Legislature(2005 - 2006)SENATE FINANCE 532

05/04/2006 09:00 AM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 307(RES) Out of Committee
Moved CSHB 29(L&C)(title am) Out Cmte.
Moved CSHB 446(JUD) Out of Committee
Moved SCS CSHB 326(JUD) Out of Committee
Moved SCS CSHB 41(JUD) Out of Committee
Moved CSSSHB 57(FIN) Out of Committee
Moved HB 419 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
     CS FOR HOUSE BILL NO. 29(L&C)(title am)                                                                                    
     "An  Act  relating  to the  Comprehensive  Health  Insurance                                                               
     Association; granting  a 50 percent  premium tax  credit for                                                               
     assessments  against  members  of the  Comprehensive  Health                                                               
     Insurance   Association;   requiring  members   to   provide                                                               
     information to  the association's board of  directors or the                                                               
     director  of the  division  of  insurance; modifying  voting                                                               
     rights for the association  members by basing their exercise                                                               
     on a  member's share  of assessments; basing  assessments on                                                               
     major medical premiums; modifying  the manner of determining                                                               
     members'   liabilities   for   losses;  and   changing   the                                                               
     definition of "major medical" coverage  for purpose of state                                                               
     health  insurance  and  providing for  exclusions  to  major                                                               
     medical coverage."                                                                                                         
This was  the first hearing for  this bill in the  Senate Finance                                                               
REPRESENTATIVE NORM  ROKEBERG, the  bill's sponsor,  informed the                                                               
Committee  this legislation  would change  the funding  mechanism                                                               
for  the   Alaska  Comprehensive  Health   Insurance  Association                                                               
(ACHIA), which serves as the  health "insurer of last resort" for                                                               
high-risk citizens  in the State.  ACHIA is a  federally mandated                                                               
program  under the  federal Employee  Retirement Income  Security                                                               
Act  of 1974  (ERISA). While  individuals participating  in ACHIA                                                               
contribute   toward  their   insurance   premiums,  any   premium                                                               
shortfall  is  provided  for  by  an  assessment  against  health                                                               
insurance underwriters  operating in  the State. This  bill would                                                               
make a minor change in that funding source process.                                                                             
Representative Rokeberg  directed Committee members to  a handout                                                               
titled  "Insurers  Writing   Comprehensive  Health  Insurance  in                                                               
Alaska" [copy on file] which  depicted the market share of health                                                               
insurance providers operating in the  State in the year 2003. The                                                               
Alaska Division of Insurance conducts  such a survey on an annual                                                               
basis.  It is  "sobering" to  see  that Premera  Blue Cross  Blue                                                               
Shield  of Alaska  has  approximately 80  percent  of the  active                                                               
insurance market share in the State.                                                                                            
9:18:22 AM                                                                                                                    
Representative  Rokeberg  stated  that  one of  his  goals  as  a                                                               
legislator  was  to decrease  "the  barriers  for entry  for  new                                                               
underwriters to increase competition and  to enable and help pull                                                               
down rate  structures by enabling  better competition  within the                                                               
State. Basically, my ten-year quest has fundamentally failed."                                                                  
Representative Rokeberg shared that  the annual assessment levied                                                               
against insurance underwriters to  "subsidize the ACHIA pool" has                                                               
been  approximately $3.5  million. This  is a  major concern,  as                                                               
there are large groups in  the ERISA pool, specifically organized                                                               
labor  groups,  which either  do  not  contribute or  pay  little                                                               
toward  the ACHIA  insurance premiums  fund. His  efforts to  get                                                               
these groups  "to pay more to  the pool" have been  resisted. The                                                               
situation  was further  compounded  in 1998  when  "the State  of                                                               
Alaska  allowed all  their bargaining  units to  step out  of the                                                               
major pool of the State of Alaska".                                                                                             
9:19:36 AM                                                                                                                    
Representative  Rokeberg referred  to an  April 20,  2006 handout                                                               
prepared  by ACHIA  [copy on  file] labeled  "ACHIA 1993  through                                                               
2005".  One of  the  three  pie charts  depicted  on the  handout                                                               
summarizes the  total dollar amount  received by ACHIA  from 1993                                                               
to   2005  from   its  three   financial  contributors:   Insurer                                                               
Assessments-State  Portion $1,364,000;  Participant Contributions                                                               
$17,049,335; and Insurer Assessments $29,186,000.                                                                               
Representative  Rokeberg spoke  to the  pie chart  labeled "1998-                                                               
2005: Proforma  with HB29". This chart  depicted the contribution                                                               
the  State would  have  made to  ACHIA during  the  1998 to  2005                                                               
timeframe under  this legislation, which would  require the State                                                               
to participate at approximately a  one-third of cost ratio. Thus,                                                               
under the  provisions of  this bill, between  1998 and  2005, the                                                               
contribution  distribution would  have been:  State General  Fund                                                               
Contribution,     $12,900,000;     Participant     Contributions,                                                               
$14,861,088; and Insurer Assessments, $12,900,000.                                                                              
Representative  Rokeberg spoke  to  the third  pie chart  labeled                                                               
"1998-2005: Proforma  Assuming State  Had Remained  Insured". Had                                                               
the State  not opted out  of the program  in 1998, it  would have                                                               
contributed  approximately   $10  million  of  the   $38  million                                                               
required.  The  breakout  would   have  been:  State  Portion  of                                                               
Assessments,     $10,320,000;      Participant     Contributions,                                                               
$14,861,088; and Remaining  Insurer Assessments, $15,480,000. The                                                               
conclusion from  this chart  is that "there  is a  huge shortfall                                                               
because  of the  reduction  of State  contributions." While  that                                                               
money  instead  benefited the  State's  general  fund, it  was  a                                                               
detriment to the ACHIA program.  There should equity in the ACHIA                                                               
9:21:04 AM                                                                                                                    
Representative Rokeberg  specified this  bill would  require "the                                                               
State  to  participate  in  the   funding"  of  the  program,  by                                                               
requiring  the  State  to  "allocate  one  half  of  the  [ACHIA]                                                               
assessment  …  in the  form  of  a  tax  credit to  the  [health]                                                               
insurance companies".                                                                                                           
Representative  Rokeberg informed  the  Committee that  insurance                                                               
premium taxes  paid to the  State by insurance companies  are the                                                               
State's third  largest revenue source, the  first being petroleum                                                               
royalty taxes  and the second  being corporate income  taxes. The                                                               
State  received $47  million from  insurance  premium taxes  last                                                               
year and  the expectation is that  the taxes would amount  to $46                                                               
million  this  year. Health  insurance  companies  would pay  $11                                                               
million or approximately 25 percent of that amount.                                                                             
Representative Rokeberg noted  this bill would not  impact the FY                                                               
2007  (FY 07)  budget as  assessments  are delayed  to allow  the                                                               
calculation to  be based  on actual costs.  Therefore, the  FY 07                                                               
tax credit  of approximately $1,750,000 would  affect the State's                                                               
FY  2008  general  fund.  The credit  amount  would  increase  or                                                               
decrease each year as determined  by the annual ACHIA assessment.                                                               
He noted that assessment levels are projected to increase.                                                                      
9:22:57 AM                                                                                                                    
Representative Rokeberg  proclaimed that this bill  would require                                                               
the State "to pick up their  fair share" of the ACHIA assessment.                                                               
The State  would join  32 other states  that either  partially or                                                               
fully  participate  in the  funding  of  this federally  mandated                                                               
9:23:48 AM                                                                                                                    
Senator Dyson  understood this legislation would  not require the                                                               
State's  bargaining units'  insurance programs  to contribute  to                                                               
the ACHIA fund.                                                                                                                 
Representative  Rokeberg  affirmed.  While  he had  in  the  past                                                               
suggested their  participation, this proposal would  specify that                                                               
"the State  as a whole" would  make the contribution in  the form                                                               
of a tax credit to the sources of the revenue.                                                                                  
Co-Chair Green declared  that the bargaining units  chose not "to                                                               
participate  in  providing"  this  insurance  coverage  which  is                                                               
required by  federal and State  law. "That  was why I  fought the                                                               
State  becoming self  insured in  the first  place;" she  knew it                                                               
would be "unfair"  to remove "a huge chunk of  support of a State                                                               
mandated  program". Her  "prediction" that  some entity  would be                                                               
required to  provide 75  percent of the  funds necessary  for the                                                               
program has  come true, as  the number  of private payers  in the                                                               
State  is  limited.   Therefore,  "a  very  small   part  of  the                                                               
population"  is being  forced to  pay for  a State  and federally                                                               
mandated program, which  everyone could be "eligible  for at some                                                               
time of their life".                                                                                                            
9:25:39 AM                                                                                                                    
Senator Dyson  pointed out that  the State's "small  market" size                                                               
also  makes  the State  a  less  attractive place  for  insurance                                                               
companies  to provide  "consumer  directed care"  such as  health                                                               
savings accounts.  The availability of  such programs could  be a                                                               
part of  the solution. He  characterized the  insurance providers                                                               
operating in  the State  as "institutional  and not  available to                                                               
that which I see as a very responsible way of proceeding".                                                                      
9:26:13 AM                                                                                                                    
CECIL  BYKERK, Executive  Director,  Alaska Comprehensive  Health                                                               
Insurance  Association,  testified  via  teleconference  from  an                                                               
offnet location.  He has  been involved with  ACHIA since  it was                                                               
enacted  by the  State in  1992. ACHIA  is a  program that  could                                                               
serve all  Alaskans. The ACHIA  plan was  chosen by the  State as                                                               
"the solution"  to the federal  Health Insurance  Portability and                                                               
Accountability Act of  1996 (HIPAA) mandate that  each state must                                                               
provide all  residents of the  state access to  health insurance.                                                               
60 percent of the states adopted plans similar to ACHIA.                                                                        
Mr. Bykerk  informed the Committee  that ACHIA has paid  out more                                                               
than  $45 million  in claims  since  1992. It  has collected  $17                                                               
million in  premiums from individuals  enrolled in it.  ACHIA has                                                               
allowed people  to manage  their own  care and  medical expenses.                                                               
Most  of  the  people  participating   in  ACHIA  and  HIPAA  are                                                               
uninsurable; otherwise they would  enroll in other less expensive                                                               
plans, as ACHIA premiums, at  140 percent of standard plan costs,                                                               
are significant.  Contrary to public  perception, ACHIA is  not a                                                               
Medicaid or  welfare program. Individuals enrolled  in ACHIA have                                                               
no or few  other health insurance options and  must contribute to                                                               
their coverage in order to participate  in the system. Due to the                                                               
out of  pocket expense, people  in the  ACHIA plan tend  to "stay                                                               
out of emergency rooms" unless the medical care is unavoidable.                                                                 
Mr.  Bykerk  noted  that  ACHIA is  under  funded  because  ACHIA                                                               
participant premiums  must be kept  at an affordable  level. "The                                                               
shortfall is  made up by  assessing health insurers as  a percent                                                               
of their health insurance premium."  Thus, "individuals and small                                                               
businesses in  the State"  pay the  cost. "HB  29 will  ease this                                                               
Mr. Bykerk  agreed that, in  a small but significant  manner, the                                                               
State's  participation in  funding ACHIA  would assist  in making                                                               
the State attractive  to new insurance companies.  In addition to                                                               
the  State's  small  population   and  the  geographic  distances                                                               
between  communities,  there  are  also  business  "barriers"  to                                                               
attracting new business. Easing the  burden of this program would                                                               
assist  in increasing  competition  in  the commercial  insurance                                                               
Mr.  Bykerk  reiterated  that  approximately  two-thirds  of  the                                                               
states  that have  high-risk pools  such as  ACHIA support  their                                                               
programs with State general funds.                                                                                              
9:31:10 AM                                                                                                                    
Mr. Bykerk noted that recently  enacted federal legislation would                                                               
allow  ACHIA to  acquire  federal funding  assistance during  the                                                               
next   five  years.   "This  is   only  right"   considering  the                                                               
requirements placed  on the State  by HIPAA. The  federal support                                                               
would further reduce  the impact on both  the insurance companies                                                               
and  the  State's  contributions  to ACHIA.  He  noted  that  the                                                               
federal support is  not reflected in the  Department of Commerce,                                                               
Community and Economic Development  fiscal note #1. "All Alaskans                                                               
benefit  directly or  indirectly from  ACHIA." He  encouraged the                                                               
Committee to advance this legislation.                                                                                          
9:32:29 AM                                                                                                                    
BRIAN ANGEL, Counsel with American  Family Life Assurance Company                                                               
of  Columbus (AFLAC)  and Vice-Chair,  ACHIA Board  of Directors,                                                               
testified  via  teleconference  from   an  offnet  location.  "By                                                               
providing  access to  health coverage,  and putting  dollars into                                                               
the  health care  system,  and by  keeping  people off  Medicaid,                                                               
ACHIA truly does  benefit all Alaskans." Because  all citizens of                                                               
the State could benefit by  ACHIA, "we believe the most equitable                                                               
funding  approach  is  one  that   is  broad  based".  Currently,                                                               
however, the cost of the program  "is borne by a small segment of                                                               
the  population", those  individuals  and  small businesses  that                                                               
purchase  health insurance.  "By  broadening  the funding  base",                                                               
this bill  would ease the  burden on health  insurance consumers.                                                               
He  informed the  Committee  that the  ACHIA  Board of  Directors                                                               
fully supports  the bill, and  he urged the Committee  to advance                                                               
Co-Chair Green expressed her support of the bill.                                                                               
9:34:40 AM                                                                                                                    
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce,  Community  and  Economic Development,  concurred  with                                                               
Representative   Rokeberg's   and  the   ACHIA   representatives'                                                               
testimony on the bill.                                                                                                          
Co-Chair  Wilken moved  to report  the bill  from Committee  with                                                               
individual recommendations and accompanying fiscal notes.                                                                       
There being no  objection, CS HB 299(L&C)(title  am) was REPORTED                                                               
from Committee with previous zero  fiscal note #1 dated March 29,                                                               
2006  from the  Department  of Commerce,  Community and  Economic                                                               
Co-Chair Green  knew people in  the Matanuska-Susitna  Valley who                                                               
have ACHIA  coverage. She  was "shocked to  learn" the  amount of                                                               
their  insurance  premiums. This  is  certainly  not a  "giveaway                                                               
9:35:46 AM                                                                                                                    

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