SB2871 SD2

Report Title:

Health Care Insurers

Description:

Requires health care insurers to file an annual financial report to continue their tax exempt status under income tax and general excise tax laws. Requires audit of health care insurers. (SD2)

THE SENATE	S.B. NO.	2871
TWENTY-FIRST LEGISLATURE, 2002		S.D. 2
STATE OF HAWAII

A BILL FOR AN ACT

relating to health care insurers.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Section 23-4, Hawaii Revised Statutes, is amended to read as follows:

"§23-4 Duties. (a) The auditor shall conduct postaudits of the transactions, accounts, programs, and performance of all departments, offices, and agencies of the State and its political subdivisions. The postaudits and all examinations to discover evidence of any unauthorized, illegal, irregular, improper, or unsafe handling or expenditure of state funds or other improper practice of financial administration shall be conducted at least once in every two years after the close of a fiscal year, and at any other time or times during the fiscal year as the auditor deems necessary or as may be required by the legislature for the purpose of certifying to the accuracy of all financial statements issued by the respective accounting officers and of determining the validity of expenditures of state or public funds.

(b) The auditor, in conducting postaudits, to the extent practicable and applicable to the audit scope and objectives, shall review and assess the audited agency's rules as defined in section 91-1.

(c) The auditor shall conduct audits of the transactions, finances, claims processing, underwriting, operations, rate determination, provider fee schedules, affiliated companies transactions, accounts, programs, and performance of all insurance carriers, health maintenance organizations, mutual benefit health plan providers, dental benefit plan providers, prescription drug benefit plan providers, third party administrators for a health benefit plan, and vision care benefit plan providers that contract with the board of trustees of the Hawaii employer-union health benefits trust fund to provide benefits pursuant to chapter 87. The audits shall be conducted as the auditor deems necessary or as may be required by the legislature to safeguard the beneficiaries of the public employees health fund."

SECTION 2. Section 235-9, Hawaii Revised Statutes, is amended to read as follows:

"§235-9 Exemptions; generally. (a) Except as provided in sections 235-61 to 235-67 relating to withholding and collection of tax at source, and section 235-2.4 relating to "unrelated business taxable income", the following persons and organizations shall not be taxable under this chapter: banks, building and loan associations, financial services loan companies, financial corporations, small business investment companies, trust companies, mortgage loan companies, financial holding companies, subsidiaries of financial holding companies as defined in chapter 241, and development companies taxable under chapter 241; insurance companies, agricultural cooperative associations, and fish marketing associations exclusively taxable under other laws; and persons engaged in the business of motion picture and television film production as defined by the director of taxation.

(b) Any health maintenance organization under chapter 432D, health insurer under article 10A of chapter 431, or mutual benefit society under chapter 432 claiming an exemption under subsection (a) shall submit an annual financial report, prepared by an independent certified public accountant, to the director of taxation on or before the fifteenth day of the fifth month following the close of each taxable year for which the exemption is being claimed. The annual financial report shall be prepared in a form approved by the director of taxation and shall include but not be limited to:

(1) A balance sheet of assets and liabilities;

(2) A statement of income and expenses;

(3) Supplementary information to financial statements;

(4) A summary of financial condition; and

(5) An apportionment of income and expenses of the insurer, health maintenance organization, or mutual benefit society within and without the State.

Within thirty days of the receipt of the financial report from the insurer, health maintenance organization, or mutual benefit society, the director of taxation shall submit relevant financial data to the legislature to justify the insurer's, health maintenance organization's, or mutual benefit society's tax exemption. Failure to comply with this subsection by the insurer, health maintenance organization, or mutual benefit society as determined by the director of taxation, shall constitute a waiver of the right to claim the exemption."

SECTION 3. Section 237-29.7, Hawaii Revised Statutes, is amended to read as follows:

"[[]§237-29.7[]] Exemption of insurance companies[.], health maintenance organizations, and mutual benefit societies. (a) This chapter shall not apply to the gross income or gross proceeds of insurance companies authorized to do business under chapter 431[;], including health maintenance organizations under chapter 432D and mutual benefit societies under chapter 432; except this exemption shall not apply to any gross income or gross proceeds received after December 31, 1991, as rents from investments in real property in this State; provided that gross income or gross proceeds from investments in real property received by insurance companies after December 31, 1991, under written contracts entered into before January 1, 1992, that do not provide for the passing on of taxes or tax increases shall not be taxed until the contracts are renegotiated, renewed, or extended.

(b) Any health maintenance organization under chapter 432D, health insurer under article 10A of chapter 431, or mutual benefit society under chapter 432 claiming an exemption under subsection (a), shall submit an annual financial report, prepared by an independent certified public accountant, to the director of taxation on or before the fifteenth day of the fifth month following the close of each taxable year for which the exemption is being claimed. The annual financial report shall be prepared in a form approved by the director of taxation and shall include but not be limited to:

(1) A balance sheet of assets and liabilities;

(2) A statement of income and expenses;

(3) Supplementary information to financial statements;

(4) A summary of financial condition; and

(5) An apportionment of income and expenses of the insurer, health maintenance organization, or mutual benefit society within and without the State.

SECTION 4. Section 432:1-403, Hawaii Revised Statutes, is amended to read as follows:

"§432:1-403 Nonprofit medical, hospital indemnity associations; tax exemption. (a) Every association or society organized and operating under this article solely as a nonprofit medical indemnity or hospital service association or society or both shall be, from the time of such organization, exempt from every state, county and municipal tax, except unemployment compensation tax. Nothing in this section shall be deemed to exempt the association or society from liability to withhold the taxes payable by its employees and to pay the same to the proper collection officers, and to keep such records, and make such returns and reports, as may be required in the case of other corporations, associations or societies similarly exempted from such taxes.

(b) Any mutual benefit society claiming an exemption under subsection (a) shall submit an annual financial report, prepared by an independent certified public accountant, to the director of taxation on or before the fifteenth day of the fifth month following the close of each taxable year for which the exemption is being claimed. The annual financial report shall be prepared in a form approved by the director of taxation and shall include but not be limited to:

(1) A balance sheet of assets and liabilities;

(2) A statement of income and expenses;

(3) Supplementary information to financial statements;

(4) A summary of financial condition;

(5) An apportionment of income and expenses of the mutual benefit society, within and without the State; and

(6) A statement justifying the rates set by the mutual benefit society.

Within thirty days of the receipt of the financial report from the mutual benefit society, the director of taxation shall submit relevant financial data to the legislature to justify the mutual benefit society's tax exemption. Failure to comply with this subsection by the mutual benefit society, as determined by the director of taxation, shall constitute a waiver of the right to claim the exemption."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act, upon its approval, shall apply to all taxable years beginning after December 31, 2001.