Legislature(2005 - 2006)CAPITOL 106

04/09/2005 09:30 AM STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Scheduled But Not Heard
Heard & Held
Bills Previously Heard/Scheduled
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                     
CHAIR SEATON announced that the  last order of business was HOUSE                                                               
BILL  NO.  238,  "An  Act  relating  to  contribution  rates  for                                                               
employers  and  members  in  the defined  benefit  plans  of  the                                                               
teachers' retirement system and  the public employees' retirement                                                               
system and  to the ad-hoc  post-retirement pension  adjustment in                                                               
the  teachers'  retirement   system;  requiring  insurance  plans                                                               
provided  to  members of  the  teachers'  retirement system,  the                                                               
judicial  retirement  system,  the public  employees'  retirement                                                               
system,  and  the  former  elected  public  officials  retirement                                                               
system to provide a list  of preferred drugs; relating to defined                                                               
contribution  plans  for  members  of  the  teachers'  retirement                                                               
system  and   the  public   employees'  retirement   system;  and                                                               
providing for an effective date."                                                                                               
REPRESENTATIVE  GATTO moved  to  adopt  the committee  substitute                                                               
(CS) for HB  238, Version 24-LS0761\L, Craver, 4/8/05,  as a work                                                               
draft.   There  being  no  objection, Version  L  was before  the                                                               
10:19:11 AM                                                                                                                   
CHAIR SEATON  directed attention to  page 15 [of Version  L], and                                                               
asked  the  representatives  of  the  Division  of  Retirement  &                                                               
Benefits to offer their feedback.   Specifically, he noted that a                                                               
phrase  [on page  15, line  4]  read, "retire  directly from  the                                                               
plan", while  a phrase  [in the  next sentence  on line  5] read,                                                               
"retire from the  plan".  He asked if the  division would like to                                                               
see the word "directly" in both places.                                                                                         
MELANIE MILLHORN, Director, Health  Benefits Section, Division of                                                               
Retirement  & Benefits,  Department of  Administration, responded                                                               
that she thinks "it works" [to add "directly"].                                                                                 
10:21:21 AM                                                                                                                   
REPRESENTATIVE GATTO said he thinks the language is "clumsy."                                                                   
10:22:30 AM                                                                                                                   
MS. MILLHORN, in  response to a remark by Chair  Seaton, said the                                                               
definition for "plan" is found on page 17, beginning on line 15.                                                                
10:22:49 AM                                                                                                                   
CHAIR SEATON said he would flag the  area on page 15 as needing a                                                               
definition  of  "plan".   Notwithstanding  that,  he asked  which                                                               
terminology would be best regarding retiring and the plan.                                                                      
10:23:32 AM                                                                                                                   
MS. MILLHORN clarified as follows:                                                                                              
     Retirement,  under the  defined contribution  plan, can                                                                    
     be  at any  point in  time ....   What  this is  really                                                                    
     speaking  to is  when you  become eligible  for medical                                                                    
     benefits  under   the  plan.     So,  ...   that's  the                                                                    
     distinction when we're talking  about retiring from the                                                                    
     plan  is that  you also,  satisfying certain  criteria,                                                                    
     would be eligible for medical benefits.                                                                                    
10:24:37 AM                                                                                                                   
CHAIR SEATON said he would  flag that area for future discussion.                                                               
Continuing the discussion of page  15, he highlighted that one of                                                               
the options  that "the member has  at least 30 years  of service"                                                               
is applicable at  any age.  The other option  is that "the member                                                               
reaches the  normal retirement age and  has at least 10  years of                                                               
service."  He  read lines 10-11:  "(b) The  normal retirement age                                                               
is 60 months less than the age set for Medicare eligibility."                                                                   
10:25:29 AM                                                                                                                   
REPRESENTATIVE  GATTO asked  what  would happen  if the  Medicare                                                               
eligibility age is changed during a person's career.                                                                            
10:26:03 AM                                                                                                                   
MS. MILLHORN  speculated that the  number to  go by would  be the                                                               
age set for Medicare eligibility on a person's retirement date.                                                                 
10:26:33 AM                                                                                                                   
CHAIR SEATON said  he wants that to  be clear on the  record.  He                                                               
suggested adding "at  the time of retirement" after  "the age set                                                               
for Medicare eligibility."  He said he would flag that, as well.                                                                
10:27:56 AM                                                                                                                   
REPRESENTATIVE   GRUENBERG   offered  his   understanding   that,                                                               
constitutionally, when a person's rights  vest, he/she then has a                                                               
constitutional  right that  cannot be  changed without  violating                                                               
that section of the constitution.  He offered further details.                                                                  
CHAIR SEATON told Representative  Gruenberg that it's anticipated                                                               
that the  government will move  that number back and  has already                                                               
done so  to the  age of 67  "for some folks."   He  said original                                                               
language  in the  bill  is  60 and  65,  "because  those are  the                                                               
current ones."  He said the  intent is to vest employees and have                                                               
everyone  knowledgeable about  what  benefits  they will  accrue.                                                               
Those benefits  that accrue are related  to Medicare eligibility.                                                               
He added,  "Because that's when  the premium split  comes between                                                               
what this  plan can supply  and what  is supplied by  the federal                                                               
REPRESENTATIVE  GRUENBERG   said  he  understands  that   but  is                                                               
considering what  people's reasonable  expectations are  and what                                                               
their constitutional rights are.  He gave an example.                                                                           
CHAIR SEATON said,  "If you tell somebody they have  a benefit at                                                               
60 when they come to work, they'll  have a benefit at age 60.  If                                                               
you tell  them, and  their agreement  is, that  they will  get 60                                                               
months pre-Medicare premium  support, then I don't  know how they                                                               
could  attach  a particular  age  to  that, because  what  you're                                                               
saying is, "This  is the amount of benefit you're  going to have;                                                               
you're  going  to  have 60  months  of  pre-Medicare  eligibility                                                               
benefit."   Chair  Seaton stated  that  so far  he doesn't  think                                                               
there is  a problem  with this issue,  but Legislative  Legal and                                                               
Research Services could be asked for a further opinion.                                                                         
10:33:04 AM                                                                                                                   
REPRESENTATIVE  ELKINS stated,  "That's what  we're here  for; we                                                               
want to  build a  plan that  protects the retirees.   And  if the                                                               
[federal] law does  change, and we haven't got  that area covered                                                               
so  that we've  drawn enough  money, we're  still responsible,  I                                                               
feel, to pick that up until Medicare kicks in."                                                                                 
CHAIR  SEATON said  the  committee  must make  a  policy call  in                                                               
deciding  whether to  set  the  age at  60  and,  no matter  what                                                               
happens, provide the  unanticipated amounts, or to set  a time of                                                               
60  months  pre-Medicare  premium  support.   In  response  to  a                                                               
comment by  Representative Gruenberg, he  said, "I don't  want to                                                               
go beyond this  until we wrestle with it and  decide what we want                                                               
to do."                                                                                                                         
REPRESENTATIVE GRUENBERG  said he doesn't want  the committee and                                                               
the public to think that those are the only two choices.                                                                        
CHAIR SEATON replied, "Those are the  two choices that we have in                                                               
the two  bills before  us.   We have HB  191, which  has Medicare                                                               
eligibility being  the start point  for a subsidy on  health care                                                               
costs, and  we have HB  238, which  currently ... [in  Version L]                                                               
gives   60   months   pre-Medicare   eligibility."      He   told                                                               
Representative Gruenberg that  if he wants to  offer an amendment                                                               
for another option, that would be fine.                                                                                         
10:36:35 AM                                                                                                                   
REPRESENTATIVE  ELKINS said  every  time the  committee meets  it                                                               
becomes  more apparent  to him  that this  issue needs  a lot  of                                                               
work.  He continued:                                                                                                            
     I  don't see  how we  can pass  this out  this session.                                                                    
     And I  would think for  the safety of the  retirees and                                                                    
     future retirees  of the State  of Alaska, that  we need                                                                    
     some committee  work this summer  just to --  you know,                                                                    
     this issue  is too  important to  slam it  through here                                                                    
     and put out a bad piece  of ... legislation.  I come to                                                                    
     one meeting  [and] I think I've  got a handle on  it; I                                                                    
     come to the next and I don't know.                                                                                         
CHAIR SEATON  questioned whether  meetings would take  place when                                                               
the  committee members  are spread  across the  state during  the                                                               
Interim.   He noted  that the committee  is meeting  on Saturdays                                                               
for the  purpose of dealing with  this issue.  He  said, "I think                                                               
we're doing exactly the right  thing in discussing the philosophy                                                               
of where we want to go ...."                                                                                                    
10:38:08 AM                                                                                                                   
REPRESENTATIVE  GARDNER  expressed   her  appreciation  of  Chair                                                               
Seaton's  leadership and  his  years dealing  with  the issue  in                                                               
advance of the rest  of the committee.  She said  in the issue at                                                               
hand that it seems clear that  the question is whether to put the                                                               
state's interest first or the employees' interest.                                                                              
CHAIR SEATON answered  that's correct.  He said  he thinks people                                                               
are very cautious not to create  a system that will have unfunded                                                               
liabilities built  into it.  He  said, "It's not just  the state;                                                               
it's ...  154 employers  that are  in this system  with us.   And                                                               
every  one of  them  gets stuck  with whatever  we  design."   He                                                               
offered further details.                                                                                                        
10:41:26 AM                                                                                                                   
REPRESENTATIVE  GATTO said  it  will be  impossible  to supply  a                                                               
benefit to employees if the  state goes into ruin; therefore, the                                                               
goal of  the legislature  is to save  the employees'  benefits by                                                               
ensuring the  state doesn't  get itself  so deeply  entrenched in                                                               
paying benefits that it can't afford.                                                                                           
10:41:57 AM                                                                                                                   
REPRESENTATIVE GRUENBERG responded, "I  guess when Chicken Little                                                               
said the sky was falling, the real question was whether it was."                                                                
10:42:14 AM                                                                                                                   
CHAIR SEATON  said that's true.   He added that,  considering the                                                               
payment schedules that will have to  be made over the next years,                                                               
by the  year 2015, the state  will be paying $300  million of the                                                               
retirement benefits that haven't been collected.  He continued:                                                                 
     Now, we can  put that all on the  school districts, but                                                                    
     they  have no  tax base.   So,  what the  legislature's                                                                    
     done to date with the $38  million that ... we put into                                                                    
     the  budget -  and that's  just  the very  tip of  this                                                                    
     escalating  curve  - is  ...  picked  up that  PERS/TRS                                                                    
     money to the  school district.  But that  grows to $300                                                                    
     million a  year, instead of  $38 million.  And  ... the                                                                    
     question is,  "Is that  sustainable?   Can we  do that?                                                                    
     ... If we  have those kinds of liabilities,  will we be                                                                    
     able to pass school  budgets that increase anything for                                                                    
     the classes?"   I mean, that is more why  we're here, I                                                                    
     think,  and why  we're  wrestling with  this, than  the                                                                    
     retirement system  is:  "What  is the  budgetary effect                                                                    
     going to be on everything else we do?"                                                                                     
10:43:37 AM                                                                                                                   
REPRESENTATIVE GRUENBERG said Chair Seaton  is right.  This issue                                                               
deals with  fiscal policy  - where  the state  is going  to raise                                                               
money and  where it  will spend  it.   He indicated  that federal                                                               
taxes are  something over  which the  state has  no control.   He                                                               
said he  thinks this is  a solvable problem,  but it needs  to be                                                               
put into perspective.                                                                                                           
10:45:23 AM                                                                                                                   
CHAIR SEATON  stated, "Really what  we're coming to  here, folks,                                                               
is:   What  [are]  the  medical benefits  that  we're willing  to                                                               
charge  the  employers and  the  employee?   Because,  under  our                                                               
defined   contribution  program,   ...  we   had  a   10  percent                                                               
employee/10 percent employer  match, and ... if we  want to crank                                                               
up the  contribution, all  of the  medical has  to come  from the                                                               
employer."   He  offered  further details.   He  said  no one  is                                                               
coming to  the legislature  with an answer  on a  silver platter;                                                               
the committee must create the best benefit package that it can.                                                                 
CHAIR SEATON turned to page 5  of Version L, which shows that the                                                               
employer contribution  under [HB 238]  would be 11 percent.   The                                                               
breakdown  of  that  11  percent   is  shown  [in  the  following                                                               
subsections].    [Subsection  (b)]   shows  what  goes  into  the                                                               
retirement portion,  and [subsection  (c)] shows that  the health                                                               
care benefit  would be at  3.75 percent.  [Subsection  (d)] shows                                                               
that the  employer would  contribute 1.5  percent for  the health                                                               
care  reimbursement account  (HRA).   If the  committee wants  to                                                               
provide a  larger benefit it  can "crank  up these numbers."   He                                                               
noted that the normal cost rate  from 1980 through 2003 was 11.16                                                               
percent average.  [HB 238] would  keep that rate the same.  Chair                                                               
Seaton  said the  $300 million  liability will  still have  to be                                                               
paid,  but [HB  238] offers  a plan  to replace  the system  that                                                               
created that liability.                                                                                                         
10:49:11 AM                                                                                                                   
REPRESENTATIVE  GARDNER remarked  that benefits  work in  harmony                                                               
with salary  levels -  one can  be less if  the other  is higher.                                                               
She  said, "We  don't  know  what the  other  half  of the  whole                                                               
package is,  so when we  try to figure  out what is  adequate and                                                               
responsible for  recruiting and  retaining good  employees, we're                                                               
operating in a vacuum to some extent here."                                                                                     
CHAIR   SEATON   said   he  agrees.      Furthermore,   he   said                                                               
Representative  Gardner   is  talking  about  today,   while  the                                                               
committee  is  trying  to  project the  retirement  life  of  new                                                               
employees coming  in over the next  25 years.  He  said there are                                                               
employee/employer surveys  available.  He mentioned  other issues                                                               
that need to be considered.                                                                                                     
10:51:57 AM                                                                                                                   
REPRESENTATIVE  GRUENBERG  mentioned  a   related  bill  that  he                                                               
thought moved out  of committee too fast and said  he thinks it's                                                               
important to  give this important issue  careful consideration so                                                               
that constituents are happy with the outcome.                                                                                   
CHAIR SEATON  assured Representative  Gruenberg he  doesn't think                                                               
[HB 238] is anywhere near ready to be moved out of committee.                                                                   
10:55:56 AM                                                                                                                   
REPRESENTATIVE ELKINS directed attention  page 15, [lines 28-29],                                                               
which shows one category eligible  for major medical insurance as                                                               
               (3) a member who reaches the normal                                                                              
     retirement  age as  provided in  AS  14.25.470, has  at                                                                    
     least 10  years of  service, and retires  directly from                                                                    
     the plan;                                                                                                                  
REPRESENTATIVE  ELKINS  asked  if  that would  affect  those  who                                                               
already qualified at 5 years.                                                                                                   
10:56:58 AM                                                                                                                   
CHAIR SEATON reminded Representative  Elkins that the plan before                                                               
the committee is for a new  tier level and would not affect those                                                               
in Tier I.                                                                                                                      
10:57:32 AM                                                                                                                   
REPRESENTATIVE ELKINS responded as follows:                                                                                     
     I understand what  you're saying.  But  I still believe                                                                    
     that school  board members,  city council  members, and                                                                    
     people in that category  contribute such a small amount                                                                    
     in.   ... I'm one of  those people, and I  can tell you                                                                    
     I've taken out of the system  50 or 100 times more than                                                                    
     was  ever paid  out on  my behalf.   And  I think  it's                                                                    
     wrong.  I  love the system, but I think  to protect the                                                                    
     health  of  any future  system,  ...  those people  who                                                                    
     serve  on those  governing bodies  should be  excluded.                                                                    
     I've always  thought that;  when I  was on  the borough                                                                    
     assembly I  fought against it  and kept it off  for the                                                                    
     three years  I was  there -  we didn't  join.   But I'd                                                                    
     like to see us address that in detail ....                                                                                 
10:58:32 AM                                                                                                                   
CHAIR  SEATON  said  Representative  Elkins  is  right  regarding                                                               
medical eligibility.                                                                                                            
10:58:53 AM                                                                                                                   
MS. MILLHORN  reported that, currently, "elected  officials" need                                                               
to have 10  years of service in order to  be eligible for medical                                                               
benefits.   She  indicated that  there are  currently 375  active                                                               
members of the  retirement system who are  elected officials, and                                                               
she surmised  that many  of those  may be in  Tier III  and would                                                               
have to serve 10 years of service  in order to be eligible.  That                                                               
group of  375 represents  .003 percent of  the total  active PERS                                                               
and TRS members.                                                                                                                
CHAIR  SEATON said  he thinks  Representative Elkins'  concern is                                                               
that  the design  of that  system means  that "you  have somebody                                                               
getting  a   free  lunch,"  because  hardly   anything  is  being                                                               
collected from  their employment  status "at  50 bucks  a month,"                                                               
but they receive the same benefits.                                                                                             
11:00:13 AM                                                                                                                   
REPRESENTATIVE ELKINS clarified his point as follows:                                                                           
     The way  the system  works, if  I understand  it right,                                                                    
     even under  the 10-year plan,  if they put 10  years on                                                                    
     the school board,  for example, and come out  and go to                                                                    
     work driving [a] truck for  the state for three years -                                                                    
     their high three  - then the ...  municipality pays the                                                                    
     biggest portion  of the premium,  based on  that higher                                                                    
     salary.  That's why,  in my opinion, the municipalities                                                                    
     can't afford  to be in  this system for  the nonregular                                                                    
11:00:59 AM                                                                                                                   
MS. MILLHORN told Representative  Elkins that right now employers                                                               
have the  opportunity - through  their participation  agreement -                                                               
to  exclude those  parties from  membership, so  they have  total                                                               
control over the cost.                                                                                                          
11:01:22 AM                                                                                                                   
CHAIR  SEATON noted  that  at  least one  of  the  cities in  his                                                               
district has taken the option  to exclude any future city council                                                               
members  from participation  in the  system.   He indicated  that                                                               
this is in  response to the bills the cities  are finally getting                                                               
totaling hundreds of  thousands of dollars owed  to the employees                                                               
who did not contribute much.                                                                                                    
11:01:53 AM                                                                                                                   
REPRESENTATIVE ELKINS  stated one of  his pet peeves is  that the                                                               
legislature opens the  door and gives the  responsibility [to the                                                               
municipalities]  to opt  out and  close that  door.   He said  he                                                               
thinks that onus should be on the legislature.                                                                                  
CHAIR SEATON indicated that he  would accept an amendment to that                                                               
effect as the committee moves forward with the bill.                                                                            
11:02:26 AM                                                                                                                   
REPRESENTATIVE   ELKINS,  in   response   to   a  question   from                                                               
Representative  Gruenberg,  said  he  would not  then  allow  the                                                               
municipal employers to opt in.                                                                                                  
11:02:45 AM                                                                                                                   
CHAIR SEATON  said he would  like to  know at this  point whether                                                               
the  committee  is  in general  agreement  regarding  the  normal                                                               
retirement age being set at 60  months [less than the age set for                                                               
Medicare eligibility].                                                                                                          
REPRESENTATIVE GATTO said he agrees  philosophically and wants to                                                               
see  the intentions  put in  "bold print"  so that  there are  no                                                               
surprises to new employees.                                                                                                     
11:04:11 AM                                                                                                                   
REPRESENTATIVE  LYNN said,  "I don't  want to  be surprised  when                                                               
retirement time comes."                                                                                                         
11:04:24 AM                                                                                                                   
CHAIR  SEATON reviewed  page 15,  subsection (d),  which read  as                                                               
          (d) A member who continues in the employ of the                                                                       
     employer  after reaching  normal  retirement age  shall                                                                    
     continue  to  participate  in  the  plan  and  to  have                                                                    
     contributions allocated to the member's account.                                                                           
CHAIR SEATON  directed attention to  page 15, lines  17-21, which                                                               
read as follows:                                                                                                                
     Sec. 14.25.480. Medical benefits. (a) The medical benefits                                                               
available to  eligible persons  are access  to the  retiree major                                                               
medical insurance  plan and to the  health reimbursement account.                                                               
Access to the retiree major  medical insurance plan means that an                                                               
eligible person may  not be denied insurance  coverage except for                                                               
failure to pay the required premium.                                                                                            
11:06:08 AM                                                                                                                   
MS.  MILLHORN  requested  on  behalf of  the  division  that  the                                                               
committee  strike  the  word "insurance"  [throughout  subsection                                                               
(a)], because  the plan is  self-funded and  the use of  the word                                                               
insurance may  denote that the  Division of Insurance  would have                                                               
regulatory authority.  She also  asked that the word "medical" be                                                               
inserted after "denied".                                                                                                        
11:07:19 AM                                                                                                                   
REPRESENTATIVE  GRUENBERG   said  he   thinks  there   should  be                                                               
notification to  members and the  legislature if the  federal age                                                               
for  Medicare changes.    He  said the  question  is whether  the                                                               
presumption is  "that the  state will  go along  with it"  and at                                                               
that point  will "decouple,"  or whether it  would not  and would                                                               
have to "couple."                                                                                                               
11:09:12 AM                                                                                                                   
CHAIR SEATON said  he would oppose that because  the decision has                                                               
to be made at  this point in time.  The  committee is designing a                                                               
plan and,  under the Alaska  state Constitution,  the legislature                                                               
sets  the  parameters  and  the employees  have  the  ability  to                                                               
understand  those   parameters  "throughout  their   lifetime  of                                                               
11:11:05 AM                                                                                                                   
MS.  MILLHORN  said  she  would  like to  address  the  issue  of                                                               
notification.   She said the  division has the  responsibility to                                                               
educate, counsel, and  notify members about plan  benefits at the                                                               
time those  members are employed, and  at any time in  the future                                                               
in which  the plan  changes.   She said  the division  takes that                                                               
responsibility  seriously  and  would  endeavor  to  ensure  that                                                               
members, the  legislature, and any interested  parties would know                                                               
about changes with adequate notice.   She said the information is                                                               
also listed on the division's Web page.                                                                                         
11:12:09 AM                                                                                                                   
REPRESENTATIVE GATTO  noted that the word  insurance also appears                                                               
on page 15, line 22.                                                                                                            
11:13:07 AM                                                                                                                   
CHAIR SEATON continued  reviewing Version L, on the  rest of page                                                               
15, and on to page 16.                                                                                                          
11:14:02 AM                                                                                                                   
MS. MILLHORN  directed attention to  page 16, [lines  4-6], which                                                               
read as follows:                                                                                                                
          (d) Retiree major medical insurance plan coverage                                                                     
     elected  by  a surviving  spouse  of  a [sic]  eligible                                                                    
     member under  this section covers the  surviving spouse                                                                    
     and the dependent children of the surviving spouse.                                                                        
MS. MILLHORN  asked that  line 6 be  changed to  read, "dependent                                                               
children  of  the  eligible  member  who  are  dependent  on  the                                                               
surviving spouse."                                                                                                              
11:15:36 AM                                                                                                                   
REPRESENTATIVE GRUENBERG stated:                                                                                                
     At least  for tax purposes  ..., I  think you can  be a                                                                    
     dependent  of  somebody  if   you're  living  in  their                                                                    
     household and  you're dependent upon  them.   You don't                                                                    
     have to be a  child.  Here, if you want  to limit it to                                                                    
     ...  the  child  who  is  the child  by  ...  blood  or                                                                    
     adoption of both the surviving  spouse and the deceased                                                                    
     eligible  member,  then  you should  say  it  a  little                                                                    
     differently.   I  think  ... what  you  should say  is,                                                                    
     "dependent  children of  the surviving  spouse and  the                                                                    
     eligible member."                                                                                                          
CHAIR SEATON proffered, "Therefore, if  they were children of the                                                               
spouse who  had married the  member, they would not  be eligible,                                                               
because they weren't children of the member and spouse."                                                                        
REPRESENTATIVE GRUENBERG said that's exactly his point.                                                                         
11:18:10 AM                                                                                                                   
CHAIR   SEATON  indicated   that,  regarding   the  health   care                                                               
reimbursement account,  there are  projections of  premiums going                                                               
up  $28-30,000 "in  the time-frame  of when  somebody comes  into                                                               
this system  and retires."  He  illustrated that it is  one thing                                                               
to cover the spouse and  dependents of a retired active employee,                                                               
yet quite  another to cover  the spouse and any  adopted children                                                               
from a marriage  that occurs after the member retires.   He said,                                                               
"This is totally  a policy call."  As health  care premiums start                                                               
increasing to  $30,000, there could  be many types  of structures                                                               
within  the  system.    For  example, he  said,  "We  could  have                                                               
grandparents adopting their grandchildren  for coverage, and they                                                               
would be covered  for 20-some years."  He  offered other examples                                                               
of how people could work the system to their advantage.                                                                         
11:21:24 AM                                                                                                                   
MS. MILLHORN  responded that  there is  a tax-qualified  plan for                                                               
medical  benefits.   She emphasized  the importance  of having  a                                                               
clear definition  of who  is eligible,  and said  that definition                                                               
must comport  with 26 U.S.C. 152.   She said, "We  have looked at                                                               
this issue very  carefully and we understand  the consequences of                                                               
not being clear with that language."                                                                                            
CHAIR SEATON  asked if  there is  any language  in the  U.S. code                                                               
that states that  coverage must be provided for a  spouse who was                                                               
not a spouse during active employment.                                                                                          
11:23:32 AM                                                                                                                   
MS.  MILLHORN offered  her understanding  that the  code "doesn't                                                               
differentiate; it just defines 'spouse'."                                                                                       
CHAIR SEATON  said he wants  to get  the opinion of  the attorney                                                               
general and Legislative  Legal and Research Services  to find out                                                               
whether the  legislature can restrict the  definition of "spouse"                                                               
and "dependent" children to those  spouses and dependent children                                                               
that existed during the period of the members active employment.                                                                
11:24:45 AM                                                                                                                   
REPRESENTATIVE   GARDNER  asked   for  confirmation   that  "when                                                               
somebody  gets divorced  they split  the  retirement benefits  on                                                               
occasion" and  "they can  require as part  of the  divorce decree                                                               
that whoever has  the medical coverage retain[s]  the premiums so                                                               
that the other spouse retains medical coverage."                                                                                
KATHY LEA, Retirement Manager,  Health Benefits Section, Division                                                               
of Retirement & Benefits,  Department of Administration, answered                                                               
Representative Gardner as follows:                                                                                              
     Currently,  an  ...  ex-spouse  can  have  access  only                                                                    
     through  qualified domestic  relations order.   So,  if                                                                    
     there is  a divorce after  the member has  retired, all                                                                    
     that  the alternate  payee  can get  is  access to  the                                                                    
     medical plan;  they have  to pay  full premium  for it,                                                                    
     regardless  of   what  the  member's   eligibility  for                                                                    
     system-paid premiums are.                                                                                                  
MS. LEA, in  response to a question from Chair  Seaton, said that                                                               
is the  case after  a member's  death, as  well.   She clarified,                                                               
"Any  alternate  payee  only  has access  to  the  medical  plan.                                                               
Regardless of  whether the member  is living or ...  the domestic                                                               
relations order  becomes effective upon the  member's death, they                                                               
must pay the full premium for medical coverage.                                                                                 
11:26:29 AM                                                                                                                   
REPRESENTATIVE GRUENBERG offered his  understanding that there is                                                               
"even COBRA  [Comprehensive Omnibus  Budget Reform  Act] coverage                                                               
for three  years."  He  concluded that the ex-spouse  is eligible                                                               
for that coverage but has to pay the premium for three years.                                                                   
11:26:48 AM                                                                                                                   
REPRESENTATIVE GATTO made  up a scenario in  which an 85-year-old                                                               
retired active  member has lost  his wife and children,  has been                                                               
told he  has three  months to  live, and  marries the  woman next                                                               
door who  has a  dozen adopted  children.  He  asked if  the plan                                                               
would cover them all.                                                                                                           
11:27:50 AM                                                                                                                   
MS. LEA answered that a  member who retires unmarried can remarry                                                               
and  cover that  spouse and  dependent children  while he/she  is                                                               
living; however, once that person dies that coverage ends.                                                                      
11:28:58 AM                                                                                                                   
CHAIR SEATON said he doesn't think  that language is in [HB 238].                                                               
He asked Ms.  Lea to pull that language out  of existing statutes                                                               
and get it to the committee.                                                                                                    
11:29:09 AM                                                                                                                   
REPRESENTATIVE   GARDNER  asked   for   clarification  that   the                                                               
committee is proposing that the  spouse and dependents that exist                                                               
for an  active member  before retirement  would be  covered after                                                               
the member's retirement  and after the member's  death.  However,                                                               
if the member is not married  at the time his/her retirement, but                                                               
marries a spouse with children  after retirement, that spouse and                                                               
children are  covered while the  retiree is alive, but  not after                                                               
he/she dies.                                                                                                                    
CHAIR SEATON  responded yes.   He offered his  understanding that                                                               
"the  spouse and  dependents that  come on  after retirement  are                                                               
access only."  He asked if that is correct.                                                                                     
MS. LEA responded as follows:                                                                                                   
     Currently, they  come under the  retiree's eligibility.                                                                    
     So, if the retiree is  living, they can cover them with                                                                    
     system-paid  premiums  if  the retiree's  eligible  for                                                                    
     system-paid premiums.   After death, if  it's an after-                                                                    
     death coverage,  that would end in  the current system.                                                                    
     And  that's   principally  because,  in   the  [defined                                                                    
     benefit (DB)]  plan, you're required  to elect  a joint                                                                    
     and  survivor option  if you  want medical  coverage to                                                                    
     continue  after   your  death   for  your   spouse  and                                                                    
     dependent children.  So, that's  the mechanism by which                                                                    
     you  pay  it under  the  DB  plan.    If no  joint  and                                                                    
     survivor option  is elected, regardless of  whether the                                                                    
     spouse  was a  spouse at  the time  of retirement,  the                                                                    
     coverage would  end at  the end  of the  member's life,                                                                    
     because there was no  provision for continuing benefit.                                                                    
     So, that's  the mechanism we're using  currently in the                                                                    
     DB plans.                                                                                                                  
     The  difference with  this [defined  contribution (DC)]                                                                    
     plan is ...  you've broken off the  medical from really                                                                    
     any tie to a retirement pension benefit.                                                                                   
11:31:32 AM                                                                                                                   
REPRESENTATIVE GATTO  revisited his  previous scenario  and asked                                                               
if  the member  who was  85  and had  three months  to live  gets                                                               
himself appointed  to the school  board just before  dying, would                                                               
the wife with the dozen adoptees retain the benefits?                                                                           
11:32:01 AM                                                                                                                   
MS. LEA responded as follows:                                                                                                   
     Under the  current system, if  you had not  retired, or                                                                    
     if   you  had   elected  to   stop  your   benefit  and                                                                    
     participate again  in the retirement system,  you could                                                                    
     elect  a joint  survivor,  and yes,  you could  provide                                                                    
     that coverage for the new spouse and new children.                                                                         
     Under  the way  this  is currently  written, they  also                                                                    
     would be  covered, because you  would have  a surviving                                                                    
     spouse, and if  you adopted the children  they would be                                                                    
     your legal, dependent children.                                                                                            
REPRESENTATIVE   GATTO   said   the  purpose   of   the   current                                                               
conversation  of  the committee  is  to  prevent the  state  from                                                               
sinking   under  the   weight   of  "things   that  we've   never                                                               
CHAIR  SEATON reminded  Representative Gatto  that Representative                                                               
Elkins  had suggested  exempting  those types  of employees  that                                                               
don't put  in sufficient  time to  help cover  the cost  of their                                                               
benefits, such as a school board member or city council member.                                                                 
11:34:56 AM                                                                                                                   
MS. MILLHORN asked:                                                                                                             
     Is  it accurate  to say  that your  intent would  be to                                                                    
     change the language  to ensure that the  member who was                                                                    
     married, and those dependents,  would ... have coverage                                                                    
     at  the time  that they  were appointed  to retirement,                                                                    
     but if they  were to divorce, that  future coverage for                                                                    
     those  dependents  would  ...   not  exist.    Is  that                                                                    
CHAIR SEATON replied:                                                                                                           
     It  would be  that the  dependents and  spouse acquired                                                                    
     after active service would not be covered.                                                                                 
MS. MILLHORN said that was her understanding.                                                                                   
11:35:39 AM                                                                                                                   
REPRESENTATIVE GARDNER, in reference to Ms. Millhorn's question,                                                                
     If there's a  divorce, children who are  covered at any                                                                    
     time  - the  natural  children,  biological children  -                                                                    
     should retain coverage.                                                                                                    
CHAIR SEATON added that "dependents are only through their term                                                                 
of dependency."  He offered further clarification.                                                                              
11:36:36 AM                                                                                                                   
REPRESENTATIVE GRUENBERG added that a child who is adopted                                                                      
during a member's employment would have the same legal rights as                                                                
a biological child.                                                                                                             
MS. MILLHORN confirmed that's correct.                                                                                          
11:37:47 AM                                                                                                                   
CHAIR SEATON asked Ms. Millhorn to shed light on [subsection                                                                    
(g)], page 16, which read as follows:                                                                                           
          (g) The medical and optional insurance premiums                                                                       
     owed by  the person  who elects  coverage under  (b) of                                                                    
     this  section   shall  be  deducted  from   the  health                                                                    
     reimbursement  account.   If the  amount of  the health                                                                    
     reimbursement account  becomes insufficient to  pay the                                                                    
     premiums, the  person who elects coverage  under (a) of                                                                    
     this section shall pay the premiums directly.                                                                              
11:38:57 AM                                                                                                                   
MS. MILLHORN said [subsection (g)]  allows for the premium amount                                                               
to  be  deducted  from  the health  reimbursement  account.    In                                                               
response to  a remark  from Chair Seaton,  she confirmed  that if                                                               
the health  reimbursement account runs  out and the  person wants                                                               
to maintain coverage, he/she would have to pay the premium.                                                                     
11:39:25 AM                                                                                                                   
MS. MILLHORN,  in response to  Representative Gardner, said  if a                                                               
person fails  to make  a premium payment,  he/she would  be given                                                               
approximately a  60-day notice period  that coverage is  about to                                                               
lapse.   She added, "It  would go back to  the date they  need to                                                               
make  the premium  and it  would go  back to  the date  to ensure                                                               
there's no  break in coverage.   But ...  if they go  beyond that                                                               
point, then they  would not receive coverage."  In  response to a                                                               
follow-up  question from  Representative  Gardner, she  clarified                                                               
that if a person exceeds  that period and the coverage completely                                                               
lapses, that person would not be able to reinstate coverage.                                                                    
11:41:14 AM                                                                                                                   
REPRESENTATIVE  GATTO asked,  "If  my HRA  is  exhausted, as  you                                                               
mentioned, and January  and February are the months  when I don't                                                               
have any  money in there, and  I haven't paid anything,  but I've                                                               
accumulated  expenses,   do  you  pay  those   with  that  60-day                                                               
extension, or not?"                                                                                                             
MS. MILLHORN  answered yes, "so  long as you're within  that time                                                               
period and  if you did  have medical expenses that  were incurred                                                               
during that time  period, you would ... pay your  premiums and it                                                               
would reinstate  your coverage.   It  would go  back to  the last                                                               
date that you were covered, and it would pay those expenses."                                                                   
11:42:01 AM                                                                                                                   
REPRESENTATIVE GATTO clarified, "I  was rather thinking in terms:                                                               
You really  don't care; you're not  going to pay them  ever.  You                                                               
still cover me for those two months?"                                                                                           
MS. MILLHORN answered yes.                                                                                                      
CHAIR SEATON directed attention to  subsection (h), which read as                                                               
          (h) The administrator shall set separate retiree                                                                      
     health  coverage  premiums  for  participants  who  are                                                                    
     Medicare eligible and for participants  who are not yet                                                                    
     Medicare eligible.   An increase in  the premium amount                                                                    
     may  not exceed  five  percentage points  annually.   A                                                                    
     participant's share of the  applicable premium shall be                                                                    
     determined according to (i) of this section.                                                                               
CHAIR SEATON said,  "My understanding was that the  5 percent ...                                                               
limit on  escalation was on what  the system would pay,  but as I                                                               
read this you're saying that  we're capping the whole premium and                                                               
just telling  Aetna, 'Eat  it,' because  you're going  to provide                                                               
these medical  benefits and we're  limiting to 5  percent growth.                                                               
Do we have this 5 percent in the wrong place?"                                                                                  
MS. MILLHORN said it sounds like there may be an issue there.                                                                   
11:44:21 AM                                                                                                                   
CHAIR SEATON said the intent is  to say that a premium subsidy is                                                               
provided based  on the number  of years served, but  that premium                                                               
subsidy is  capped so  that it  cannot grow at  over 5  percent a                                                               
MS. MILLHORN responded that's correct.                                                                                          
CHAIR SEATON said, "And so,  don't ... believe this language here                                                               
because it's in the wrong place."                                                                                               
11:45:17 AM                                                                                                                   
MS.  MILLHORN,  in response  to  a  question from  Representative                                                               
Gruenberg, repeated her previous  explanation of the notification                                                               
period someone would receive if  he/she failed to make a payment.                                                               
In  response   to  a  follow-up  questions   from  Representative                                                               
Gruenberg, she said  this is not a change from  current law.  She                                                               
said she supposes  there would be discretion by the  PERS and TRS                                                               
Boards; however, if  a person was given a longer  period of time,                                                               
the  plan would  be exposed  to additional  costs.   She said  it                                                               
would  be a  policy  call of  the legislature  if  it wanted  the                                                               
division  to adopt  a regulation  to look  at circumstances  on a                                                               
case-by-case basis.   That  could be done  through statute  or by                                                               
making a  recommendation to the division.   She said she  has not                                                               
had the  personal experience whereby she  has witnessed injustice                                                               
occurring because that provision does not currently exist.                                                                      
11:49:54 AM                                                                                                                   
MS. LEA  noted that there  currently is a situation  involving an                                                               
alternate payee who did not make  a premium payment.  That person                                                               
appealed  to the  board.    The board  did  not find  extenuating                                                               
circumstances  for  that person  not  to  have made  the  premium                                                               
payment and upheld the administrator.   That person then took the                                                               
case to  superior court.   Ms.  Lea said  she believes  the court                                                               
found in favor of the division, as well.                                                                                        
REPRESENTATIVE  GRUENBERG  concluded,  "So, currently  the  board                                                               
does have jurisdiction to consider such a claim."                                                                               
MS.  LEA  answered  that's  correct.   She  said  the  board  can                                                               
consider any  health claim other  than one regarding  [that which                                                               
is] "usual and customary."                                                                                                      
REPRESENTATIVE GRUENBERG asked  if that would continue  to be the                                                               
case under [HB 238].                                                                                                            
MS. LEA  offered her understanding  that HB 238 would  not change                                                               
the authority of the board.                                                                                                     
REPRESENTATIVE GRUENBERG asked that Ms.  Lea and Ms. Millhorn let                                                               
him know  if, during the  discussion of  the bill, they  see that                                                               
that provision would be changed.                                                                                                
11:51:27 AM                                                                                                                   
REPRESENTATIVE GARDNER asked if, for  example, the board can step                                                               
in for someone  who is mentally ill and has  gone beyond the time                                                               
allowed to miss payment.                                                                                                        
MS. LEA answered that's correct.                                                                                                
11:52:22 AM                                                                                                                   
CHAIR SEATON directed attention to  subsection (i), which read as                                                               
          (i) The portion of the cost of premiums payable                                                                       
     by the participant  is 70 percent if the  member had 10                                                                    
     years of  service; for each additional  year of service                                                                    
     after the  member's 10th year  of service, the  cost of                                                                    
     premiums   decreases   by  three   percentage   points;                                                                    
     however, the  minimum employee  portion of  the premium                                                                    
     is 10  percent if the  member has  30 or more  years of                                                                    
CHAIR SEATON  said this  is a bit  of a change  from some  of the                                                               
other schedules.   He said, "I incorporated this  in here because                                                               
I have  trouble with the policies  that jump and ...  make people                                                               
make decisions based on, 'Oh, I've  got to stay four years to get                                                               
to the next category,'  or 'I may as well quit  because I have to                                                               
be here  three more years before  I can get any  more health care                                                               
benefits.'"  He said this is a policy call.                                                                                     
REPRESENTATIVE GRUENBERG  said he  supports Chair Seaton  in this                                                               
REPRESENTATIVE ELKINS echoed that support.                                                                                      
11:54:23 AM                                                                                                                   
MS. MILLHORN, in  response to a question from  Chair Seaton, said                                                               
the  division doesn't  have a  problem  with the  benefits, as  a                                                               
matter of  policy, because it  is the purview of  the legislature                                                               
to make that decision.  She  said, "We would ... re-cost that, so                                                               
that the  members know  what that  change may be  as far  as [an]                                                               
increase or monetary cost associated with that."                                                                                
REPRESENTATIVE  GRUENBERG surmised  that  there would  be a  more                                                               
positive fiscal note under Version L than the current system.                                                                   
MS. MILLHORN stated her understanding  of the language in Version                                                               
L is  that a  member would pay  3 percent less  for each  year of                                                               
service.  She asked if that is accurate.                                                                                        
REPRESENTATIVE  GRUENBERG said,  "So, you're  saying it  actually                                                               
would cost the system more."                                                                                                    
MS. MILLHORN answered that's correct.                                                                                           
CHAIR SEATON said,  "It would have kept the person  at the higher                                                               
contribution level until they reached the step."                                                                                
MS. MILLHORN concurred.                                                                                                         
11:57:31 AM                                                                                                                   
CHAIR SEATON directed attention to  subsection (j), which read as                                                               
         (j) The eligibility for retiree major medical                                                                          
       insurance coverage for an alternate payee under a                                                                        
     qualified domestic relations  order shall be determined                                                                    
     based  on  the  eligibility  of  the  member  to  elect                                                                    
     coverage.    The alternate  payee  shall  pay the  full                                                                    
     monthly  premium for  retiree  major medical  insurance                                                                    
REPRESENTATIVE GRUENBERG  said he  would like to  have additional                                                               
conversation regarding this issue.                                                                                              
CHAIR SEATON said  the intent in this language is  to ensure that                                                               
the  premium paid  does not  exceed the  premium that  would have                                                               
been paid through to the member.                                                                                                
11:59:45 AM                                                                                                                   
MS. MILLHORN  said she and  Ms. Lea  found the first  sentence in                                                               
subsection (j)  to be confusing and  did not know if,  based on a                                                               
member's eligibility  to elect coverage, it  somehow might denote                                                               
that the cost to the member  would be attached to the eligibility                                                               
portion for the member,  and, if so, if it would  be based on the                                                               
criteria set out for the member.   She added, "Because to us, the                                                               
alternate payee  would be  fully responsible  for 100  percent of                                                               
the premium."                                                                                                                   
CHAIR SEATON asked if this language would jive in court.                                                                        
12:01:22 PM                                                                                                                   
REPRESENTATIVE GRUENBERG said that first  sentence is a matter of                                                               
who  owns  [the  major  medical  insurance  coverage]  and  whose                                                               
eligibility  triggers it.   He  said, "This  is a  very important                                                               
issue in family  law."  He stated there are  two ways a qualified                                                               
domestic  relations order  (QDRO -  pronounced "qua-dro")  can be                                                               
done.   One way is to  access the former spouse's  benefits.  The                                                               
other is to  have a separate account and eligibility  at the time                                                               
the QDRO  is entered.  He  said this becomes important  when, for                                                               
example, a  bitter spouse won't  retire so a former  spouse can't                                                               
access the retirement benefit.                                                                                                  
12:03:04 PM                                                                                                                   
CHAIR  SEATON asked  Representative  Gruenberg to  draft a  white                                                               
paper outlining the options.                                                                                                    
12:03:54 PM                                                                                                                   
CHAIR SEATON directed attention to  [page 17, lines 11-14], which                                                               
read as follows:                                                                                                                
               (2) "retires directly from the plan" means                                                                       
     that the  member is an  active member at the  time that                                                                    
     the   member   applies   to   the   administrator   for                                                                    
     appointment   to  retirement   and   that  the   member                                                                    
     continues  as  an  active member  up  through  the  day                                                                    
     before the day the member is appointed to retirement.                                                                      
CHAIR  SEATON indicated  that there  had been  a question  in the                                                               
past about  perhaps requiring that  a person coming back  to work                                                               
do so  for 12 months  before retiring, so that  somebody couldn't                                                               
come  back to  work  for just  one day  and  have his/her  [plan]                                                               
reactivated.   He  asked if  language  to that  effect should  be                                                               
added to line 13.                                                                                                               
MS. MILLHORN deferred to Ms. Lea.                                                                                               
12:06:23 PM                                                                                                                   
MS. LEA addressed  the language:  "and that  the member continues                                                               
as an active member up through  the day before the day the member                                                               
is  appointed  to  retirement."    She  said,  "Since  retirement                                                               
appointments  are the  first  of the  month,  that would  require                                                               
everyone to terminate on the last  day of the prior month and not                                                               
12:06:55 PM                                                                                                                   
CHAIR  SEATON  indicated that  that  portion  of [paragraph  (2)]                                                               
could be deleted and in its  place could be inserted, "and was an                                                               
active member for the previous 12 months."                                                                                      
MS. LEA said that would take care of that.                                                                                      
CHAIR SEATON asked  if any committee member would  have a problem                                                               
with doing that, and he said he would flag that language.                                                                       
12:07:29 PM                                                                                                                   
REPRESENTATIVE  LYNN   asked  for  a  definition   of  "qualified                                                               
domestic relations order".                                                                                                      
CHAIR SEATON  explained it's when  a court decides that  a person                                                               
who has  been with a spouse  for a significant amount  of time is                                                               
entitled to part of that spouse's retirement benefit.                                                                           
12:08:42 PM                                                                                                                   
CHAIR SEATON directed attention to Section 13, page 18, which                                                                   
read as follows:                                                                                                                
     *Sec.13. AS 39.30.090(a) is amended to read:                                                                             
               (a) The Department of Administration may                                                                         
     obtain  a   policy  or  policies  of   group  insurance                                                                    
     covering state employees,  persons entitled to coverage                                                                    
     under  AS   14.25.168,  14.25.480,  AS   22.25.090,  AS                                                                
     39.35.535,   39.35.870,   or   former   AS   39.37.145,                                                                
     employees  of other  participating governmental  units,                                                                    
     or  persons entitled  to coverage  under AS  23.15.136,                                                                    
     subject to the following conditions:                                                                                       
12:09:22 PM                                                                                                                   
REPRESENTATIVE GARDNER asked if the use of the word "insurance"                                                                 
is okay.                                                                                                                        
MS. MILLHORN answered yes.                                                                                                      
12:09:42 PM                                                                                                                   
REPRESENTATIVE GRUENBERG directed attention to Section 12, page                                                                 
18, which read as follows:                                                                                                      
     *Sec.12. AS 14.40.671(e) is amended to read:                                                                             
               (e) An employee whose rights to transfer                                                                         
     assets out of a state  retirement system are subject to                                                                    
     a  qualified domestic  relations order  is entitled  to                                                                    
     transfer  assets from  the state  retirement system  to                                                                    
     the program  only if the  requirements for  receiving a                                                                    
     refund  under  AS   14.25.150(b),  14.25.400,  [OR]  AS                                                                
     39.35.200(c), or 39.35.790, as appropriate, are met.                                                                   
REPRESENTATIVE GRUENBERG stated he thinks it's important that                                                                   
QDROs cover all types of benefits and he asked, "Is there                                                                       
anything that's being omitted?"                                                                                                 
MS. MILLHORN said she doesn't think so.                                                                                         
MS. LEA concurred, because she said, "It's talking about                                                                        
transferring assets out of the DC plan."                                                                                        
REPRESENTATIVE  GRUENBERG asked,  "Do  any of  these people  ever                                                               
have  ...  any benefits  that  are  in  any  of the  other  state                                                               
retirement systems  - the National  Guard retirement system  or a                                                               
judicial retirement system?"                                                                                                    
12:11:40 PM                                                                                                                   
MS. LEA  responded that currently  there are members of  PERS who                                                               
also  have  entitlements  under  the  National  Guard  retirement                                                               
system or the  judicial system, who also have  benefits rights in                                                               
TRS.   The only two  systems that  will recognize service  in the                                                               
other systems are  TRS and PERS; the judicial  and National Guard                                                               
systems have no  provisions for any benefits that  are being paid                                                               
out  of the  other  systems.   In  response  to  a question  from                                                               
Representative Gruenberg,  she explained  that PERS and  TRS have                                                               
that recognition mostly because a  lot of schoolteachers begin as                                                               
aides  or non-teaching  positions  and then  go  into a  teaching                                                               
position.    She said  that  ability  to  cross over  is  called,                                                               
"conditional service retirement benefit."                                                                                       
12:13:18 PM                                                                                                                   
CHAIR  SEATON moved  on  to  new language  added  in Section  13,                                                               
beginning on  page 18, line  25, and continuing through  page 19,                                                               
line 3, which read as follows:                                                                                                  
               (B) require the insurance plan to provide a                                                                  
     preferred drug list or formulary  and must provide that                                                                
     beneficiaries  use the  appropriate  medication on  the                                                                
     preferred  drug  list or  pay  the  difference in  cost                                                                
     between  the medication  listed on  the preferred  drug                                                                
     list  and  the  cost   of  a  nonformulary  medication;                                                                
     however, if a  medication is not on  the preferred drug                                                                
     list  as a  generic or  nongeneric drug,  the insurance                                                                
     plan  shall cover  the  cost of  the  medication.   For                                                                
     purposes   of   this   subparagraph,   a   nonformulary                                                                
     medication is one that is  not listed on the formulary,                                                                
     such  as a  nongeneric form  of the  medication when  a                                                                
     generic form of the medication is in the formulary.                                                                    
CHAIR SEATON said there are  savings through use of generic drugs                                                               
that  the PERS  and TRS  Boards have  been voluntarily  trying to                                                               
stimulate.   The  savings could  be up  to $6.5  million a  year.                                                               
There have  been indications  that putting  this language  in the                                                               
bill might be seen as limiting.   He noted that there is a letter                                                               
included in the committee packet  from the Department of Health &                                                               
Social Services  that lists  12 possibilities  for savings.   The                                                               
question, he explained,  is whether a letter of  intent should be                                                               
drafted, directing  the administrator  to accomplish  all savings                                                               
applicable rather than  designating it in statute.   He asked Ms.                                                               
Millhorn for feedback on this issue.                                                                                            
12:15:34 PM                                                                                                                   
MS. MILLHORN  said the commissioner  currently has  the authority                                                               
to  make  changes  to  the  active and  retiree  plans,  and  two                                                               
vehicles are  used to accomplish that:   One is through  a health                                                               
benefits  evaluation committee,  which  is a  group comprised  of                                                               
management and labor  that looks at the plan provisions.   In the                                                               
past several years, the group  has, to a large degree, considered                                                               
cost  containment  issues.   After  review  by the  group,  those                                                               
particular  issues  come  through  the division  and  go  to  the                                                               
commissioner  for  final  approval.   She  said  the  process  is                                                               
effective, because it allows the  commissioner an ongoing process                                                               
available  for  making  plan  changes,  and  that  discretion  is                                                               
something that  the division  would like to  retain.   The second                                                               
vehicle is a similar process  done through a retiree health group                                                               
that    considers   initiatives    and    comes   forward    with                                                               
recommendations.   She  said  the  last time  that  group met  it                                                               
addressed approximately  six initiatives, one of  which speaks to                                                               
the  issue  of  generic  drugs  and  a  closed  formulary.    She                                                               
reiterated  that   she  thinks  it   works  well  to   allow  the                                                               
commissioner  the   final  authority  and  flexibility   to  make                                                               
MS. MILLHORN  said the  commissioner has  tasked the  division to                                                               
look  at cost  initiatives, including  positive open  enrollment.                                                               
She stated  her intent  to provide  information to  the committee                                                               
members regarding all  the initiatives that have  happened in the                                                               
last  couple of  years for  the active  and retiree  plans.   She                                                               
reported that the positive open  enrollment should produce a cost                                                               
savings of $4  million to the active plan and  $16 to the retiree                                                               
12:18:29 PM                                                                                                                   
REPRESENTATIVE  GRUENBERG indicated  that  [the previously  noted                                                               
subparagraph (B)] is  not something that the  House State Affairs                                                               
Standing Committee  should get into, but  it is a matter  for the                                                               
House Health, Education and Social Services Standing Committee.                                                                 
CHAIR  SEATON  said  the  House   Health,  Education  and  Social                                                               
Services  Standing Committee  recently  passed  a preferred  drug                                                               
list, but the  House State Affairs Standing Committee  is the one                                                               
that  looks  at  the  issues  of retirement  and  benefits.    He                                                               
indicated that  the potential for  savings could be  increased if                                                               
the use  of generic drugs were  made a requirement rather  than a                                                               
voluntary action.                                                                                                               
12:21:20 PM                                                                                                                   
MS.  MILLHORN responded  that  the division  has  looked at  this                                                               
issue,  has worked  with the  boards, and  is ready  to implement                                                               
something that "looks very much like this."                                                                                     
12:21:39 PM                                                                                                                   
CHAIR  SEATON said  he  doesn't have  a  problem maintaining  the                                                               
flexibility, but he thinks the  committee is in agreement that it                                                               
wants  cost efficiencies  implemented in  the system  as soon  as                                                               
they are applicable and the division has the authority to do so.                                                                
REPRESENTATIVE GATTO  related that when a  pharmaceutical company                                                               
comes out with new drugs, generic drugs are soon to follow.                                                                     
CHAIR  SEATON noted  that  there  is a  letter  [included in  the                                                               
committee   packet]   from    [Commissioner   Joel   Gilbertson],                                                               
Department of  Health and  Social Services,  which lists  a dozen                                                               
ways to save money through  a comprehensive pharmacy program.  He                                                               
suggested that  the committee  could include  a letter  of intent                                                               
asking  the   administrator  to   consider  and   implement  good                                                               
alternatives as soon as possible.                                                                                               
12:23:40 PM                                                                                                                   
REPRESENTATIVE  GARDNER  suggested replacing  [subparagraph  (B)]                                                               
with "shall  participate in  cost-saving measures  recommended by                                                               
the administrator and approved by the board."                                                                                   
12:24:05 PM                                                                                                                   
REPRESENTATIVE GRUENBERG suggested a  third approach, which would                                                               
be  to add  a temporary  section that  would "basically  have the                                                               
same kind  of a concept  and a report  to the legislature  on the                                                               
implementation  of these  reforms at  the beginning  of the  next                                                               
12:25:00 PM                                                                                                                   
MS. MILLHORN, in response to Chair Seaton, said all the ideas                                                                   
are good and the division could do what the committee desires.                                                                  
Regarding Representative Gardner's suggestion, she said:                                                                        
     The  board  meets  every  so  often  and  the  division                                                                    
     actually  can  implement  cost-savings  measures  on  a                                                                    
     faster order.   It's  good to  have the  board involved                                                                    
     because  they can  look at  that issue,  as well.   But                                                                    
     just for example, there's an  issue that they have been                                                                    
     studying  for  some  period  of   time:    ...  disease                                                                    
     management  is  an  area that  right  now  the  federal                                                                    
     government  is going  to have  a pilot  project on  for                                                                    
     Medicare to look  at ....  And I think  that that pilot                                                                    
     project is approximately three years.                                                                                      
     Well, with  disease management, when the  board studied                                                                    
     that  for some  period of  time -  a year  and a  half,                                                                    
     almost two  years - Aetna  looked at what the  cost was                                                                    
     and the cost to the  plan would be $260,000 or $300,000                                                                    
     a year.   And it was  a two-year pilot project  that we                                                                    
     would  not  have  a  return   on  investment  for  that                                                                    
     expenditure,  so  about   $600,000  for  that  two-year                                                                    
     period.   And then what  happens is that ...  - because                                                                    
     it  was on  a voluntary  basis for  diabetes and  heart                                                                    
     conditions -  ... if the person  was Medicare eligible,                                                                    
     the savings  would accrue  to Medicare.   And  we can't                                                                    
     treat  our population  pre-65 any  differently than  we                                                                    
     would post-65.                                                                                                             
12:26:51 PM                                                                                                                   
     So, when that recommendation  was studied, the analysis                                                                    
     was done,  [and] the cost  was determined, we  put that                                                                    
     forward, and  the board recommended that  we enter into                                                                    
     that   particular  initiative.     However,   when  the                                                                    
     commissioner looked at  that, he looked at  the cost to                                                                    
     the plan; he  looked at the two-year  pilot project; he                                                                    
     looked  at the  savings  possibly never  coming to  the                                                                    
     division, but  actually accruing to Medicare;  [and] he                                                                    
     said, "No,  not at  this time."   That's  an initiative                                                                    
     the board still  wants to pursue.  And I  think that by                                                                    
     looking  at the  pilot  project that  Medicare has  now                                                                    
     established, and  letting that run its  course, it will                                                                    
     determine  what the  research  concludes  on the  cost-                                                                    
     savings  to plans.   So,  perhaps if  Medicare ends  up                                                                    
     finding  that   accrued  savings  and  has   that  plan                                                                    
      available, then other plans would benefit from that,                                                                      
     as well.                                                                                                                   
     So, I guess my point is that sometimes by leaving the                                                                      
       board with the final approval, ... there's timing                                                                        
     kinds of issues, and there may be some disagreement.                                                                       
12:28:08 PM                                                                                                                   
CHAIR  SEATON  asked  Ms.  Millhorn to  draft  language  for  the                                                               
committee based on Representative Gardner's idea.                                                                               
12:30:25 PM                                                                                                                   
CHAIR SEATON, in  response to a comment  from Representative Lynn                                                               
regarding two items  in the previously mentioned  letter from the                                                               
commissioner  of the  Department of  Health and  Social Services,                                                               
indicated  that  the  committee's  level of  expertise  does  not                                                               
include addressing the items in detail.                                                                                         
12:30:50 PM                                                                                                                   
REPRESENTATIVE   GRUENBERG  suggested   taking  the   concept  in                                                               
[subparagraph (B)]  and putting it in  a separate bill.   He said                                                               
it's important, but it goes a little bit beyond HB 238.                                                                         
CHAIR SEATON responded  that the committee could  talk about that                                                               
at a different time.                                                                                                            
12:32:40 PM                                                                                                                   
MS. MILLHORN, in  response to a question from  Chair Seaton, said                                                               
she thinks the language on page 19, paragraph (2) is fine.                                                                      
CHAIR  SEATON,  in response  to  a  question from  Representative                                                               
Gardner, said  he thinks "children chiefly  dependent" relates to                                                               
the  Internal  Revenue Service's  way  of  saying a  majority  of                                                               
12:33:34 PM                                                                                                                   
MS.  MILLHORN  said  the  division uses  that  terminology.    In                                                               
response to  a question from  Chair Seaton regarding  the meaning                                                               
of "dual  choice requirement" on page  19, line 18, she  said she                                                               
would have to research an answer.                                                                                               
12:34:45 PM                                                                                                                   
CHAIR  SEATON turned  to  page  20, lines  13-16,  which read  as                                                               
               (7) A person receiving benefits under AS                                                                         
     14.25.110, AS 22.25,  AS 39.35, or former  AS 39.37 may                                                                    
     continue  the  life  insurance  coverage  that  was  in                                                                    
     effect under  this section at  the time  of termination                                                                    
     of   employment  with   the   state  or   participating                                                                    
     governmental unit.                                                                                                         
CHAIR SEATON asked if that is existing statute.                                                                                 
MS. LEA answered yes.  She  said that current language applies to                                                               
the state's optional life insurance plan.                                                                                       
CHAIR  SEATON,  in response  to  a  question from  Representative                                                               
Gardner,  clarified  the  state  and  employee  division  of  the                                                               
contribution rate shown on page 20, lines 19-22.                                                                                
12:37:56 PM                                                                                                                   
CHAIR  SEATON  pointed  out language  that  was  not  transferred                                                               
correctly  from the  prior version  to Version  L:   On page  20,                                                               
lines  25-26, "persons  over 65"  should read  "Medicare eligible                                                               
persons", and "age 65" should read "Medicare eligible age".                                                                     
12:38:39 PM                                                                                                                   
CHAIR  SEATON  turned  to  page  21, lines  5-7,  which  read  as                                                               
               (12) Each licensee holding a current                                                                             
     operating  agreement for  a vending  facility under  AS                                                                    
     23.15.010  - 23.15.210  shall be  covered by  the group                                                                    
     policy that  applies to  governmental units  other than                                                                    
     the state.                                                                                                                 
CHAIR SEATON said  he would like to know why  this language is in                                                               
the bill.                                                                                                                       
REPRESENTATIVE GRUENBERG read  the statute, which he  said has to                                                               
do with vocational rehabilitation.                                                                                              
12:40:24 PM                                                                                                                   
KATHERINE  SHOWS, Staff  to  Representative  Paul Seaton,  Alaska                                                               
State Legislature,  on behalf of Representative  Seaton, sponsor,                                                               
said the  drafter of the bill  informed her that the  language is                                                               
in the  bill in  order to  include "a  certain type  of employees                                                               
that  the state  hires, ...  usually developmentally  disabled or                                                               
blind."   She  offered an  example.   She explained,  "It doesn't                                                               
refer to the retirement plan, per  se, but it refers to the group                                                               
insurance  that  the  state  contracts for  all  active  ...  and                                                               
retired employees.   So, it's just ... language that  needs to be                                                               
included, but doesn't impact the retirement system."                                                                            
12:41:12 PM                                                                                                                   
CHAIR SEATON  asked Ms. Millhorn  to address the next  portion of                                                               
the bill on page 21.                                                                                                            
12:42:08 PM                                                                                                                   
MS. MILLHORN  directed attention  to line  11, where  a provision                                                               
establishes that new  members enrolled under the  plan would have                                                               
a  health   reimbursement  arrangement.    She   highlighted  the                                                               
language beginning on line 19, which read:                                                                                      
      (a) The purpose of the plan is to allow medical care                                                                      
       expenses to be reimbursed from individual savings                                                                        
     accounts established for qualified participants.                                                                           
12:42:52 PM                                                                                                                   
CHAIR SEATON asked everyone to  review this portion of Version L.                                                               
He  said  it  would  be   good  to  get  the  previously  flagged                                                               
areas/ideas  for amendments  in  writing.   He characterized  the                                                               
biggest issues  as encompassing  health benefits,  including pre-                                                               
Medicare,  post-Medicare, and  the  decisions  related to  health                                                               
reimbursement accounts.                                                                                                         
12:44:17 PM                                                                                                                   
MS.  MILLHORN,  in response  to  a  question from  Representative                                                               
Gatto, confirmed  that health  reimbursement accounts  (HRAs) are                                                               
accounts into  which members can  deposit pre-tax money  to spend                                                               
on an as-needed basis.                                                                                                          
CHAIR SEATON noted that available  to the committee are printouts                                                               
that  show different  contribution amounts  over 20,  30, and  40                                                               
years, how they would grow,  and what the expected premiums would                                                               
cost for health care plans.  He said his staff would distribute                                                                 
those printouts to committee members.                                                                                           
[House Bill 238 was heard and held.]                                                                                            

Document Name Date/Time Subjects