COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.: 5239-04

Bill No.: Perfected HCS for HB 1837

Subject: Insurance - General; Insurance - Medical; Insurance Dept.; Physicians

Type: Original

Date: April 12, 2006

FISCAL SUMMARY

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 6 pages.

ASSUMPTION

Officials from the Office of State Courts Administrator, Missouri Department of Transportation, Missouri Department of Conservation, Department of Public Safety (DPS), and Missouri Consolidated Health Care Plan assume the proposal will have no fiscal impact on their organizations.

In response to the previous version of this proposal, officials from the DPS - Missouri State Highway Patrol deferred to the Missouri Department of Transportation for response regarding the fiscal impact of the proposal on their organization.

Officials from the Department of Economic Development - Division of Professional Registration state having reviewed the proposed legislation and having sought the conclusion of the appropriate board(s), they are of the opinion the proposal, in its present form, has no fiscal impact on their organization.

In response to the previous version of this proposal, the Office of State Treasurer assumed the proposal would have no fiscal impact on their organization.

ASSUMPTION (continued)

Officials from the Office of Secretary of State (SOS) state the fiscal impact for this proposal to the SOS for administrative rules is less than $1,500. The SOS does not expect additional funding would be required to meet these costs. However, the SOS recognizes that many such bills may

be passed by the General Assembly in a given year and that collectively the costs may be in excess of what the office can sustain with its core budget. Therefore, the SOS reserves the right to request funding for the cost of supporting administrative rules requirements should the need arise based on a review of the finally approved bills signed by the Governor.

Officials from the Department of Insurance (INS) state the INS will be required to develop risk-reporting categories, collect data to calculate median base rates, develop median base rates for insurers, certify certain medical malpractice rates, and develop a database to report on base rates charged by insurers and annually report medical malpractice rates to the governor and general assembly.

One Insurance Product Analyst II FTE (beginning in FY2007) will assist with development of the risk-reporting categories, promulgate rules, prior approve all medical malpractice rates, and report medical malpractice rates to the governor and general assembly (beginning in FY2007).

A half-time actuary (0.5 FTE) would be required to be hired in FY2007 to begin development of risk reporting categories, review detailed information on rates, including actuarial justification and other information as prescribed by the INS, and certify certain medical malpractice rates.

One-time computer contracting costs of $27,540 ($90/hr X 306 hours) will be necessary to implement the provisions of the proposal. Requirements identified include: 1) Receipt of data electronically from insurers: actual rates for defined categories; base rate information; and premium, loss, exposure and other information, 2) A database to store the rates and other information electronically, along with functionality to process the data as described in the proposal language, 3) Adding security to the database to make it a protected database due to the confidential nature of some of the data, and 4) Make the data collected per this proposal available to Missouri insurers and the public through PDF files and on the INS website, and 5) Various reporting requirements, including rate increase/decrease reports for the governor and the general assembly.

Medical malpractice insurers will be required to re-file policy forms to conform with the cancellation provisions. There were approximately 89 insurers that have written premium for medical malpractice insurance in calendar year 2004. Insurers are required to file policy form amendments with the INS along with a $50 filing fee. The INS estimates one-time revenues to the Insurance Dedicated Fund of $4,450 (89 insurers X $50 filing fee).

Oversight assumes the INS would not need additional equipment and expenses for the 0.5 Actuary FTE that would be contracted/hired in FY 07.

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal changes the laws regarding malpractice insurance. The proposal: (1) Allows limited liability companies, corporations, limited liability partnerships, partnerships, and other entities formed for the practice of law or medicine to become members of an association providing malpractice insurance to its members; (2) Makes associations writing malpractice insurance subject to reporting, notification, and rating requirements; (3) Requires the Director of the Department of Insurance to submit an annual report to the General Assembly regarding the

actual and base rates charged for malpractice insurance and any changes from the previous year's rates; (4) Requires insurers writing medical malpractice insurance to Missouri health care providers to submit an annual report by June 1 of each year containing policy information including the following: (a) Number of policies written, canceled, renewed, and not renewed; (b) Total premiums collected and losses paid; and (c) Claims pending, paid, and closed; (5) Requires insurers to report to the director and the appropriate licensing board any malpractice

DESCRIPTION (continued)

claims paid; (6) Specifies that any malpractice insurer failing to report required claims information in a timely manner will be subject to penalties applicable to insurance companies under Section 374.215, RSMo; (7) Removes the 30-day period the director has to approve a

malpractice insurance policy to be used by an association; (8) Requires the surcharge paid to the association by policyholders in the first year to be paid in the form of cash or cash equivalent and not in the form of a promissory note; (9) Prohibits medical malpractice insurers from charging rates that are excessive, inadequate, or unfairly discriminatory. Rates will be based upon Missouri loss experience only, not experience from other states unless the failure to do so will

jeopardize the financial stability of the insurer; (10) Allows insurers to charge an additional premium surcharge or discount based on the health care provider's loss experience, training, and other factors; (11) Specifies that no insurer can increase malpractice insurance rates by more than 25% or refuse to renew a policy without at least 60 days' written notification. Insurers cannot cease issuing policies in this state without 180 days' written notice to the insured and the director. If an insurer fails to give notice, the policyholder has the right to continue coverage

under the policy; (12) Requires, by June 30, 2007, the department to establish risk-reporting categories by physician specialty for medical malpractice insurance base rates. Annually, insurers will report actual rates charged including assessments for each risk-reporting category. The department will annually publish a report containing market rates reflecting the median actual rates charged for each risk-reporting category; (13) Defines "base rate" and "schedule rating or individual risk rating credits or debits"; (14) Allows the department to establish reporting standards for premiums received and policies written by category. The department will publish this information in a manner appropriate for assisting insurers in developing future base rates; (15) Establishes penalty provisions for violations of Sections 383.100 - 383.125 and Sections 383.302 - 383.312; and (16) Requires, by January 1, 2011, all insurers writing medical

malpractice insurance to offer policies which will apply to injuries resulting from acts or omissions occurring during the policy period, regardless of the timing of the filing of a claim.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Office of State Courts Administrator

Department of Economic Development -

Division of Professional Registration

Missouri Department of Transportation

Department of Public Safety -

Director's Office

Missouri State Highway Patrol

Missouri Consolidated Health Care Plan

Department of Insurance

Missouri Department of Conservation

Office of Secretary of State

Office of State Treasurer

Mickey Wilson, CPA

Director

April 12, 2006