Legislature(2001 - 2002)

04/02/2002 08:04 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 315-GROUP HEALTH INSURANCE FOR PRIVATE GROUPS                                                                              
CHAIR  COGHILL announced  that the  first order  of business  was                                                               
SPONSOR  SUBSTITUTE FOR  HOUSE  BILL NO.  315,  "An Act  allowing                                                               
employers   that   are    small   businesses,   small   nonprofit                                                               
organizations, or  small associations  for insurance  purposes to                                                               
join state employee insurance coverage  as a group; and providing                                                               
for  an effective  date."   [Before the  committee, adopted  as a                                                               
work draft on 3/28/02, was Version O.]                                                                                          
Number 0210                                                                                                                     
GUY   BELL,  Director,   Division  of   Retirement  &   Benefits,                                                               
Department of  Administration, explained that HB  315 would allow                                                               
the  Department of  Administration  to obtain  policies of  group                                                               
insurance  for   businesses,  nonprofit   organizations,  special                                                               
services  organizations, or  small  associations  formed for  the                                                               
purpose of  obtaining insurance.  Eligible  employees are defined                                                               
on page 4, line  26, of the bill.  Size  limitation is defined on                                                               
page 6.   Basically, full-time and part-time  employees are being                                                               
included to participate; it wouldn't include volunteers.                                                                        
MR. BELL explained  what the department envisions  as the process                                                               
for  acquiring  the insurance  policies.    The department  would                                                               
first  work with  interested groups  and a  professional benefits                                                               
consultant in designing an appropriate  plan or plans.  There are                                                               
many  plan  designs,  each carrying  different  levels  of  cost,                                                               
depending on the value of the  benefits that are provided.  Quite                                                               
a bit  of time will be  spent up front designing  a plan suitable                                                               
for the interested organizations.   After a request for proposals                                                               
(RFP)  was issued  and insurance  companies  responded, then  the                                                               
best proposal would be selected using the evaluation committee.                                                                 
MR. BELL  referred to page  2, lines 15-23, which  identifies the                                                               
process  for approval  of  employers.   At  that point  employers                                                               
would be  approved based on  their application  for participation                                                               
in the plan.   From that point, the employers  would purchase the                                                               
insurance  directly  from  the   insurance  company  selected  to                                                               
provide  the  policy.    The  claims  payment  services  and  all                                                               
associated services  would be provided by  the insurance company.                                                               
At  that  time,  the  Department of  Administration  would  be  a                                                               
conduit for  enrolling employers, be involved  in design changes,                                                               
and be  a liaison between  the employers and  insurance companies                                                               
participating in the plan.                                                                                                      
Number 0494                                                                                                                     
MR.  BELL noted  that there  is  no state  subsidy identified  so                                                               
neither is  there a state  liability.   It would be  a completely                                                               
separate  plan  from  current  state  administered  plans.    The                                                               
Division of Retirement and Benefits  administers two major plans:                                                               
one for retired  public employees and teachers and  the other for                                                               
Select Benefits  for certain  groups of  state employees.   Those                                                               
are  fully self-insured  and  would be  kept  separate from  this                                                               
plan, which would  be a fully insured product.   That means there                                                               
would  be  no  liability  for   the  state  associated  with  the                                                               
administration of this plan.                                                                                                    
CHAIR COGHILL asked  if the RFP was reflected in  the fiscal note                                                               
and if the first study and startup costs are being looked at.                                                                   
MR. BELL replied  yes.  He indicated that a  survey would be used                                                               
along with some meetings teleconferenced  and maybe some face-to-                                                               
face meetings with interested associations.   There is a benefits                                                               
consultant  under   contract  with  the  department,   and  those                                                               
services would be paid for.                                                                                                     
CHAIR COGHILL asked what the timeline would be.                                                                                 
Number 0640                                                                                                                     
MR. BELL stated that RFPs generally  take about 90 days.  Several                                                               
months'  lead time  before that  will  be required  to make  sure                                                               
there is a  plan design that makes sense.   The critical issue is                                                               
that  organizations want  affordable, quality  insurance, and  to                                                               
design a plan  with those relative measures requires  quite a bit                                                               
of input  from different organizations  about what  they construe                                                               
as affordable,  quality insurance.   As the bill is  drafted now,                                                               
it has an  effective date of July  1, 2003, so that  would be the                                                               
deadline.  The plan year would commence then.                                                                                   
REPRESENTATIVE STEVENS reiterated  that the idea is  to allow the                                                               
insurance companies  to save some  costs with working  with large                                                               
numbers of groups.   He asked what the savings  would actually be                                                               
for the insurance firms and how  they could pass savings along to                                                               
the  companies.   He  also  wondered how  the  state could  avoid                                                               
Number 0829                                                                                                                     
MR. BELL answered that it would  have a design similar to another                                                               
plan  called a  political subdivision,  a small  medical plan  it                                                               
administers that has  only several hundred employees.   That plan                                                               
allows political  subdivisions to purchase insurance  from Aetna,                                                               
the current plan provider, at  established rates.  The department                                                               
issues the RFP, awards the  contract, and from that point forward                                                               
the  political subdivisions  who participate  work directly  with                                                               
Aetna and  pay premiums.   They are rated  as a  group.  It  is a                                                               
single group  for rating purposes.   Haines and  Soldotna belong.                                                               
Both  employers on  employees' behalf  pay the  same premium,  so                                                               
they are  rated as  a single  group and that  is the  idea behind                                                               
this approach.  Anyone who joins  would be part of a single group                                                               
for premium setting  purposes so each employer  wouldn't have its                                                               
own premium.                                                                                                                    
MR. BELL  explained there is  a theory  of economy of  scale when                                                               
there  is a  larger  group; there  is  savings in  administrative                                                               
costs per head.   There may be some design  plan flexibility with                                                               
a larger  group that a smaller  employer wouldn't get.   That may                                                               
add some leverage.  It is  certainly not a panacea.  Insurance is                                                               
expensive and "you  get what you pay for."   Over that there's an                                                               
administrative cost.  He hopes  that the administrative costs can                                                               
be reduced through economy of  scale, and then maybe through some                                                               
plan design measures an affordable plan can be developed.                                                                       
MR. BELL  said the question  on liability would best  be answered                                                               
by an  attorney, because  he is  not an  expert, but  through the                                                               
contractual process the department would  need to ensure that the                                                               
insurance  company providing  the  insurance  has the  liability.                                                               
The department has full responsibility  for approving and denying                                                               
procedures,  and  that  would  protect  the  state.    Obviously,                                                               
someone could  try to sue the  state ultimately for some  kind of                                                               
breach, but  part of the contract  design is to be  sure that the                                                               
state is protected through the attorney general.                                                                                
Number 1047                                                                                                                     
REPRESENTATIVE STEVENS  asked if  there would be  the opportunity                                                               
to  shape insurance  coverage that  each individual  organization                                                               
wants or whether it would be stuck with some sort of package.                                                                   
MR.  BELL replied  that  obviously there  can't  be an  unlimited                                                               
number  of  plans  because  that   would  be  very  expensive  to                                                               
administer.  He  envisions several options.   Under the political                                                               
subdivision  plan there  are three  options:   high, medium,  and                                                               
low.  Not knowing  what the design will be in  this case, he said                                                               
he  assumes there  will be  several options  that the  groups can                                                               
choose from.                                                                                                                    
Number 1100                                                                                                                     
REPRESENTATIVE  JAMES  asked  if   the  current  plan  for  state                                                               
employees is self-insured.                                                                                                      
MR.  BELL replied  that the  political subdivision  plan that  he                                                               
mentioned is  not part of  the other plans.   It is a  third plan                                                               
altogether,  and it  is  fully  insured by  Aetna.   The  retiree                                                               
medical and  Select Benefits plan  administered by the  state are                                                               
completely separate and are self-insured.                                                                                       
REPRESENTATIVE JAMES  asked if  the contract  the state  has with                                                               
Aetna is  a "forever contract,"  or if  there is a  period during                                                               
which it has to  be renegotiated, or if the state  has to put out                                                               
for other bids.                                                                                                                 
MR. BELL answered  that the state is required by  law to issue an                                                               
RFP every five years.                                                                                                           
REPRESENTATIVE JAMES  asked what  happens to  Aetna if  the state                                                               
doesn't have Aetna anymore.                                                                                                     
MR. BELL explained that if one  firm is awarded the bid and after                                                               
five  years  the contract  is  awarded  to another  company,  the                                                               
liability associated  with the claims  preceding the date  of the                                                               
transition  falls to  the prior  insurance company  and then  the                                                               
liability for claims  from the new contract forward  falls to the                                                               
new insurance  company.  There  is a transition from  one company                                                               
to another  if a new company  is awarded the bid.   The liability                                                               
stays with the insurance that is in effect at the time.                                                                         
Number 1300                                                                                                                     
REPRESENTATIVE  JAMES wondered  about the  savings that  could be                                                               
accrued just  simply by the  administration.  She asked  how many                                                               
employees the organizations would have to have.                                                                                 
MR. BELL  explained that  the range  is from  2 to  50 employees.                                                               
Potentially,  that  covers  quite  a  large  universe  in  Alaska                                                               
because many  of the small  businesses and nonprofits  have fewer                                                               
than 50 employees.  If a nonprofit  had more than 50, it would be                                                               
precluded  from  participating  in  this as  the  legislation  is                                                               
REPRESENTATIVE  JAMES asked  what happens  if no  one bids  on an                                                               
RFP, and whether  that would be a "stand-alone."   Why would they                                                               
want to bid as opposed to being a "stand-alone?"                                                                                
MR.  BELL  said there  are  some  issues about  accessibility  of                                                               
insurance,  too,  but the  state  wants  to have  an  accessible,                                                               
affordable  quality plan.   He  explained  that an  RFP would  be                                                               
issued for an  insurance company to provide this  product.  Under                                                               
the  legislation,  the  commissioner  of  administration  has  to                                                               
certify  that the  company or  nonprofit meets  certain criteria.                                                               
At  that  point,  the  company  or  nonprofit  can  purchase  the                                                               
insurance from  the insurance company.   There  is not a  new RFP                                                               
for  this   company  to   join;  the   company  just   joins  and                                                               
participates in  the plan.   An RFP is  issued and a  contract is                                                               
awarded   in   anticipation   of  nonprofits'   and   businesses'                                                               
participating.   It is up  to those nonprofits and  businesses to                                                               
participate, but  this makes this product  available with certain                                                               
premiums and  certain policies in  effect.   There is not  an RFP                                                               
every time someone joins.                                                                                                       
Number 1490                                                                                                                     
REPRESENTATIVE JAMES  wondered if  the communication  between the                                                               
drafter and sponsor  of the legislation has  been researched with                                                               
insurance companies.  She said it  seems to her that if this were                                                               
available, the  amount of work  that might  be done to  salve the                                                               
situation would  not necessarily get it  there.  She said  she is                                                               
concerned and  remembered what a  terrible experience it  was for                                                               
the  public employees  changing to  another company  from NYLCare                                                               
(New York Life) to Aetna;  she is concerned about putting "little                                                               
folks"  out  there  who  want to  get  affordable  insurance  and                                                               
expecting them to jump through  those issues every time providers                                                               
are changed.                                                                                                                    
Number 1592                                                                                                                     
REPRESENTATIVE  CRAWFORD asked  about  the real  benefit of  this                                                               
     Say that  you had  two nonprofits,  United Way  with 40                                                                    
     employees and  the Center for Drug  Problems with eight                                                                    
     employees; if  they come into  this plan, it  puts them                                                                    
     in a  much larger group,  so it spreads  the experience                                                                    
     out  to potentially  thousands  rather  than the  eight                                                                    
     employees at the Center for  Drug Problems.  It may not                                                                    
     be  all that  much cheaper,  but it  would be  safer in                                                                    
     that it would spread the experience.                                                                                       
MR.  BELL agreed  that  with a  larger group,  the  risk of  high                                                               
claims, for  instance, is spread  among a  larger group.   A plan                                                               
that  doesn't  involve  catastrophic [insurance]  could  also  be                                                               
designed  that   involves  what  is  called   the  "first  dollar                                                               
coverage"  up  to  a  certain  maximum per  person,  if  that  is                                                               
desired.   There are  multiple options, but  this would  at least                                                               
allow a  design that would  be somewhat monolithic,  to hopefully                                                               
make this kind of insurance available.                                                                                          
CHAIR COGHILL  asked if there is  anything in law now  that would                                                               
preclude a  group of people  coming together without  the state's                                                               
involvement at all.                                                                                                             
MR. BELL  said he didn't  know the answer  to that question.   It                                                               
has been  researched.   This bill  includes associations  for the                                                               
purposes  of   providing  insurance  so  groups   could  form  an                                                               
association and  then join.  He  said he isn't sure  how it would                                                               
work and that  it may be best answered by  someone with legal and                                                               
ERISA  [Employee  Retirement and  Income  Security  Act of  1974]                                                               
CHAIR COGHILL noted that one of  the questions to be answered is,                                                               
"Why should the state  do it, and if the state's  going to do it,                                                               
could it be done any other way?"                                                                                                
Number 1762                                                                                                                     
REPRESENTATIVE WILSON  commented that  HB 315 would  help daycare                                                               
workers get into a pool of affordable insurance.                                                                                
REPRESENTATIVE  STEVENS   said  it   seems  clear  there   is  no                                                               
obligation for  an insurance company  to respond  to an RFP.   He                                                               
wondered how the insurance companies  would know the numbers they                                                               
are expected  to deal with,  and doesn't that determine  what the                                                               
rates will be whether they're  dealing with 100 or 10,000 people?                                                               
It  seems  as  though  it  is  pretty  vague  for  the  insurance                                                               
companies to decide what kind of rates to offer.                                                                                
MR.  BELL responded  that that  was one  of the  reasons to  do a                                                               
survey.   Part  of  the  survey will  be  assessing interest  and                                                               
perhaps types  of coverage, coverage options,  and premium ranges                                                               
that the groups would be willing  to participate in.  Then an RFP                                                               
that matched  would need to  be developed,  and with the  hope of                                                               
getting  a satisfactory  proposal back  that meets  those certain                                                               
criteria.   There is a  possibility that  no company will  bid or                                                               
that  several companies  might  bid.   He has  no  idea, he  told                                                               
members.  The  design aspect is critical in making  sure there is                                                               
"buy in" at the design level.                                                                                                   
Number 1960                                                                                                                     
CHAIR  COGHILL acknowledged  that the  question of  affordability                                                               
cannot really be answered at this point.                                                                                        
MR. BELL agreed.                                                                                                                
CHAIR COGHILL  said making the  case that  this is going  to make                                                               
insurance more  affordable carries a  big question mark  over it,                                                               
but the stability of a pool  probably would be the better selling                                                               
MR. BELL agreed  an affordable policy can be created,  but it may                                                               
have limitations.  For example, he said,                                                                                        
     You can design  down to a premium level  where you will                                                                    
     cover 100 percent  up to a certain amount  but not have                                                                    
     catastrophic coverage, with the  idea that there may be                                                                    
     other   insurance  available   in   the   event  of   a                                                                    
     catastrophe.    That would  bring  premiums  down.   An                                                                    
     affordable plan  can be designed; the  question is what                                                                    
     is being provided at that affordable level.                                                                                
REPRESENTATIVE WILSON  asked if  this would put  any requirements                                                               
on the nonprofits or other businesses to provide insurance.                                                                     
MR.  BELL  answered that  there  is  no requirement  that  anyone                                                               
provide insurance.   This just  indicates that they may  join and                                                               
defines who eligible employees would be.                                                                                        
Number 2064                                                                                                                     
REPRESENTATIVE JAMES  expressed concern  for people  who wouldn't                                                               
be able to pay for their  insurance premiums.  She suggested that                                                               
the idea of a medical  savings account for a catastrophic illness                                                               
might be a  better benefit for people.  She  said she doesn't see                                                               
that the  administration of  the setting  up of  this would  be a                                                               
benefit at all  unless almost all of  those non-insured companies                                                               
playing in.   The first step  is to find out  what the parameters                                                               
are:    what is  the  maximum  someone  wants  to pay,  and  what                                                               
coverage is needed.  She said  she is interested in providing the                                                               
ability  for  people  to  get  insurance  but  agreed  that  drug                                                               
coverage will probably not be a  part of it because that is where                                                               
the rising  costs of  medical care  is.   She commented  that the                                                               
goal  is  before the  plan.    She  expressed concern  about  the                                                               
state's being in the middle of the whole process.                                                                               
Number 2298                                                                                                                     
CHAIR COGHILL asked Mr. Bell to go over the survey point again.                                                                 
MR.  BELL  agreed that  the  design  is  critical and  doing  the                                                               
advance legwork to make sure  the plan is something realistic and                                                               
reasonable up front.   There is some money in  the fiscal note to                                                               
develop  a plan.   There  is a  professional benefits  consultant                                                               
with  Alaskan  experience  who knows  generally  what  reasonable                                                               
premium ranges might be.  He  indicated that there will be a good                                                               
idea through the  development of this before the  issuance of the                                                               
RFP as  to what kind  of premium to expect  for the type  of plan                                                               
being  designed.   He said  he doesn't  believe there  will be  a                                                               
surprise  at the  other end.   He  thinks the  premium ranges  to                                                               
expect given the levels of coverage  will be known up front.  The                                                               
question  will be,  "What level  of coverage  can you  get that's                                                               
affordable?"  It  may be a first  dollar option.  It  may be just                                                               
up to $25,000 of expenses, at  which point there would have to be                                                               
other coverage that a person would  need to rely on, whether it's                                                               
Medicaid or some other.                                                                                                         
CHAIR COGHILL  said the federal  law is allowing  medical savings                                                               
accounts that would go for some catastrophic [situations].                                                                      
REPRESENTATIVE JAMES  commented that  she knows of  employers who                                                               
cannot afford  insurance because of  the rising costs.   She said                                                               
she thinks  that the nonprofits  are the most  vulnerable because                                                               
they get  into something but  then cannot continue  because there                                                               
is no guarantee  that as the costs rise; the  premium isn't going                                                               
to rise.                                                                                                                        
Number 2450                                                                                                                     
JUDY  WARREN, Director,  Sterling  Senior  Center, testified  via                                                               
teleconference.  She  informed the committee that a  group of ten                                                               
senior center  directors meet quarterly  on the  Kenai Peninsula.                                                               
They have been researching for  affordable insurance for the past                                                               
four years  and are very much  in support of something  that will                                                               
help them.                                                                                                                      
Number 2485                                                                                                                     
LYNNE  KORAL,  Alaska  Information   Radio  Reading  &  Education                                                               
Service (AIRRES), testified via  teleconference.  She said AIRRES                                                               
supports that  something be  done.   It's not  the whole  or only                                                               
solution.   When people  are not  paid what they  are worth  in a                                                               
nonprofit, what  they do have is  an extra perk that  is a health                                                               
insurance policy, and that helps  defray the sting of working for                                                               
a  place that  can't afford  to  pay what  they are  worth.   She                                                               
pointed out  that people  with disabilities  can't work  for most                                                               
places because  people think they're going  to be more of  a risk                                                               
management problem  and a  risk to employers  so people  work for                                                               
lower  pay.   She supports  "something,"  she said,  and this  at                                                               
least  seems somewhat  of a  workable solution  to have  a larger                                                               
pool that  will mitigate the  damage in terms of  insurance costs                                                               
that go up.                                                                                                                     
Number 2595                                                                                                                     
WILLIAM  CRAIG  testified  via   teleconference.    He  expressed                                                               
support for HB 315,  which he said might  not necessarily provide                                                               
cheaper insurance  but it  would provide  a stable,  larger pool.                                                               
Insurance  would be  one of  the perks  that nonprofits  might be                                                               
able to provide to draw people to work for them.                                                                                
Number 2630                                                                                                                     
MARGIE  BAUMAN  testified  via  teleconference.    She  expressed                                                               
concern that HB 315 is for  small businesses that have to have at                                                               
least two  employees.  She  is self-employed, she noted,  but has                                                               
no other  employees and would not  be covered under HB  315.  She                                                               
is one  of a number of  self-employed people who have  a terrible                                                               
time  getting  health insurance,  not  because  of their  present                                                               
health  condition but  because they  may have  a medical  history                                                               
such  that their  physician, being  conscientious, wants  them to                                                               
get  periodic  tests.    When they  tell  a  potential  insurance                                                               
carrier  that  the  physician recommended  a  certain  test,  the                                                               
insurance carrier  automatically declines  insurance.   She would                                                               
like to  see the  legislation allow for  participation in  such a                                                               
plan by business employers that have only themselves to cover.                                                                  
Number 2696                                                                                                                     
BOB  LOHR,   Director,  Division  of  Insurance,   Department  of                                                               
Community   &   Economic   Development  (DCED),   testified   via                                                               
teleconference.  He stated that  the department strongly supports                                                               
this legislation.   House  Bill 315 is  an important  step toward                                                               
providing  more  affordable  and  more  stable  health  insurance                                                               
coverage to Alaskan nonprofit organizations.   He spent the first                                                               
half  of  his  career  working with  nonprofit  organizations  in                                                               
Alaska, he  noted, and  came to know  how important  the services                                                               
are that they  provide.  In many cases, they  are equivalent to a                                                               
form  of  local  government  for  communities  outside  organized                                                               
boroughs  and are  providing vital  services that  in many  other                                                               
parts  of the  country would  be  provided by  county or  borough                                                               
governments.    These  [services]   are  done  at  a  substantial                                                               
discount to  the cost if  it were  done as a  government service,                                                               
and it is a very good value for services rendered.                                                                              
MR.  LOHR  said  health  insurance  ought  to  be  available  and                                                               
affordable.   It is an  important step  for the state  to provide                                                               
this  "brokerage" service  - that  is, the  packaging of  a large                                                               
group of small  employers including small businesses -  and to be                                                               
able  to  offer that  up  as  a  service to  potential  insurance                                                               
companies that  would bid on  this coverage.   He said  he thinks                                                               
there  will be  substantially  greater interest  on  the part  of                                                               
insurance  companies if  some of  the homework  has been  done on                                                               
their behalf by the state.                                                                                                      
MR. LOHR  said he  believes [groups]  could go out  and do  it on                                                               
their own, but given the wide  diverseness of Alaska, it would be                                                               
fairly expensive  administratively to do so.   The state is  in a                                                               
very good position to be able  to serve as a collection point for                                                               
this information  and then  to offer  it to  insurance companies.                                                               
This "small  group insurance" market  is characterized by  a high                                                               
concentration  of  market  share.   Ninety-five  percent  of  the                                                               
market  for small  group insurance  is in  the hands  of the  top                                                               
three insurance companies  that write in this market.   There are                                                               
a total of nine companies that write  in the market.  If the bill                                                               
were  adopted  and  the Department  of  Administration  proceeded                                                               
along  the  lines  that  Mr. Bell  has  outlined,  the  insurance                                                               
division   would  do   everything  it   can  to   encourage  full                                                               
participation in the bidding process under the RFP.                                                                             
MR.  LOHR said  he  believes  that the  "bully  pulpit" could  be                                                               
fairly effective in  making the insurance companies  aware of the                                                               
opportunity to  bid and encouraging  them to do  so.  The  law of                                                               
large numbers, sort  of the insurance equivalent  of economies of                                                               
scale,  would  have a  very  important  influence.   It  has  the                                                               
potential to save  significant sums, and it does  spread the risk                                                               
of  catastrophic expense  over a  larger number  of people.   The                                                               
Division of  Insurance, DCED, does  support this  legislation and                                                               
would like to see the committee move the bill.                                                                                  
Number 2889                                                                                                                     
CHAIR COGHILL asked, "What stops us  from doing this outside of a                                                               
state government brokerage?"  Is  there anybody else in the state                                                               
that could create a pool such as this?                                                                                          
MR. LOHR answered  that he is not aware of  a prohibition against                                                               
doing  it, but  the  fact  that it  hasn't  yet  happened is  one                                                               
indicator.   The  United Way  is working  with a  grant from  the                                                               
Rasmusson Foundation  to try  to figure  out avenues  toward more                                                               
affordable  coverage, but  it  is just  getting  started in  that                                                               
effort.   He  said he  doesn't  know if  anyone else  is as  well                                                               
positioned as the state as  a major purchaser of health insurance                                                               
already.  That does provide some  leverage just in terms of being                                                               
a large purchaser of services from the insurance industry.                                                                      
REPRESENTATIVE  JAMES expressed  some concerns  and asked  if the                                                               
small  businesses  could  band  together  to  get  the  insurance                                                               
without going through the state or  whether the state is the only                                                               
one who could do that.                                                                                                          
TAPE 02-34, SIDE B                                                                                                              
Number 2989                                                                                                                     
MR. LOHR answered that he doesn't  know of a prohibition on that.                                                               
In nonprofits,  it is  extremely difficult to  take on  even very                                                               
important  collateral  purposes  to   the  core  purpose  of  the                                                               
organization.   Generally,  folks are  so jammed  with trying  to                                                               
perform the  basic function; taking  on an ambitious  effort like                                                               
this would be a very difficult  assignment.  He doesn't know of a                                                               
reason that  it couldn't  be done,  he said,  but he  pointed out                                                               
that to date  it hasn't been done.  If  the state could jumpstart                                                               
this effort and  take this important first  step, proper language                                                               
in the bill could minimize any  liability to the state.  "I'm not                                                               
an attorney, by the way, " he added.                                                                                            
Number 2896                                                                                                                     
REPRESENTATIVE FATE  asked if  the cost  of insurance  would come                                                               
down if the base and the  amount of incidents were broadened.  He                                                               
referred  to  some  written testimony  that  indicates  it  would                                                               
certainly  broaden the  type and  availability  of benefits,  but                                                               
that it  would not  necessarily reduce the  cost; then  there has                                                               
been testimony saying it would reduce  the cost.  He wondered how                                                               
Mr. Lohr   would  [balance]   those  two   diametrically  opposed                                                               
MR. LOHR  replied that in general,  when the base of  coverage is                                                               
broadened,  the  number  of persons  covered  is  increased;  the                                                               
coverage will be  more affordable primarily by  reducing the risk                                                               
of expensive,  catastrophic-type events.   If, in  broadening the                                                               
base,  people  who  are substantially  sicker  than  average  are                                                               
brought in,  that's a problem  called "adverse selection."   If a                                                               
plan  appeals only  to  those  who are  seriously  ill, then  the                                                               
premiums  are necessarily  going to  be  much, much  higher.   He                                                               
surmised   that   the   consultants    in   the   Department   of                                                               
Administration  would  design  a  plan that  is  not  subject  to                                                               
adverse  selection.    Other than  that  qualifier,  the  general                                                               
notion is  "the bigger  the better"  in terms  of a  pool.   If a                                                               
large number  of healthy  people participate in  the pool,  as it                                                               
would be  if there were  people across  the age spectrum  and all                                                               
kinds of different family types, that's  going to be a good thing                                                               
for the health of the pool as a whole.                                                                                          
REPRESENTATIVE  FATE commented  that it's  still not  clear.   He                                                               
asked, "If you take 1,000 people  and add another 1,000 people to                                                               
the same category,  the risk of incidents is the  same with 1,000                                                               
people as it is with the other 1,000 people, is it not?"                                                                        
Number 2746                                                                                                                     
MR. LOHR explained that there  are two primary factors that drive                                                               
health  insurance.   One  is  utilization  -  the rate  at  which                                                               
services are used - and the other  is severity - how serious is a                                                               
given event?   Large numbers  tend to  make that severity  less a                                                               
problem.   If  there  is a  group  of three  people  and one  has                                                               
terminal cancer,  then the  expenses for that  plan are  going be                                                               
catastrophic for everyone involved.   If there is one person with                                                               
cancer in  a much larger group,  then the risks of  that are more                                                               
manageable because the volume of premiums is coming in.                                                                         
Number 2693                                                                                                                     
KATIE  CAMPBELL,  Actuary  Life/Health,  Division  of  Insurance,                                                               
Department  of  Community  & Economic  Development,  referred  to                                                               
Representative Fate's  question and  agreed that adding  1,000 to                                                               
1,000 more people probably wouldn't  get much benefit, but in the                                                               
larger  pool, the  catastrophic  illness will  be  spread over  a                                                               
larger base of people, which makes  it more affordable.  When one                                                               
person  in  a  five-person  group  is  sick,  that  can  be  very                                                               
expensive for everyone.  If that  is spread over a lot of people,                                                               
it becomes more affordable.  That's the concept of pooling.                                                                     
REPRESENTATIVE FATE commented  that it is based  on the incidence                                                               
of catastrophic illness rather than general incidents.                                                                          
MS. CAMPBELL  noted that the  pooling aspect will help  that part                                                               
of it -  or severity of the  larger claims will be  spread over a                                                               
broader base.   "To the extent that everybody is  utilizing a lot                                                               
of services, you're not going to  gain as much in that area," she                                                               
REPRESENTATIVE  JAMES  asked if  there  is  any evidence  in  the                                                               
actuarial  as  to  whether annual  physical  examinations  are  a                                                               
benefit in the  overall plan to reduce the cost  of serving as an                                                               
insurance company.                                                                                                              
MS.  CAMPBELL  replied that  she  didn't  know.   Some  insurance                                                               
companies  may  have  done  some studies,  but  she  hasn't  seen                                                               
anything  where there  is  a direct  correlation  if people  have                                                               
their  annual  physical.    Presumably, it  helps  a  little  bit                                                               
because a lot  of the employers will have  wellness benefits; the                                                               
goal  is to  keep  catastrophic illnesses  from  occurring.   She                                                               
doesn't have any hard data to give.                                                                                             
CHAIR  COGHILL said  the  way  HB 315  is  written  and with  the                                                               
testimony of  Mr. Bell,  the actuarial could  not begin  its work                                                               
until it  knows who is  in the pool.   There  are a lot  of "what                                                               
Number 2533                                                                                                                     
REPRESENTATIVE STEVENS commented  that the issue has a  lot to do                                                               
with reducing  the costs of  insurance but also  availability and                                                               
stability.   He wondered if  people in smaller  organizations are                                                               
having trouble even finding an insurance carrier.                                                                               
MR.  LOHR   agreed  that  availability  and   stability  are  key                                                               
concepts.   Having a large  purchaser involved in  the purchasing                                                               
process and the  design of the coverage could  assist in removing                                                               
a  lot  of  roadblocks.    Just  knowing  that  the  coverage  is                                                               
available is an  important step toward making  this coverage more                                                               
broadly available than  it otherwise would be.  It  may not pay a                                                               
given company to go out  on speculation and simply "do outreach,"                                                               
whereas if  there is an  internal force organizing the  group and                                                               
shaping the coverage,  it could be a very  important step forward                                                               
in making it available on a longer-term basis.                                                                                  
REPRESENTATIVE STEVENS asked  if a single person in  a firm would                                                               
not be allowed into this pool.                                                                                                  
MR. LOHR answered that the  sponsor could better answer that, but                                                               
said   he  doesn't believe  he/she would  [be allowed]  under the                                                               
current  definition  of  2-50  employees.    There  may  be  some                                                               
problems  from the  point of  view of  converting this  to simply                                                               
individual insurance.   That's a judgment call in  terms of where                                                               
the  lines  are drawn.    Classically  small group  insurance  is                                                               
targeted toward those with between 2 and 50 employees.                                                                          
Number 2735                                                                                                                     
REPRESENTATIVE   NORMAN  ROKEBERG,   Alaska  State   Legislature,                                                               
sponsor of HB  315, answered that the individual aspect  of it is                                                               
allowable  under  the   special  service  organization  provision                                                               
adopted  in the  proposed committee  substitute (CS)  [Version O]                                                               
last  meeting.   Those practitioners  with that  definition would                                                               
[qualify].  As a general rule, no.   He offered to check with the                                                               
designers or  private sector underwriters  about that.   "Usually                                                               
individual  policies are  structured  actuarially different,"  he                                                               
said, adding that  he isn't sure if there are  any policy reasons                                                               
to create  a barrier  for an individual  to join  this particular                                                               
REPRESENTATIVE  ROKEBERG   pointed  out   the  purpose   of  this                                                               
legislation, and one thing he wants  to work on, is the design of                                                               
the actual policies that would be  offered.  The bill needs to be                                                               
"tuned up" in regard to  some of the quantitative design elements                                                               
of  the  bill  particularly  as it  relates  to  PPOs  [preferred                                                               
provider organizations]  or special  bargains for per  diem rates                                                               
at  tertiary  care  hospitals,   which  would  be  a  significant                                                               
reduction in cost.                                                                                                              
REPRESENTATIVE  ROKEBERG  explained  that  small  businesses  and                                                               
individuals cannot buy a policy such  as the State of Alaska has.                                                               
Usually one  menu is offered  for those  types of groups,  and HB                                                               
315 will  allow more selection.   There are the  private insurers                                                               
of the  state, but  there is a  nonprofit association  chapter in                                                               
the  health insurance  laws  that allow  the  formation of  other                                                               
nonprofit types of  associations that could provide  this type of                                                               
insurance; however,  the market doesn't demand  it because Alaska                                                               
is  such a  small  market.   Right  now  Blue  Cross covers  over                                                               
50 percent  of the  insured in  the state.   He  said, "Basically                                                               
what we  need is some  competition for Blue  Cross.  They  have a                                                               
limited  number   of  insurance   underwriters  that   are  here.                                                               
Hopefully, if we can  get a big enough group as  a result of this                                                               
bill, that  might be  the germ  of even  exciting or  drawing the                                                               
interest of  an underwriter that is  not even in the  state right                                                               
now, and that would be a great thing."                                                                                          
Number 2151                                                                                                                     
REPRESENTATIVE ROKEBERG commented that he  wants to work with the                                                               
department and the  director of insurance to be  more specific in                                                               
some  of  the design  specifications  and  to request  that  they                                                               
develop some  kind of PPO with  the major hospitals in  the urban                                                               
areas  and focus  on driving  the costs  down to  the point  they                                                               
might even  offer a stop-loss  catastrophic policy  with anywhere                                                               
from a  $2,500 to  $5,000 or $10,000  deductible, which  is being                                                               
done now.  That could be part of a menu of a program like this.                                                                 
REPRESENTATIVE   ROKEBERG  referred   to  Mr.   Bell's  testimony                                                               
regarding the  periodic requirement of  putting out an  RFP every                                                               
five years.  He said he  thought that was something that could be                                                               
adopted; he would  have no objection to the  committee's moving a                                                               
conceptual amendment to  that effect.  In the last  CS, the group                                                               
went from 300 to  500 in terms of the size; he  noted, but if the                                                               
committee  wants, however,  it could  stipulate that  the profit-                                                               
making  small businesses  would be  limited to  the 50,  but that                                                               
there   could   be  a   different   number   for  the   nonprofit                                                               
organizations and it  could be raised back up to  300.  He didn't                                                               
think it  would cause any  equal protection type issues,  he told                                                               
members.  It  would be a compelling state interest  that it could                                                               
be  demonstrated   that  nonprofit  organizations   are  somewhat                                                               
different and  have had serious  problems with  affordability and                                                               
acquisition of health insurance.   Therefore, a state policy such                                                               
as that would be justifiable.                                                                                                   
Number 1955                                                                                                                     
REPRESENTATIVE CRAWFORD asked  if there is a reason  to limit the                                                               
employees  of  a nonprofit  to  300.    Could  the limit  of  the                                                               
nonprofit be left off?                                                                                                          
REPRESENTATIVE ROKEBERG answered that  was another option.  There                                                               
is a  bit of "arbitrariness"  in 300,  although 300 is  usually a                                                               
breakpoint where it  would be the size to be  able to bargain and                                                               
REPRESENTATIVE CRAWFORD  commented that he didn't  think that any                                                               
of the  nonprofits had  more than 300  employees, but  that there                                                               
might be,  and that  he doesn't  see a good  reason to  have that                                                               
REPRESENTATIVE  ROKEBERG indicated  he wouldn't  object to  that.                                                               
He'd just found out that Hope  Cottage is at about 300 people, he                                                               
noted, so it  might be a nonprofit  forced out of the  pool if it                                                               
had too many employees.                                                                                                         
CHAIR COGHILL said  he has struggled with how great  a portion of                                                               
the  economy the  nonprofits "play  in" and  the many  times they                                                               
compete  against the  for-profit world.   He  is always  cautious                                                               
about giving greater advantage [to the nonprofits], he added.                                                                   
Number 1875                                                                                                                     
REPRESENTATIVE JAMES agreed with the  issue of the size and scope                                                               
of nonprofits in  the state and nation in  their competition with                                                               
the  private sector.   She  also acknowledged  the good  that the                                                               
nonprofits do by providing services that  no one else does, so it                                                               
is a mixed bag.  She doesn't  want nonprofits to think she is not                                                               
in   favor  of   what  they're   doing  because   nonprofits  use                                                               
volunteers, she said; she is one  of the biggest "hurrah" for all                                                               
of  the volunteers  in  the state.   There  is  no dollar  figure                                                               
attached to what they  do.  It would be a  big advantage if every                                                               
nonprofit  and  every  small  business  were  covered  with  some                                                               
insurance.   She  doesn't  necessarily agree  there  should be  a                                                               
limit  on the  number of  employees, she  told members.   In  the                                                               
survey  with several  options, she  would  like to  see how  much                                                               
premium the employee  would be able to pay and  how much cost the                                                               
employer can afford  to pay, because if they  can't get something                                                               
in that [range], then there is not an alternative for them.                                                                     
REPRESENTATIVE  JAMES wondered  if  the  nonprofits that  already                                                               
provide insurance  would be interested  in this because  it might                                                               
be  a better,  bigger pool.   She  surmised they  are covered  by                                                               
other private insurance companies; she  wondered if they would be                                                               
taking  away from  some  of the  private  [sector] contracts  and                                                               
whether that  would be a  direct conflict between  government and                                                               
the private  sector.  "I think  we should use the  private sector                                                               
whenever  it is  something that  we can  do, and  not assume  the                                                               
government can  do it  better or cheaper,  because I  don't think                                                               
that's been borne out over the years." she concluded.                                                                           
Number 1675                                                                                                                     
REPRESENTATIVE ROKEBERG told Representative  James that he shares                                                               
her philosophical  view.  When  he served  as chair of  the Labor                                                               
and Commerce  Committee for four  years, his number-one  goal was                                                               
to  provide an  attractive environment  for new  health insurance                                                               
underwriters to come into the state  of Alaska and not indulge in                                                               
certain  insurance mandates  and other  legislative actions  that                                                               
push them  out.   Alaska is such  a small market,  so it  is very                                                               
difficult,  he said.    He'd introduced  this  bill because  he'd                                                               
reached a  point of frustration,  recognizing, however,  that the                                                               
private sector  is not  going to be  able to  provide affordable,                                                               
quality  health care  insurance.    He's been  a  victim of  high                                                               
insurance premiums, he offered.  When  he reached 50, his and his                                                               
wife's  premiums  went  up  20  percent.   Eight  years  ago  his                                                               
premiums in  the private sector were  more than what he  pays now                                                               
to  the  State of  Alaska,  and  it  had  no dental,  vision,  or                                                               
anything else.   He would love  to see some competition  for Blue                                                               
Cross, he  told members.   He's trying  to create  something that                                                               
would help these groups.                                                                                                        
REPRESENTATIVE JAMES commented that she  sees a real problem with                                                               
the preferred  provider in  many cases.   It  makes a  bigger gap                                                               
between the  "haves" and the "have-nots"  in that issue.   She is                                                               
concerned about mandating that.                                                                                                 
REPRESENTATIVE  ROKEBERG said  he couldn't  agree with  her more;                                                               
that's why he was alarmed when  the State of Alaska made a policy                                                               
call  to  allow  the  bargaining   units  to  disperse  out  from                                                               
underneath the group  plan a few years back and  enter into other                                                               
coalitions that  could become more  or less  "800-pound gorillas"                                                               
when  bargaining for  per diem  rates with  providers.   The only                                                               
kind of cost reduction mechanisms  that are available to Alaskans                                                               
are some  type of PPO-type  contracts, because there are  no HMOs                                                               
(health  maintenance  organization)   in  Alaska,  he  suggested.                                                               
There is a statutory regime  that rejects and discourages HMOs in                                                               
the  state of  Alaska.    So the  only  possibility for  lowering                                                               
health care costs is to try  to contractually do that.  In larger                                                               
areas like  Anchorage, which has  the only major  tertiary center                                                               
in  Alaska where  there is  a modicum  of competition,  it works.                                                               
There  are other  provisions for  day surgeries  and things  like                                                               
this  that can  be  done on  a PPO-type  basis  and provide  some                                                               
savings.   If  the particular  design of  a plan  doesn't include                                                               
some  of  those  things,  then  the  goal  of  HB  315  won't  be                                                               
accomplished, which  is access to  more affordable,  quality, and                                                               
stable care.                                                                                                                    
Number 1337                                                                                                                     
CHAIR COGHILL characterized this bill  as the "template" for that                                                               
discussion because  the survey  is going  to tell  what different                                                               
tiers, if  any, might look like.   "We're way ahead  of ourselves                                                               
on that discussion I think," he noted.                                                                                          
REPRESENTATIVE STEVENS referred to page  3, line 11, and asked if                                                               
this was  the RFP issue  [referring to  putting out an  RFP every                                                               
five years].                                                                                                                    
MR. BELL answered  that it is current law and  there is no change                                                               
to current law along those lines.                                                                                               
Number 1200                                                                                                                     
REPRESENTATIVE JAMES  referred to  the "harrowing"  experience of                                                               
changing  administration of  insurance  carriers.   She said  she                                                               
doesn't  know if  anyone can  guarantee that  won't happen  again                                                               
when the five years  are up.  She wouldn't want  to have a replay                                                               
of that issue.                                                                                                                  
REPRESENTATIVE JAMES told Representative  Rokeberg that she would                                                               
feel  more  comfortable  if  HB  315 were  in  two  parts.    She                                                               
expressed  concern about  raising  up  people's expectations  and                                                               
disappointing them.   She asked if there is a  way to divide this                                                               
into two processes.                                                                                                             
REPRESENTATIVE  ROKEBERG  asked her  if  she  thinks they  should                                                               
study it first and then implement it.                                                                                           
REPRESENTATIVE  JAMES  said there's  a  lot  of information  they                                                               
don't have,  like how many  people there  would be out  there and                                                               
how much they can afford to pay.   It is how much they can afford                                                               
to  pay and  what  they're  going to  get  that  are the  biggest                                                               
stumbling blocks for her.                                                                                                       
REPRESENTATIVE  ROKEBERG  said  he  would cosponsor  with  her  a                                                               
resolution to send to Congress  to stop creating a phantom health                                                               
tax  for this  country by  not paying  proper reimbursements  for                                                               
Medicaid and Medicare.  He stated:                                                                                              
     The  root of  the  problem is  the accelerating  health                                                                    
     care  costs in  this country,  which the  percentage of                                                                    
     GDP [gross domestic product] of  which we're paying for                                                                    
     health care  is accelerating  at an alarming  rate and,                                                                    
     it's  the  only inflation  factor  we  have except  oil                                                                    
     prices are  going up  now.  ...  To survey  what people                                                                    
     can afford to  pay is useless information.   They can't                                                                    
     afford to pay  what the costs are now;  that's the real                                                                    
     issue.   You  can't design  something to  affordability                                                                    
     because it just  doesn't work.  We're  designing it for                                                                    
     affordability in  this plan to  try to lower  the costs                                                                    
     to the  lowest common denominator.   This is kind  of a                                                                    
     Band    Aid   approach    to    deal   with    Alaska's                                                                    
Number 0939                                                                                                                     
REPRESENTATIVE JAMES said she would  be happy to [draft] a letter                                                               
with  Representative Rokeberg  to the  leadership in  Washington,                                                               
D.C., particularly  on the  issue of not  forcing Medicare  to be                                                               
the first  provider when  people are  65.  "If  we could  let the                                                               
insurance companies provide  for people who have  the options and                                                               
wish to pay, we certainly could  be able to give drug coverage to                                                               
the people  who are on  Medicare," she commented.   She suggested                                                               
they draft a letter on that.                                                                                                    
REPRESENTATIVE ROKEBERG  acknowledged that  the chance of  HB 315                                                               
passing this  year is slim.   He said he  will work hard  on this                                                               
legislation because  he sees the  need for  it.  He  doesn't want                                                               
people's  expectations to  be  built  up and  for  them to  start                                                               
making plans that this bill is going  to pass this year.  "I hope                                                               
it does but  beware of this process,"  he warned.  "It  is a very                                                               
long, arduous, and difficult process."                                                                                          
Number 0799                                                                                                                     
REPRESENTATIVE  WILSON  agreed  that  this  is  a  very  delicate                                                               
balance  because everyone  wants affordable  insurance.   What is                                                               
affordable today  isn't going to  be affordable  tomorrow because                                                               
the costs  keep rising,  so even  if a survey  were done,  by the                                                               
time it was  implemented the costs would be more,  so it would be                                                               
a moot point.   It is a hard issue to deal  with because it keeps                                                               
REPRESENTATIVE CRAWFORD  acknowledged that the problem  is almost                                                               
at crisis  proportions, and  that the sooner  it's taken  care of                                                               
the better.                                                                                                                     
REPRESENTATIVE  HAYES declared  a  conflict  of interest  because                                                               
HB 315 could benefit him in his private-sector job.                                                                             
REPRESENTATIVE  WILSON asked  why  the  self-employed people  are                                                               
being limited.                                                                                                                  
REPRESENTATIVE ROKEBERG  answered that it  is the way  the health                                                               
insurance statutes are right now.                                                                                               
REPRESENTATIVE  CRAWFORD asked  about  limiting  just one  person                                                               
from the group.                                                                                                                 
REPRESENTATIVE ROKEBERG replied that he'll be looking into that.                                                                
REPRESENTATIVE HAYES commented that the  problem with one is that                                                               
one is not a group.                                                                                                             
Number 0533                                                                                                                     
REPRESENTATIVE  HAYES moved  to  report CSSSHB  315 [version  22-                                                               
251177\O,  Craver,  3/27/02]  out of  committee  with  individual                                                               
recommendations,  the  accompanying  fiscal notes,  and  the  new                                                               
title.   There being no  objection, CSSSHB 315(STA)  was reported                                                               
from the House State Affairs Standing Committee.                                                                                

Document Name Date/Time Subjects