Legislature(2001 - 2002)
01/30/2002 03:20 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 290-COMPREHENSIVE HEALTH INSURANCE ASS'N CHAIR MURKOWSKI announced that the final order of business before the committee would be HOUSE BILL NO. 290, "An Act relating to membership in the Comprehensive Health Insurance Association." Number 2011 REPRESENTATIVE ROKEBERG, testifying as the sponsor of HB 290, informed the committee that he became aware of the existence and necessity of the Alaska Comprehensive Health Insurance Association (ACHIA) during his time as chair of the House Labor and Commerce Standing Committee. He pointed out that ACHIA is the insurer of last resort. The state is required under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to have a plan such as ACHIA or another plan, a more costly plan as Representative Rokeberg understood it, available for those who can't obtain insurance. He explained that all businesses covered by the Employee Retirement and Income Security Act of 1974 (ERISA), particularly self-insured businesses or those with larger groups, are now exempt from paying their premium to keep the ACHIA plan going. The ACHIA plan is funded by an assessment on the premiums of all the health insurance underwriters in the state. The ERISA-covered groups, which he estimated to be the bulk of all the covered lives in the state, pay nothing towards this program. This was made most acutely aware to the program when the state decided to withdraw their support, which amounts to as much as 20 percent or $400,000 plus. Therefore, the burden on other private insurers in the state was increased. REPRESENTATIVE ROKEBERG noted his desire to keep Alaska as friendly to the underwriting business as possible because Alaska has very few insurers. He estimated that Blue Cross [in] Washington and Alaska has at least 50 percent of the market. A few other insurers have a substantially smaller amount of the market, and therefore Alaska is a very uncompetitive market. He noted that in ACHIA's last fiscal year it took in $4.5 million in guaranteed premiums from the existing health insurers in the state. He explained that the public employees and the other large self-insured people in the state aren't contributing to the health care plans of the state, which he believes to be wrong. Furthermore, he was concerned that the [Knowles] Administration allowed the collective bargaining units to go their own way with health insurance. That action broke down the system of health care for all state employees and retirees, which could result in jeopardizing the viability of the ACHIA plan because of the diminishment of the number of health insurers in the state, not to mention those insurers that won't enter the state due to the ever-increasing premiums to ACHIA. REPRESENTATIVE ROKEBERG explained that [HB 290] simply tries to get all self-insured employers who may offer a major medical coverage on an expense-occurred basis to come in. "In other words, anybody we can throw ... a net out and get under ERISA to come in, and then plus the State of Alaska," he clarified. He expressed his belief that the State of Alaska should come back in and pay its fair share. Representative Rokeberg turned to the administration's indeterminate fiscal note and noted that it has a $3.18 a month assessment on each individual. He [assumed] that the aforementioned cost would be passed on to every state employee, and therefore he would be viewed as causing an increase in the health plan. He didn't feel that was correct; the State of Alaska should pay that and not pass it on to the employee. Number 1717 CECIL BYKERK, Chair, Alaska Comprehensive Health Insurance Association, informed the committee that he has been the chair of ACHIA since mid-1994. He noted that he works for Mutual of Omaha. Mr. Bykerk explained that [ACHIA] began operation in 1993 and has gradually grown over the past ten years to 439 policyholders at the end of 2001. Policyholders are charged premiums that are higher than those that they could obtain in the marketplace if these persons were insurable. However, these policyholders aren't charged what it would take to support the pool because it would defeat the purpose of a high risk pool. The shortfall is spread across those insured in the state. He echoed earlier comments that ACHIA is unable to access self- funded plans. MR. BYKERK explained that HB 290 attempts to broaden ACHIA's assessment base, which he believes to be critical to the success of ACHIA in Alaska. He pointed out that there is a greater and greater burden on the insured population, which mainly consists of small employers or individuals. Additionally, the marketplace in Alaska is extremely fragile [because] there aren't many carriers in the state. Mr. Bykerk informed the committee that the alternative to ACHIA, as far as compliance with HIPAA, would be some other mechanism that would undoubtedly be a guarantee issue environment. Based on observations of other states, Mr. Bykerk said that such an environment would likely result in a number of carriers withdrawing from the state. Therefore, the options would be further narrowed. Mr. Bykerk said that he is fully supportive of [HB 290's] particular way to broaden the assessment base because currently all the employees of self-funded employers in the state have access to ACHIA. If such an employee leaves an employer and has 18 months of continuous coverage, that employee has the option of coming into ACHIA without serving a preexisting condition, and the employee is guaranteed access to ACHIA's pool. Therefore, [self-funded] employers are receiving the benefit of ACHIA without contributing, which means that the burden is transferred to the remaining insured population in the state. Number 1471 CHAIR MURKOWSKI asked whether any other options had been identified beyond broadening the assessment base, as is done with HB 290, or raising the premiums. MR. BYKERK pointed out that there are a number of ways to gain access to the self-insured employers. The language in Section 1(3) seems to leave [the avenue to gain access to the self- insured employers] open. He noted that there are approaches that aren't based on premium but rather based on covered lives. Such an approach gains access to some of the self-insured. Some states use a general revenue appropriation approach, but it's a "dicey" issue. He informed the committee that one state has attempted to [impose] a provider tax, which he likened to a per visit or per head tax. Unfortunately, such a tax gets labeled a "sick tax" and thus isn't well-received. Number 1343 REPRESENTATIVE HALCRO referred to the sponsor statement, which states that ACHIA generated about $3 million of which $2 million was from contributions from members and $1 million in contributions from individual premiums. However, the sponsor statement goes on to say that ACHIA paid out $3.9 million in claims. Therefore, it seems that ACHIA was left $900,000 short. Who would make up that difference, he asked. MR. BYKERK answered that there are some accounting issues that could be addressed at a later time. He explained that ACHIA tries to keep the number of assessments down during the year so that administrative [costs are kept down]. For example, ACHIA recently sent out an assessment for $2 million. However, it's unlikely that $2 million will carry ACHIA through 2002 and thus later in the year ACHIA will make another assessment, which he estimated would be for $2 million. Some of the second $2 million assessment will be for 2003. Mr. Bykerk mentioned that the numbers Representative Halcro is using are on a cash basis. Number 1230 MR. BYKERK informed the committee that for 2001 ACHIA received approximately $1.7 million in premiums from policyholders, paid $4.45 million in claims, and incurred administrative expenses. [In 2001] ACHIA assessed $3,525,000 of which $400[,000] would be allocated to either the year 2000 or the year 2002. Therefore, ACHIA assessed about $3.25 million on an accrual basis. REPRESENTATIVE HALCRO related his understanding that when there is a shortage members are assessed for that balance. MR. BYKERK replied yes. In further response to Representative Halcro, Mr. Bykerk agreed that the $4.4 million paid in claims in 2001 is an increase of 15 percent from 2000. Over ACHIA's nine years of existence, the program has grown steadily with a few growth spurts. Number 1089 REPRESENTATIVE ROKEBERG asked when the state removed itself from ACHIA, and what was the premium at that time. MR. BYKERK recalled that when the state removed itself from ACHIA it created a significant impact on ACHIA's assessment base. Although he noted that he would have to review the records, he agreed with Representative Rokeberg that there was at least a 20 percent impact when the state removed itself. He estimated that the impact was probably more like 25-30 percent. Number 1013 JACK McCRAE, Blue Cross Blue Shield, speaking via teleconference, recalled that the state moved out of the pool [ACHIA] in 1998. REPRESENTATIVE HALCRO inquired as to the state's contribution at the time it moved out of the pool. MR. McCRAE referred to a document that said that prior to [the state leaving], Blue Cross of Alaska paid about one-third of the pool and [Blue Cross's] share would increase to about one-half of the pool. Mr. McCrae ultimately said that he would have to obtain more information to answer the question. Number 0930 BOB LOHR, Director, Division of Insurance, Department of Community & Economic Development (DCED), recalled that the state paid $369,000 in 1997. He also recalled that the state became self-insured in the middle of 1998. Although there were payments [to ACHIA] in subsequent years, those payments were lower because there were fewer state employees covered. In response to Representative Rokeberg's question regarding the premium at the time the state pulled out of the pool, Mr. Lohr offered to run the numbers in order to determine what [the premium] would have been as a percent of the total for that year. KATIE CAMPBELL, Actuary L/H, Division of Insurance, Department of Community & Economic Development, explained that when the state became self-insured in the middle of 1997, the assessments in 1998 used 1997 data. Therefore, [the numbers] have to be reviewed over a couple of years because there is half a year's premium that was counted until the next year. About $130 million of the base was state employee premium. At that time, the assessments were about 30 percent. After the state became self-insured [the assessments] dropped to .5 percent of the premium for all the other insurers. In the next year it moved to .82 percent of the premium. Number 0766 MR. LOHR began by seconding Representative Rokeberg's and Mr. Bykerk's comments regarding the importance and effectiveness of the ACHIA program. Nationally, there is a niche where certain individuals are unable to obtain insurance through the private insurance market because of medical conditions. Therefore, the national approach has been to establish programs such as ACHIA to provide coverage at a higher cost than the standard premium for standard insurance. However, it's unrealistic to expect that would cover the entire cost of the program. Therefore, the statute provided for an assessment, which is currently based on the total amount of premium for medical insurance written by health insurers in the state. He explained that as a condition of writing major medical policies in the state, [the insurance company] must participate in ACHIA. As mentioned earlier, the assessments have been around $3 million per year, which amounts to approximately 1 percent of the premium. "It's expected to probably level out somewhat at that $3 million level," he said. MR. LOHR pointed out that if the assessment becomes too large, as a percentage of total premium, it begins to impact insurance decisions by those that are purchasing private insurance in the market. One percent is probably reaching the flinch point. Typically, the insurers pass ACHIA's assessment costs to their members. Therefore, everyone subject to the assessment is part of a group policy and would share in the cost of ACHIA. However, HB 290 attempts to assess self-insured employers and add them to [ACHIA's] assessment base to the extent permitted under federal law. The Department of Law (DOL) has reviewed this for the [division], and DOL doesn't believe that the employers can be reached under the ERISA program. The ERISA program deals primarily with pensions, as well as employee benefits. "To the extent that the federal government has occupied that field, they have, in fact, preempted state regulation of those programs," he explained. The [division's] interpretation, as guided by DOL, is that the federal government has preempted the opportunity to compel participation in an assessment. Therefore, the legislation would only [be able to] include state health plans that aren't union health trusts in the assessment base. MR. LOHR specified that [HB 290] wouldn't include the state plan that covers all employees when unions have not elected to establish their own union trusts. CHAIR MURKOWSKI related her understanding that ASEA [Alaska State Employees Association] wouldn't be included [under HB 290]. MS. CAMPBELL replied yes, and noted that basically the General Government Unit (GGU) went to the union trust, as well as several others. Therefore, anyone administered by AETNA [would be included under HB 290]. REPRESENTATIVE ROKEBERG mentioned the possibility of amending it. MR. LOHR informed the committee that [under HB 290] the assessment base would increase from 300 million to 510 million if the State of Alaska's active and former employees were included. The state's premium would amount to approximately 40 percent, $1.2 million, or $45 per employee per year. Therefore, those insurance companies currently paying assessments would have their assessment reduced from approximately one percent to six-tenths of a percent of their total health insurance premium. Mr. Lohr said that he believes [HB 290] is a sound concept and worth pursuing, if it can be done on an equitable basis. Being equitable is the challenge with the ERISA preemption. MR. LOHR recalled Mr. Bykerk's mention of an alternative mechanism of funding, the stop loss coverage. He explained that stop loss insurance is one mechanism to broaden the base of the assessment, bring in more premium to the policy, and redistribute the assessment in a equitable fashion. Therefore, it is essentially a covered lives formula, which attempts to take the number of individuals covered by health insurance in various forms and eliminate the duplication in that count and use it as the basis for assessing a premium for CHIA. He acknowledged that any method of assessment is fairly complex [and therefore] there would need to be a requirement to report covered lives. Mr. Lohr specified the aforementioned as one suggested revision to HB 290 if that approach was pursued. MR. LOHR explained that under a covered lives approach, stop loss insurers would be assessed on the number of lives covered under the underlying self-insured or union trust plans. Therefore, stop loss insurers would be assessed the same amount per covered life as other insurers, which is presumably passed on to the insured population. This is one mechanism that the [division] believes to be more equitable and could result in lower premiums for those already forced to pay into the [ACHIA] program while reducing the impact on the insured who aren't directly participating in the [ACHIA] plan. In conclusion, Mr. Lohr related his belief that [ACHIA] is a ray of light in the attempts to increase the availability of health insurance to the uninsured in Alaska. Any mechanism that can ensure the continued success of [ACHIA] is well worth examining. Number 0139 REPRESENTATIVE HALCRO recalled that [DOL] has provided [the division] with an opinion that a certain percentage of the state employees can't be reached. He asked if those 8,400 union- sponsored self-insured plans are the employees that can't be reached. MR. LOHR clarified that the opinion says that [the division] can't reach the employer. He explained that ERISA is designed to encourage employers to provide health benefits and other insurance benefits to employees. When the national pattern was reviewed, there was a wide degree of variation in the individual state insurance that was available. Therefore, [the federal government] decided to do a federal system that they hoped would provide incentives to provide the coverage. "So, it is any employer that is self-insured, that is that chooses to absorb the cost of health insurance as part of what they provide as opposed to hiring an insurance company to provide that coverage," he said. If [the business] elects to provide insurance through a private insurer, as the state did before mid-1997, then they wouldn't be subject to ERISA and thus would be subject to the state's jurisdiction. MS. CAMPBELL pointed out that the State of Alaska plan can be regulated under ERISA. TAPE 02-8, SIDE A REPRESENTATIVE ROKEBERG referred to a memo from Mike Ford, Attorney, Legislative Legal Counsel, Legislative Legal and Research Services, regarding the ERISA preemption and the attorney general's opinion. He read the following portion of the memo: There has been considerable litigation over the application [and] interpretation of the ERISA preemption revision. Some courts have held that even private self-insured benefit plans are subject to state laws regulating insurance. Therefore, it is possible that even private self-insured health care plans would have to participate in the state health care plan as contemplated in this draft. REPRESENTATIVE ROKEBERG returned to the issue of the stop loss coverage. He asked, "Couldn't we now, if we could expand this bill, place it upon the stop loss insurance of some of these other self-insured companies?" MR. LOHR answered that he believes that could be done. In further response to Representative Rokeberg, Mr. Lohr said that he didn't know that covered lives for the premium would have to be used. However, he believes there are several [reasons] to recommend it as an approach. In regard to the legal battle, Mr. Lohr related his understanding that the case has been overturned by subsequent decisions and thus the Sixth Circuit Court of Appeals has recognized that fact. Mr. Lohr offered to provide Representative Rokeberg with the agreement in writing. Number 0211 REPRESENTATIVE ROKEBERG clarified that currently the only people paying for [the ACHIA] premium are individuals with small group policies that aren't under ERISA or some governmental self- insured program or a union trust. In Representative Rokeberg's opinion, 70-75 percent of the people with health insurance in Alaska don't contribute to the ACHIA program, which is the largest problem. He asked if Mr. Lohr conceptually agreed with that statement. MR. LOHR answered that he agreed with the characterization that a large percentage of Alaskans aren't covered directly or indirectly by the assessment. In terms of the impact of that on the private insurance market, Mr. Lohr said he believes Representative Rokeberg [to be correct]. Mr. Lohr related his belief that broadening the base of that assessment would be in the public interest. REPRESENTATIVE ROKEBERG remarked that he believes the cost to the individuals or small groups that do go to those could actually be reduced if this was adopted. MR. LOHR mentioned that he would like to leave the Department of Administration to testify to the State of Alaska plan. However, in general he felt that broadening the assessment base would make the ACHIA program stronger and reduce the disincentive to stay covered under private and group health insurance policies. Number 0366 REPRESENTATIVE HALCRO inquired as to whether the ability for unions to offer union-sponsored plans was part of a collective bargaining agreement. MR. LOHR deferred to the Department of Administration. [HB 290 was held]
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