Legislature(1999 - 2000)
03/29/2000 03:28 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 345 - STATE EMPLOYEE HEALTH INSURANCE Number 2069 CHAIRMAN ROKEBERG announced the next order of business would be HOUSE BILL NO. 345, "An Act relating to state employee health insurance." CHAIRMAN ROKEBERG noted that Version G [1-LS1364\G, Cramer, 3/17/00] of HB 345 was adopted at the last committee hearing [March 17, 2000], at which time members asked for public testimony. He said he did not intend to move the bill beyond the next committee of referral. CHAIRMAN ROKEBERG noted that one objective of the legislation is to "allow the legislature to make the public policy." Testimony from the Department of Administration has indicated that the commissioner made a decision to grant collective bargaining units the right to establish their own health care trusts. That, he said, is what galvanized him to introduce HB 345. Furthermore, discussions with the president [executive president, Mano Frey] of the AFL-CIO [American Federation of Labor and Congress of Industrial Organizations] have indicated that he is working to form larger coalitions with the state employees. His concern is related to the size of the actuary pool. CHAIRMAN ROKEBERG said, "When you take the basic premise that an actuary pool is to be smaller then there's a smaller amount of covered lives to spread those risks." It's particularly important to consider in cases of major illnesses such as AIDS [acquired immunodeficiency syndrome] because the rollback affects the cost of those in the pool. He said, "We don't have [a] reinsurance cap because we have a large pool of covered employees. So, my concern was ... decreasing the amount of the people in the pool, and that's ... the problem." CHAIRMAN ROKEBERG further noted that there are some 30,000 lives under the AFL-CIO trust statewide, and the idea that a collective bargaining unit could stop their own trust and enter into a coalition for greater buying and negotiating power causes him concern. He said: If they're [going to] enter into agreements to pull in the state employees under this net with these coalitions - that potentially, with some excess of 30,000 lives that would be part of that, that particular umbrella organization could have as many as 60, 70 thousand lives underneath it. And, therefore, in the state of Alaska this would be the 800-pound gorilla. And they would have the ability to do the bargaining with the health care providers ... in such a way to get the very best of prices, which you think, "Well, that's a good thing." But I think all of us in this committee should know, or at least you should recognize, in the health care game, if you will, anytime there's a decrease in price, it becomes a cost-shift type of situation. And that's one of the problems I can talk about with the insurance mandates and things like that. When you get a cost- shift situation, ... you'd have this large group of people going into a very small market, which is basically the state of Alaska, and those folks would get lower costs for their service and everybody else would basically have to pay more. And so, I think, that is a responsibility on the part of the legislature, to make sure that whatever happens with the state employees and how they are given their rights or they're given the right to leave the pool that we need to know, number one, where they're going and, number two, how they're [going to] be administered. We have the responsibility to protect the state employees, and we have a responsibility to every other citizen in this state to make sure that their health insurance doesn't go up as a result of this type of action. And that is absolutely the reason I introduced this bill, and no other. Number 2359 REPRESENTATIVE BRICE said he doesn't see how making public employees pay $500,000 into a pool that they can't participate in addresses the concern expressed by Chairman Rokeberg. CHAIRMAN ROKEBERG said he is talking about the ACHIA [Alaska Comprehensive Health Insurance Association] portion of HB 345. REPRESENTATIVE BRICE said Chairman Rokeberg's assumption that self-insurance pools increase medical costs for everybody across the state is not accurate in relation to the principles of economics. CHAIRMAN ROKEBERG replied that it is a question of fairness. Number 2450 CHUCK O'CONNELL, Business Manager, A.F.S.C.M.E. [American Federation of State, County and Municipal Employees] Local 52, came before the committee to testify. Local 52 represents about 7,400 GGU [General Government Unit] members. He said HB 345 he said, would make the subject of negotiating health care for state employees illegal. He referred to Section 3 of Version G [page 2, lines 8-11], which read as follows: (b) Except as provided in this [sic] (c) of this section, the state and an organization representing state employees may not enter into a collective bargaining agreement in which members of the bargaining unit are exempted from coverage under the health insurance plan provided by the state under AS 39.30.090(a)(1) or 39.30.091. TAPE 00-38, SIDE B Number 0001 MR. O'CONNELL said if the bill becomes law it would increase the cost of health care for state workers dramatically. He noted that during the course of bargaining Local 52's contract there was a dispute over the cost of health care. In that regard, Local 52 became convinced that they could provide health care for their members at a lower cost if they directly managed an independent trust. Under state control, he noted, the administrative costs would be about at least $15 a month more than if Local 52 was to negotiate a third party administrator outside of the procurement codes. MR. O'CONNELL said it also became glaringly obvious throughout the negotiation process that there were many more of those types of cost-efficiencies that could be secured if they controlled the delivery of the plan. As a result, an agreement was reached with the commissioner to set up a trust. Local 52 is in the process of selecting trustees, as soon as the contract is ratified. Local 52 also thinks that with direct oversight they can audit claims and premium payments annually. He further stated that the health care industry in the state is a mature, professionally managed industry. It's very profitable and knows how to survive in the business world. It seems therefore that it is not necessary for the legislature to put a "mantel" over the industry in order to protect that "1000 pound gorilla." He respectfully asked the committee members to oppose the bill. Number 0205 CHAIRMAN ROKEBERG asked Mr. O'Connell whether he truly believes HB 345 was designed to protect the health care providers of the state. MR. O'CONNELL replied that if HB 345 is to prevent large health care coalitions from forming, that is exactly what it would do. CHAIRMAN ROKEBERG stated that the intention of HB 345 is to keep the large pool of state employees together. It is not to restrict the ability of collective bargaining units to bargain health care benefits or anything like that. He asked Mr. O'Connell: Doesn't the phenomena of cost-shifting take place in the health care industry? MR. O'CONNELL replied, yes, it does. Number 0244 CHAIRMAN ROKEBERG asked Mr. O'Connell to explain to the committee members how GGU relates to the coalition. MR. O'CONNELL first noted that GGU members fall under a different health plan than other state employees. GGU members do not have a select-benefit option. In that way, GGU members have preserved their insurance pool and have found that the cost of the plan is increasing slower compared to other plans. It is the intention therefore of Local 52 to maintain that structure in a trust situation. MR. O'CONNELL further stated that there are about 30,000 lives that have access to the coalition. The way it works, the coalition of labor unions negotiates rates with certain providers and each union has the option to purchase whether or not they want to use those providers. For example, the iron workers have a preferred provider agreement with Alaska Regional Hospital. The Teamsters [General Teamsters Local 959, State of Alaska] and NEA [National Education Association-Alaska], for example, have a preferred provider agreement with Providence Hospital. Each union is free to make its own deal with the most astute business persons in the health care industry. Number 0344 CHAIRMAN ROKEBERG asked Mr. O'Connell whether a union opts in or out under the same contract that has already been bargained. MR. O'CONNELL explained that the only thing unions bargain in relation to health care is the employer's contribution. They do not bargain the preferred provider [agreement] or the level of benefits. Number 0359 CHAIRMAN ROKEBERG asked Mr. O'Connell whether the preferred provider [agreement] is bargained by the coalition and whether unions opt in or out of the coalition. MR. O'CONNELL replied, to the best of his knowledge, not every union participates in the hospital preferred provider "deal." He deferred the question to Mr. Don Valesko [Business Manager, Public Employees Local 71], who is part of the coalition. As to the intent of Local 52 in relation to the coalition, they have not made any commitments. Local 52 is going to look at all of the options, and will take the best option for their members. Local 52, he noted, has members in every House [of Representative] district across the state, which means a good deal in Fairbanks, for example, doesn't necessarily benefit those in another part of the state. Number 0432 CHAIRMAN ROKEBERG asked Mr. O'Connell, "Wouldn't it be possible, if you thought that the state was properly managing it, to have more power and stay together as a unit?" That, he said, is all that he is trying to "get at" in HB 345. MR. O'CONNELL replied, "I'm not sure I agree with that." CHAIRMAN ROKEBERG said, "No, I mean, ... because you're statewide exposure, don't you think you'd have a greater ability to do that or maybe the reluctance of the Administration to enter into a PPO [Preferred Provider Organization] type program would ...." MR. O'CONNELL replied: Well, there's a lot of reasons for that, and I wouldn't blame the Administration totally. There's been an awful lot of legislative interference over the years to prevent preferred provider agreements. You have to remember that whenever you have one you have legislators in the constituent area where the preferred provider agreement has not been reached. Number 0469 REPRESENTATIVE BRICE asked Mr. O'Connell what has driven Local 52 down the path of developing its own program. Has it been budget cuts? MR. O'CONNELL replied that budget cuts are part of it. Local 52's employees are paying a large amount of money for health care in relation to the amount of money that they make. If that cost can be lowered, he said, it might help in making their modest salary settlement more attractive. Number 0498 REPRESENTATIVE BRICE asked Mr. O'Connell to indicate what kind of money Local 52 is able to save for its membership and the state general fund by developing its own plan. MR. O'CONNELL replied that he doesn't know an exact amount. He also doesn't know whether or not Local 52 can continue to save money; but he thinks that they can bring about a number of cost- efficiencies in the short term. Number 0532 CHAIRMAN ROKEBERG asked Mr. O'Connell what the cost of the plan is now. MR. O'CONNELL replied that the current total cost of the self- insurance plan is $573 a month per member. CHAIRMAN ROKEBERG asked Mr. O'Connell what it costs a member. MR. O'CONNELL replied that a member pays $84.50 a month and the employer pays $488.50 a month. CHAIRMAN ROKEBERG asked Mr. O'Connell whether $573 is the equivalent to an economy plan with the state. MR. O'CONNELL replied, yes, it is commonly referred to as an 80- 20 plan. CHAIRMAN ROKEBERG asked Mr. O'Connell how much Local 52 thinks it can save by providing its own plan. MR. O'CONNELL replied he doesn't know. He pointed out, as his only comparison, that Local 52 has 20 employees and the premium is $402 a month under the laborers' health insurance trust. CHAIRMAN ROKEBERG asked Mr. O'Connell to comment on ACHIA, the high-risk pool. He explained that before the state went to a self-insured plan, it paid a million-dollar premium into a high- risk pool, which was necessary for an affordable plan. MR. O'CONNELL replied, as he understands the pool, it was created for those who had a difficult time obtaining insurance. In that regard, it is a very small but expensive pool. CHAIRMAN ROKEBERG noted that it is a pool of 362 people. It was put together for those who couldn't get insurance, and the health insurance companies that conduct business in the state picked up the difference of what was paid above the high premiums. He also noted that the state has to have a pool in order to maintain compliance since the federal Health Insurance Portability [and Accountability] Act passed three years ago. Chairman Rokeberg said it's a matter of fairness. When the state became self- insured, everybody else around the state had to pay for it. It's a classic example of cost-shifting. The bill therefore says that state employees would have to make a prorated contribution in that regard. Number 0695 REPRESENTATIVE BRICE asked under what circumstances state employees do not get insurance. Is a person who has a catastrophic illness and who is hired by the state not insured? MR. O'CONNELL answered that the only people who are not covered by health insurance are those who work less than 30 hours a week. REPRESENTATIVE BRICE said, "Okay, so, if I come in with a predetermined condition, ... I get my coverage?" MR. O'CONNELL replied, "Right." REPRESENTATIVE BRICE said, "So, in other words, then, trying to apply the ACHIA to state employees is kind of like trying to put an apple in an orange crate, given the fact that the ACHIA ...." MR. O'CONNELL interjected and said it is paying for a benefit that's not necessary. REPRESENTATIVE BRICE replied, "Well, not necessarily, in that they will never get." MR. O'CONNELL responded in the affirmative. Number 0748 DON VALESKO, Business Manager, Public Employees Local 71, came before the committee to testify. Local 71 represents some 1,700 people who work for the state. At any one given time, Local 71 represents 1,390 to 1,485 employees of the state who are covered by their trust, depending on the season. The bill, he said, would have little effect on Local 71. CHAIRMAN ROKEBERG asked Mr. Valesko how many covered lives are involved. MR. VALESKO replied that he doesn't have the exact figure with him, but 4,500 is real close. Number 0833 MR. VALESKO further stated that he was appointed to Local 71's trust, when it was originally formed in 1976, as a member from the Department of Transportation [& Public Facilities] in Fairbanks. He has served on the trust since. The trust, he explained, was formed to provide supplemental health insurance because members wanted better coverage than what the state was providing. The state, he noted, provided a plan that was close to the current 80-20 plan. The union, therefore, negotiated an additional 18 cents an hour from members' wages in order to go into a trust fund to buy additional coverage. The supplement provided for a 90 percent plan. The trust was in effect from 1976 until around 1981 to 1982, when the state opted out of the Social Security system and into the SBS [Supplemental Benefit System] system, which offered additional coverage. It was then decided that members could use the money that was made available from opting out of the Social Security system to buy an additional 10 percent health coverage. MR. VALESKO further stated that when [Bill] Sheffield became governor, Local 71 negotiated a full trust. Local 71 negotiated the removal of "X" amount per hour from members' wages in order to go into the trust and pull away from the state plan. The trust was bilateral in that there were three "straight" trustees and three union trustees. Prior to that, the trust was strictly unilateral in that there were only union trustees. The unilateral trust lasted for one year and built up a surplus of one million dollars. The next year, however, the attorney general ruled that a trust was not an option at the time because of AS 39.30.090. As a result, Local 71's members went back under the state's plan, and the million dollars was distributed to the participants of the trust. MR. VALESKO further stated that in 1993, Local 71 renegotiated a full plan of coverage under a unilateral trust of union trustees. Local 71 was able to find a 90 percent coverage plan in the marketplace. Three years ago the plan was changed to a flexible benefit type of plan so that members can select a plan depending upon their marital status. For example, a member who has dependents can opt for Plan 101, which provides for 90 percent coverage. A member who is single can opt for Plan 105. The state, he noted, contributes $550 a month, while members contribute $50 a month. Plan 105 costs $325 a month so a participant can get $275 put into his/her paycheck. He noted that taxes are paid on any money put into a paycheck. MR. VALESKO further stated that a union is better able to communicate with its members compared to a state as a entity in order to get a person onboard to help cut costs. He further stated that economy-of-size is not necessarily the driving factor, and individual bargaining units should have the choice to deal for what best fits their members. He cited that custodians, as a group, are rated as the lowest in experience in relation to health coverage, while doctors and nurses, as a group, are rated the highest. MR. VALESKO said in that regard, Chairman Rokeberg's concern of the large groups pulling out of the state thereby causing rates to increase for those who are left is something that might not happen. It could happen, however, if the group that's left is a high-user group because of how the insurance system works. Local 71 is part of the coalition and he believes that competition will drive down the cost of medical coverage in the state. The area where cost-shifting takes place is related to free services - those who cannot pay their medical bills. Those who have coverage or who can pay for medical expenses, on the other hand, end up paying for those who cannot. Number 1501 CHAIRMAN ROKEBERG asked Mr. Valesko whether Local 71's trust is self-insured or whether there is an underwriter. MR. VALESKO replied that Local 71's trust contracts with United of Omaha [Life Insurance Company]. CHAIRMAN ROKEBERG asked Mr. Valesko whether United of Omaha is the underwriter or the administrator. MR. VALESKO replied that Local 71 pays United of Omaha premiums. He said: It's like an underwriter but it's kind of self-insured too. We reach an agreement that only so much will go into paying claims each month and, if it's at the end of the year it costs them "X" amount of dollars over, they own that risk. Number 1549 CHAIRMAN ROKEBERG stated, then, that the trust has an actual underwriter as well as a variable menu. MR. VALESKO agreed. CHAIRMAN ROKEBERG stated, then, that the trust is not self- insured, which means that the trust pays into ACHIA. MR. VALESKO replied, "I suppose so." CHAIRMAN ROKEBERG said it is true because it means that United of Omaha is paying its fair share into ACHIA. MR. VALESKO said, in essence, the fund is self-administered through Local 71. In other words, an administrator pays the bills to United of Omaha. Number 1600 CHAIRMAN ROKEBERG explained to Mr. Valesko that when he introduced the legislation he wasn't trying to put the trust out of business. MR. VALESKO replied that he sees that now, but he would still have to testify in opposition to excluding other bargaining units from having the same opportunity that Local 71 has had to address its individual memberships. Number 1632 CHAIRMAN ROKEBERG said he wanted to get a discussion going in order to address the issue of health care insurance problems, which includes the bargaining units as well as the state. He appreciated Mr. Valesko's testimony today and how it illustrated Local 71's ability to give a choice to its members and to save money. CHAIRMAN ROKEBERG asked Mr. Valesko what the total monthly cost is for the 90-10 plan. MR. VALESKO replied that the total cost is $600 a month, which includes vision and dental. He also commented that Local 71 would be interested in negotiating coverage for the non-covered employees. Number 1748 ALISON ELGEE, Deputy Commissioner, Office of the Commissioner, Department of Administration, came before the committee to testify. She said: We are opposed to this legislation. The first section that would bring state employees back in ... as participants in funding the ACHIA pool, we don't believe there is any equity in that. We would be the only self-insured environment in the state participating, and because of the way our contracts work with a capped employer contribution, this increase cost would be borne entirely by employees. ... When the state participated in the ACHIA pool, prior to our going self-insured, the entire cost of health insurance was covered by the state. The employees did not participate. The concerns that we have about Section 3 and the inability of various bargaining units to move into a health trust environment, I think, have been very clearly outlined by the labor representatives here. We believe self-determination will, in fact, allow some of the health plan design changes that may be necessary in the future to ... control costs or perhaps reduce costs. And putting those management decisions in the hands of the employees themselves is the best way to go about accomplishing that. So, we have a lot of hope for a health trust environment. There are a couple of things that I do want to clarify, and I think that Mr. O'Connell covered that. We don't presently pool all of the state employees. We pool the General Government Unit apart from the Select Benefits people. So, we're maintaining two separate environments in our health trust today. The implications of actually reducing the size of that pool are that we might have to look at ... a little different mix of ... self-insurance and stop-loss kinds of insurance, if the pool were to get smaller. We purchase stop-loss for a variety of different purposes through our risk management program, and we would look at actually purchasing some kind of stop-loss coverage ... if the pool got down to a size where we felt that was important, in order to minimize the state's risk. CHAIRMAN ROKEBERG asked Ms. Elgee how many non-covered employees there are. MS. ELGEE replied that there are 2,000 non-covered employees and about 4,700 covered lives - a sizable pool. CHAIRMAN ROKEBERG asked Ms. Elgee whether that would be one method of a stop-loss or a smaller pool. Number 1982 MS. ELGEE replied, "Yes." She noted that the Public Safety Employees Association, which is part of a trust environment, is a small group and, therefore, purchases an insured product. In that regard, there are a wide variety of options available in order to continue to provide coverage. The labor representatives have indicated very clearly the advantages of the ability to exercise cost controls, compared to the state as an entity. CHAIRMAN ROKEBERG asked Ms. Elgee to comment on the difficulty of the state as a large group entering into a PPO contract. Number 2028 MS. ELGEE replied that the Administration has looked at a PPO agreement primarily in the Anchorage market, the only place that has the volume and necessary competition to make it effective. The Administration has looked primarily at the hospital aspect and has explored the option with some of the unions. She said: The labor management group that we worked with looked at this last year and choose not to try to implement that option because we were still relatively new in a select-benefits environment, and the concern they expressed was that the more choices you threw at the employees the more difficulty the employees were going to have trying to make a meaningful selection for their own set of circumstances; that we ought to give employees a couple of year to actually become comfortable with the options that they had at that time before we introduced anything new. MS. ELGEE said the contract for the GGU employees does not allow the Administration to make any changes to their plan without concurrence. In other words, a PPO plan option would have to be negotiated. Number 2168 CHAIRMAN ROKEBERG asked Ms. Elgee whether the Administration has a plan for the non-covered employees, if the bargaining agreements are approved. MS. ELGEE replied that the Administration would like to include non-covered employees in a trust environment in order to allow the same type of self-determination, in terms of plan design and participation in the coalition. An attorney is looking into that now. In the meantime, there are a bunch of tiny units of employees who are participating in Select Benefits, and the non- covered employees act as an "anchor" to that pool. For example, there are only 75 masters, mates and pilots who need to be made part of a broader plan. Number 2295 CHAIRMAN ROKEBERG said: So, you think you can manage this whole situation without sticking together and lowering costs? There's been testimony and also comments made that the state employees had a good deal for too long and they overused the plan and that's one of the reasons they've driven the cost of the plan up. Is there any validity to that? MS. ELGEE replied that the escalators in health care nationwide have been a good deal higher than the general cost-of-living adjustments, and Alaska has been experiencing a higher escalation of cost than the Lower 48, primarily because of the small provider markets and the inability to utilize health maintenance organizations. She further stated that there was a "run on the plan" in 1997, when the state went to a self-insured plan, which is not uncommon in a time of uncertainty. For example, participants were "shoving" checkups and teeth cleanings into a tighter time frame instead of spreading them out over the course of a year, in order to get them done before the change. The "run on the plan" reduced the available reserves to zero; as a result, the new self-insurance program started with no reserves. TAPE 00-39, SIDE A Number 0001 MS. ELGEE continued: And in '99, when we priced the plan, we priced the standard plan design for the Select Benefits group at $525, because we were seeing a lower trend at that time for that crowd than the GGU group, which was priced at $573. So, the reason they have a lower premium today is that we substantially underpriced the Select Benefits plan in '99 after the experience came in, but had the General Government Unit priced appropriately. So, we're playing catch-up on the Select Benefits side this year. We believe both those plans will level out to be similarly priced, because the coverages are almost identical and the demographics of the two groups are not significantly different. CHAIRMAN ROKEBERG said, "Well, we look forward to having a PPO or point-of-service action in the state plan for the uncovered employees in about a year or so, wherever they may be. We may be over with Local 71." CHAIRMAN ROKEBERG announced that he would put HB 345 aside in order to sort out the misunderstanding.
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