Legislature(1995 - 1996)

02/09/1996 09:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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  SENATE BILL NO. 178                                                          
                                                                               
       An   Act   relating  to   small   employer  health                      
       insurance.                                                              
                                                                               
  Co-chairman Halford  directed that SB 178 be  brought on for                 
  discussion.  Senator Rieger described  the operation of 1993                 
  legislation creating an association  of insurers to  provide                 
  health  insurance  in  Alaska.    The  legislation  required                 
  insurers  to join  an  association as  a condition  of doing                 
  business in  the  state.   It set  up a  pool which  allowed                 
  reinsurance  of  health  coverage for  small  employers  and                 
  required the  small employer insurer  to offer at  least two                 
  health  benefit  plans.   The  definition of  small employer                 
  ranged from  2 to 25 employees.   The only change  within SB                 
  178 would increase the ceiling to 50 members.  The remaining                 
  provisions of reinsurance  and small group health  plans are                 
  the same.                                                                    
                                                                               
  In response to a question by Senator Randy Phillips, Senator                 
  Rieger explained that the  1997 date was "picked out  of the                 
  air  when  we first  passed  that  law as  a  five-year-type                 
  window."  That date would be extended two years by SB 178.                   
                                                                               
  KATIE CAMPBELL,  Assistant Actuary,  Division of  Insurance,                 
  Dept.  of Commerce  and  Economic  Development, came  before                 
  committee, saying that since no  comprehensive study has yet                 
  been done regarding the impact  of earlier legislation, both                 
  the division  and administration  are neutral  on the  bill.                 
  She commented that  a survey was  issued several weeks  ago.                 
  Responses are expected by February 20, 1996.  The results of                 
  that survey should provide pertinent information.                            
                                                                               
  Co-chairman  Halford acknowledged the argument that when new                 
  requirements or action are mandated, concern is that "people                 
  will drop out of the argument."  He then asked if the number                 
  of   insurers  had  diminished   since  passage  of  earlier                 
  legislation.   Ms. Campbell cited only  Traveler's Insurance                 
  transfer of health  insurance operations  to a new  company,                 
  Metro Health.                                                                
                                                                               
  In response to a question from Senator Zharoff regarding the                 
  definition of a "small  business," Senator Rieger  explained                 
  that the definition is employment based.   It was formerly 2                 
  to 25 employees.  SB 178 extends  it to 50.  The reinsurance                 
  mechanism   attempts    to   create   "some    large   group                 
  characteristics   among   a    pool   of   smaller   insured                 
                                                                               
                                                                               
  populations."  Beyond 50, the group  is large enough so that                 
  extra provisions for  insurance of  small businesses are  no                 
  longer needed.                                                               
                                                                               
  GORDON EVANS, representing the Health Insurance  Association                 
  of America, next  came before  committee and voiced  support                 
  for  the  bill.   Earlier-passed  legislation  emanated from                 
  studies by the state health resources and access  task force                 
  indicating  that approximately half  of all uninsured adults                 
  in  Alaska were  employed by  small businesses.    While the                 
  ceiling of 2  to 25 employees impacted  approximately 85% of                 
  the businesses in Alaska, increase  to 50 would impact  92%.                 
  Forty-three  states  have   enacted  small  employer   group                 
  insurance legislation.  Seventeen have established 50 as the                 
  maximum.                                                                     
                                                                               
  As  an  example  of operation  of  the  legislation, Senator                 
  Rieger described  the process  by which  the small  employer                 
  population would  be aggregated  into one  large group.   An                 
  insurer seeking to underwrite health  insurance for the pool                 
  would establish a rate  adequate to pay claims on  the large                 
  pool.  The process  for underwriting a small group  does not                 
  look at averages  but evaluates  those to be  insured on  an                 
  individual basis and selects out  those who are uninsurable.                 
  That changes  the characteristics  of the  remainder.   That                 
  type of  dynamic has caused  insurance to be  less available                 
  for  small groups.  The legislation attempts to recreate the                 
  large  group  characteristic.   An  escape  provision allows                 
  insurers to  move "your rate  up or down  by up to  35% from                 
  what that average rate would have been."  Further ability to                 
  buy into  the reinsurance pool spreads risk  "across all the                 
  people doing business in the state."  Buffers allow insurers                 
  to do  business in  Alaska and  have some  flexibility while                 
  attempting    to    avoid   the    individual   underwriting                 
  characteristic  that   was  making  small   group  insurance                 
  unavailable.                                                                 
                                                                               
  Mr. Evans described an example  whereby an employer with ten                 
  employees might have nine that are  good risks but the tenth                 
  has had medical problems.  Often  the employer could not get                 
  a group  policy that insured  that individual.   Under small                 
  employer health insurance legislation, the individual has to                 
  be  included.     There   is  guaranteed  availability   and                 
  accessibility.  Only two high-risk employees are included in                 
  the reinsurance pool at this time.  The legislation has thus                 
  provided insurance to small businesses without the necessity                 
  of excluding certain employees.                                              
                                                                               
  Co-chairman Halford expressed  concern that  those with  low                 
  risks  not be  utilized to  fund high-risk individuals.   He                 
  said  he  had no  problem with  the  legislation as  long as                 
  employers  with  low-risk  employees  may  "opt out  to  the                 
  marketplace."                                                                
                                                                               
                                                                               
  Senator Sharp described his experience in having established                 
  a group insurance trust for Alaska utilities.  He noted that                 
  eight  of the 17  utilities were unable  to obtain insurance                 
  prior to the trust.   The largest utility experienced  a 20%                 
  reduction in its rate because the  group of 17 utilities was                 
  large enough.                                                                
                                                                               
  TRAE  ANDERSON,  Senior  Vice   President,  Blue  Cross   of                 
  Washington  and   Alaska,  spoke  via   teleconference  from                 
  Seattle,  Washington.  He said  that while Blue Cross agrees                 
  with  the  intent  of  the   legislation  and  some  of  its                 
  provisions, the company has reservations about the bill as a                 
  whole.  Blue Cross supports health reform designed to:                       
                                                                               
       1.   Contain the  growth of medical  and administrative                 
  costs.                                                                       
                                                                               
       2.   Increase access  to health care  and coverage  for                 
  the       uninsured.                                                         
                                                                               
       3.   Assure the quality of health care services.                        
                                                                               
  The  proposed  bill  would  require  guaranteed issue  of  a                 
  standard  and basic plan  to all groups  sized 2 to  50.  It                 
  would implement guaranteed renewability,  limitations on use                 
  of   previous   conditions,   and  portability   provisions.                 
  However,   Blue   Cross   has  reservations   about   rating                 
  restrictions imposed by  the bill.  Those provision may have                 
  unintended consequences which  run counter to the  intent of                 
  the legislation.    Implementation of  rate-change caps  may                 
  have a destablizing impact on the small group market.  While                 
  Blue  Cross  has  no  empirical  evidence  to  support  that                 
  conclusion,  because it  is too  early to  tell what  impact                 
  rating provisions have had  on the 2 to 25 market,  there is                 
  concern that rating  provisions will  result in  diminishing                 
  choices and access for consumers.                                            
                                                                               
  Co-chairman  Halford  voiced  his  understanding  that   the                 
  foregoing  comments pertain  to earlier  passed legislation.                 
  Areas highlighted would be made either better or worse by SB                 
  178 provisions which  increase the ceiling  from 25 to 50.                   
  Mr. Anderson reiterated concern that  if insurers are unable                 
  to   achieve   compensatory   rates,  the   market   may  be                 
  destabilized, and  the goal of  increased access may  not be                 
  achieved.                                                                    
                                                                               
  Senator Phillips MOVED that SB  178 pass from committee with                 
  individual recommendations and the accompanying fiscal note.                 
  No objection having been raised, SB  178 was REPORTED OUT of                 
  committee with a zero fiscal note from the Dept. of Commerce                 
  and Economic Development.  Co-chairmen Halford and Frank and                 
  Senators Rieger,  Phillips, and  Sharp signed  the committee                 
  report with a "do pass" recommendation.  Senators Donley and                 
  Zharoff signed "no recommendation."                                          
                                                                               
                                                                               

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