2008 -- H 7849

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LC01916

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2008

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A N A C T

RELATING TO INSURANCE -- TAXATION OF INSURANCE COMPANIES

     Introduced By: Representatives Sullivan, Slater, Winfield, Gallison, and Dennigan

     Date Introduced: February 26, 2008

     Referred To: House Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 44-17-1 and 44-17-2 of the General Laws in Chapter 44-17

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entitled "Taxation of Insurance Companies" are hereby amended to read as follows:

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     44-17-1. Companies required to file -- Payment of tax -- Retaliatory rates. [Effective

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January 1, 2008.] -- (a) Every domestic, foreign, or alien insurance company, mutual

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association, organization, or other insurer, including any health maintenance organization, as

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defined in section 27-41-1 and any nonprofit hospital or medical service corporation, as defined

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in chapters 27-19 and 27-20, except companies mentioned in section 44-17-6, and organizations

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defined in section 27-25-1, transacting business in this state, shall, on or before March 1 in each

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year, file with the tax administrator, in the form that he or she may prescribe, a return under oath

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or affirmation signed by a duly authorized officer or agent of the company, containing

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information that may be deemed necessary for the determination of the tax imposed by this

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chapter, and shall at the same time pay an annual tax to the tax administrator of two percent (2%)

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of the gross premiums on contracts of insurance, except:

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      (1) Entities subject to chapters 27-19 and 27-20, shall pay the following: one and one-

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tenth percent (1.1%)

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     (i) four percent (4%) of the gross premiums on contracts of insurance, excluding any

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business related to the administration of programs under Title XIX of the Social Security Act, 42

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U.S.C.; provided, further, notwithstanding any provision of the law to the contrary, installment

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payments shall equal at least ninety percent (90%) of estimated liability in the first year; or

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     (ii) up to one hundred percent (100%) of the difference between the insurer's reported

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medical loss ratio and eighty-five percent (85%) medical loss ratio, as determined by the health

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insurance commissioner. If the reported medical loss ratio of the insurers, subject to the

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provisions of chapters 27-19 and 27-20, is greater than or equal to eighty-five percent (85%),

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such insurer's tax liability will be zero.

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      (2) Health maintenance organizations as defined in section 27-41-1, shall pay the

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following: one and one-tenth percent (1.1%) of the gross premiums on contracts of insurance,

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excluding any business related to the administration of programs under Title XIX of the Social

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Security Act, 42 U.S.C.; provided, further, notwithstanding any provision of the law to the

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contrary, installment payments shall equal at least ninety percent (90%) of estimated liability in

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the first year; or

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     (i) eight percent (8%) of the gross premiums on contracts of insurance; or

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     (ii) up to one hundred percent (100%) of the difference between the insurer's reported

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medical loss ratio and eighty-five percent (85%) medical loss ratio, as determined by the health

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insurance commissioner. If the reported medical loss ratio of the health maintenance organization

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is greater than or equal to eighty-five percent (85%), such insurer's tax liability will be zero.

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      (3) Ocean marine insurance, as referred to in section 44-17-6, covering property and

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risks within the state, written during the calendar year ending December 31st next preceding, but

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in the case of foreign or alien companies, except as provided in section 27-2-17(d) the tax is not

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less in amount than is imposed by the laws of the state or country under which the companies are

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organized upon like companies incorporated in this state or upon its agents, if doing business to

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the same extent in the state or country.

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     (b) For purposes of this section, "medical loss ratio" shall mean the ratio between the

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direct cost of hospital and medical benefits incurred by the insurer and the revenue from direct

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health insurance business premiums of the insurer. Medical loss ratio shall be calculated from

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information reported in the insurer's annual statement in accordance with section 27-12-1, by

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dividing the total hospital and medical (net of reinsurance recoveries) by the net premium income

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(net of reinsurance premiums).

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     44-17-2. Amounts included as gross premiums. [Effective January 1, 2008.] -- Except

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where such a charge would be inconsistent with federal law, gross premiums include all

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premiums and premium deposits and assessments on all policies, certificates, and renewals,

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written during the year, covering property and risks within the state, policies subsequently

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cancelled, and reinsurance assumed, whether the premiums and premium deposits and

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assessments are in the form of money, notes, credits, or other substitute for money, after

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deducting from the gross premiums the amount of return premiums on the contracts covering

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property and risks within this state and the amount of premiums for reinsurance assumed, of the

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property and risks. Mutual companies and companies which transact business on the mutual plan

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are also allowed to deduct from their premiums and premium deposits and assessments, the so-

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called dividends or unused or unabsorbed portion of the premiums and premium deposits and

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assessments applied in part payment of the premiums and premium deposits and assessments or

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returned to policyholders in cash or credited to policy holders during the year for which the tax is

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computed. Every domestic company, mutual association, organization, or other insurer, shall

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include for taxation in like manner and with like deductions premiums and premium deposits and

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assessments written, procured, or received in this state on business covering property or risks in

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any other state on which the company has not paid and is not liable to pay a tax to the other state.

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     In those cases where the premium tax collected may be based on the reported medical

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loss ratio, such as is described in section 44-17-1, the calculation will be based on two (2) years

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prior premiums and medical costs as reported to the health insurance commissioner and the health

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insurance commissioner shall provide the data and perform the calculation in support of the

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department of taxation.

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     SECTION 2. Chapter 44-17 of the General Laws entitled "Taxation of Insurance

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Companies" is hereby amended by adding thereto the following section:

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     44-17-12. Insurer premium tax fund. – The annual taxes collected from health

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maintenance organization, as defined by chapter 27-41, and nonprofit hospital and medical

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service corporations, as defined by chapter 27-19 and 27-20, as authorized in section 44-17-1,

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shall be deposited in a restricted receipt account to be known as the "insurer premium tax fund"

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and used exclusively by the department of human services to fund expanded coverage for the

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uninsured through the RIteCare program.

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     SECTION 3. This act shall take effect on January 1, 2009.

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LC01916

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE -- TAXATION OF INSURANCE COMPANIES

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     This act would increase percentages relative to companies required to file for payment of

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taxes and retaliatory rates and would allow for the annual taxes collected from health

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maintenance organizations to be deposited in the "insurer premium tax fund" to be used

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exclusively by the department of human services.

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     This act would take effect on January 1, 2009.

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LC01916

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