Legislature(2013 - 2014)SENATE FINANCE 532

04/10/2013 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 198 OIL AND GAS AND GAS ONLY LEASES TELECONFERENCED
+ SB 87 NEWBORN SCREENING FOR HEART DEFECTS TELECONFERENCED
+= HB 52 PFD ALLOWABLE ABSENCE TELECONFERENCED
+ SB 90 SCHOOL DISTRICT EMPLOYEE HEALTH INSURANCE TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 90                                                                                                              
"An  Act  relating to  group  insurance  coverage and  self-                                                                    
insurance  coverage  for   school  district  employees;  and                                                                    
providing for an effective date."                                                                                               
                                                                                                                                
Senator Dunleavy  introduced SB 90. He  explained that there                                                                    
were  53  school districts  in  Alaska,  all with  different                                                                    
health  insurance plans.  The plans  were negotiated  at the                                                                    
district  level  at  different rates.  The  cost  of  health                                                                    
insurance  was  escalating.  School  district's  costs  were                                                                    
rising  due to  inflationary costs.  Health insurance  was a                                                                    
large  contributor to  increased costs.  Rates were  raising                                                                    
seven to  fifteen percent each  year. The burden to  pay for                                                                    
the increased costs  was placed on the  school district. The                                                                    
state funded  some school districts, i.e.,  REAA's [Regional                                                                    
Education  Attendance  Area]  at  100  percent  of  all  its                                                                    
educational  costs. State  and  local  governments were  all                                                                    
bearing  the   costs  of  increased  health   insurance.  He                                                                    
reported that  the legislation  created an  integrated state                                                                    
health insurance  plan for all school  districts. The larger                                                                    
pool  placed the  state  in a  position  to negotiate  lower                                                                    
rates.  The financial  burden would  be eliminated  from the                                                                    
school districts allowing districts  to focus on educational                                                                    
policies.   He   announced   that   some   school   district                                                                    
representatives testified  in favor  of the bill  and agreed                                                                    
that the  legislation was beneficial to  their districts and                                                                    
allowed  more time  to concentrate  on students  and control                                                                    
costs. He concluded  that the legislation was  a solution to                                                                    
a problem he  was familiar with as a  former school district                                                                    
superintendent.                                                                                                                 
                                                                                                                                
Co-Chair  Meyer inquired  whether  the legislation  provided                                                                    
cost savings for the state.  Senator Dunleavy requested that                                                                    
the Department of Administration (DOA) answer the question.                                                                     
                                                                                                                                
Co-Chair Meyer  noted that the legislation  proposed funding                                                                    
the health  insurance plan from  the public  education fund.                                                                    
He  wondered  why  the public  education  fund  was  chosen.                                                                    
Senator  Dunleavy  replied  that   the  use  of  the  public                                                                    
education fund was suggested by DOA.                                                                                            
                                                                                                                                
Co-Chair   Meyer  reported   that   last   year  the   state                                                                    
centralized pupil transportation as  a cost savings measure.                                                                    
He inquired whether the intent  of the legislation was costs                                                                    
savings.   Senator Dunleavy answered in  the affirmative. He                                                                    
thought that  the state paid  for the rising cost  of health                                                                    
care   through   increases   to  the   BSA   [Base   Student                                                                    
Allocation].  The  centralized  insurance pool  could  yield                                                                    
lower rates which were a cost savings to the state.                                                                             
                                                                                                                                
Senator Hoffman  commented that SB  90 capped  the insurance                                                                    
funding at $100 million and  did not include adjustments for                                                                    
inflation.  Senator Dunleavy responded in the affirmative.                                                                      
Senator    Hoffman    remarked    that    the    centralized                                                                    
transportation  funding included  a one  and a  half percent                                                                    
increase for  inflation with more  proposed for  the current                                                                    
year.  He wondered  whether  the  legislation could  include                                                                    
cost  adjustments for  inflation.  Senator Dunleavy  replied                                                                    
that the  purpose of the bill  was to take control  of costs                                                                    
at the  local level  and provide savings  for the  state. He                                                                    
was in favor  of anything that could  accomplish the purpose                                                                    
of the legislation.                                                                                                             
                                                                                                                                
Senator  Hoffman  commented  that capping  the  funding  for                                                                    
rising health  care costs was  problematic. He  thought that                                                                    
not  addressing inflation  in the  legislation only  delayed                                                                    
the matter  until a later  date. Senator  Dunleavy suggested                                                                    
that DOA could address the concern.                                                                                             
                                                                                                                                
Co-Chair Meyer queried how a  school district negotiated for                                                                    
health insurance.  Senator Dunleavy replied that  the school                                                                    
district  negotiated  contracts  with  the  employee  groups                                                                    
which  included health  care  coverage  and also  negotiated                                                                    
directly with  insurance providers. He  added that a  lot of                                                                    
time was  taken up in the  negotiation process at a  cost to                                                                    
the school district.                                                                                                            
                                                                                                                                
10:22:27 AM                                                                                                                   
                                                                                                                                
Co-Chair Meyer  asked whether the state  ultimately paid for                                                                    
the  negotiated  health  insurance costs.  Senator  Dunleavy                                                                    
elaborated  that  the costs  were  paid  for by  the  school                                                                    
district. Local taxes paid for a  portion of the costs for a                                                                    
municipal school  district along with state  funding. If the                                                                    
district's costs  were higher than  the amount of  state and                                                                    
local funding  a school district reduced  costs through cuts                                                                    
in education.                                                                                                                   
                                                                                                                                
Vice-Chair Fairclough stated that  there were many people in                                                                    
the state that  were concerned about the  bill. She believed                                                                    
in  the  concept  of  controlling  costs  and  requested  an                                                                    
explanation of  the concerns being raised  over the possible                                                                    
reduction in benefits  leading to a reduced  level of health                                                                    
care due  to the legislation.  She pointed out that  a large                                                                    
city  such as  Anchorage  contributed a  great  deal of  tax                                                                    
dollars into the school system  as opposed to smaller school                                                                    
districts that  were not able  to due  to a small  tax base.                                                                    
She  thought  that  the   legislation  would  benefit  small                                                                    
districts. She  queried whether all of  the districts needed                                                                    
to  be  included  in  the insurance  pool  to  achieve  cost                                                                    
savings.   She  wondered   why   the  legislation   mandated                                                                    
participation instead of  incentivizing it. Senator Dunleavy                                                                    
thought  that the  pool  of all  53  school districts  would                                                                    
achieve the most savings for  health care and administrative                                                                    
costs.                                                                                                                          
                                                                                                                                
Vice-Chair Fairclough  wondered whether there  were benefits                                                                    
to  pooling health  insurance with  only the  districts that                                                                    
wanted  to participate.  Senator  Dunleavy  stated that  any                                                                    
benefits  depended on  negotiations based  on the  number of                                                                    
participants.                                                                                                                   
                                                                                                                                
Vice-Chair  Fairclough  referenced   "multiple"  letters  in                                                                    
support of  the legislation  (copies on file)  from district                                                                    
level  financial managers  across  the state.  She cited  an                                                                    
opposition letter  from the Local 71  Public Employees Trust                                                                    
Fund in Anchorage  (copy on file). The  trust discerned that                                                                    
pooling would  result in additional  costs of  $400 thousand                                                                    
passed on to  the membership. She understood that  in a pool                                                                    
some paid more  than others. She asked  for clarification on                                                                    
how pooling worked. Senator Dunleavy  deferred to DOA for an                                                                    
answer.                                                                                                                         
                                                                                                                                
10:30:28 AM                                                                                                                   
                                                                                                                                
Vice-Chair  Fairclough replied  that she  wanted to  discuss                                                                    
whether there would  be a benefit for  school districts that                                                                    
opted  to participate  in  a pool,  and  offer an  incentive                                                                    
approach based  on fees for  various levels of  care similar                                                                    
to the Public Employees' Retirement System (PERS) system.                                                                       
                                                                                                                                
BECKY HULTBERG, COMMISSIONER,  DEPARTMENT OF ADMINISTRATION,                                                                    
commented on  the legislation  and addressed  questions that                                                                    
were raised  earlier. She remarked  that the  department did                                                                    
not  have an  official position  on the  bill, but  believed                                                                    
pooling school district's health  insurance could offer cost                                                                    
savings for the districts and  the state. The department had                                                                    
experience  managing   costs.  She  noted  the   "value"  of                                                                    
insurance  pooling while  managing  the  state's plans.  She                                                                    
observed  that health  insurance  carried  the "largest  and                                                                    
fastest  growing"  costs.  She  related that  the  bill  was                                                                    
brought  forward by  several of  the large  school districts                                                                    
that  were   struggling  with  raising  costs   and  limited                                                                    
resources.  Health  insurance   was  the  districts  fastest                                                                    
growing  costs and  was the  most difficult  to manage.  She                                                                    
related  that  healthcare  was   one  the  state's  and  the                                                                    
nation's  most persistent  issues and  was an  enormous cost                                                                    
driver  for   the  districts  and  the   state.  The  school                                                                    
districts collective  health insurance costs were  over $280                                                                    
million.                                                                                                                        
                                                                                                                                
Commissioner  Hultberg  provided  a brief  overview  of  the                                                                    
health insurance plans that DOA  managed and highlighted the                                                                    
possibility for  cost savings through pooling.  She detailed                                                                    
that  the state  currently managed  two plans:  one for  its                                                                    
active employees  and the other  for retirees.  The combined                                                                    
plans provided coverage for  approximately 86,000 members at                                                                    
a  cost of  $600 million  annually. Both  of the  plans were                                                                    
self-insured and  administered by  a third party.  The third                                                                    
party received  monthly payments calculated at  a per member                                                                    
rate. The  Alaska Care employee plan  covered 16,400 members                                                                    
including  dependents. The  bill would  add an  extra 47,000                                                                    
members into the active employee plan.                                                                                          
                                                                                                                                
Commissioner Hultberg explained  the factors that determined                                                                    
costs. She pointed  out that the provider  network and third                                                                    
party  administrator fees  were  a "huge  driver" of  costs.                                                                    
According to  a recent  study, administrative  fees amounted                                                                    
to $1  in every $10  spent on  health care in  Alaska. High-                                                                    
cost  claimants,  medical  inflation, and  utilization  also                                                                    
were large  costs drivers.  The size  of the  insurance pool                                                                    
affected  most  of the  costs.  She  elaborated that  larger                                                                    
pools could result in negotiating  better rates, lower third                                                                    
party  administrative fees,  and  offer  reduced risks  with                                                                    
high  cost claimants.  She relayed  that  the larger  volume                                                                    
could positively impact utilization.  The more people in the                                                                    
pool  allowed   for  more  sophisticated   cost  containment                                                                    
programs. According to  demographic data kept by  DOA on the                                                                    
PERS and  TRS (Teachers Retirement System)  pools, actuaries                                                                    
estimated  a  2  percent  to 3  percent  increase  in  costs                                                                    
because of the  demographics of a school  district pool. The                                                                    
larger size  of the  pool could  offset the  increased costs                                                                    
and  provided  savings.  Without   access  to  the  data  on                                                                    
insurance  claims  a more  detailed  analysis  could not  be                                                                    
provided. She furthered that the  state was currently paying                                                                    
for  a substantial  amount of  the  increased costs  through                                                                    
funding for  education. In addition,  the state  was funding                                                                    
future  costs  through  the state's  retirement  plans.  She                                                                    
related that the unfunded liability  for retiree health care                                                                    
amounted  to $4  billion.  She  felt that  the  state had  a                                                                    
vested  interest in  addressing the  rising costs  of health                                                                    
care.  She  concluded that  the  state  was paying  for  the                                                                    
increasing  cost of  the school  districts health  care. She                                                                    
thought that SB 90  raised some important questions; whether                                                                    
the state should  maintain the status quo  of a "fragmented"                                                                    
approach for  53 separate school  districts or  institute an                                                                    
integrated  cohesive approach  to  manage  health care.  The                                                                    
department  believed  that   an  integrated  approach  could                                                                    
provide better management and cost savings.                                                                                     
                                                                                                                                
10:40:22 AM                                                                                                                   
                                                                                                                                
Senator   Hoffman  inquired   whether   the  Department   of                                                                    
Administration  had its  own  healthcare plan.  Commissioner                                                                    
Hultberg replied  in the affirmative. Senator  Hoffman asked                                                                    
whether the department endorsed  including its employee plan                                                                    
in the  legislation.  Commissioner  Hultberg replied  in the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
MICHAEL   BARNHILL,  DEPUTY   COMMISSIONER,  DEPARTMENT   OF                                                                    
ADMINISTRATION,  discussed the  three DOA  fiscal notes.  He                                                                    
elucidated that  in order to  prepare the fiscal  notes, the                                                                    
actuary  for   the  plan,  Buck  Consultants,   completed  a                                                                    
demographic  analysis  of   the  school  districts  employee                                                                    
population.  He  reminded  the  committee  that  the  school                                                                    
district employees  were active  participants in  the states                                                                    
PERS  or  TRS  system,   which  made  the  demographic  data                                                                    
accessible.  He  identified  that there  were  approximately                                                                    
18,300  school district  employees. He  cited another  total                                                                    
number   of  18,953   employees,   distributed  by   Senator                                                                    
Dunleavy. The figure included  some temporary employees that                                                                    
were  not   eligible  for  health  insurance   coverage.  He                                                                    
referenced  the "Health  Insurance Survey  - Total  Cost for                                                                    
FY12" (copy  on file)  document that  provided a  summary of                                                                    
Health insurance  costs for each  district. The  total costs                                                                    
for all districts combined  were approximately $282 million.                                                                    
The  department  used  a rough  estimate  of  the  districts                                                                    
accumulated health care costs in  FY 2015 which totaled $300                                                                    
million.  The  department  included  a  four  month  reserve                                                                    
estimate  of  $100 million  based  on  the $300  million  to                                                                    
formulate the fiscal note.                                                                                                      
                                                                                                                                
                                                                                                                                
10:44:05 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:46:29 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
SB 90 was HEARD and HELD in committee for further                                                                               
consideration.                                                                                                                  
                                                                                                                                
10:47:49 AM                                                                                                                   

Document Name Date/Time Subjects
HB 198 - DNR Presentation 4.6.13.pdf SFIN 4/10/2013 9:00:00 AM
HB 198
HB 198 - Sectional Summary ver C.A.pdf SFIN 4/10/2013 9:00:00 AM
HB 198
HB 198 - Sponsor Statement ver C.A.pdf SFIN 4/10/2013 9:00:00 AM
HB 198
HB 198 - Summary of Changes ver C to ver C.A.pdf SFIN 4/10/2013 9:00:00 AM
HB 198
HB 198 - Supporting Documents-Letter Apache letter.pdf SFIN 4/10/2013 9:00:00 AM
HB 198
HB 198 - Supporting Documents-Letter Hilcorp Alaska 4-5-2013OC.PDF SFIN 4/10/2013 9:00:00 AM
HB 198
HB198_SFIN DNR Presentation.pdf SFIN 4/10/2013 9:00:00 AM
HB 198
SB 87 Amercian Heart Association.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 CS Y Sectional Analysis - scanned.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 CS Y Sponsor Statement - scanned.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Eve's story.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 NCSL legisbrief.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Please Support Pulse Oximetry Screening for Newborns 1.msg SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Please Support Pulse Oximetry Screening for Newborns 3.msg SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Please Support Pulse Oximetry Screening for Newborns 4.msg SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Please Support Pulse Oximetry Screening for Newborns 5.msg SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Please Support Pulse Oximetry Screening for Newborns.msg SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Pulse oximetry screening legislation.msg SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Support Letter - Am Heart Assn.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
SB 87 Support Letter - March of Dimes.pdf SFIN 4/10/2013 9:00:00 AM
SB 87
HB 52 28-LS0170A PFD Allowable Absences.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 Amended Sectional Analysis 28-LS0170AA.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 Comparison 28-LS0170AA to 28-LS0170A.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 PFD Allowable Absences Presentation.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 PFD Select Regulations.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 PFD Select Statutes.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 Sponsor Statement PFD Allowable Absence.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52 Support Letter Ross.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
HB 52am 28-LS0170AA PFD Allowable Absences.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
FY12 Health Costs Data by ALASBO.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 - AASB Administrator Survey.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 - AASB Classified Employee Survey.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 - AASB Teacher Survey.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Alaska Employee Health Plan.docx SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Copper River Letter of Support.docx SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Kenai Support Letter.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Mat-Su Support Letter.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 NEA-Alaska Health Plan Opposition.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 NEA-Alaska Opposiiton.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Opposition Local 71.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Sectional Analysis.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Sponsor Statement.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Letter Requesting Further Analysis.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
HB 52 Work Draft version U.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
SB 90 Support Letter - Garrison.doc SFIN 4/10/2013 9:00:00 AM
SB 90
HB 52 DOR Response to Hoffman.pdf SFIN 4/10/2013 9:00:00 AM
HB 52
SB 90 DEED Student Counts by District.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Opposition Letter Packet 1.pdf SFIN 4/10/2013 9:00:00 AM
SB 90
SB 90 Support Letter - Johnson.msg SFIN 4/10/2013 9:00:00 AM
SB 90