Legislature(2013 - 2014)SENATE FINANCE 532

04/12/2013 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 129(FIN) Out of Committee
Heard & Held
Heard & Held
Moved CSHB 76(FIN) Out of Committee
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."                                                                                          
3:30:53 PM                                                                                                                    
Senator  Dunleavy invited  the Department  of Administration                                                                    
to explain  the fiscal notes.  He felt that the  bill should                                                                    
be  held  through the  interim  for  further discussion  and                                                                    
better understanding.                                                                                                           
3:31:51 PM                                                                                                                    
MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF                                                                            
ADMINISTRATION, offered an analysis of FN#2:                                                                                    
     SB  90  introduces  a  new  section  to  AS  14.20,  AS                                                                    
     14.20.137,  which  extends   group  insurance  coverage                                                                    
     under  AS39.30.090  to  school district  employees.  It                                                                    
     also  amends  AS39.30.090(a)(2) extending  coverage  to                                                                    
     dependents   of  school   district  employees.   It  is                                                                    
     estimated  that 18,300  school  district employees  and                                                                    
     29,000   dependents   will   become  members   of   the                                                                    
     AlaskaCare Employee Health Plan.  The addition of these                                                                    
     47,300   new  members   will   quadruple  the   overall                                                                    
    population of the AlaskaCare Employee Health Plan.                                                                          
     PUBLIC EDUCATION FUND -                                                                                                    
     How the  bill works: starting  on July 1,  2014, school                                                                    
     districts would begin to enroll their employees in the                                                                     
     AlaskaCare  active employee  health plan.  That process                                                                    
     must be complete no later  than July 1, 2015. There are                                                                    
     approximately  18,300  school district  employees  that                                                                    
     would  likely enroll  over FY15-FY16.  With dependents,                                                                    
     the  total population  is approximately  47,300 covered                                                                    
     Self-funded insurance pools tend  to maintain a reserve                                                                    
     of 3-4 months of claim  costs. The reserve is available                                                                    
     to  pay  claims  in  times  of  claim  spikes  so  that                                                                    
     recourse  to  external   funding  sources  or  mid-year                                                                    
     premium increases is unnecessary.                                                                                          
     We estimate that such a  reserve for the 47,000 inbound                                                                    
     covered  lives would  be  approximately $100mm.  Having                                                                    
     such a reserve  in place on July 1,  2014 is important,                                                                    
     because  this population  will  begin  to incur  health                                                                    
     claims immediately, and we need  to have funds in place                                                                    
     to  pay them.  The  bill contemplates  that the  $100mm                                                                    
     would be  drawn from the  Public Education Fund  over a                                                                    
     10  year period.  The withdrawn  funds would  be repaid                                                                    
     over a 10 year period.  The source of the repayment for                                                                    
     withdrawn   funds  would   be  school   districts.  The                                                                    
     Department  would send  them  a bill  for  the first  4                                                                    
     months of claims paid; the  bill would be repaid over a                                                                    
     10 year period.                                                                                                            
     The  bill   contemplates  that  the   health  insurance                                                                    
     benefit credit  the state pays  on behalf of  all State                                                                    
     of Alaska  employees ($1330/mo/ee in  FY13; $1389/mo/ee                                                                    
     in FY14)  would be paid  by school districts  on behalf                                                                    
     of  school  district   employees.  The  benefit  credit                                                                    
     equates  to  the  premium for  the  AlaskaCare  Economy                                                                    
     level plan  plus the premium for  the Preventive Dental                                                                    
     plan.  The  Department  would  send  monthly  bills  to                                                                    
     school districts  to collect the benefit  credit. These                                                                    
     sums would  be deposited in  the Group Health  and Life                                                                    
     Benefits  fund (AS  36.30.095) and  used to  pay claims                                                                    
     and administer the system.                                                                                                 
Mr. Barnhill shared that during  a discussion with the Texas                                                                    
Teacher's Retirement  System he  had learned that  Texas had                                                                    
done  a similar  consolidation  several years  ago. He  said                                                                    
that  in that  case the  state  had received  access to  $25                                                                    
million for transitional cash flow  purposes and had paid it                                                                    
back without a problem.                                                                                                         
3:36:05 PM                                                                                                                    
Co-Chair  Meyer queried  why the  Public Education  Fund was                                                                    
being used.                                                                                                                     
Mr. Barnhill  asserted that  the department  was indifferent                                                                    
to where the  funds came from, but that money  was needed in                                                                    
order to pay the claims.                                                                                                        
Co-Chair Meyer though that a different fund should be used.                                                                     
Mr.  Barnhill replied  that the  department  had no  problem                                                                    
with the legislature identifying some other fund source.                                                                        
3:37:14 PM                                                                                                                    
Vice-Chair  Fairclough remarked  that some  schools did  not                                                                    
have the tax base in order to payback the funds.                                                                                
Mr.  Barnhill responded  that  BSA funds  would  be used  in                                                                    
order to  make the payback. He  said that the intent  of the                                                                    
circulating  funds was  to hold  the  Public Education  Fund                                                                    
3:38:31 PM                                                                                                                    
Senator Olson  wondered how  long the  payback had  taken in                                                                    
the Texas scenario.                                                                                                             
Mr. Barnhill understood that it  had not taken very long. He                                                                    
said that the  state had premiums coming in  from the school                                                                    
districts and  that that  cash flow  had been  sufficient to                                                                    
manage the transition.                                                                                                          
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.                                                                       
Senator  Olson wondered  if the  same model  could work  for                                                                    
Mr. Barnhill replied  that it would be  imprudent to suggest                                                                    
that  the  requested transitional  cash  flow  would not  be                                                                    
3:40:49 PM                                                                                                                    
Senator  Dunleavy believed  that  a  considerable amount  of                                                                    
time should be taken developing the legislation.                                                                                
Mr.   Barnhill  stated   that   the   department  had   been                                                                    
researching the  subject in  depth. He  refused to  state if                                                                    
there  was  a  causal  link between  state  healthcare  plan                                                                    
pooling and lower benefit credits.                                                                                              
3:42:32 PM                                                                                                                    
Vice-Chair  Fairclough wondered  how other  trusts would  be                                                                    
affected by a state change in pooling.                                                                                          
Mr. Barnhill  responded that the  legislation would  lead to                                                                    
the  eventual closure  of  the trusts.  He  said that  there                                                                    
would need  to be an  additional time period  because health                                                                    
insurance claims to be incurred  in one fiscal year and then                                                                    
not resolved  until the following fiscal  year. Other trusts                                                                    
would need to maintain sufficient  funds in order to pay the                                                                    
incurred  claims  until  they   were  finally  resolved.  He                                                                    
reiterated  that  the  bill called  for  all  employees  and                                                                    
dependents that were currently being  served by those trusts                                                                    
into the State of Alaska's active pool.                                                                                         
3:43:50 PM                                                                                                                    
Vice-Chair  Fairclough  remarked   that  there  were  assets                                                                    
currently  in the  trusts that  were  drawing interest  that                                                                    
benefit  the  participants of  the  plan.  She wondered  who                                                                    
would have claim to the assets.                                                                                                 
Mr.  Barnhill  responded  that  the  bill  did  not  address                                                                    
private  trust funds  and what  would happen  to the  trusts                                                                    
once  the  beneficiaries moved  into  the  state's plan.  He                                                                    
suspected  that the  trust  assets would  be  drawn down  in                                                                    
their entirety  prior to transition.  He said that  the bill                                                                    
did address the  trust assets of school  districts that were                                                                    
self-insured. He  relayed that  any unencumbered  balance at                                                                    
the point of  transition would be transferred  to the claims                                                                    
3:46:44 PM                                                                                                                    
Senator  Olson thought  that  the NEA  Trust  was a  private                                                                    
Mr. Barnhill responded that it  was a private trust. He said                                                                    
that some  self-funded health plans were  funded and managed                                                                    
by union trust plans.                                                                                                           
3:47:21 PM                                                                                                                    
Vice-Chair  Fairclough requested  further conversation  with                                                                    
the trust to gain their  perspective on the assets that they                                                                    
held. She  said that where  there was a  contract negotiated                                                                    
that the  state had  been pay  for 100  percent of  the cost                                                                    
then  the  state  should  have  the  right  to  assert  some                                                                    
ownership of  some of  the assets. But  in was  unclear what                                                                    
the  state's right  were concerning  the interest  \that was                                                                    
managed in a private entity.                                                                                                    
3:48:06 PM                                                                                                                    
Mr.  Barnhill interjected  that there  were two  more fiscal                                                                    
notes to  be discussed. He  spoke to FN#3, which  listed the                                                                    
start-up costs  for FY14 at $237,700  to reprogram computers                                                                    
to  accommodate a  quadrupling of  the pool.  He highlighted                                                                    
that every inbound  member was already and  active member of                                                                    
PERS or TRS.  He said that running across  the services line                                                                    
was  the contractual  costs that  would be  paid to  a third                                                                    
party administrator  and other vendors. The  per member, per                                                                    
month charge would  grow by the rate of 4  percent per year.                                                                    
He shared  that that  the final  fiscal note  for Retirement                                                                    
and Benefits  indicated that 12  new staff members  would be                                                                    
needed  and  would cost  $482  thousand  in FY14,  and  $964                                                                    
thousand in FY15 through FY19.                                                                                                  
3:50:34 PM                                                                                                                    
Co-Chair  Meyer wondered  how  many  other state  bargaining                                                                    
units had their own trusts.                                                                                                     
Mr.  Barnhill  responded that  there  was  the Alaska  State                                                                    
Employees  Association   (ASEA)  Health  Trust,   which  was                                                                    
comprised of  8,800 general  governmental unit  employees of                                                                    
the state and was the largest  piece of the health trust for                                                                    
the   state.  He   added   that   Public  Safety   Employees                                                                    
Association  (PSEA) had  opted  out of  state insurance  and                                                                    
were  fully insured  by ETNA.  He  said that  the state  was                                                                    
fragmented  in   how  health  insurance  was   delivered  to                                                                    
3:51:23 PM                                                                                                                    
Co-Chair  Meyer understood  that  the  issue reached  beyond                                                                    
healthcare for teachers.                                                                                                        
Mr. Barnhill replied in the affirmative.                                                                                        
3:51:27 PM                                                                                                                    
Vice-Chair  Fairclough thought  that the  rate of  return on                                                                    
the assets of the different  entities could be examined over                                                                    
the interim.                                                                                                                    
Senator  Dunleavy   replied  that  he  would   research  any                                                                    
outstanding issues.                                                                                                             
3:52:22 PM                                                                                                                    
Senator Olson wondered asked about  the number of dependents                                                                    
for the school district employees.                                                                                              
Mr. Barnhill responded that there were 29,000 dependents.                                                                       
SB 90 was HEARD and HELD in committee for further                                                                               

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