Legislature(2005 - 2006)BELTZ 211
04/07/2005 01:30 PM LABOR & COMMERCE
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* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 108-INSURANCE CHAIR CON BUNDE announced SB 108 to be up for consideration. He stated that he was waiting for a CS to be delivered, but he would like to hear the bill anyhow. LINDA HALL, Director, Division of Insurance, Department of Commerce, Community & Economic Development (DCCED), said she wanted to comment on Sections 28 and 29, union health trust language, in more detail. She explained that she brought this issue before the Legislature for deliberation and a policy decision. She related how she tried to clarify a provision that already exists in statute that says: Except as otherwise provided in this title, a person that provides coverage for the cost of medical care... is subject to this title unless the person shows that they are subject to a jurisdiction of another agency of this state or the federal government with the appropriate certificate, license or document issued by the other governmental agency that permits or qualifies the person to provide coverage for medical care. This language requires entities providing medical care to have oversight someplace and if they don't, they would have it under Title 21. In March of last year one of the unions asked her if her division regulated it. To formulate a reply, she sent letters to the five union health trusts asking for documentation of who regulates them. MS. HALL said she received responses, which have taken a long time to go through and more information was needed still. Approximately 19,000 state employees' health benefits are provided by union health trusts and she wanted the Legislature to have some discussion and make a policy call as to whether some standards should be set to insure the viability of the trusts. She hadn't had any specific contact with people from the health trusts, but had some contact from union members. One of the issues she thought was important to deal with was bonding limits because those are exceedingly high, but she really felt strongly about getting financial statements that show the assets and liabilities of the health trusts stating, "Frankly, I think most of them have that and if they don't they should." She said there have been allegations that no actuary would certify various things, but in fact, that is exactly what actuaries do. She went to the point of getting an actuarial opinion to make sure she understood what an actuary does and noted that she has two of them on her staff. They do look at the contribution rate, which is an equivalent of premium. It's not the contribution rate by the Legislature to the fund; it is the contribution that is the total money necessary to fund the benefit plan. It will be a combination of the monies funded through the GF, through the budget, and what the employees are charged in addition to the money provided by the state. And it also would include an actuarial analysis of the adequacy of reserves to make sure there is adequate money set aside to pay benefits, both current and future liabilities. I think those are critical pieces. We talked about solvency regulation of a number of entities and I think entities entrusted with the welfare of the benefits of their members provided through their state employment should have a similar kind of protection. Those are the lists in the bill of the minimum standards. There are some additional standards that generally relate to the kinds of things we require - an outside appeals process. The complaints that come to my division, some valid, some not, as are all complaints that we get. There is an appeal process, but it's very formalized in the current practice, which is arbitration or the court system. That's very intimidating to many people. I've had people in my office in tears because they are intimidated by the process and I've tried to help them even though I don't have any regulatory authority.... I am willing to look at things that seem to be onerous. I've heard estimates and I think they're probably fairly accurate that it would cost $40,000 to $50,000 for an actuarial opinion. When I look at the millions of dollars that are in those trusts, it doesn't seem to me to be a huge amount to pay. And as I said, it's my understanding that most of the trusts do this anyway, but I think it's again a policy decision of the Legislature to decide whether or not you think those standards should be statutory standards or not. 1:58:44 PM CHAIR BUNDE said she mentioned that state employees are covered by union health plans and asked if any private people were covered by those plans. MS. HALL replied that is one of the questions she has asked of the union health trust. In trying to determine the exact kind of entity they are - we have some that apparently have a combination of other entities' coverage within the state employees pieces - and I can't answer that yet, until I receive the information that I've requested from those groups. The intent of the bill is not as was originally interpreted to cover some of the political subdivisions - municipalities, school districts - those types of entities at all. They are in a different category... It doesn't cover - I think it's probably not an accurate term, but private unions, so to speak - Teamsters - the Teamsters health trust would not come under this. Those are entities that are all regulated under the ERISA [Employee Retirement Income Security Act of 1974] self-insured plans and probably 60 percent of Alaskans covered by private insurance are actually covered under some type of self-insured plan that is actually governed by ERISA. These governmental plans fall outside of the ERISA regulation. 2:00:24 PM JEFFREY HART, Department of Transportation and Public Facilities (DOTPF), said he began paying dues as a member of the Public Employees Local 71 30-years ago and has been serving as a shop steward for the past 14 years. At first, he favored some additional review over Local 71's trust fund, especially after the recent under-funding of the state PERS and TRS systems and listening to debates as to why our nation's social security system is in disarray. It would seem that additional oversight would give comfort to those who don't deal with it on a daily basis. However, he changed his support of Sections 28 and 29 because they would add extra costs and tasks to state government employees who already have a heavy workload. In addition, those sections are unnecessary because their health plan is adequate to meet participant's needs and it could be improved if needed. 2:03:52 PM CHRIS PACE said he is a trustee with the Alaska State Employees Association (ASEA) health plan, but he is testifying on his own behalf. He wanted to clarify a few points. ASEA's recent Ditman opinion poll indicates that 75 percent of the members were satisfied with their current coverage. Additionally, it found that 52 percent were not interested in additional well-baby coverage. The plan has about 200,000 claims per year and about 40 or .002 percent of them get appealed to the Board of Trustees. The appeal procedure is similar to what is described in the PERS discussion except after the Board of Trustees hears an appeal, it would go to arbitration rather than to the Superior Court. The board shares the same plan as the appellant and they have to be adjudicated consistently and fairly across the board. The trustees have the statutory authority to make changes in the benefit plan. The ASEA plan was taken verbatim from the state's PERS plan with minor modifications to tailor the deductibles, co-pays and out-of-pocket limits to the needs of the group. 2:07:15 PM MR. PACE emphasized that one of the major factors ASEA been confronted with is controlling dramatically increasing health care costs. So it contracted with a PPO hospital and joined a health care coalition with other labor unions, municipalities and private employers. Some members were unhappy about being steered to an Anchorage PPO hospital. The state website estimates that nationally up to 15 percent of spouses and dependents may not, in fact, be eligible for benefits; ASEA members were concerned with that as well as with building reserves. Currently, ASEA's plan has reserves equal to about four months of past claims experienced in addition to other amounts for incurred, but not reported, claims. The plan in SB 108 discusses about two and a half months for the same purpose. A union plan has to be more conservative with reserve levels, because it doesn't have the same financial resources a state plan has. ASEA carries stop-loss reinsurance in the event of catastrophic claims and both plans use consultants rather than actuaries to forecast trends. ASEA has an annual financial audit performed by an independent CPA and he emphasized that it has a letter of agreement with the State of Alaska allowing it to separate from the state's plan. On request, ASEA provides the annual audit and actuarial reports to the Division of Retirement and Benefits that performs the oversight. ASEA is the largest union in the state and the trust is large. 2:10:10 PM MR. PACE said he believes that SB 108 is attempting to create an oversight function that is already being performed by the Division of Retirement and Benefits. ASEA's administrative costs are kept at about 3 percent and the state's are about 5 percent. If this bill becomes law, that adds to the administrative costs and any added costs would have to be passed on and come out of paychecks. He summarized: To me that's the unfortunate thing about this bill. It will only result, I think, in moving money out of employee's paychecks and into the pockets of actuaries, bond brokers and accountants. It's not going to do anything to improve the actual benefits; it won't change the appeals; it won't change the reality that we've got to go to PPOs and cost containment. It's going to add just a redundant level of state regulatory oversight to the existing oversight. MR. PACE said he liked the consumer protection section that restricts the late-night ads for discount health insurance. Those ads really confuse some of his members who are already upset about money being taken out of their paychecks for health benefits. They keep telling the board they want to go over to the discount companies and don't understand how risky that would be. CHAIR BUNDE thanked him for his testimony and announced that he would take teleconference testimony. 2:12:40 PM FRANK PUSCHAK of Anchorage said he had been a state employee for 21 years and he is a trustee of one of the affected health trusts, but he is speaking in his personal capacity. Professionally, he had been a bank examiner for 28 years, having examined trust departments and trust companies. He opposed Sections 28 and 29 of SB 108 saying: Our trust is a legal entity accountable to the Superior Court of Alaska. The trustees are elected by the members. Under the terms of our health trust, Section 5, the minimum standard they must appeal to, are that the trustees are required to discharge their duties and administer the trust fund assets solely in the interest of participating employees and their beneficiaries and for the exclusive purpose of providing benefits to participating employees and beneficiaries and to defray rereadable expenses of the benefit plan. They are required to carry out their duties with the care, skill, and prudence and diligence under the circumstances then prevailing for a person acting in like capacity and familiar with such matters. This is called the prudent man, but it is not the prudent man standard to the person on the street; it is the prudent man standard of a person with fiduciary experience. Our plan is subject to a number of federal statutes, which I enumerated in the last committee meeting and I included on my testimony that I submitted earlier by email. So, I won't redo that. There have been 138,084 medical, dental and vision claims submitted since July 1 of the current fiscal year. Of that number, there have been 47 claims submitted to the Board of Trustees for an appeal. The appeal process is done by our third-party administrator, then the Board of Trustees and the arbitration, which is binding. Now, if that's not enough, since we're subject to Superior Court, the Superior Court can then override the arbitrator. While I agree that arbitration can be expensive, our trust provides the cost to be shared between the trust and the appellant. But, again, it's in my fiduciary responsibility - we just can't have everybody going off and putting things into arbitration, because I have an obligation to reduce the cost. And so we had to go to something. If there is another way that can provide the independent third-party at lesser cost, I'm open to it, but, in fact, our plan is even more accountable than the state select benefit plan. Under that plan, the commissioner of Administration is the sole arbitrator and nobody can override that. Again, with respect to the fiduciary standard, I'm really not aware of what the state follows for fiduciary standards. Again, we have followed the language outlined in ERISA, which is what governs the non-governmental plans. I have enclosed with my previous email a copy of our health plan compared to the state's like benefit plan and you are able to see that there are some slightly better benefits at definitely lower cost. Our trust was formed because the state wanted to get rid of the expense and effort of administering it. Under Article 19.03 of our contract, our union relieved the state of any and all obligation to provide health insurance benefits. This bill would add additional work to the state and expense and certainly add additional expense and work to our health trust for things that are already being done at better cost. We already have consultants who advise us and help us formulating policies, plans, rates, and everything. An independent CPA firm audits our records and those records are made public. We follow the ERISA code in providing everything to our members that is required under ERISA even though they are not obliged to follow it. There's an old saying, "If it ain't broke, don't fix it." However, I do agree with the corollary that says, 'If it ain't broke, it can be improved.' and that's what I'm willing to do and I'm open to any and all suggestions from my members. I have been a regulator for 28 years and when the bankers complain to me about having over-regulation, I would say, 'Well, Dirty Harry did stick his .44 at you and said, 'Make my day.' However, there is a point at which regulation has become onerous in the banking industry and this is another example of it. I encourage you to consider all the other parts of SB 108 in dealing with insurance, because there are a lot of scams and other things going out to the public. But, in the case of our governmental trust, they are being administered properly. The fiduciaries, themselves, when they run for election must first certify that they meet all the requirements of a fiduciary under ERISA with respect to any kind of criminal violations, convictions or whatever. Furthermore, they must also attest to the fact that they understand what they are going to do as a fiduciary and that position requires a high degree of understanding of employee benefit plans, fiduciary standards and investment policy. So, again, if it ain't broke, don't fix it and I encourage you to let us go about doing our business as best we can, which is pretty good. 2:18:36 PM COLLEEN SAVOIE, Consultant for Marsh USA representing the Public Employees Local 71, said she wanted to highlight a couple of items that had been discussed previously. The first one is the need for financial oversight of these plans that already have published annual audits. This bill would have an actuary that certifies to the financial condition of the plan, but actuaries are unwilling to "insure" financial solvency of any plan. 2:19:49 PM Another issue of concern was the claims oversight because there is already a mechanism by which appeals are resolved. These trusts have a medical review, a review by the Board of Trustees and finally, arbitration. It's important to understand that the process needs to be formal so that the trust can make sure that all participants are treated equally and fairly. Finally, she pointed out again that the trustees are trained fiduciaries with ultimate responsibility to the participants of these trust funds and they have the right to bring suit in Superior Court. 2:21:06 PM MARY STOLL said she is trust counsel to both Public Employees Local 71 Trust and the ASEA Local 52 Trust and that trusts have a very small incidence of appeals in comparison to the number of claims that are actually paid every year. She also heard Ms. Hall reference self-funded plans that are not regulated by ERISA because they are governmental plans that are exempt under its definitions and pointed out that ERISA plans are reviewed by the both the federal court and the Department of Labor. Both of her plans follow ERISA as a guideline and she explained: There are specifically two requirements that they cannot follow because there are Department of Labor regulations that are specific ERISA plans, one of which would be the appeals process wherein arbitration cannot be binding. You have to bring suit in federal court if you have a complaint. The second issue would be the requirement of filing an annual report called a Form 5500 with the IRS, which government plans are exempted from. If the intent is to cover self-funded plans that are not regulated by ERISA, the municipalities, school districts are not regulated by ERISA and I can't find a reason to distinguish between those self-funded groups from these state union groups that are self-funded. I'm aware of no self-funded governmental plan in the State of Alaska, which has failed financially. Their concerns about this in-depth actuarial reporting seem to be unwarranted given the fact that they are already providing actuary reports to the state, that post their financial statements. That information is available to the state and they are not suffering financial at this point. They are well-run trusts with well-trained and diligent fiduciaries who are relying on the advice of advisors who carry professional diligence insurance, malpractice insurance, et cetera and are reviewed at least every other year by the trust for whether they're providing the services they are hired to provide. I agree with Mr. Puschak that this is not a situation where it's broken; it really does not need fixing. It's adding financial burden to the trust, which is unwarranted. They already provide equal or better coverage than the state plan is providing. By imposing the Division of Insurance into the processes of the Board of Trustees, I think it would enable them from providing a plan best suits their participants. These plans don't go blithely about their plan decisions; they conduct independent and scientific surveys to determine what their participants want and I think you've heard testimony that they respond to those requests and desires by their participants and they fit it into the limited budgets that they have available to provide an excellent health plan. Speaking to the appeals process, and again, I think Ms. Hall's testimony confirmed what we had already suspected - that the concerns are raised by a very small percentage of participants stemming from the Anchorage area PPO arrangement and from the appeals process. I can't find anything in this Senate bill, which would redress either of those two issues. There's no language in the bill that would change either the PPO or the appeals process. The bill just adds expense and unnecessary oversight and reporting requirements. Ms. Hall also referenced two other groups, which are non-State of Alaska employees participating in the trust. That is not the case for ASEA Local 52 Trust, but it is the case for Public Employees Local 71. Public Employees 71 has the Municipality of Anchorage employees who are represented by PE 71, Anchorage School District employees who are represented by PE 71 and the Haines Borough and City of Haines employees who are represented. Those groups would be adversely impacted by this decision, whereas they aren't even in the target of the proposed legislation, which I think, would be unfair. We also have responded, both last April and last March respectively for each trust, to a very in-depth request for information by the Division of Insurance. We complied with the request and provided in-depth information about the operations of the trust, how they do comply voluntarily with the ERISA standards, training, provided trust agreements, letters of agreement, plan booklets, discussed the fact that the annual audits at least for ASEA are posted on their website. The information is readily available. So, I'm at a little bit of a loss that there is a question as to how these funds operate at this juncture. But, just in summary, there are numerous hopelessly ambiguous sections in this bill, which would make it virtually impossible to comply with any certitude. In addition, the bill requires verifications, as Ms. Savoie had pointed out, from actuaries, which an actuary could not undertake without becoming a co- fiduciary over the trust and I think that's highly unlikely at any cost that an actuary would undertake that position. So, based upon these concerns and representations, it's my hope that you as a committee will delete the bill of Sections 28 and 29 and I'm happy to take any questions you may have. 2:28:20 PM CHAIR BUNDE commented that current the PERS and TRS system was referenced earlier and he hoped everyone's goal was not to cast any aspersion on the people who manage those funds currently, but to make sure the state doesn't end up with a deficit problem like those funds have. He asked if some level of bonding would be appropriate. MS. STOLL replied that currently the ASEA trust has a $4 million bond in place and didn't see having 10 percent of annual claims as being necessary. She said that all year long these boards go through the process of evaluating their reserves and that the people who manage the trusts are extremely sophisticated being trained through the International Foundation of Employee Benefits. The funds are managed very reasonably. MS. STOLL said that she wasn't aware of any self-funded governmental plan in Alaska, which has failed financially. "These funds are both doing extremely well and to coin Mr. Puschak's statement, "It's not broken, it doesn't need fixing." CHAIR BUNDE announced that there were no further people to testify and set the bill aside to work on a CS.