Legislature(2017 - 2018)SENATE FINANCE 532
02/27/2018 09:00 AM FINANCE
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SENATE BILL NO. 165 "An Act relating to the Alaska comprehensive health insurance fund; and providing for an effective date." 10:47:23 AM BRITTANY HARTMANN, STAFF, SENATOR ANNA MACKINNON, offered a Sponsor Statement: In 2015, the individual health care market in Alaska was in a precarious state. There were only two insurers with current enrollees in individual healthcare plans in Alaska, and each insurer was experiencing significant losses. Average premium rate increases in 2015 were 38.7% for one insurer and 39.9% for the other. In 2016, one of Alaska's only two remaining insurers gave notice that they would be withdrawing from the Alaska individual market effective January 2017. The 29th Legislature passed HB 374 in 2016, which created the Alaska Reinsurance Program, and allowed the Division of Insurance to apply for a federal Section 1332 state innovation waiver under the Affordable Care Act (ACA). That legislation included a sunset date of June 30, 2018 to ensure that the diversion of insurance premium taxes from the general fund was not relied upon as a long-term funding mechanism. In July 2017, the waiver was approved by both the Department of Health and Social Services and the Department of Treasury based on the application submitted by the division, which requested pass- through funding for the Alaska Reinsurance Program. The federal award for this waiver was approximately $322 million over five years. The award is to be used, in conjunction with the Alaska Reinsurance Program, to continue to stabilize the individual healthcare market in Alaska. This legislation extends the sunset provision on the Alaska comprehensive health insurance fund by six years, from June 30, 2018 to June 30, 2024 to allow for the continuation of the Alaska Reinsurance Program and receipt of the federal funding. The bill also removes the requirement that funds collected under AS 21.09.210 (tax on insurers), AS 21.33.055 (unauthorized insurance premium tax), AS 21.34.180 (surplus lines tax) and AS 21.66.110 (annual tax on title insurance premiums) are to be deposited into the Alaska comprehensive health insurance fund within the general fund. Passage of HB374 by the 29th Legislature has resulted in stabilization of the individual insurance market. The Section 1332 state innovation waiver provides funding for the Alaska Reinsurance Program, through the Alaska comprehensive health insurance fund. Now this legislation is necessary to ensure the continued effectiveness of the Alaska Reinsurance Program, meet the intent of the waiver, and receive the federal funding. 10:48:20 AM Co-Chair MacKinnon relayed that versions the legislation had appeared before the committee before. She said that the bill would create a stable market and that the state had experienced a reduction in premiums because of the reinsurance program. She shared that the legislation would rededicate the revenue stream out of the insurance fund and into the general fund, resulting in a positive fiscal note of approximately $50 million, annually. She commended the work of Lori Wing-Heier, Director, Division of Insurance, Department of Commerce, Community and Economic Development on the issue of insurance management in the state. 10:51:01 AM LORI WING-HEIER, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, said that SB 165 would allow the department to continue the reinsurance program with significant federal funding because of the 1332 waiver for a period of five years, with a possible additional one-year extension. She said that in 2016 the legislature had been instrumental in creating the program, which had proved successful. She stressed that to collect on anticipated federal funds, the sunset date needed to be either removed or extended. The sunset extension would also allow that the premium tax that the division collected would go back to the general fund, as was the original intention. 10:53:34 AM Co-Chair MacKinnon solicited the definition of "reinsurance." 10:54:16 AM Vice-Chair Bishop expressed appreciation for Ms. Wing- Heier's ability to discuss complicated issues in a clear and simple manner. Ms. Wing-Heier shared that in the context of the bill, "reinsurance" meant that if you were an individual in Alaska that purchased insurance through the individual market but was then diagnosed with a condition that generated high cost claims, you would still buy insurance from Premera (because that is the only carrier in Alaska) and would never know that your claim had been ceded to the reinsurance program. The claim is then not paid by Premera but by the state, which reduced the overall claims expense for the insurer. 10:56:25 AM Co-Chair MacKinnon asked why the federal government would be interested in paying the claims. Ms. Wing-Heier responded that many Alaskan's premiums were subsidized by the federal government, without a cap. She said that when the large claims could be removed from the calculation, and premiums decreased, the federal government would save money. That savings returned to the state to fund the reinsurance program. Had the reinsurance program not been enacted, the federal government's premiums for low and moderate-income individuals would have continued to increase, as would those that did not receive subsidies. 10:58:15 AM Co-Chair MacKinnon asked about the managed care for individuals that were high cost drivers in the system. Ms. Wing-Heier replied that there were very strict guidelines for managed care of those particular consumers. She said that the division worked to provide managed care on every claimant that went through the program. 10:59:20 AM Senator Stevens asked about the $25 million return from Premera, and whether similar returns could be expected in the future. Ms. Wing-Heier did not expect similar future returns. She said that claims had dropped significantly in 2017, which had prompted Premera to contact the division. She said that the drop in claims had been considered an anomaly. She explained that when an insurance company filed rates with the state, a contingency of 3 to 5 percent profit was included in the rate filing. She stated that Premera had known that they were in excess of that contingency percentage. She furthered that Premera involuntarily approached the state and asked that the money for 2017 be put back into the reinsurance program. She relayed that a memorandum of understanding was crafted, without any fault on the part of Premera, that the money would be returned to the state. 11:00:55 AM Senator Stevens asked whether additional insurers were interested in working with Alaska. Ms. Wing-Heier replied that she was hopeful. She felt that any reluctance was not because of the situation in the state but what was happing on the federal level. 11:01:27 AM Senator Stevens expressed appreciation for the information. 11:01:40 AM Senator von Imhof asked whether there was a way that the state could save as much money as possible in the program just in case the waiver was not extended a second time. Ms. Wing-Heier responded that the idea had been considered. She thought that what was currently being received from the federal government could carry the program into the 6th year. Co-Chair MacKinnon CLOSED public testimony. 11:04:50 AM Co-Chair Hoffman addressed the zero fiscal note for the Department of Administration (DOA). He read from the analysis: This bill would extend the repeal date of the Alaska comprehensive health insurance fund statute from June 30, 2018 to June 30, 2024 and, effective July 1, 2018, would deposit insurance premium tax revenues into the general fund instead of the Alaska comprehensive health insurance fund. The general fund and the Alaska comprehensive health insurance funds are existing funds and the change should require minimal work with no significant fiscal impact to the Division of Finance. Therefore, the Division of Finance submits a zero fiscal note. He spoke to the second zero fiscal note from the Department of Commerce, Community and Economic Development: This legislation extends the sunset provision on the Alaska Comprehensive Health Insurance Fund by six years, from June 30, 2018 to June 30, 2024. This legislation also removes the requirement that funds collected under AS 21.09.210 (tax on insurers), AS 21.33.055 (unauthorized insurance premium tax), AS 21.34.180 (surplus lines tax) and AS 21.66.110 (annual tax on title insurance premiums) are to be deposited into the Alaska Comprehensive Health Insurance Fund within the general fund. 11:07:11 AM Co-Chair MacKinnon understood that the current insurance receipts that were designated general fund would be re- routed into the general fund. She wondered about a projection on the new general fund contribution. Ms. Wing-Heier relayed that there was approximately $63 million that would be re-routed back to the general fund and, going forward, all the taxes would go back into the general fund. 11:08:04 AM Co-Chair MacKinnon wondered why this was not reflected on the fiscal note as revenue coming into the general fund. Ms. Wing-Heier said that she would provide the information to the committee later. Co-Chair MacKinnon announced that amendments were due the following day by 5pm. SB 165 was HEARD and HELD in committee for further consideration.