Legislature(2013 - 2014)SENATE FINANCE 532
04/10/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB198 | |
| SB87 | |
| HB52 | |
| SB90 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 198 | TELECONFERENCED | |
| + | SB 87 | TELECONFERENCED | |
| += | HB 52 | TELECONFERENCED | |
| + | SB 90 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 90
"An Act relating to group insurance coverage and self-
insurance coverage for school district employees; and
providing for an effective date."
Senator Dunleavy introduced SB 90. He explained that there
were 53 school districts in Alaska, all with different
health insurance plans. The plans were negotiated at the
district level at different rates. The cost of health
insurance was escalating. School district's costs were
rising due to inflationary costs. Health insurance was a
large contributor to increased costs. Rates were raising
seven to fifteen percent each year. The burden to pay for
the increased costs was placed on the school district. The
state funded some school districts, i.e., REAA's [Regional
Education Attendance Area] at 100 percent of all its
educational costs. State and local governments were all
bearing the costs of increased health insurance. He
reported that the legislation created an integrated state
health insurance plan for all school districts. The larger
pool placed the state in a position to negotiate lower
rates. The financial burden would be eliminated from the
school districts allowing districts to focus on educational
policies. He announced that some school district
representatives testified in favor of the bill and agreed
that the legislation was beneficial to their districts and
allowed more time to concentrate on students and control
costs. He concluded that the legislation was a solution to
a problem he was familiar with as a former school district
superintendent.
Co-Chair Meyer inquired whether the legislation provided
cost savings for the state. Senator Dunleavy requested that
the Department of Administration (DOA) answer the question.
Co-Chair Meyer noted that the legislation proposed funding
the health insurance plan from the public education fund.
He wondered why the public education fund was chosen.
Senator Dunleavy replied that the use of the public
education fund was suggested by DOA.
Co-Chair Meyer reported that last year the state
centralized pupil transportation as a cost savings measure.
He inquired whether the intent of the legislation was costs
savings. Senator Dunleavy answered in the affirmative. He
thought that the state paid for the rising cost of health
care through increases to the BSA [Base Student
Allocation]. The centralized insurance pool could yield
lower rates which were a cost savings to the state.
Senator Hoffman commented that SB 90 capped the insurance
funding at $100 million and did not include adjustments for
inflation. Senator Dunleavy responded in the affirmative.
Senator Hoffman remarked that the centralized
transportation funding included a one and a half percent
increase for inflation with more proposed for the current
year. He wondered whether the legislation could include
cost adjustments for inflation. Senator Dunleavy replied
that the purpose of the bill was to take control of costs
at the local level and provide savings for the state. He
was in favor of anything that could accomplish the purpose
of the legislation.
Senator Hoffman commented that capping the funding for
rising health care costs was problematic. He thought that
not addressing inflation in the legislation only delayed
the matter until a later date. Senator Dunleavy suggested
that DOA could address the concern.
Co-Chair Meyer queried how a school district negotiated for
health insurance. Senator Dunleavy replied that the school
district negotiated contracts with the employee groups
which included health care coverage and also negotiated
directly with insurance providers. He added that a lot of
time was taken up in the negotiation process at a cost to
the school district.
10:22:27 AM
Co-Chair Meyer asked whether the state ultimately paid for
the negotiated health insurance costs. Senator Dunleavy
elaborated that the costs were paid for by the school
district. Local taxes paid for a portion of the costs for a
municipal school district along with state funding. If the
district's costs were higher than the amount of state and
local funding a school district reduced costs through cuts
in education.
Vice-Chair Fairclough stated that there were many people in
the state that were concerned about the bill. She believed
in the concept of controlling costs and requested an
explanation of the concerns being raised over the possible
reduction in benefits leading to a reduced level of health
care due to the legislation. She pointed out that a large
city such as Anchorage contributed a great deal of tax
dollars into the school system as opposed to smaller school
districts that were not able to due to a small tax base.
She thought that the legislation would benefit small
districts. She queried whether all of the districts needed
to be included in the insurance pool to achieve cost
savings. She wondered why the legislation mandated
participation instead of incentivizing it. Senator Dunleavy
thought that the pool of all 53 school districts would
achieve the most savings for health care and administrative
costs.
Vice-Chair Fairclough wondered whether there were benefits
to pooling health insurance with only the districts that
wanted to participate. Senator Dunleavy stated that any
benefits depended on negotiations based on the number of
participants.
Vice-Chair Fairclough referenced "multiple" letters in
support of the legislation (copies on file) from district
level financial managers across the state. She cited an
opposition letter from the Local 71 Public Employees Trust
Fund in Anchorage (copy on file). The trust discerned that
pooling would result in additional costs of $400 thousand
passed on to the membership. She understood that in a pool
some paid more than others. She asked for clarification on
how pooling worked. Senator Dunleavy deferred to DOA for an
answer.
10:30:28 AM
Vice-Chair Fairclough replied that she wanted to discuss
whether there would be a benefit for school districts that
opted to participate in a pool, and offer an incentive
approach based on fees for various levels of care similar
to the Public Employees' Retirement System (PERS) system.
BECKY HULTBERG, COMMISSIONER, DEPARTMENT OF ADMINISTRATION,
commented on the legislation and addressed questions that
were raised earlier. She remarked that the department did
not have an official position on the bill, but believed
pooling school district's health insurance could offer cost
savings for the districts and the state. The department had
experience managing costs. She noted the "value" of
insurance pooling while managing the state's plans. She
observed that health insurance carried the "largest and
fastest growing" costs. She related that the bill was
brought forward by several of the large school districts
that were struggling with raising costs and limited
resources. Health insurance was the districts fastest
growing costs and was the most difficult to manage. She
related that healthcare was one the state's and the
nation's most persistent issues and was an enormous cost
driver for the districts and the state. The school
districts collective health insurance costs were over $280
million.
Commissioner Hultberg provided a brief overview of the
health insurance plans that DOA managed and highlighted the
possibility for cost savings through pooling. She detailed
that the state currently managed two plans: one for its
active employees and the other for retirees. The combined
plans provided coverage for approximately 86,000 members at
a cost of $600 million annually. Both of the plans were
self-insured and administered by a third party. The third
party received monthly payments calculated at a per member
rate. The Alaska Care employee plan covered 16,400 members
including dependents. The bill would add an extra 47,000
members into the active employee plan.
Commissioner Hultberg explained the factors that determined
costs. She pointed out that the provider network and third
party administrator fees were a "huge driver" of costs.
According to a recent study, administrative fees amounted
to $1 in every $10 spent on health care in Alaska. High-
cost claimants, medical inflation, and utilization also
were large costs drivers. The size of the insurance pool
affected most of the costs. She elaborated that larger
pools could result in negotiating better rates, lower third
party administrative fees, and offer reduced risks with
high cost claimants. She relayed that the larger volume
could positively impact utilization. The more people in the
pool allowed for more sophisticated cost containment
programs. According to demographic data kept by DOA on the
PERS and TRS (Teachers Retirement System) pools, actuaries
estimated a 2 percent to 3 percent increase in costs
because of the demographics of a school district pool. The
larger size of the pool could offset the increased costs
and provided savings. Without access to the data on
insurance claims a more detailed analysis could not be
provided. She furthered that the state was currently paying
for a substantial amount of the increased costs through
funding for education. In addition, the state was funding
future costs through the state's retirement plans. She
related that the unfunded liability for retiree health care
amounted to $4 billion. She felt that the state had a
vested interest in addressing the rising costs of health
care. She concluded that the state was paying for the
increasing cost of the school districts health care. She
thought that SB 90 raised some important questions; whether
the state should maintain the status quo of a "fragmented"
approach for 53 separate school districts or institute an
integrated cohesive approach to manage health care. The
department believed that an integrated approach could
provide better management and cost savings.
10:40:22 AM
Senator Hoffman inquired whether the Department of
Administration had its own healthcare plan. Commissioner
Hultberg replied in the affirmative. Senator Hoffman asked
whether the department endorsed including its employee plan
in the legislation. Commissioner Hultberg replied in the
affirmative.
MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, discussed the three DOA fiscal notes. He
elucidated that in order to prepare the fiscal notes, the
actuary for the plan, Buck Consultants, completed a
demographic analysis of the school districts employee
population. He reminded the committee that the school
district employees were active participants in the states
PERS or TRS system, which made the demographic data
accessible. He identified that there were approximately
18,300 school district employees. He cited another total
number of 18,953 employees, distributed by Senator
Dunleavy. The figure included some temporary employees that
were not eligible for health insurance coverage. He
referenced the "Health Insurance Survey - Total Cost for
FY12" (copy on file) document that provided a summary of
Health insurance costs for each district. The total costs
for all districts combined were approximately $282 million.
The department used a rough estimate of the districts
accumulated health care costs in FY 2015 which totaled $300
million. The department included a four month reserve
estimate of $100 million based on the $300 million to
formulate the fiscal note.
10:44:05 AM
AT EASE
10:46:29 AM
RECONVENED
SB 90 was HEARD and HELD in committee for further
consideration.
10:47:49 AM