Connecticut has a new third party administrator (TPA) licensing requirement that became effective October 1, 2011. The new Connecticut TPA licensing requirement was not enacted as a stand-alone TPA statute or regulation, but rather was contained in a Connecticut omnibus bill that enacts health care reforms under the Affordable Care Act. The new Connecticut law requires third party administrators that administer life, annuity and health business on behalf of Connecticut residents to become licensed with the Connecticut Insurance Department. The Connecticut law does not grandfather in TPAs that were doing business in Connecticut prior to October 1, 2011, and according to the Connecticut Insurance Department, any unlicensed TPA operating in Connecticut after October 1, 2011, will be subject to administrative action for conducting business without a license.
TPAs subject to the new Connecticut licensing requirements are defined as:
“A person who directly or indirectly underwrites, collects premiums or charges, or adjusts or settles claims on Connecticut residents with respect to life, annuity, or health coverage offered or provided by an insurer. ‘Insurer’ is defined as any person or combination of persons doing any kind or form of insurance business (other than a fraternal benefit society), including a captive insurer, a licensed insurance company, medical service corporation, hospital service corporation, health care center and a consumer dental plan that provides employee welfare benefits on a self-funded basis …”
The new Connecticut TPA law has a number of requirements, including but not limited to the following:
- Requires TPAs which are collecting premium, underwriting or adjusting or settling claims on Connecticut residents in connection with life, annuity or health coverage to be licensed in Connecticut by October 1, 2011.
- Imposes statutory provision requirements with respect to the administrative services agreement between a TPA and insurer.
- Requires TPAs to issue a benefits identification card to each insured that includes a disclosure of the TPA, insurer and the policyholder and the relationship among them.
- Contains books and records requirements.
- Requires insurers to conduct semi-annual reviews of the operations of a TPA and at least one of the semiannual reviews must be on-site.
- Requires a TPA to obtain a $500,000 surety bond. The Connecticut DOI is authorized to waive the surety bond requirement if a TPA applicant submits audited annual financial statements for the two most recent fiscal years that prove the applicant has a positive net worth.
Connecticut’s new TPA requirements have a few requirements that differ from most other state TPA laws. Specifically, while a number of states do not impose surety bond requirements, in those states that do, the required surety bond amount is typically $50,000, rather than the $500,000 required by Connecticut.
The other unique Connecticut requirement is the requirement that TPAs issue a “benefit identification card” to each insured that includes a disclosure of the TPA insurer and the policyholder and the relationship among them. This new benefit identification card requirement is inconsistent with the NAIC’s Third Party Administrator Model Law (TPA Model Law), as well as the laws of the other 43 states that regulate TPAs. Specifically, while the TPA Model Law requires a written notice to be sent to insureds advising them of the relationship of the TPA, insurer and policyholder, the TPA Model Law does not require a separate benefit identification card to be sent to consumers. Some TPAs are struggling with this requirement since benefit identification cards are typically associated with health insurance, rather than life and annuity business, but TPAs administering the latter business must still comply.