The last portion of SB 1336 required legislative counsel to propose legislation that conformed the balance of A.R.S. to the changes made in that bill. He noted that the result of that order is SB 1196, and that there is no anticipated fiscal impact to the general fund.
Senator Cirillo announced that Vista Brown, Legislative Liaison, Arizona Department of Insurance (DOI), was present in support of SB 1196 and would provide information, if necessary. Also present in support of SB 1196 was: Travis Bunch, Government Affairs, Independent Insurance Agents.
Senator Valadez moved SB 1196 be returned with a DO PASS recommendation. The motion CARRIED by a roll call vote of 6-0-0 (Attachment 1).
SB 1098 – insurance; rental cars – HELD
Mr. Madeksza explained SB 1098 shifts primary motor vehicle liability insurance coverage from a rental car company’s policy to the driver’s policy. He pointed out that current Arizona law states that the liability insurance coverage that rental car companies are required to carry on every car owned is primary in the event of a loss. He noted that the driver's policy is considered excess, if the rental company's liability coverage is insufficient. In addition, the bill requires rental car agencies to conspicuously post a statement detailing renter liability and insurance coverage relating to the rental of motor vehicles. He said a Valadez amendment is being offered, which requires rental agents to obtain proof of liability insurance from the driver prior to renting the vehicle. The amendment also requires the rental agency to provide proof of liability issuance to a third party involved in an accident with the renter of the vehicle or the third party's agent.
Senator Cirillo stated this is a very complicated issue, and there is not necessarily a "right" or "wrong" answer.
Kevin DeMenna, Lobbyist, Arizona Rental Car Coalition, testified in support of SB 1098. He explained the Coalition consists of companies in the car rental business. The Coalition also includes ancillary businesses, such as, automobile dealerships, body shops, and insurance companies throughout the State in support of SB 1098. He pointed out that this bill changes the law to where it was twenty years ago. He said it is an issue of fairness and personal responsibility. He described the situation as it currently exists with respect to renting a vehicle, and the circumstances involved if an accident occurs. He said under Arizona insurance laws, the rental car company would be held primarily liable. He commented that his clients are not in the insurance business to underwrite risk. Mr. DeMenna emphasized that this legislation comes at a very important time in the industry. He said when the State attempts to extract revenue related to tourism, the rental car industry generally has to absorb those costs. He urged support of SB 1098.
Senator Cirillo asked whether rental car agencies insure the vehicles that are owned and rented. Mr. DeMenna responded that Ray Wagner could answer any particular questions.
Senator Gerard asked Mr. DeMenna to explain how the issue is handled in other states. Mr. DeMenna replied that the issue has been extensively researched. He said there are four states that have the same law as Arizona. The balance of states handle it differently and contrary to Arizona. He pointed out that 70% of rentals in Arizona are from out of state. In response to Senator Martin, Mr. DeMenna described the circumstances that changed the law twenty years ago, which involved a court case.
Senator Yrun asked whether Arizona law prevails in a situation where a renter, who is insured in another state, rents a vehicle in Arizona. Mr. DeMenna turned the question over to Mr. Wagner.
Raymond Wagner, Legislative Vice President, Enterprise Rent-A-Car, testified in support of SB 1098. He explained current law and SB 1098, and believes the current law is poor public policy. He said 70% of renters in Arizona are non-residents and are not held responsible for the damages caused. The expenses of damages remain in Arizona after the renters have returned to their home states. He said that current law means that Arizona rental companies must absorb the damages in the rental rates charged to all renters, regardless of whether they are Arizona residents or non-residents. The current law is anti-consumer because of the high rates that have to be charged, and it protects the careless accident-prone driver. Currently it is difficult for insurance companies to locate the drivers and to account for the driving record and insurance premiums ultimately charged. In response to Senator Cirillo, Mr. Wagner indicated that rental cars are insured pursuant to the minimum financial responsibility laws of Arizona. As the owner of vehicles, Enterprise is required to carry insurance for the liability claims that would be forthcoming. He said if SB 1098 passed, Enterprise would carry the same minimum financial responsibility coverage. He noted Enterprise also has business insurance to cover the assets of the company. He said that smaller companies tend to carry collision insurance to the extent those companies are able to find an underwriter, which is a problem. He noted that the larger companies are typically self-insured. Mr. Wagner stated that the current law is anti-consumer because it deprives a victim who is harmed by a renter from pursuing insurance that the renter might have, which is in excess of the minimum financial responsibility.
In response to Senator Richardson, Mr. Wagner stated that the standard practice is to require a renter to carry liability insurance. He said in the instance where a renter does not have insurance, the rental companies provide a product that a renter can purchase. He said the insurance companies would argue that the rates will somehow increase for all Arizona drivers. He emphasized that argument is false because insurance policies cover insureds for non-owned, temporary rental substitute type vehicles often for a period of up to 30 days. He said that Arizona residents are in essence asked to pay twice: once when they pay their premiums and again when they pay the higher rental rates. Current law mandates that all damages caused by negligence remain in Arizona. He pointed out that there is no opportunity in current law to export those damages back to the renter's home state. He said if the bill passes, the damages will be exported out of Arizona to the responsible individual. Mr. Wagner indicated that the current law does not protect Arizona citizens when they rent vehicles out of state.
In response to Senator Yrun, Mr. Wagner clarified that most rental car companies have language contained in their agreements that states the renter is insured. He said there is no requirement to show the insurance card that is carried in the car. Senator Yrun referred to the liability damage exported out of Arizona, and asked whether the amount is in excess of the minimum amount because of the driver being in a secondary position. Therefore, it would appear that some percentage of damage is being exported out of the state. Mr. Wagner responded in theory that is correct. However, to the extent that an injured party in Arizona filed a claim to collect against the secondary coverage that the renter currently has in Arizona, then that claim would be pursued in the home state.
Senator Cirillo stated that the issue then becomes one of prime responsibility. He questioned whether responsibility would fall upon the person who owns the asset or the person who is responsible for the accident. Senator Cirillo indicated that generally the person owning the asset purchases insurance to protect the asset. He said that the individual responsible for the accident should be held accountable, but it is difficult to assess which party should carry the most weight.
Mr. Wagner responded that rental car companies are singled out for absorbing the responsibility and damages associated with another person's negligence. He said even automobile dealers do not have the same responsibility and level of increased cost in absorbing damages from a negligent third party. He urged the Committee to place the responsibility with the party causing the damage; namely, the renter of the vehicle. In response to Senator Cirillo, Mr. Wagner noted that rental car companies, even in a secondary position, are required to carry insurance under the State's minimum financial responsibility.
Mr. Wagner stated that the rental car industry is in a difficult position as a result of the weakened economy and the aftermath of the events of last September. He said some of the rental car companies have filed for bankruptcy. He commented that he is not present to ask for a subsidy or bailout for the industry, but simply asking for fairness. He would like a pro-consumer and pro-industry adjustment to the current law so that the marketplace can freely work without unfairly shifting another's liability. He said the rental car industry generates thousands of jobs throughout Arizona, and purchases tens of thousands of vehicles from automobile dealers in the State. The industry serves as the backbone of the tourism industry, and pays a significant amount of money in sales taxes, airport fees, license fees, registration fees, and other fees. He respectfully urged the Committee to support SB 1098.
Senator Martin referred to the Valadez amendment, and asked what would happen if an individual did not have proof of primary insurance when renting a vehicle. Mr. Wagner responded he is familiar with the amendment, and said the rental company would be placed in the awkward position of denying a rental vehicle in that instance. He said he has some ideas of how that situation could be adjusted. However, it would not have the effect of putting the rental car companies in a primary position. In response to Senator Richardson, Mr. Wagner said the renter would have the opportunity to purchase liability insurance coverage from the rental car company.
Senator Cirillo stated that Senator Valadez will propose a verbal amendment to his amendment, and asked him to explain the intent. Senator Valadez stated that the intent of the verbal amendment is to clarify language that clouds that issue. He said the verbal amendment will eliminate the words "prior to" from line 2, and will strike line 3 completely.
Senator Gerard asked for an explanation of the term "public" liability insurance as stated in the amendment. Mr. Madeksza replied he is unsure about the use of the word "public." He said Senator Cirillo is probably correct in that it refers to liability as opposed to collision.
Vista Brown, Legislative Liaison, DOI, explained that the drafters of the amendment may have meant to use the word "personal" rather than the word "public." She said it most likely refers to the mandatory automobile laws in Title 28, because is it not an insurance term.
Barry Aarons, Executive Director/Consultant, Arizona Tourism Alliance, testified in support of SB 1098. He explained that the tourism business is the largest business in the State, which is a $29 billion industry employing 400,000 people. He said the problem is that the tourism industry is currently depressed due to various situations. He pointed out that SB 1098 will help, but it is not a panacea for the industry. However, all the proposed bills together would help the industries that make up the $29 billion engine to maintain Arizona's competitiveness with industries in other states. He emphasized that SB 1098 will go a long way in sustaining a revenue-generating industry for the State's general fund.
Stuart Boykoff, Chief Executive Officer, Thrifty Car Rental, testified in support of SB 1098. He stated that as a franchise owner, he is looking for fair treatment. He explained that currently the cost of his insurance in Arizona is very high due to primary insurance liability. He said the vast majority of people renting vehicles are from out of town, and most of them have insurance with coverage to pay for the damages. However, because of Arizona law, their insurance companies do not have to cover those damages. He pointed out that no company will cover his business assets at a reasonable cost, so his business is self-insured for collision coverage. He has catastrophic coverage, but collision coverage is prohibitively expensive. Mr. Boykoff commented that it is difficult to service the marketplace in Arizona without affordable insurance. He noted that some of the smaller rental car establishments may be forced out of business due to the high costs. In response to Senator Yrun, Mr. Boykoff said that the liability insurance rates are quoted either as a percentage of gross revenue or on a per-car per-month basis. His company has chosen to purchase coverage on a per-car per-month basis and pays a set dollar amount per month based on the number of vehicles operating. He said the cost is almost 100% higher than it was three years ago, which is substantially high in the industry. He said insurance cards are not requested or required from customers because current Arizona law puts the liability on the rental companies.
Senator Gerard asked for an explanation regarding a situation where someone is involved in an accident with another party driving a rental car, but that party lives in another state. Mr. Boykoff responded although he is not an attorney, he believes the necessary information pertaining to the responsible party could be retrieved. Senator Gerard said she does not feel comfortable voting for the bill unless a matrix is available that indicates the procedure applied in other states. Upon her request, she was provided an informational chart from Kevin DeMenna (Attachment B).
Senator Richardson referred to the comment by Mr. Wagner regarding the 20% cost to insurance companies. She asked Mr. Boykoff whether that cost would decrease if the bill passes. Mr. Boykoff replied he believes it would decrease costs depending upon the insurance company's analysis of its cost based on the change in the law. He said it would most likely take a few years to phase in any decrease. He indicated that if costs are varied, it would be difficult to compete in the marketplace. He said he expects customers to be responsible for any damage to the rental vehicles; however, many customers escape liability because of the current law.
In response to a question from Senator Richardson, Mr. Wagner described a scenario that might occur under SB 1098 and the amendment. He said if the primary covered party is not available in an accident situation, the rental car company would cover the damages of the victim. He explained that under secondary insurance, the rental car company would insure the vehicle up to the minimum financial responsibility limits, and that coverage would be available to the injured party without any additional purchases by either the renter or the victim. Senator Richardson said it appears with this bill and the amendment that the consumer would be protected, and the rental car company is also covered with the company's insurance. Mr. Wagner responded that is correct, and it generally is the case in other states that compete with the tourism business.
In response to Senator Cirillo, Mr. Wagner explained the process whereby a customer would be able to retrieve the necessary information pertaining to a renter's coverage or payment for damages in the event of an accident involving a third party.
In response to Senator Gerard, Mr. Wagner explained the background of the term "vicarious liability." He stated that it is a doctrine in law that holds the owner of a vehicle liable by virtue of the ownership of that vehicle. In some states the damage is unlimited, while in other states the amount is capped. Senator Gerard asked for an explanation on the extra liability insurance that rental companies offer. Mr. Wagner responded that states throughout the country provide the option for a renter to purchase liability insurance or personal accident insurance for a fee to cover the damages that a renter causes to a third person or property. He said the coverage is optional, and is made available to Arizona residents.
TAPE 1, SIDE B
In response to Senator Yrun, Mr. Wagner explained that throughout most of the country, the rental car operators are in a secondary position. He said the legislation being proposed is currently the law in the more populace states.
Don Isaacson, State Farm Insurance Company, testified in opposition to SB 1098. He stated the issue is complex and confusing, and there is concern as to who is responsible in a situation of multiple coverages. He said there are long-established rules in the industry as to who covers first. He explained that liability insurance or financial responsibility follows the ownership of a vehicle. He pointed out that SB 1098 will send 70% of the defendants out of state and will take the rental car companies out of the primary role. Mr. Isaacson commented that 50 states "hook" primary responsibility for liability insurance on the vehicle. He obtained statistical information regarding coverage in other states from the Research Department at State Farm, which he distributed to the Committee (Attachment C). He said if the bill passes, Arizona would be moving away from the normal procedure as provided in others states. He emphasized that the norm in the country is that insurance follows the vehicle. The residents in the state where the vehicles are driven are protected by that policy. He pointed out that today all costs associated with renting cars and associated insurance costs are borne by the companies in the business and those who rent those vehicles. He said this bill would ultimately increase the cost of every Arizona automobile insurance policy while at the same time giving financial relief to rental car companies.
Mr. Isaacson commented that rental car companies are not the only businesses facing economic uncertainty. He said if those companies are facing financial hardships, they could appeal to the Legislature for some form of economic relief as other companies have done in the past. He referred to the language at the top of page 4 of the bill. He said it basically refers to primary and secondary positions, and puts the personal passenger automobile policies in excess over all other insurance. He said it provides for two levels of insurance; namely, primary and excess. However, the new language change makes no reference to excess. He said perhaps it is an error in drafting the new language, but the bill does not contain any language regarding excess or secondary coverage.
Senator Richardson asked whether excess is the same as secondary coverage. Mr. Isaacson responded he is using those terms interchangeably. The term used is excess coverage, which is the second carrier. Senator Richardson said testimony today indicated that if someone did not have primary insurance, the rental car company would have secondary or excess insurance coverage. She asked Mr. Isaacson whether he is saying the exact opposite of what was heard earlier. She stressed the importance of this key point. Mr. Isaacson explained that current law refers to both levels of coverage and specifically talks about who is in first position and who is excess. He said the bill shifts the responsibility to the insurance companies and makes no mention of excess. He pointed out it removes rental car companies from the role of having to be specified by statute as the responsible party for liability. He said his speculation is that rental car companies would sell excess coverage to renters.
Senator Richardson asked Mr. Isaacson to clarify his position on excess coverage. She asked whether the rental car company has any liability, if a renter does not purchase excess coverage and an accident occurs. She emphasized this important point needs to be clarified. Mr. Isaacson responded that the language being substituted is a reference to excess coverage in the bill, which no longer exists. He said he can only speculate that it has the intention of taking rental car companies out of the secondary role. He commented that excess coverage is currently provided by insurance companies, and if the bill passes, excess coverage will not be provided in statute by any entity.
Senator Cirillo stated he is also concerned that an Arizona resident may not be able to locate the individual responsible for the accident. He asked Mr. Madeksza to clarify the meaning in the bill because it is a critical point.
Mr. Madeksza stated there is a difference between excess coverage and having someone left without coverage. He referred to the bottom of page 4 of the bill. He said new language is inserted to indicate that the owner's insurance would cover, if the driver does not have personal insurance. He noted there is no mention of excess insurance in the bill, and it is a valid point to make. He added it does not necessarily mean that someone is left uncovered. He pointed out that there are three kinds of insurance: the rental car owner's insurance, the driver's insurance, and excess insurance sold over the counter. He said currently the order of coverage is the rental car owner's insurance, excess coverage sold over the counter, and the driver's insurance. He responded that he believes the consumer is still protected in the bill, but he will thoroughly research that point for the Committee.
Mr. Isaacson commented that the reference to excess is not included in the new language, and it would allow a rental car company to sell excess insurance to customers beyond any personal coverage. He noted that private automobile policies today include an individual's coverage in a non-owned vehicle. Therefore, if an individual is driving someone's car, that car is always primary. If that policy does not fully cover an accident, the driver's policy would become excess for added protection. He said that example does not often happen relative to the number of accidents that occur at the first level of coverage; therefore, it is priced as a component of an individual's automobile insurance. He remarked that testimony today implied that since insurance companies charge for non-owned auto coverage, those companies are already charging for coverage that is not being provided. He said that in order for insurance companies to be in a secondary or excess role, the policy has to cover the person in a non-owned vehicle. He said the bottom line of this bill is that it is a fundamental cost shift.
Senator Cirillo asked Mr. Madeksza to put together a verbal amendment to include the word excess in the language.
Senator Cirillo announced the following individuals were present in support of SB 1098: Mitch Menlove, Lobbyist, Rental Car Association; John Cappelli, HERTZ; Barbara Doty, Enterprise RAC Group, Rental Manager, Arizona Rental Car Coalition; Craig Babinski, HERTZ; Matt Robinson, Area Rental Manager, Arizona Rental Car Coalition; Laura Boykoff, President, Thrifty Car Rental; John Flynn, HERTZ; Kathi Simon, Enterprise RAC Loss Control Manager, Arizona Rental Coalition; Kevin Heese, Fleet Manager, Dollar Rent A Car; Pamela Jones, Area Manager, Arizona Car Rental Coalition; Stephanie Haarer, Area Rental Manager, Enterprise Rent-A-Car, Arizona Car Rental Coalition; William Kahn, representing himself; Robert Shaw, Enterprise RAC Loss Control Supervisor, Arizona Rental Coalition; Tom Crocker, Group Corporate Account Manager, Arizona Car Rental Coalition; Tim Flaherty, Group Manager, representing himself; Emerling Jeffrey, Group Rental Manager, Rental Car Coalition; John Kapsal, Budget Claims Manager, Rent-A-Car Coalition; Jack Gunion, owner, Arizona Rental Car Coalition.
Senator Cirillo announced the following individuals were present in opposition to SB 1098: Gregory Harris, Lobbyist, Progressive Insurance and Alliance of American Insurers; Kerry Hayden, Government Affairs Representative, Farmers Insurance; Travis Bunch, Government Affairs, Independent Insurance Agents; and David Childers, Lobbyist, Farmers Insurance & National Association of Independent Insurers (NAII).
Senator Cirillo announced the following individual was present but neutral on SB 1098: Vista Brown, Legislative Liaison, DOI.
J. Michael Low, Attorney, Allstate Insurance & American Family, testified in opposition of SB 1098. He stated that he is sympathetic to the rental car companies; however, he believes the fundamental issue is one of a cost shift from the rental car companies to the Arizona policyholders. He stated this is the wrong time to cause a shift in rates in this economic uncertainty. He said if this bill passes, the claims will appear in the Arizona rate base for everyone. He would like the issue to be studied and resolved in the off-session of the Legislature.
Senator Cirillo stated that both sides have had adequate time to state their concerns. He said this is a critical issue, and good arguments have been made on both sides.
Senator Valadez moved SB 1098 be returned with a DO PASS recommendation.
Senator Valadez moved the 7-line Valadez amendment dated 02/06/02, 10:55 a.m., be ADOPTED (Attachment D). The motion CARRIED by a voice vote.
Senator Valadez moved the following verbal amendment to the Valadez amendment:
Page 1, line 2, after "INSURANCE" insert a period; strike "PRIOR TO"
strike line 3.
The motion CARRIED by a voice vote.
Senator Valadez moved the 7-line Valadez amendment dated 02/06/02, 10:55 a.m., as amended, be ADOPTED. The motion CARRIED by a voice vote.
Mr. Madeksza explained there is also a verbal amendment to the bill:
On Page 4, after the period on line 5, it reads as follows:
Operating the motor vehicle shall extend and afford primary coverage to the operation or use of the vehicle.
He explained that the verbal amendment will read as follows:
and the insurance afforded by any other policy shall be excess.
Senator Cirillo commented that the intent is to make it clear that if a shift is made, the rental car company must still provide excess coverage. The Arizona person who has suffered the damage has financial recourse.
Mr. Madeksza stated he was given information from an insurance company lobbyist that the same language "and the insurance afforded by any other policy shall be excess" is to be inserted on Page 6, line 15, before the period. He said he believes that would be accurate.
Senator Gerard stated this action at this time is inappropriate and the bill needs to be held to be revisited next week to give staff time to properly construct the amendments. She is very uncomfortable with this critical excess coverage issue being handled in this manner. She said she will not participate in voting on this bill today, and would appreciate it being held.
Senator Cirillo stated that, without objection, SB 1098 will be held. He said that it is important to handle this very critical issue in the right manner.
SB 1100 – health care coverage; contraceptive coverage – DO PASS AMENDED
Tracey Landers, Research Health Assistant Analyst, explained SB 1100 requires health insurance companies that offer prescription drugs and devices to their members to provide equal coverage of Federal Drug Administration (FDA) approved contraceptive drugs and devices. She stated that two amendments are being offered. The Yrun amendment eliminates experimental or investigational contraceptive coverage, specifies the drug formulary as multi-tiered, and clarifies the definition of out-patient contraceptive services. The amendment also requires health care insurance companies that provide coverage for prescription drugs to provide equal cost-containment measures for contraceptive drugs as other drugs in the same level of the formulary. She explained that the Cirillo proposed amendment exempts religious employers from providing coverage for contraceptive methods that are against the religious employer's beliefs. The Cirillo amendment also prohibits a religious employer to exclude coverage for prescriptive contraceptives ordered by a health care provider for medical reasons other than contraceptive purposes.
Senator Martin asked if the Yrun amendment deals with the out-patient surgery portion. Ms. Landers responded that it changes the definition of "out-patient services to prevent unintended pregnancies," as outlined on page 1, line 12, of the amendment.
Henry GrosJean, Lobbyist, NAIFA-AZ, AHIA, Arizona Association of Health Underwriters (AAHU), testified in opposition to SB 1100. He distributed a handout outlining current rates and renewal rates of individual policyholders (Attachment E). He explained that the Associations are not opposed to contraceptive coverage, but opposed to an additional mandate being imposed on Arizona policyholders. Senator Cirillo asked whether there is any information as to how those rates would be affected. Mr. GrosJean responded that someone else may have that information. However, the bottom line is that it will be another mandate imposed on policyholders, who buy individual health insurance because they want more choices and not more mandates.
John G. Colton, Business Owner, representing himself, testified in opposition to SB 1100. He stated that he has been a business owner since the 1960s, and the cost of doing business is almost prohibitive. He stated his main concern with the bill is that it appears to show a complete lack of fiscal responsibility. He said it will not only impact businesses, but the fact sheet states that the impact on the State general fund is "not currently discernable." He indicated that is a sad situation, especially with the current budget overruns.
Steve Barclay, Lobbyist, CIGNA HealthCare of AZ, testified in opposition to SB 1100. He commended Senator Yrun for her efforts on this bill and said that her amendment will be helpful. He pointed out that the experimental and investigational drugs and devices language has been removed from the bill, which was a major concern. He stated that his clients cover the FDA's approved drugs and devices. Therefore, the concern is that the bill will not expand the coverage requirements from that which is currently provided. He said he requested consideration of the removal of individual coverage from the scope of the requirement. He indicated he is hopeful that discussion can be continued regarding alternatives to mandates on an individual side because it is a fragile market and an individual choice.
Senator Martin referred to the Yrun amendment and asked Mr. Barclay to comment on out-patient services. Mr. Barclay responded he was concerned with the original language, and that is why he worked with Senator Yrun on the refined language. He said he is not certain he can articulate the entire scope of services that may be covered regarding out-patient procedures. However, healthcare service organizations are already required to cover out-patient medical services. Senator Martin referred to the complication clauses, and said he is more concerned with any implications for the voluntary services. He said he is concerned with the exposure on this issue because it affects premiums. Mr. Barclay replied he would attempt to provide that information, and believes this legislation will be a work in progress.
David Childers, Lobbyist, Blue Cross/Blue Shield and Health Insurance Association of America (HIAA), testified in opposition of SB 1100. He stated he would also like to extend his appreciation to Senator Yrun on this complex piece of legislation. He indicated that his clients almost universally oppose additional mandates, and this appears to be an additional mandate. He noted that his concern relates to the individual health insurance coverage issue. He would like the Committee to consider an amendment at the appropriate time to remove individual coverage from this legislation. He covered the highlights of that issue, and noted that the Equal Employment Opportunity Commission (EEOC) only applies to employers of 15 or more. Therefore, there is no mandate under the anti-discrimination ruling of EEOC to cover individuals. He pointed out that another concern is that an individual will not be able to deduct the additional tax expense and will be forced to pay the entire insurance policy with no corresponding deduction as opposed to a business.
Senator Richardson wanted to know how many individual policies currently cover prescriptions on a percentage basis. Mr. Childers responded he does not have that information, but will attempt to provide it to the Committee.
Mr. Childers commented on the different situations that individuals face versus those of group members. He said often an individual may not need a particular type of coverage, and he would request that those individuals not be forced to buy that coverage.
Senator Yrun asked for clarification on the purchase of prescription coverage. Mr. Childers replied an individual could opt to include prescription coverage in an insurance policy. He noted there could also be other options with an individual insurance policy. Senator Yrun asked whether an individual could request to review the formulary and delete all prescriptions not needed resulting in a rate reduction. Mr. Childers responded that he is not aware of that option.
Senator Martin wanted to know what out-patient procedures are being added to the list. Senator Yrun responded that the bill attempts to clarify that out-patient services presently available will continue to be available for those using contraceptive care.
Mr. Childers stated that the primary point in this bill is to encourage flexibility. He said the only aspect of concern is individual coverage, and his request is that the sponsor continue to consider allowing flexibility for the individual.
In response to Senator Gerard, Mr. Childers stated that individual policies are individually underwritten. However, he is not sure if the policies are individually priced in that way and will attempt to obtain that information for the Committee.
In response to Senator Martin, Mr. Childers stated that it is his understanding that prescription drug costs are increasing generally faster than the normal rate of medical inflation. He noted that one of his concerns is insurance companies that sell individual policies do not have to offer individual prescription drug coverage. He said he is concerned that as costs continue to increase that an addition of any other benefits on individual policies may further encourage companies to issue policies without prescription drug benefits.
Monsignor Edward Ryle, Director, Arizona Catholic Conference, testified in opposition of SB 1100. He stated that this legislation is not directly on the issue, but is a matter of conscience and freedom of religion. He said the bill would force employers wishing to provide healthcare coverage to include contraceptive medications and to pay for them. He explained the history of the amendment and noted that the language reflects a California 1999 statute on contraception.
TAPE 2, SIDE A
Monsignor Ryle commented on the definition of a religious employer, and described the conditions that are required to be fulfilled. He said based on certain issues, he is afraid that the effort to protect free exercise of religion conscience fails. Monsignor Ryle stated that he opposes the bill and the amendment.
Michelle Covel, Lobbyist, State Director, National Federation of Independent Business (NFIB), testified in opposition to SB 1100. She stated NFIB represents over 600,000 small businesses across the country and 8,700 in Arizona. She said NFIB opposes SB 1100 because it is a mandate on small businesses that purchase health insurance. She indicated that currently 36% of the membership does not offer health insurance because of the affordability issue. She said the membership would like to be able to purchase health insurance products that fit the needs of their employees and members. Ms. Covel stated that within the past year the results of a ballot to membership indicated that 77% asked for a moratorium on health benefit mandates. She is hopeful that perhaps the small business community could be brought into a discussion regarding affordability and accessibility.
Grace McIlvain, Consultant/Attorney, Planned Parenthood of Southern Arizona, testified in support of SB 1100. She stated that she had planned to speak regarding matters pertaining to the EEOC ruling and the case involving Title 7 and coverage. However, due to time constraints she addressed the issue of costs. She distributed handouts (Attachment F) that contained information regarding studies conducted by William M. Mercer regarding contraceptive coverage for employees.
Charlotte Harrison, Executive Director, Arizona Family Planning Council, testified in support of SB 1100. She stated that 18 months ago the Council conducted a survey of insurance companies in Arizona. The results indicated that only one-third covered all contraceptive methods equitably for enrollees. She said since small employers with less than 15 employees are not covered under the Civil Rights Act, this legislation is very important. She noted that most employers in Arizona are small, and this legislation will impact and protect small employers or women covered by individual insurance. She believes it is appropriate and the responsibility of government to ensure that there is some kind of balance between the needs of a profit-driven industry and people's health. She urged passage of SB 1100.
Senator Martin stated that a verbal amendment has been drafted. Mr. Madeksza explained that the language in the amendment discussed by Senator Martin simply clarifies the intent of the bill. Ms. Landers further explained the proposed clarifying language in the amendment.
Barbara Burkholder, Lobbyist, Arizona Public Health Association, testified in support of SB 1100. She said the Association has 64 years of experience in supporting this issue. She pointed out that it is not a cost issue, but rather a discrimination and gender equity issue. She indicated that it is also a public health issue.
Eleanor Eisenberg, Executive Director, Arizona Civil Liberties Union (ACLU), testified in support of SB 1100. She commented on a case in federal district court in Washington regarding the cost issue. She referred to the conscience clause with respect to religious employers, and stated she does not support the amendment. She said that many of the religious exemptions in law are based on the Civil Rights Act; however, it does not necessarily extend to all practices of an employer. She commented that ACLU supports free practice of religion and separation of church and state; however, it does not necessarily mean that because an employer follows certain religious beliefs that it can impose them or the consequences on all of its employees.
Senator Cirillo announced the following individuals were present in support of SB 1100: Allie Bones, Systems Advocate, Arizona Coalition Against Domestic Violence; Mary Griffith, Registered Nurse, Arizona Nurses Association; Jennie Gorrell, Lobbyist, Arizona Federation of Business and Professional Women; Linda A. Blackwell, Lobbyist, League of Women Voters; Brenda Thomas, Lobbyist, Planned Parenthood of Central & Northern Arizona; Elsie Eyer, Executive Director, Arizona Public Health Association; Jonathan Pinkney-Baird, Vice President-External Affairs, Planned Parenthood of Southern Arizona; and Patti Caldwell, President/Chief Executive Officer, Planned Parenthood of Southern Arizona.
Senator Cirillo announced the following individuals were present in opposition to SB 1100: James Tunnell, Manager, Public Affairs, Arizona Chamber of Commerce; Jim Norton, Lobbyist, Arizona Association of Industries (AAI); Brent Frazier, Government Affairs Director, AAI; Judith Allen, President, AAI; Lanny Hair, Lobbyist, Independent Insurance Agents & Brokers of Arizona; Kevin DeMenna, Lobbyist, Aetna US Healthcare; and Jay Kaprosy, Lobbyist, Greater Phoenix Chamber of Commerce.
Senator Cirillo announced the following individual was present, but neutral on SB 1100: Vista Brown, Legislative Liaison, DOI.
Senator Yrun moved SB 1100 be returned with a DO PASS recommendation.
Senator Yrun moved the 3-page Yrun amendment dated 02/06/02, 2:51 p.m., be ADOPTED (Attachment G). The motion CARRIED by a voice vote.
Senator Cirillo announced he will not offer his amendment at this time, since neither side of the issue was in favor of it (Attachment H). He said he may attempt to present an amendment on the floor. Senator Gerard stated she is hopeful that an amendment will be offered on the floor because she believes it would make some people more comfortable.
Senator Martin moved the following verbal amendment to the bill:
Page 8, line 11, after "OF" insert "UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVED PRESCRIPTION"
Page 9, line 32, after "OF" insert "UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVED PRESCRIPTION"
Page 16, line 7, after "OF" insert "UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVED PRESCRIPTION"
Page 22, line 44, after "OF" insert "UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVED PRESCRIPTION"
Page 30, line 18, after "OF" insert "UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVED PRESCRIPTION"
Page 31, line 38, after "OF" insert "UNITED STATES FOOD AND DRUG ADMINISTRATION APPROVED PRESCRIPTION"
The motion CARRIED by a voice vote.
Senator Martin said in calculating the figures, it appears that there would be an increase in the premium between 1% to 4%. He said based on the medical inflation rate, it would appear that it could result in an increase in premiums in the next cycle period.
Senator Yrun moved that SB 1100 be returned with an AS AMENDED, DO PASS recommendation.
Senator Gerard explained her vote. She stated she opposes mandates on health issues. She said when insurance companies covered Viagra, it was clearly sexual discrimination. SB 1100 is a matter of non-discrimination, and is also not an issue of mandates. She said she will vote "aye."
Senator Martin explained his vote. He stated he appreciates the sponsor working with the Committee to clean up the language to avoid any unintended consequences. He said unfortunately, a mandate is a mandate. Ultimately it will be the individual who will have to incur another increase in the cost, whether or not it is preferred by the individual. In addition, there is no valid amendment that has an exception for religious organizations to provide benefits for employees. He noted that some religious organizations are required by law to provide coverage based on the number of employees. He said unfortunately he will have to vote "no."
Senator Cirillo explained his vote. He said he was one of the prime sponsors of HB 2600, which included some very good issues on health, but also included mandates for health maintenance organizations (HMOs). He indicated he is co-chairing the Health Committee and is very sensitive to the costs of health care. He would still like to propose an amendment for the floor. He commented that since it appears this bill will pass this Committee at this time, he will vote "no."
The motion CARRIED by a roll call vote of 4-2-0 (Attachment 2).
SB 1162 – insurance department; general fund recoupment – DO PASS AMENDED
Mr. Madeksza explained SB 1162 requires DOI to levy fees and charges for various licensing activities and the annual assessment on insurers for operation of DOI’s Fraud Unit. He noted that the bill contains a Proposition 108 clause, which requires a two-thirds vote to pass. He said the current fee arrangements are inadequate to meet the appropriated budget percentage requirement. SB 1162 requires the Director of DOI to revise the fee schedule every year in which the prior fiscal year's fees do not meet the threshold requirement for the current fiscal year. The Director is required to adjust the fees so that the fees collected in the subsequent year equals between 95% and 110% of the current fiscal year's budget. He noted that the adjustments must be uniform percentages across the fee categories. According to DOI, the insurance industry will experience a cost due to the provisions, but the costs will not be uniform and cannot be discerned at this time. Mr. Madeksza stated that a Cirillo amendment is being offered that extends the intent of the bill.
Vista Brown, Legislative Liaison, DOI, testified in support of SB 1162. She stated she had previously discussed this bill with the Committee. She said this is similar to a bill that DOI presented last year, which failed. She explained that DOI has one mandate in the statutes, which is to recoup between 95% and 110% of DOI's appropriated budget from the fees that it charges. Within that same statute DOI has fee arrangements imposing a ceiling on the amount that DOI can charge. DOI is now charging at the top end of the ranges. She said that last year's bill would have increased all of the ranges. She indicated that SB 1162 has a slightly different approach in that the concept of ranges was eliminated, and fees would adjust on a uniform percentage basis consistent with DOI's appropriation. She commented that a new provision has been inserted in SB 1162 that provides for DOI's adjusted fee schedule to be submitted to the Joint Legislative Budget Committee (JLBC), and it will be considered at the same time as DOI's appropriation. She said the basic concept behind the statute is that the industry regulated by DOI will cover the expenses to regulate the industry.
Senator Cirillo announced the following individuals were present in support of SB 1162: Charles Bassett, Lobbyist, Blue Cross Blue Shield of Arizona; Travis Bunch, Government Affairs, Independent Insurance Agents; J. Michael Low, Attorney, Prudential, Allstate, & American Family; David Childers, Lobbyist, Farmers Insurance Company, National Association of Independent Insurers (NAII) & HIAA; Lanny Hair, Lobbyist, Independent Insurance Agents & Brokers; and Kerry Hayden, Government Affairs Representative, Attorney, Farmers Insurance Company.
Thomas Haney, Attorney, representing himself, testified in opposition of SB 1162. He stated that he represents re-insurers who are licensed by DOI. He explained that re-insurers are generally small companies owned by out-of-state entities. He said that currently there are approximately 300 of those companies in Arizona. He indicated that previously there were 600 re-insurers in Arizona, but many have since relocated to offshore locations where license fees are significantly less. He said his interest today is the license fees paid by re-insurers. He distributed a handout outlining license fees of the companies of which the re-insurer's license fee was the highest (Attachment I). He explained the events of last year's bill and the discussions he has had with DOI regarding this year's bill. He said SB 1162 may fail this year based on the same reasons as the failure last year. He proposed a fairness remedy to have all companies be charged license fees on the same basis without disparity. Mr. Hayden pointed out that SB 1162 is a policy consideration and he requested the Committee to vote against the bill until a proper amendment is proposed.
Senator Cirillo asked Ms. Brown to address Mr. Hayden's concerns regarding the disparity of rates. Ms. Brown responded the fee arrangement in statute was adopted in the early 1980s. She said she could only speculate as to the reason for the ranges having been set higher for re-insurers as opposed to other insurers. She said the reason could be that direct writers directly pay out of premium taxes collected, whereas re-insurers do not directly pay any premium taxes.
In response to Senator Gerard, Ms. Brown stated that DOI's business manager evaluates the appropriation each year, and a uniform percentage as set forth in statute is applied to the rate structure.
Senator Cirillo asked DOI to research the rate structure to determine whether any changes are needed. He said if there is time to resolve the problem, he would be willing to consider an amendment to present on the floor.
Senator Gerard stated that she would like an explanation and input regarding the manner in which DOI structures and calculates the rates for re-insurers.
Senator Cirillo said he would appreciate having that information from DOI; however, he does not wish to hold up the bill at this time.
Senator Valadez moved SB 1162 be returned with a DO PASS recommendation.
Senator Valadez moved the 2-line Cirillo amendment dated 02/05/02, 9:46 a.m., be ADOPTED (Attachment J). The motion CARRIED by a voice vote.
Senator Valadez moved that SB 1162 be returned with an AS AMENDED, DO PASS recommendation.
Senator Gerard explained her vote. She said she will vote "aye" now, but will not be voting aye on the floor unless information is obtained and further discussion takes place.
Senator Martin explained his vote. He stated that although he supported the rate increases last year, at this time he will vote "no" because he has difficulty voting for an automatic approval in this instance.
Senator Yrun said she will vote "aye" at this time to keep the bill moving; however, she has a great deal of concern regarding the disparity. She looks forward to receiving justification and perhaps some reallocation regarding this issue.
The motion CARRIED by a roll call vote of 4-1-1 (Attachment 3).
There being no further business, the meeting adjourned at 4:40 p.m.
Respectfully submitted,
Nancy L. DeMichele
Committee Secretary
(Tapes and attachments on file in the Secretary of the Senate’s Office/Resource Center, Room 115.)
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Committee on Banking and Insurance
16 February 7, 2002
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