FAMILY LAW COMMITTEE

The Family Law Committee was assigned three studies. Section 17 of House Bill No. 1012 directed a study of the feasibility and desirability of state administration of child support, including the fiscal effect on counties and the state. Senate Resolution No. 4014 directed a study of the adoption laws of this state and other states. Senate Concurrent Resolution No. 4019 directed a study of the medical and financial privacy laws in this state, including the effectiveness of medical and financial privacy laws in other states, the interaction of federal and state medical and financial privacy laws, and whether current medical and financial privacy protections meet the reasonable expectations of the citizens of North Dakota.

Committee members were Representatives John Mahoney (Chairman), Lois Delmore, Mary Ekstrom, Roxanne Jensen, Jim Kasper, Lawrence R. Klemin, Carol A. Niemeier, Dan Ruby, Sally M. Sandvig, and Dwight Wrangham and Senators Linda Christenson, Dick Dever, Robert S. Erbele, Michael A. Every, RussellT. Thane, and Darlene Watne.

The committee submitted this report to the Legislative Council at the biennial meeting of the Council in November 2002. The Council accepted the report for submission to the 58th Legislative Assembly.

ADMINISTRATION OF CHILD SUPPORT STUDY

During the 1999-2000 interim the State Auditor performed a performance audit on aspects of the North Dakota child support enforcement program of the Department of Human Services. The performance audit report dated September 14, 2000, contained results of the audit and the results of a review performed by TMR-MAXIMUS, an independent consulting firm that had since changed its name to MAXIMUS. The portion of the report addressing "Statizing and Placement of the Agency" included an analysis of the child support enforcement program's state-supervised and county-administered organizational structure, including an analysis of staffing levels, staff functions, and duties of the Child Support Enforcement Division and the regional child support enforcement units. The consulting firm recommended that the state's child support enforcement program should be state-administered instead of county-administered. The consulting firm reported that there is "poor communication between the state child support office and the regions." In addition the recommendations in the report include considering whether there is a need to realign and consolidate the eight regional offices. In the report the purpose for considering consolidation or realignment was to "reach a level of peak efficiency that does not overly-compromise geographic proximity to customers or courts."

Background
2001 Legislation

House Bill No. 1012, the appropriations bill for the Department of Human Services, in part, changed the reimbursement rate to counties for an affected county's expenses for locally administered economic assistance programs from 100 percent to a percentage based on the level of legislative appropriations. This portion of the bill conflicted with House Bill No. 1015, which was enacted by the Legislative Assembly after House Bill No.1012; therefore, the provisions of House Bill No.1015 went into effect instead of the provisions of House Bill No. 1012.

House Bill No. 1015 changed the reimbursement rate to counties for an affected county's expenses for locally administered economic assistance programs from 100percent to 90 percent.

Senate Bill No. 2160 exempted the child support enforcement program from fees charged by the registers of deeds and the Secretary of State for searching records, fees for filing documents in the central indexing system, and fees for copying for cases involving the establishment of paternity or for the establishment, modification, or enforcement of child support.

Previous Legislation

In 1999 House Bill No. 1121 designated the clerk of court as the public official responsible for sending notices of child support arrearages and for the administration of income-withholding for all cases other than Title IV-D cases until January 16, 2001, at which time the Department of Human Services took over these duties.

In 1999 Senate Bill No. 2012 required the Department of Human Services to reimburse county social service boards for locally administered economic assistance programs in counties in which more than 20percent of the caseload for these programs consisted of people who reside on a federally recognized Indian reservation or property tax-exempt tribal trust lands. The bill required a county to reimburse the state for the county's share of one-fourth of the amount expended in the state in excess of any federal payments on behalf of children in foster care or subsidized adoption.

In 1997 House Bill No. 1041, known as the SWAP legislation, required counties to assume the financial responsibility for the costs of administering certain economic assistance programs and required the state to assume complete financial responsibility for the grant costs of medical assistance and basic care and contribute additional support of administrative costs for counties with Indian land.

In 1997 House Bill No. 1226 provided for implementation of federal welfare reform, authorized the Department of Human Services to administer the temporary assistance for needy families (TANF) program, and provided that the county social service boards administer that program. The bill provided for the establishment of a statewide automated data processing system that contains records with respect to each child support case in which services are being provided by the state agency or a child support agency. The bill also addressed state and county responsibilities for financing the costs of administering the TANF program, child care assistance, and employment and training.

Previous Studies

During the 1999-2000 interim the Legislative Council's interim Judiciary Committee studied the family law process in the state with a focus on the review of existing statutes, the coordination of procedures, and the further implementation of alternative dispute resolution methods. The committee performed this study and did not recommend any bills related to the issue of administration of child support.

During the 1999-2000 interim the Legislative Council's interim Legislative Audit and Fiscal Review Committee received from the State Auditor a child support enforcement performance audit. The State Auditor, in concert with a private consultant, analyzed the child support enforcement program's state-supervised and county-administered organizational structure, including an analysis of staffing levels, staff functions, and duties of the Child Support Enforcement Division and the regional units. The audit included an analysis of the child support enforcement program's state-supervised and county-administered organizational structure, including an analysis of staffing levels, staff functions, and duties of the Child Support Enforcement Division and the regional units. The consulting firm recommended that the state's child support enforcement program should be state-administered instead of county-administered.

During the 1997-98 interim the Legislative Council's interim Child Support Committee studied the provision of child support services and child care licensing in the state. The committee did not recommend any bills related to the issue of administration of child support.

During the 1995-96 interim the Legislative Council's interim Budget Committee on Human Services studied the responsibilities of county social service agencies, regional human service centers, and the Department of Human Services. The committee cooperated with the Joint Social Service Committee, which was composed of representatives of the North Dakota Association of County Social Services Board Members Association, the Department of Human Services, and the North Dakota Association of Counties, in studying statutes relative to county-based social services, options for the provision of child support enforcement services, the current and ideal structure for early childhood licensing, and the overall structure and funding of children and family services. The committee recommended House Bill No. 1041, which is discussed previously in this report.

During the 1995-96 interim the Legislative Council's interim Legislative Audit and Fiscal Review Committee received from the State Auditor a child support enforcement program performance audit report. The audit reviewed the efficiency and effectiveness of the state's system of establishing and enforcing child support orders, the potential for reducing costs through program fees and interest on arrears, and the adequacy of policies and procedures surrounding the collection of overpayments to custodial parents. This audit was conducted as part of a joint performance audit initiated by the National State Auditors Association.

Testimony

The committee received extensive testimony from a broad range of parties interested in the administration of child support study, including representatives of the State Auditor, the regional child support enforcement units, MAXIMUS, the Department of Human Services, the county social services boards, the North Dakota Association of Counties, and the Attorney General.

The study began with a review of the 2000 child support enforcement performance audit as it pertained to administration of the child support enforcement program, continued with the receipt of testimony regarding the pros and cons of different administrative structures, and concluded with the receipt of testimony regarding who should most appropriately fund the child support enforcement program and regarding social service funding issues related to regions with Indian reservations and Indian trust land.

State Auditor

A representative of the State Auditor's office presented the portion of the 2000 child support enforcement performance audit that dealt with administration of the child support enforcement system. The audit was the result of a risk assessment of Department of Human Services programs, under which the child support enforcement program was determined to be of high risk. The audit included a survey of the child support enforcement programs of other states. Testimony indicated the national trend is state administration of child support enforcement programs.

Information gathered through the audit indicated there was poor communication between the state and the regional child support enforcement units and that changing to a state-administered program may improve this communication; the child support enforcement services offered across the state were not uniform and not consistent, and this resulted in extra time and money being spent; and there were strained communications, administrative redundancies, contradictory practices, and imperfect allocation of resources under the county-administered system.

The testimony indicated possible benefits of changing to a state-administered child support enforcement system may include:

• Equalization of caseloads between the state's eight child support enforcement regions;
• Consistent employee salaries between the state's eight child support enforcement regions;
• Improved customer service;
• Faster processing of child support payments;
• Increased child support collections; and
• The possibility that over time there may be an opportunity to decrease the number of full-time child support enforcement employees.

Regional Child Support Enforcement Units

The committee received testimony regarding the structure and duties of the regional child support enforcement units. Each of the eight regional child support enforcement units has its own cooperative agreement with the state's child support enforcement agency and with each county's social services board, state's attorney, clerk of court, and sheriff's department. In the Minot, Bismarck, and Fargo units, the county social service boards delegated the duty to supervise the respective regional units to the state's attorney's office in the host county. In the other five regional units supervision is provided by the host county's social services department or a representative board.

A representative of the regional child support enforcement unit administrators testified that each unit operates somewhat differently, depending on the needs of the region. The committee received testimony that some of the similarities between units are that each regional unit operates out of an office in the host county's courthouse or a private office building and that each unit has an administrator who is responsible for:

A representative of the regional child support enforcement unit administrators acknowledged that the performance audit report was one of the catalysts for the discussion of state administration of the system; however, since the audit was performed during the conversion to the new automated system, the audit is not a fair representation of how the eight units currently operate. If a performance audit were conducted today, the testimony indicated the auditors would see a much different picture. Regional office staff are proficient in the use of the automated system, the regional offices have implemented more administrative procedures, and the regions have made great strides in the efficient operation of the units. Additionally, the committee received testimony that the unit administrators were concerned that during the audit, four of the eight units were not included and that the audit findings and conclusions were not made available to the units in order to comment on the draft.

The committee received testimony that administrators had concerns that if the child support enforcement program was state-administered:

The committee received testimony that although there may be some efficiencies that would be recognized by changing to a state-administered child support enforcement program, there are some benefits to be gained from the current structure due to its local proximity. Additionally, testimony was received that most of the improved efficiencies that could be gained by going to a state-administered program would be able to be recognized under the county-administered program if sufficient funds were made available to the counties.

Audit Consultant

The committee received testimony from a representative of MAXIMUS, the consulting firm that assisted in the 2000 child support enforcement performance audit that dealt with administration of the child support enforcement system. The committee received information regarding North Dakota's performance in key child support enforcement categories compared to the nation and compared to South Dakota, which is an example of a state that has a state-administered child support enforcement program. The data indicated that North Dakota met or exceeded the national performance; however, South Dakota significantly exceeded North Dakota on almost all of these performance figures. The committee received the following information:

• In fiscal year 2000, 154 full-time employees were attributable to the North Dakota child support enforcement program.
• The central state child support enforcement office has 32 positions to perform all of the federally mandated functions as well as some state-level enforcement activities.
• The counties in each of the eight regional child support enforcement units pool their resources to pay for the regional child support enforcement staff. The caseload per full-time employee in the regional units varies substantially as do the results under the performance indicators. Performance of the units with lower caseload-to-staff ratios is better than that of units with higher ratios.
• Under the 1997 SWAP legislation, the counties continue to provide child support services under state direction, in a manner organized by the counties.
• The regional pool of local matching dollars per child support case is not consistent among the eight regions, meaning some units spend more to provide child support enforcement services than others.
• As a result of the 1997 SWAP legislation, there is a net cost to county government to run the child support enforcement program locally.
• Changes in federal requirements are requiring states to centralize an increasing number of functions of child support enforcement.
• The state's automated child support system gives child support caseworkers the power to work any case in the state child support inventory from any location via a computer terminal.

In performing the audit the consultant found that although the state conducts some training at the state level to convey statewide policy and procedures, the reality is that it is regional child support enforcement units that implement this policy. Inconsistencies in policy and procedure may mean inconsistent service levels and approaches to customers based on the region in which a customer lives. This inconsistent approach can lead to complaints of unfair or inequitable treatment.

The representative of the consulting firm testified that moving to a state-administered program may produce economies of scale, a more level playing field, and a more consistent policy that in turn could produce a more efficient operation. A more efficient operation can serve more people with the same service delivery level or serve the same number of people at a higher service delivery level. Additionally, changing to a state-administered child support enforcement program should not adversely affect delivery of services in rural areas. To the contrary the change might lead to better service delivery in rural areas as the experts who can be found in other portions of the state can assist rural caseworkers who may be generalists and not experts in every facet of a fairly complicated program.

The committee received the following financial estimates:

Department of Human Services Division of Child Support Enforcement

A representative of the Department of Human Services Division of Child Support Enforcement testified the department would not support state administration of the child support enforcement program unless the change was budget-neutral. Testimony was received that if the program were changed to a state-administered program, but the 1997 SWAP legislation was not changed, the counties would receive a $7.8 million windfall for the biennium.

A representative of the Department of Human Services Child Support Enforcement Division testified that possible efficiencies that may be recognized under a state-administered child support enforcement program include:

The committee received testimony that under a state-administered child support enforcement program, although there may be a state-administered customer service unit, it would be unlikely any of the existing eight regional child support enforcement units would close, because of the importance of balancing consolidation of services and reasonable access to caseworkers at the local level.

There are approximately 38 full-time equivalent positions in the state child support enforcement office and 120 full-time equivalent positions under cooperative agreement at the eight regional unit offices. Five of the regional units are already under the state employee classification system, and a review of the other three regional units indicated all the staff were within the appropriate salary ranges except for two individuals who appeared to be over the salary range in the amount of $444 and $380 per month. Under a state-administered system, the department's intent is that these individuals would stay at their pay levels until the pay ranges caught up with the current amount being paid.

A representative of the Department of Human Services Division of Child Support Enforcement testified that because the child support enforcement system at the federal level was essentially designed as a recoupment mechanism for public services, the federal government keeps raising the bar to make the child support enforcement system more effective and uses funding as an incentive to reach these higher benchmarks. Historically, child support enforcement expenses have increased over time; however, if administrative costs increase, efficiencies under a state-administered program may help avoid or delay these increases. Without the efficiencies that would result from state administration, the counties will likely have to spend more money on administration of the program in future years.

The committee received testimony that a county-financed state administration of the child support enforcement program would neither aggravate nor eliminate the problems experienced by counties in which there is an Indian reservation. Additionally, state administration would have little effect on the role of county commissioners in the administration of the program.

Testimony was received that the child support enforcement interactions with the state and the Indian tribes are in a state of flux. Federal regulations that would govern how Indian tribes may provide child support enforcement services and draw federal funds to cover these costs have been pending for nearly two years. A representative of the Department of Human Services Division of Child Support Enforcement testified that until these federal regulations are finalized, much of what can or should be done at the state level cannot be implemented. Testimony was received that the Department of Human Services will not commit state resources to the provision of child support enforcement services on the Indian reservations without first knowing the financial impact, which in part depends upon finalization of the federal regulations.

County Social Services Boards

The committee received testimony regarding the 1997 SWAP legislation. Testimony indicated that when the SWAP legislation was implemented in 1998, the regional child support enforcement units became primarily funded by county property tax, while the Department of Human Services retained the 66 percent available federal match for every county dollar expended. Although counties still receive 75 percent of the federal incentive dollars, because of changing methods of incentive reimbursement, the actual funds have been significantly reduced and the counties support reevaluating the funding system established in the 1997 SWAP legislation. Representatives of the County Social Services Board Members Association and the County Commissioners Association testified in support of state administration, with full state funding of the program.

A representative of the county social services boards testified that advantages to establishing a single structure for administration of the child support enforcement program may include:

Potential risks to the establishment of the state-administered child support enforcement program may include:

The committee received significant testimony from representatives of county social services boards. Concern was expressed that counties are faced with insufficient tax revenues in part due to the amount of property that is Indian reservation land or trust land; the change in taxable status as previously taxable land becomes untaxable if an Indian tribe purchases the land and it is put in trust; the declining population in non-Indian reservation land; decreased tax value of flooded property; and the low tax value of taxable property.

The committee received testimony that non-Indian counties subsidize social service financial obligations of the counties in which an Indian reservation is fully or partially located. There are plans for these non-Indian counties to cease subsidizing these Indian counties. It is likely that county revenue will continue to decline while social services costs continue to grow in proportion to the economically stressed but growing Native American population. A representative of the county social services boards testified in support of immediate 100percent state funding of child support efforts on behalf of the eight Indian counties and state administration of those eight counties only if 100 percent of funding is provided by the state.

Association of Counties

Representatives of the North Dakota Association of Counties testified in support of state administration of the child support enforcement program, contingent on the state taking full financial responsibility of the program. Testimony was received by the committee that transition to a state-administered child support enforcement program would result in a reduction of county social services costs of approximately $4 million per year, resulting in property tax levies for social services purposes being reduced by three to four mills in each county.

A representative of the North Dakota Association of Counties testified that given that the federal government has been taking increased control over the child support enforcement programs from the states and counties, North Dakota counties have very little control over the program, and therefore, the counties support state funding and state administration of the program.

The committee received testimony in opposition of a state-administered but county-funded child support enforcement program. Testimony was received that the proposal to change to a state-administered program came at a time when the Department of Human Services was dealing with a deficit and facing even greater fiscal issues in the 2003 legislative session. State administration with county funding would take away the little control counties have with no reduction in county fiscal responsibilities.

Attorney General

A representative of the Attorney General's office testified that from a legal perspective there may be some efficiencies that would result from changing to a state-administered child support enforcement program, including allowing for certain employees to become specialists in areas such as tribal practice and interstate practice. The Attorney General took a neutral position on the study of changing to a state-administered child support enforcement program.

Interested Persons

The committee received testimony from a customer of the county-administered child support enforcement program. The individual testified in support of a state-administered program, based on the belief that moving to a state-administered program would increase the education of caseworkers and increase accountability of the regional units to the state.

Committee Considerations

The committee considered a bill draft that would have provided for a state-administered child support enforcement program. The bill draft would have been budget-neutral, in that it based county contributions to the state on year 2001 payment levels for county funding of the program. The bill draft would have authorized the Department of Human Services to employ special assistant attorneys general.

Recommendations

The committee recommends House Concurrent Resolution No. 3002 to provide for a Legislative Council study of loss of tax revenues from flooded property and from previously taxable property that is purchased by tax-exempt entities and of the impact of the tax status on the ability of local communities to provide social services.

The committee recommends House Concurrent Resolution No. 3003 to provide for a Legislative Council study of state and local funding obligations for social services.

ADOPTION LAW STUDY
Background

Generally, adoption is a creature of state law, and although all 50 states have different ways of dealing with the issue of adoption, the overall adoption scheme is similar in most states. Some of the similarities between states' adoption laws include:

Areas that differ from state to state include:

2001 Legislation

Senate Bill No. 2252 increased from $1,000 to $1,750 the long-form income tax deduction for adoption expenses and allowed the deduction to be carried forward for up to five taxable years. The bill also allowed a deduction from federal income tax liability on the short-form individual income tax return in the amount of the taxpayer's federal qualified adoption expenses credit, not exceeding $1,750.

Previous Legislation

In 1999 Senate Bill No. 2171 implemented the federal Adoption and Safe Families Act of 1997 and amended the adoption procedures statute to require that the reports and assessments of adoptive parents include a criminal history record investigation. The federal law affected the adoption of foster children and redefined "reasonable efforts," "case plans," and "reviews" for purposes of foster care adoptions; addressed termination of parental rights for foster care children; provided who must be given notice of foster care adoption proceedings; changed the timeframe for permanency planning hearings for foster care children; and limited the time for reunification services for foster care children.

In 1999 Senate Bill No. 2388 provided that under certain circumstances, the court may waive the adoption investigation and report requirements for an adopting party who is a grandparent, brother, sister, stepbrother, stepsister, uncle, or aunt of an adoptee.

In 1993 House Bill No. 1107 updated the law pertaining to access to information regarding genetic parents, siblings, and children.

In 1993 Senate Bill No. 2294 made changes to the notice requirements for the adoption of an adult and provided the court with discretion to prevent the parents of an adult adoptee from attending the adoption hearings and proceedings.

Testimony

The committee considered federal laws that directly impact adoption, including the Intercountry Adoption Act of 2000, Child Citizenship Act of 2000, Adoption and Safe Families Act of 1997, Multiethnic Placement Act of 1994, and the Indian Child Welfare Act of 1978. As a result of the federal Adoption and Safe Families Act of 1997, states were required to make substantial changes in state law. In 1999 the North Dakota Legislative Assembly enacted Senate Bill No. 2171 to implement the requirements of the Act. The committee received testimony that although implementation of the federal Adoption and Safe Families Act of 1997 was a substantial burden on the state as an unfunded mandate, the Act has been very successful in improving appropriate and timely placement of foster children.

The committee received information regarding adoption statistics for North Dakota. There are six child-placing agencies in the state, all of which have been licensed for many years. In fiscal year 2001 there were 181 agency-facilitated adoptions, of which 113 were adoptions of children with special needs, 19 were adoptions of foreign-born children, and 49 were adoptions of healthy infants, and there were an additional 155 stepchildren adopted by their stepparents. In addition to the total number of agency-facilitated finalized adoptions increasing, the number of finalized adoptions of children with special needs has increased significantly--44 in 1998, 61 in 1999, 40 in 2000, and 113 in 2001. In calendar year 2000 the Turtle Mountain Tribe adjudicated 20 adoptions through the tribe's affiliation with the AASK program.

A representative of the Department of Human Services Division of Child and Family Services testified that North Dakota law is very restrictive in how it treats the placement of a child with an adoptive family before the termination of the biological parents' rights and is very restrictive in how it treats the openness of adoption information.

The committee received testimony that recent legislative activities in other states have included:

During the course of the study, the committee received proposed bill drafts from an informal task force of licensed child-placing agency representatives which discussed adoption laws. With the exception of the task force's proposed bill draft regarding child-placing agencies, which was the final proposal presented to the committee, the task force shared its work product with adopted individuals, birth parents, and adoptive parents in order to receive feedback.

The task force initially made the following recommendations of areas in need of being addressed:

Ultimately the task force presented to the committee six proposed bill drafts relating to the state's version of the Revised Uniform Adoption Act, child relinquishment to identified adoptive parents, the state's version of the Uniform Parentage Act, creation of a paternity registry, assistance for adopted children with special needs, and licensure of child-placing agencies. In addition to the six proposed bill drafts presented to the committee, the task force recommended legislative action to align the provisions of the North Dakota Century Code (NDCC) relating to relinquishment of parental rights.

Revised Uniform Adoption Act - NDCC Chapter14-15

The task force presented a bill draft amending NDCC Chapter 14-15, the Revised Uniform Adoption Act. A member of the task force testified that the bill draft:

The committee was informed the provisions in the bill draft which deal with the reasonableness of expenses of a petitioner were very loosely patterned on Minnesota's law. A member of the task force testified that although in practice it may be difficult for a court to deal with unreasonable expenses after the expenses were already paid, the court has discretion to deny unreasonable expenses or take other appropriate action.

Current adoption law provides that if an adopted individual seeks identifying information regarding birth parents, refusal of one birth parent to consent to disclosure has the effect of prohibiting disclosure regardless of whether the second birth parent consents to disclosure of identifying information. Members of the task force testified that North Dakota's law regarding openness of adoption information is very restrictive, and the bill draft makes North Dakota's law more consistent with the trend of more openness in access to adoption information.

The committee received testimony from an adopted individual, in support of increasing the openness of adoption records. Information was presented indicating that opening adoption records would not negatively affect adoption rates and would not increase abortion, based on statistics from Alaska and Kansas. Additionally, the committee received testimony from a birth mother who placed her child for adoption, in support of increasing openness of adoption records, stating that the state's laws are outdated. The committee reviewed the adoption laws of North Dakota and other states regarding access to birth certificates, identifying information, and nonidentifying information.

The committee received testimony from representatives of child-placing agencies regarding the procedure followed, costs associated with, and services offered by child-placing agencies in searching for identifying and for unidentifying adoptive information. The representatives expressed the importance of providing counseling and other services in assisting in searching for and disclosing adoption information.

Child Relinquishment to Identified Adoptive Parents- NDCC Chapter 14-15.1

The task force presented a bill draft amending NDCC Chapter 14-15.1 relating to child relinquishment to identified adoptive parents. A member of the task force testified that the bill draft:

Uniform Parentage Act - NDCC Chapter 14-17

The task force presented a bill draft amending NDCC Chapter 14-17, the Uniform Parentage Act. The bill draft changes the terms "natural mother," "natural father," and "natural parent" to biological mother, biological father, and biological parent. The change in terms is not intended to be substantive.

Paternity Registry - NDCC Title 14

The task force presented a bill draft creating a new chapter to NDCC Title 14 creating a paternity registry. A member of the task force testified that the bill draft:

A member of the task force testified that the paternity registry bill draft was an attempt by the task force to use the best practices of other states that have paternity registries. Approximately 21 states provide for some sort of paternity registry. The committee received testimony that the registry is not intended to remove the obligation of a child-placing agency to request information regarding the identity and location of the biological father.

Assistance for Adopted Children With Special Needs- NDCC Section 50-09-02.2

The task force presented a bill draft amending NDCC Section 50-09-02.2 regarding assistance for adopted children with special needs. A member of the task force testified that the bill draft expands the definition of a child with special needs to include a child who is at high risk for a physical, mental, or emotional disability due to the circumstances of birth, deprivation in developmental years, or the birth parent having a medical or social history. Current law requires that a determination of handicap be made before the classification as a special needs child. The effect of the bill draft is to expand the class of children who could be classified as special needs.

The committee received testimony that the need for expanding the definition of special needs children results in part from the fact that as children are being placed in foster care more quickly and at a younger age, it is more likely that a child who is less than five years old has a physical, an emotional, or a mental handicap that has not been diagnosed or recognized. By expanding the definition of special needs children, the at-risk children would not necessarily be given the full package of benefits associated with being classified as a special needs child, but the classification would allow the adoptive parents to sign a form that would clarify that assistance will be made available if the child does exhibit a handicap at a later date, thereby letting adoptive parents know that special services will be made available if the adopted child develops a need for these services. Additionally, the committee received testimony that by being classified as a special needs child, an adoptive family would be able to access federal funds, which in the long run would save the state money.

Child-Placing Agencies - NDCC Chapter 50-12

The task force presented a bill draft regarding the state's child-placing agency law. A member of the task force testified that the bill draft:

Recommendations

The committee recommends six bills based on the bill drafts proposed by the informal task force of licensed child-placing agency representatives discussing adoption laws.

The committee recommends House Bill No. 1035 to amend the state's version of the Revised Uniform Adoption Act as proposed by the task force.

The committee recommends House Bill No. 1036 to amend the law relating to child relinquishment to identified adoptive parents as proposed by the task force.

The committee recommends Senate Bill No. 2034 to update the state's version of the Uniform Parentage Act as proposed by the task force.

The committee recommends Senate Bill No. 2035 to create a paternity registry as proposed by the task force.

The committee recommends Senate Bill No. 2036 to broaden the class of children eligible for certification as a special needs adoption as proposed by the task force.

The committee recommends House Bill No. 1037 to amend the child-placing agency licensure laws as proposed by the task force.

PRIVACY LAW STUDY

Senate Concurrent Resolution No. 4019 provided for a study of the medical and financial privacy laws in the state; the effectiveness of medical and financial privacy laws in other states; the interaction of federal and state medical and financial privacy laws; and whether current medical and financial privacy protections meet the reasonable expectations of the citizens of this state.

The study resolution was adopted and prioritized before the referral petition on 2001 Senate Bill No. 2191 was filed with the Secretary of State. As a result of the pending June 2002 referral vote, the committee's focus on the financial portion of the privacy study was information gathering on the impact of 2001 Senate Bill No.2191 on privacy and economic development; the possible privacy and economic development impacts of approval or rejection of the referred measure; and of the privacy provisions of the federal Financial Services Modernization Act of 1999, which is also known as the Gramm-Leach-Bliley Act. Additionally, the committee reviewed an Attorney General's opinion dated May 22, 2002, addressing certain elements of the state's financial privacy law.

The medical privacy aspect of the study focused on the impact of implementation of the federal Health Insurance Portability and Accessibility Act (HIPAA).

Background

The 57th Legislative Assembly passed seven bills concerning access to personal or financial information. House Bill No. 1082 provided that if the Commissioner of Financial Institutions furnishes confidential information to a third party authorized to receive that information, the information remains confidential in the possession of the third party, and likewise, if the commissioner receives confidential information, that information remains confidential in the possession of the commissioner. The bill also expanded the persons to whom the commissioner may furnish information and may enter sharing agreements to include the Insurance Commissioner and the Securities Commissioner.

House Bill No. 1234 provided that a medical release is valid for three years or the time specified in the release, whichever is less. The bill also allowed for termination of the release at any time and allows a provider to share medical information with another provider during the time necessary to complete a course of treatment.

House Bill No. 1329 provided a financial institution may disclose customer information for the purposes of reporting suspected exploitation of a disabled adult or vulnerable elderly adult.

Senate Bill No. 2065 required a North Dakota federally chartered corporate credit union to allow the Commissioner of Financial Institutions to access records and sets a rate of reimbursement for the credit unions for searching and processing records.

Senate Bill No. 2117 provided a definition of customer as it pertains to the sharing of commercial or financial customer information by the Bank of North Dakota.

Senate Bill No. 2127 provided that insurance companies, nonprofit health service corporations, and health maintenance organizations are required to comply with the privacy provisions of Title V of the Gramm-Leach-Bliley Act. Additionally, the bill allows the Insurance Commissioner to adopt rules to implement the Gramm-Leach-Bliley Act if the rules are consistent with and not more restrictive than the model regulation adopted by the National Association of Insurance Commissioners.

Senate Bill No. 2191 provided that the state's statutory provisions relating to the disclosure by financial institutions of customer information are not applicable if a disclosure is subject to federal law and the financial institution complies with the federal law. The bill also provided temporary disclosure requirements applicable to agricultural and commercial customers of financial institutions, effective through July 31, 2003. This bill became void, effective June 11, 2002, as a result of the referral vote, referred to previously in this report.

Financial Privacy Testimony

Before the June 2002 referral vote on 2001 Senate Bill No. 2191, the committee reviewed recent financial privacy legislation across the country; reviewed the privacy provisions of the federal Gramm-Leach-Bliley Act; considered the legality and desirability of introducing financial privacy legislation during the special session of the 57th Legislative Assembly held for the purpose of redistricting; and received testimony from a wide variety of persons interested in financial privacy.

In addition to addressing the impact on banks and credit unions of the privacy provisions of the federal Gramm-Leach-Bliley Act, the committee received testimony from a representative of the State Bar Association of North Dakota regarding the possible impact of the federal law on lawyers and from a representative of the Insurance Commissioner regarding the commissioner's activities related to compliance with the federal Act.

After the June 2002 referral vote, the committee focused on the interpretation of the state's financial privacy law and the desirability of recommending legislation to amend the state's financial privacy law. The committee did not receive testimony advocating changing from opt-in authorization to opt-out authorization for the sharing of customer information by financial institutions; however, testimony received from representatives of the North Dakota Bankers Association, the Commissioner of Financial Institutions, representatives of the Independent Community Banks of North Dakota, a representative of Community First Bankshares, and a representative of the North Dakota Credit Union League testified in support of legislative changes ranging from clarification of existing law to incorporating all of the exceptions of the federal Gramm-Leach-Bliley Act. Additionally, the committee received testimony from representatives of Protect Our Privacy, the sponsoring committee for the referral of Senate Bill No. 2191, in support of amending the state's financial privacy law to prohibit affiliate sharing of customer information by financial institutions; in support of increasing medical privacy, insurance privacy, and securities privacy; and in support of increasing limitations on government sharing of information.

In a financial privacy matter unrelated to the federal Gramm-Leach-Bliley Act, the committee reviewed the laws of Washington and California regarding limiting the information that may be included on an electronically printed credit card receipt.

Insurance Privacy

The committee received an update from a representative of the Insurance Commissioner regarding the status of the commissioner's financial privacy administrative rules. The committee reviewed the proposed administrative rules of the commissioner.

The Insurance Commissioner's rules went into effect December 1, 2001, and were based on the National Association of Insurance Commissioners model regulations, providing an opt-out provision for financial information and an opt-in provision for health information. The referral of Senate Bill No. 2191 did not affect the Insurance Department's administrative rules on privacy.

A representative of Protect Our Privacy testified in support of increasing customer insurance privacy by requiring opt-in authorization for the sharing of customer information by insurance companies.

Lawyer Privacy

A representative of the State Bar Association of North Dakota testified regarding the possible applicability of the federal Gramm-Leach-Bliley Act to lawyers. The committee was informed that the Federal Trade Commission had taken the position that law firms and sole practitioners "significantly engaged in financial activities" are considered financial institutions and are therefore subject to the provisions of the Act. The American Bar Association had requested the Federal Trade Commission to exempt the legal community from the Act. On April 8, 2002, the Federal Trade Commission informed the American Bar Association of the commission's determination not to grant the exemption requested. On September 25, 2002, the American Bar Association filed suit to end the imposition of the privacy provisions of the Act.

Banking and Credit Union Privacy

Following the June 2002 referral vote, the committee received extensive testimony from persons interested in the financial privacy study. Testimony focused on the scope and interpretation of the state's financial privacy law and whether it was desirable to clarify or substantively change the state's financial privacy law.

Representatives of Protect Our Privacy testified in opposition to making any changes to the state's financial privacy law which would make it easier for financial institutions to disclose a customer's information. Protect Our Privacy supported treating all North Dakota-chartered financial institutions identically, regardless of physical location, and treating all customers who do business with North Dakota-chartered financial institutions identically, regardless of the customer's state of residence.

The committee received testimony from representatives of financial institutions regarding areas of the state's financial privacy law which would benefit from clarification, including clarification of the definitions of financial institution, customer, and agent. Clarification of the terms "financial institution" and "customer" would help to clarify the scope and reach of the state's law. Additionally, testimony was received that the state's law may not be clear regarding whether an agent of a financial institution has a duty of maintaining the confidentiality of customer information.

The issue of clarification of definitions in large part focused on the scope of the state's financial privacy law and whether the state's law was exported to out-of-state financial institutions and out-of-state customers.

A representative of the North Dakota Bankers Association testified that a definition of customer which included out-of-state customers and a definition of financial institution which included those institutions that are physically located outside the state would disadvantage North Dakota financial institutions that have out-of-state facilities and may negatively affect North Dakota banks such as Community First Bankshares and US Bank, which have a majority of their customers out-of-state.

The committee received testimony from the Commissioner of Financial Institutions regarding the Attorney General's opinion dated May 22, 2002, which addressed some of the issues concerning how the state's financial privacy law will be applied to financial institutions. The commissioner testified that the opinion leaves some questions regarding the exportation of the state's law unanswered.

The following is how the Attorney General addressed financial privacy in his May 22, 2002, opinion:

Extensive testimony was received regarding the uncertainty in the financial industry over the circumstances in which a financial institution may share customer information with a third party in the course of providing services that a customer has requested or in the course of performing acts that are perceived to be incidental powers necessary to carry on the business of a credit union or bank. Suggestions received by the committee to deal with these issues included:

The marketing and servicing exceptions under Section 502(b)(2) of the federal Act allow financial institutions to disclose customer information to nonaffiliated third parties to perform services on behalf of the financial institution. The general operating exceptions under Section 502(e) allow financial institutions to disclose customer information to nonaffiliated third parties if the disclosure is necessary to effect, administer, or enforce a transaction requested or authorized by the consumer in connection with servicing or processing a product, service, or transaction requested or authorized by the consumer (502(e)(1)); is made with the consent or at the direction of the consumer (502(e)(2)); is made to protect against fraud; is made to a consumer-reporting agency; is made in connection with a merger or sale of the financial institution; is made to comply with a regulatory investigation; is made to lawyers and auditors; and is made in other circumstances in which opt-out would not be practical or expected to be provided.

Testimony received by the committee indicated that benefits of clarifying the terminology and scope of the state's financial privacy law through legislation may include decreased liability for financial institutions and the benefit of having the Legislative Assembly make public policy decisions instead of the State Banking Board, State Credit Union Board, Attorney General, or Supreme Court.

Electronically Printed Credit Card Receipts

The committee reviewed the laws of Washington and California regarding limitations on the information included on an electronically printed credit card receipt. The laws of California and Washington are nearly identical and require that electronically printed credit card receipts provided to a customer limit credit card account information to no more than the last five digits of the credit card number and do not include expiration information. Exceptions to these laws include that the restrictions would not apply to transactions in which the sole means of recording the customer's credit card number was by handwriting or by an imprint copy of the credit card. The effective date of the laws varied based on when the cash register was put into use in order to allow for an appropriate transition period.

Financial Privacy Considerations

The committee considered a bill draft that would have incorporated all the general operating exceptions under Section 502(e) of the federal Gramm-Leach-Bliley Act. The bill draft also would have provided that a financial institution that shared customer information with an affiliate or a nonaffiliated third party would be required to enter a contract providing the affiliate or nonaffiliated third party would keep the customer information confidential.

The committee considered a bill draft that would have limited the scope of the state's financial privacy law to protection of customer information of customers who reside or are domiciled in North Dakota.

Financial Privacy Recommendations

The committee recommends House Bill No. 1038 to provide that a customer is protected by the state's financial privacy law, regardless of the state or residence or domicile and that the state's financial privacy laws apply to financial institutions that are physically located in the state. The bill also provides for incorporation into the state's financial privacy law the federal Gramm-Leach-Bliley Act exception provisions of Section 502(e)(1) and (2), allowing for sharing of customer information:

The committee recommends Senate Bill No. 2037 to limit the credit card number information that may be included on an electronically printed credit card receipt. The bill would become operative on January 1, 2004, with respect to any cash register or other machine or device that electronically prints receipts for credit card transactions which is first put into use after December31, 2003, and would become operative on January 1, 2007, with respect to any cash register or other machine or device that electronically prints receipts for credit card transactions which is first put into use before January 1, 2004.

Medical Privacy Testimony

The committee reviewed some of the extensive background and history of the federal Health Insurance Portability and Accountability Act and reviewed several of the state laws pertaining to medical privacy. As in the federal Gramm-Leach-Bliley Act, the privacy provisions are just one portion of the federal Health Insurance Portability and Accountability Act.

The committee received testimony that the privacy provisions under the federal Health Insurance Portability and Accountability Act came about as the result of administrative simplification that requires all health care insurers to establish uniform billing and coding systems in order to simplify and reduce the administrative costs of the health care system. Congress realized that a uniform electronic billing system would greatly reduce the cost and increase the capacity for accidental or intentional disclosure of individually identifiable health information; therefore, Congress set a deadline for itself to enact health care privacy legislation by August 1999. Congress also provided that if that August 1999 deadline was not met, the Secretary of Health and Human Services would be required to establish regulations to protect the privacy and security of health information. Congress did not meet the 1999 deadline and on December 28, 2000, the final rules on privacy of individually identifiable health information were published. The compliance date for most organizations is April 14, 2003; however, small insurers have an additional year to come into compliance.

Under the Act, the privacy rules cover health plans, health care clearinghouses, and those health care providers who conduct certain financial and administrative transactions electronically. The privacy rules for the first time create national standards to protect an individual's medical records and other personal health information. The rules give patients more control over their health information; set boundaries on the use and release of health records; establish appropriate safeguards that health care providers and others must achieve to protect the privacy of health information; hold violators accountable if they violate patients' privacy rights; and strike a balance when public responsibility requires disclosure of some forms of data.

A representative of the Attorney General's office reported that the federal medical privacy rules require the average health care provider to:

The committee received testimony from a representative of the Department of Human Services regarding the department's efforts to comply with the Act. In addition to working with the Attorney General's office regarding compliance with the Act, the Department of Human Services established a team of individuals representing the payers, providers, and the Legal Services Division of the department to analyze and complete the implementation of the privacy project. The Department of Human Services privacy project was broken into the following phases:

Representatives of Blue Cross Blue Shield of North Dakota testified regarding the undertaking of complying with the federal medical and financial privacy laws. The committee was informed that the costs associated with complying with the federal privacy requirements would be borne by the individual members of Blue Cross Blue Shield of North Dakota. Because the costs would be added to insurance premiums and because of the complexity and the resources required to comply with the federal privacy laws, Blue Cross Blue Shield testified in opposition to any new medical privacy legislation, especially until the federal requirements are fully implemented.

A representative of the Attorney General's office reported that the Attorney General's office, as part of an informal group known as the North Dakota HIPAA Coalition, was comparing North Dakota law to the federal privacy laws under the Health Insurance Portability and Accountability Act to determine whether state law provides less privacy protection than the federal privacy law, the same protection as the federal privacy law, or more privacy protection than the federal privacy law. The nature of the Health Insurance Portability and Accountability Act is that if a state law provides less privacy protection than the federal privacy law, the state law is superseded by the federal privacy law; if state law provides the same privacy protection as the federal privacy law, then a covered entity can comply with both North Dakota law and the federal privacy law; and if a state law provides greater privacy protection than the federal privacy law, the parties must conform to the higher privacy provisions under state law.

The membership of the North Dakota HIPAA Coalition includes representation from government agencies, associations representing health care providers, individual hospitals and clinics, and health insurers. A representative of the Attorney General's office reported that based on the analysis of the results once the evaluation of state medical privacy laws is completed, the Attorney General would propose to the 58th Legislative Assembly any necessary bill for the state to comply with the federal privacy law.

In addition to receiving testimony from interested persons regarding federal privacy law implementation efforts and receiving updates on the status of the North Dakota HIPAA Coalition's review of the state's medical privacy laws, the committee received testimony regarding medical privacy issues that may arise in the case of a pharmacy that maintains at the check-out counter a customer log of prescriptions that have been picked up, and the committee received testimony regarding medical privacy choice-of-law issues that could arise based on the residency of a patient and the location of a medical provider.

The committee received testimony that questions of how the federal Health Insurance Portability and Accountability Act and state privacy laws impact the care of nonresident patients relate to conflicts-of-law matters or choice-of-law matters. The federal Health Insurance Portability and Accountability Act regulations regarding preemption of state law do not directly address the issue of which state's law may apply. Some health care facilities follow the practice that the privacy laws of the place in which the health care facility is located determine the medical privacy rights of the patient; however, it is possible that some health care providers may choose to protect the confidentiality of medical information based on the law of the state in which the patient resides. A representative of the Attorney General's office stated it would be helpful to have federal clarification regarding which state's privacy laws would apply in the case of a resident of one state receiving medical care in a different state.

Medical Privacy Conclusion

The committee makes no recommendation with respect to the medical privacy portion of its study of privacy.