Legislature(2001 - 2002)
03/25/2002 03:20 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 290-COMPREHENSIVE HEALTH INSURANCE ASS'N VICE CHAIR HALCRO announced that the first order of business would be HOUSE BILL NO. 290, "An Act relating to membership in the Comprehensive Health Insurance Association." Number 0047 REPRESENTATIVE KOTT moved to adopt Version 22-LS1150\J, Ford, 2/28/02, as the working document. There being no objection, Version J was before the committee. REPRESENTATIVE ROKEBERG, Alaska State Legislature, testified as the sponsor of HB 290. He explained that HB 290 changes the method of spreading the premium. Under the current Alaska Comprehensive Health Insurance Association (ACHIA), the small number of private health insurance companies underwrite individual and very small group plans that aren't eligible for the Employee Retirement and Income Security Act of 1974 (ERISA). These private health insurance companies make the $3 million per annum assessments based on the amount of premiums they write in the state. Version J changes the methodology to a covered lives method of spreading the costs of the ACHIA program and defines major medical benefits in order to capture a broader degree of people. Representative Rokeberg directed attention to the Division of Insurance's March 13, 2002, document entitled, "CSHB 290 (Version J) Analysis of Change in Assessment Formula." Number 0233 KATIE CAMPBELL, Actuary L/H, Division of Insurance, Department of Community & Economic Development (DCED), testified via teleconference. Ms. Campbell explained that Version J does a couple of things. As mentioned by the sponsor, the major change is the change from a premium base to a number of covered lives base. Version J also increases the membership of the ACHIA program to include any self-funded plans as allowed under federal law. To the extent that plans can be accessed, those plans would be members of the ACHIA program. Also, the definition of major medical was expanded a bit from what is in current law. She pointed out that the March 13, 2002, document from the division illustrates how the formula would change. She directed attention to page 4 of the document, which includes an example of the impact of the new formula for some of the insurers and members of ACHIA. This example utilizes data captured in 2000. The caveat is that the information is only as good as the information provided by the insurers. She pointed out that Premera Blue Cross is the largest insurer and currently pays about 50 percent of the assessment. If the formula [base] is changed to the number of covered lives, it's disbursed more broadly because the State of Alaska is covered under the ACHIA program and thus will pick up a fairly large portion of the assessment, and therefore it's distributed more broadly by the insurers because of the larger number of insured lives compared to the premium the insurer would write. REPRESENTATIVE ROKEBERG highlighted the change in the CS that's related to the ability to make an assessment against the stop loss insurance that the self-insureds sometimes purchase; this method allows the risk to be spread through a larger number of people. Representative Rokeberg informed the committee that the State of Alaska isn't an ERISA group, the state didn't join ACHIA because they became self-insured. However, this legislation would bring the state back in. Number 0524 VICE CHAIR HALCRO estimated that under [Version J] the State of Alaska's contribution to ACHIA would amount to $690,000. He inquired from where that money would come. REPRESENTATIVE ROKEBERG answered that it could come from the individual under the current language of the legislation. He announced that he has a proposed amendment if the committee wishes to change it such that the state would pick up that portion. VICE CHAIR HALCRO recalled concern that several of the labor organizations, through collective bargaining, had the ability to become self-insured. He asked if including these self-insureds would brush up against collective bargaining. REPRESENTATIVE ROKEBERG replied that he didn't think so, although he noted that he isn't a labor law expert. He informed the committee that there are a small number of bargaining units that were paying small premium assessments under [the current formula], almost 1 percent. Under the current draft, the state would pay a baseline amount and the individuals would pay the difference. Representative Rokeberg informed the committee that the calculation against the 260,000 lives amounts to approximately $.86 a month per covered life, which he viewed as a small amount to finance this important program. REPRESENTATIVE ROKEBERG said: And contrary to some popular belief, even members of the State ... well not necessarily the State, but most other unions -- the State wouldn't apply because they would always have our state coverage. But, in the instance where other people that are coming in now, all of them would have the opportunities to become ACHIA members if ... it was such that they could not provide insurance in an affordable manner under their existing contract. REPRESENTATIVE ROKEBERG emphasized that there are benefits to these people. Furthermore, he reminded the committee that without [ACHIA] the [state] would jeopardize its primacy under the federal law because of the Health Insurance Portability and Accountability Act (HIPAA). Representative Rokeberg pointed out that several other states have gone with this method as a way to cover the cost of the pool more equitably. There have been suggestions to use the permanent fund dividend (PFD) or other tax methods to do this. VICE CHAIR HALCRO inquired as to who will pay the $690,000 that the state will have to contribute to ACHIA. Is there any problem with what is being done with this legislation, he asked. Number 0857 BOB LOHR, Director, Division of Insurance, Department of Community & Economic Development, testified via teleconference. Mr. Lohr answered that he didn't believe there is any problem with [implementation] of this legislation, which he characterized as a good piece of legislation. He related his belief that the legislation broadens the base of the assessment of the ACHIA program. With regard to who pays, Mr. Lohr said that ultimately the employee pays because typically an employer for the state is going to pass the costs to the employee, which is the case with private insurance companies. He highlighted that under the current situation, the cost is passed through to private insurers only, which is why 1 percent is specified. Therefore, a program such as encompassed in HB 290 would broaden the base of assessment to lower it to the range of six-tenths of a percent. REPRESENTATIVE MEYER related his understanding then that all the employees at say Carr's Safeway will pay more into their plan under this legislation. MR. LOHR explained that such would only be the case if Carr's chooses to use stop loss insurance as a component of their strategy to control the risk of high cost health insurance for individuals. Therefore, if the amount of claims in a given year exceeded a certain threshold, then stop loss insurance would kick in. Without the use of stop loss insurance, the entity wouldn't be included. Mr. Lohr highlighted that this method has been found permissible under ERISA. REPRESENTATIVE MEYER said that he hoped [the legislation] doesn't penalize one group in an effort to help another. MR. LOHR responded that he didn't believe that to be the case. He reiterated his belief that the legislation would broaden the base of assessment as far as is possible under federal law in order to more fairly distribute the burden of the uncovered expenses of ACHIA. REPRESENTATIVE CRAWFORD informed the committee that one of the large self-insured unions, which contend that this legislation will double the cost of their stop loss insurance each year. This particular union is considering dropping its stop loss insurance if this legislation passes, which would result in the pool getting smaller. MR. LOHR deferred to the numbers [provided] by Ms. Campbell [in the March 13, 2002, document]. Number 1130 JOHN GEORGE, Lobbyist, American Family Life Assurance Company (AFLAC), began his testimony by informing the committee that AFLAC is a major underwriter of supplemental benefit insurance policies. He explained that supplemental benefits offer very narrow inexpensive coverage. He announced AFLAC's support of this legislation. The current formula for ACHIA assessments assess insurance companies based on their entire premium base, not just the major medical premiums. The current definition specifies that a Medicare supplement policy is a major medical policy, and AFLAC writes four of those. The assessments for those are $25,000-$30,000 a year. Mr. George pointed out that the burden of this social problem shouldn't be placed on the backs of the employees of small employers, which is where it falls because those are the folks who purchase major medical insurance. Mr. George related that [AFLAC] believes spreading the costs of this social problem is fair and the right thing to do. MR. GEORGE turned to the Division of Insurance's projections that AFLAC writes 14,500 lives while AFLAC believes that 5,000 lives will fall under this definition. Mr. George expressed the need to change the definition of "major medical" to exclude the limited benefit policies that AFLAC provides. He explained that AFLAC's belief that its assessment should be much less than $30,000 a year based on the four major medical policies it writes. Mr. George suggested that the definition of major medical should return to the definition [that already exists]. It doesn't seem fair to pay [the same as the major medical policies] for those policies that aren't major medical policies. Mr. George concluded by saying that the concept of spreading the burden across a much broader segment and to include more than just small employers and their employees is laudable. Number 1324 REPRESENTATIVE ROKEBERG pointed out that the Division of Insurance's estimates predict that [under this legislation] AFLAC will pay substantially more than it's now. Representative Rokeberg said he understood that AFLAC would like to change that. Notwithstanding that, he asked, would AFLAC still support the legislation. MR. GEORGE clarified that the Division of Insurance was unable to determine which policies were on an expense base and which were on another base. Mr. George reiterated AFLAC's belief that there are about 5,000 policies. Still, overall the bill has positive effects. He announced that AFLAC would offer 100 percent support if the definition of [major medical] was changed to its [existing] definition. In further response to Representative Rokeberg, Mr. George said that going to a base of covered lives is the most fair way to address this. REPRESENTATIVE ROKEBERG noted his disappointment that there are only 260,000 [covered lives]. Number 1419 DON EHTERIDGE, Lobbyist, Alaska State American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), informed the committee that the AFL-CIO's trustees still oppose this legislation because most of them view it as an additional cost on their members. In fact, if it is an expense that is passed through to the members, the public employee groups will renegotiate the issue. Although the organization is fully supportive of the idea, the organization believes the costs should be spread to everyone in the state, not just to those fortunate enough to have insurance. REPRESENTATIVE ROKEBERG related his understanding that the AFL- CIO is sympathetic, but is concerned that there would be impacts to existing contracts as well as the future cost to the membership. MR. ETHERIDGE replied yes. REPRESENTATIVE ROKEBERG surmised then that the AFL-CIO would suggest looking to the general fund or general taxation rather than have a premium or covered lives assessment. MR. ETHERIDGE replied yes. He mentioned that even $1 could be taken from everyone's PFD in order that everyone pays, including those that aren't insured. In further response to Representative Rokeberg, Mr. Etheridge confirmed that AFL-CIO's board recognizes that perhaps one or two of the members may benefit from this pool. However, the AFL-CIO's membership will be covered by the plans that it has now. REPRESENTATIVE ROKEBERG noted his disappointment that organized labor has taken this position. VICE CHAIR HALCRO, determining that there was no one else to testify, closed public testimony. REPRESENTATIVE ROKEBERG noted that the committee packet includes two amendments. Number 1592 REPRESENTATIVE ROKEBERG moved that the committee adopt Amendment J.2 [22-LS1150\J.2, Ford, 3/22/02], which reads as follows: Page 1, line 2, following "Association": Insert "; and providing for an effective date" Page 4, following line 12: Insert new bill sections to read: "* Sec. 9. The uncodified law of the State of Alaska is amended by adding a new section to read: TRANSITION. (a) Until January 1, 2003, the Comprehensive Health Insurance Association shall determine member assessments under AS 21.55.220(c) as that provision existed before the effective date of this Act. (b) Notwithstanding AS 21.55.220(f), enacted by sec. 6 of this Act, information required to be reported under AS 21.55.220(f), enacted by sec. 6 of this Act, must initially be reported to the director of insurance by September 30, 2002. * Sec. 10. The uncodified law of the State of Alaska is amended by adding a new section to read: TRANSITION: REGULATIONS. The director of insurance may immediately proceed to adopt regulations necessary to implement the changes made by this Act. The regulations take effect under AS 44.62 (Administrative Procedure Act), but not before the effective date of the statutory change. * Sec. 11. This Act takes effect immediately under AS 01.10.070(c)." The committee took an at-ease from 3:50 p.m. to 3:54 p.m. REPRESENTATIVE CRAWFORD objected. REPRESENTATIVE ROKEBERG explained that the amendment establishes a transition period and requires that all the reporting required by this must report to the director of the Division of Insurance by September 30, 2002, in order to determine the correct amount of covered lives. He noted that the current mandatory insurance reports have deadlines in April. REPRESENTATIVE CRAWFORD withdrew his objection. There being no objection, Amendment J.2 was adopted. REPRESENTATIVE ROKEBERG turned attention to Amendment J.1 [22- LS1150\J.1, Ford, 3/22/02]. He explained that under the current draft employees would pay about $.96 a month or potentially $2 per family a month. Amendment J.1 would result in the state "eating it" [paying it] and thus those costs are shifted to the general fund. This amendment would create a fiscal note. Number 1708 REPRESENTATIVE ROKEBERG moved that the committee adopt Amendment J.1, which reads as follows: Page 4, following line 12: Insert new bill sections to read: "* Sec. 9. AS 39.30.095(b) is amended to read: (b) After obtaining the advice of an actuary, the commissioner of administration shall determine the amount necessary to provide benefits under AS 39.30.090, 39.30.091, and 39.30.160 and, subject to (e) and (g) of this section, shall set the rate of employer contribution and employee contribution, if any. With money in the fund, the commissioner of administration shall pay premiums, claims, and administrative costs required under the insurance policies in effect under AS 39.30.090 and 39.30.160, or required under self-insurance arrangements in effect under AS 39.30.091. * Sec. 10. AS 39.30.095(e) is amended to read: (e) Notwithstanding (b) of this section and subject to (g) of this section, the rate of employer contribution to provide hospital, surgical, dental, audiovisual, and other medical care benefits under AS 39.30.091 is $515 monthly beginning July 1, 2000; $575 monthly beginning July 1, 2001; and $630 monthly beginning July 1, 2002, for the following employees and officials: (1) employees in the executive branch of the state government, including the governor and lieutenant governor, who are not members of a collective bargaining unit established under the authority of AS 23.40.070 - 23.40.260 (Public Employment Relations Act); (2) officials and employees of the legislative branch of state government under AS 24; (3) employees in the judicial branch of state government, including magistrates and other judicial officers, who are not members of a collective bargaining unit established under AS 23.40.070 - 23.40.260 (Public Employment Relations Act). * Sec. 11. AS 39.30.095 is amended by adding a new subsection to read: (g) In setting the rate of contribution by an employer and employee under (b) and (e) of this section, the commissioner may increase the amount of the employer contribution under (e) of this section and may exceed the amount set in that subsection, but may not increase the amount of the employee contribution if the amount necessary to provide benefits under AS 39.30.090 and 39.30.160, or for a self-insurance arrangement under AS 39.30.091, increases as a result of an assessment against the state as a member of the Comprehensive Health Insurance Association under AS 21.55.220." REPRESENTATIVE MEYER objected. REPRESENTATIVE ROKEBERG reiterated that Amendment J.1 would be paid by the state rather than the individual employee. REPRESENTATIVE CRAWFORD related his belief that the legislation attempts to bring in everyone. REPRESENTATIVE ROKEBERG clarified that Amendment J.1 speaks only to the state [employees]. He pointed out that the legislature can establish the terms and conditions of the health program established by the state government. This decision would be made by a private employer as well. VICE CHAIR HALCRO surmised that Amendment J.1 would include those who aren't covered by collective bargaining, members of the executive, legislative, and executive branches. Number 1789 REPRESENTATIVE CRAWFORD specified that his concern is in regard to the self-insureds who have already bargained for a contract and already receive a set amount from the employers. REPRESENTATIVE ROKEBERG suspected that those employers would have to pay for [the increase] until the end of the contract. REPRESENTATIVE CRAWFORD predicted that all the employers he deals with will say that they bargained for an established amount per hour and that's all they will pay. Therefore, he predicted that it would come out of the pool of premiums that are available. He said he wasn't sure how [the money] could be obtained from the employers until the end of the contract. REPRESENTATIVE ROKEBERG remarked, "We'd pass a law and they would have to pay." He said he didn't think the employers could assess the employees if in a sharing basis under an existing contract. REPRESENTATIVE CRAWFORD asked if Representative Rokeberg was going to amend the language in order to assess the employers. REPRESENTATIVE ROKEBERG reiterated that Amendment J.1 does that for the State of Alaska, which is the only group the legislature can legally control. REPRESENTATIVE CRAWFORD surmised then that the legislature can't assess employers through legislation, other than the State of Alaska. REPRESENTATIVE ROKEBERG disagreed and said that is what is being done [with this legislation]. However, whether to pass the cost on to employees is the decision of the employer, he suspected. REPRESENTATIVE CRAWFORD expressed the need to know how that would be handled because if an employer has a contract then the employer is only liable for that until the end of the contract. REPRESENTATIVE ROKEBERG specified, "He's liable to his employees, but not to the State of Alaska if we pass this bill." Number 1891 REPRESENTATIVE MEYER related his view that this is a direct cost of doing business. He posed a situation in which the owner of a rental car business decides to pass on the increased cost in insurance to the consumer via increased rental costs. REPRESENTATIVE ROKEBERG agreed with Representative Meyer's analysis. REPRESENTATIVE MEYER remarked that Representative Rokeberg has been opposed to such in the past. REPRESENTATIVE ROKEBERG said that unless the funding source for ACHIA is changed, the entire program is going to be jeopardized. REPRESENTATIVE MEYER inquired as to the fiscal note were Amendment J.1 to pass. REPRESENTATIVE ROKEBERG estimated that the fiscal note would amount to $690,000 per the Division of Insurance, which assumes inclusion of all the retirees. REPRESENTATIVE MEYER said he could appreciate Representative Rokeberg protecting the state membership. However, he questioned why other memberships shouldn't be protected as well. REPRESENTATIVE ROKEBERG related that the legislature's arm only extends so far. Number 2006 A roll call vote was taken. Representatives Kott, Rokeberg, Hayes, and Halcro voted for the adoption of Amendment J.1. Representatives Meyer and Crawford voted against the adoption of Amendment J.1. Therefore, Amendment J.1 was adopted by a vote of 4:1. REPRESENTATIVE HAYES requested an explanation in regard to what the amendments actually accomplish. REPRESENTATIVE ROKEBERG explained that the amendments provide a transition period and shift the cost of this to the state administration versus to the state employees. He noted that this legislation will probably receive a fiscal note now. Representative Rokeberg emphasized that he introduced the bill to generate discussion with regard to the needs of ACHIA and what needs to be done in Alaska [in order] to ensure that Alaska has an insurance program that works in this state. Without an insurer of last resort many won't have insurance. He stressed that the federal government requires that Alaska have some sort of single-payer type system like ACHIA, and without such a program the state would lose primacy in the regulation of health insurance in the state. In conclusion, Representative Rokeberg asked for the committee's support of the bill. REPRESENTATIVE HAYES informed the committee that he may have a conflict [of interest] because his company may be impacted by this legislation. Number 2137 REPRESENTATIVE CRAWFORD applauded Representative Rokeberg for attempting to do this, which he believes needs to be done. However, there are a number of employers who choose not to provide insurance and who will not be impacted by this legislation. Representative Crawford expressed the need to bring in those employers who aren't providing insurance. With regard to contracts already in effect, Representative Crawford said he didn't see how any extra charge could be passed [on to anyone] until the end of the contract. Therefore, he predicted this would be an area waiting for lawsuits. He questioned how things would proceed when there is an existing contract. REPRESENTATIVE MEYER echoed Representative Crawford's sentiments with regard to Representative Rokeberg's work on this matter. He suggested that perhaps the simplest way to deal with this is to withdraw $1 from each individual's PFD. Representative Meyer pointed out that businesses have been hit hard this year with an increase in the minimum wage and unemployment compensation. He expressed concern that employers will be reluctant to pass this cost on to their employees and thus will pass the cost on to the consumers. Therefore, there is the potential to raise the cost of goods in the state. He reiterated that he applauded Representative Rokeberg's efforts, but mentioned that [this legislation] doesn't seem to be the appropriate vehicle. VICE CHAIR HALCRO remarked, "We're treading on some very dangerous ground here." He pointed out that labor unions, through collective bargaining, have been given permission to self-insure and [through this legislation] the state is going to become involved in their policy. Furthermore, adoption of Amendment J.1 basically exempted the legislature and its employees, the executive branch, and the judicial branch from paying this out of their own checks and thus the state will have to come up with $690,000. The committee took a brief at-ease at 4:11 p.m. in order to return the gavel to Chair Murkowski. Number 2319 REPRESENTATIVE HALCRO moved to report CSHB 290, Version 22- LS1150\J, Ford, 2/28/02, as amended out of committee with individual recommendations and the accompanying fiscal note. There being no objection, CSHB 290(L&C) was reported from the House Labor and Commerce Standing Committee.