Legislature(2005 - 2006)BELTZ 211

04/14/2005 03:30 PM STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved CSHB 116(JUD) Out of Committee
Bills Previously Heard/Scheduled
Moved CSSB 12(STA) Out of Committee
Moved SCS CSHB 95(STA) Out of Committee
Moved CSSSSB 24(STA) Out of Committee
             SB 94-STATE EMPLOYEE HEALTH INSURANCE                                                                          
CHAIR THERRIAULT announced SB 94 to be up for consideration.                                                                    
3:52:34 PM                                                                                                                    
SENATOR  FRED  DYSON,  Sponsor,  thanked  Senator  Davis  as  co-                                                               
sponsor. He described the legislation  as significant to Alaskans                                                               
and  said   it  might  have   a  most  salutary  affect   on  the                                                               
accelerating cost of medical care and the state budget.                                                                         
He suggested that  tens of millions of dollars could  be saved by                                                               
moving  to health  savings accounts.  Recent federal  legislation                                                               
makes it possible  for individuals to put pre-tax  dollars into a                                                               
high  deductible  health plan  as  a  part  of a  health  savings                                                               
He reported  that in certain  instances the savings have  been as                                                               
high  as  40  percent.  Health savings  accounts  are  attractive                                                               
because:  money that  isn't used  for health  care may  be rolled                                                               
forward; the money may be  invested in any type investment scheme                                                               
and   may  be   used  for   retirement;  individuals   are  given                                                               
responsibility and  incentive to make good  decisions about their                                                               
own health care.                                                                                                                
He said he  would like the committee to hear  from experts in the                                                               
3:55:34 PM                                                                                                                    
JIM FROGUE,  Project Director, Center for  Health Transformation,                                                               
advised  that the  views  he  would express  were  his alone  and                                                               
didn't necessarily reflect center policy.                                                                                       
Because the  American work  force is  mobile and  specialized and                                                               
huge corporations  no longer employ  workers for life,  it's time                                                               
to move to defined contributions  and away from defined benefits.                                                               
Health savings accounts as the wave of the future, he asserted.                                                                 
Health  savings   accounts  offer   the  following   benefits  to                                                               
   · Maximize the choice of health care providers and all                                                                       
     providers take cash.                                                                                                       
   · Portable between jobs and changes in employment status.                                                                    
   · Less expensive to buy insurance with a high deductible                                                                     
     health plan.                                                                                                               
   · Provide individuals incentive to use health care services                                                                  
   · Create push toward transparency in quality and pricing.                                                                    
   · Provide potential for young workers to accumulate a nest                                                                   
The  Rand Corporation  Health Insurance  experiment followed  the                                                               
medical  habits  of 7,000  people  in  6 cities  from  1974-1982.                                                               
Participants were  placed in 4 different  insurance arrangements.                                                               
At one  extreme a group had  every dollar of health  care covered                                                               
by  the plan.  At  the other  extreme  the group  had  a 95%  co-                                                               
insurance  payment of  up to  $1,000. The  researchers found  the                                                               
   · Families with free medical coverage spent 50% more than                                                                    
     families on the least generous plan.                                                                                       
   · Hospital admission rates were 30% to 50% higher for those                                                                  
     in the free plan than for those in the other groups.                                                                       
The researchers reached the following conclusions:                                                                              
   · The use of medical services responds to the amount paid                                                                    
   · "The average persons health changed very little despite                                                                    
     rather large changes in use caused by the insurance plan."                                                                 
In designing  health savings account options  for state employees                                                               
he encouraged the following to maximize enrollment:                                                                             
  · Discriminate in favor of low-income and unhealthy workers.                                                                  
   · Provide wide dissemination of information so there is                                                                      
     transparency of pricing and quality.                                                                                       
  · Legislators should enroll to show faith in the new system.                                                                  
In conclusion  he described  a 20-year old  worker with  a $2,000                                                               
deductible  health savings  account.  If  the worker  contributed                                                               
$2,000  and spent  $1,000 every  year for  40 years,  the account                                                               
would grow to $127,000 if a  5 percent yield were assumed. That's                                                               
the kind of retirement security  most people want, he said. "This                                                               
is the answer to the health care crisis in the United States."                                                                  
4:12:55 PM                                                                                                                    
CHAIR  THERRIAULT  asked  him  to   go  over  the  difference  in                                                               
MR.  FROGUE  emphasized  that  so  far  this  is  his  own  idea.                                                               
Basically the  idea is to  allow a  higher match to  lower income                                                               
and or ill workers. He offered the following example:                                                                           
     A  single person  making $22,000  per  year would  only                                                                    
     have  to pay  $53 per  month pre-tax  to fund  a health                                                                    
     savings  account up  to a  maximum allowable  amount of                                                                    
     $2,650 in 2005.  That's assuming that with  some of the                                                                    
     savings  the state  got  for moving  to  a much  higher                                                                    
     deductible policy it would put  $750 for free into that                                                                    
     worker's  account. Subtract  that  from  $2,650 -  that                                                                    
     equals $1,900. If you offer a  2 to 1 match the monthly                                                                    
     contribution would be about $53  pre tax. After federal                                                                    
     tax was taken  out that would probably be  about $40 to                                                                    
CHAIR  THERRIAULT   noted  there  were  no   questions  from  the                                                               
4:17:13 PM                                                                                                                    
SENATOR DYSON  asked if health  insurance premiums could  be paid                                                               
out of a health saving account.                                                                                                 
MR. FROGUE replied no.                                                                                                          
SENATOR DYSON  questioned whether he  was aware of any  unions or                                                               
union  workers who  had embraced  the concept  of health  savings                                                               
MR. FROGUE answered no then gave  an example why he believes that                                                               
health  savings  accounts  would  be  most  beneficial  to  union                                                               
SENATOR DYSON  asked if it's  correct that if an  employer spends                                                               
$600 to  $800 a month to  ensure an employee and  family and that                                                               
employee chooses a health savings  account with a monthly premium                                                               
of  $200 or  $300,  the  employer could  offer  the employee  the                                                               
option  of taking  the savings  the employer  has in  wages or  a                                                               
contribution to the employee's health savings account.                                                                          
MR. FROGUE said that's true.                                                                                                    
4:22:52 PM                                                                                                                    
CHAIR  THERRIAULT said  he  understands that  you  might want  to                                                               
offer a higher  match for lower salaried employees  but he wasn't                                                               
sure how it would work  for less healthy employees. He questioned                                                               
whether a determination on match  would be made based on evidence                                                               
of a pre-existing condition.                                                                                                    
MR.  FROGUE said  he was  thinking about  someone who  had higher                                                               
costs  such as  a diabetic.  As far  as pre-existing  conditions,                                                               
this isn't  about medically underwritten policies.  This is about                                                               
group policies with a higher deductible plan, he said.                                                                          
CHAIR THERRIAULT  asked why every  employee wouldn't ask  for the                                                               
higher match.                                                                                                                   
MR.  FROGUE responded  the  matching  idea is  his  own and  it's                                                               
simply  a matter  of offering  an incentive  to people  that have                                                               
higher costs to encourage them to take advantage of the match.                                                                  
There were no further questions for Mr. Frogue.                                                                                 
CHAIR THERRIAULT asked Mr. Beagle to testify.                                                                                   
4:26:20 PM                                                                                                                    
SPENCER BEAGLE, independent insurance  agent in Alaska and member                                                               
of  Alaska  Health  Underwriters Association,  reported  that  he                                                               
markets health savings accounts  to individuals and small groups.                                                               
He  asked whether  the state  contributes  toward the  employees'                                                               
portion or cost of the health insurance.                                                                                        
SENATOR DYSON replied the employer could do either or both.                                                                     
MR. BEAGLE asked if state employees  pay any portion of their own                                                               
health insurance.                                                                                                               
SENATOR DYSON said yes.                                                                                                         
MR. BEAGLE asked if it's a percentage or a flat dollar amount.                                                                  
SENATOR DYSON  said he  wasn't sure  but he though  it is  a flat                                                               
dollar amount.  He asked him to  talk about the type  of products                                                               
industry is marketing that would be available in Alaska.                                                                        
MR. BEAGLE responded  he deals with small groups  and isn't aware                                                               
of any  large group  markets for  health savings  accounts. Large                                                               
groups are  those with more  than 50 employees. For  small groups                                                               
he  has  three different  insurance  carriers  whose programs  he                                                               
markets to employers.                                                                                                           
He's found  that in switching  from a traditional  true indemnity                                                               
plan to a  health savings account program  the employer typically                                                               
saves close  to 50% of the  original premium. He gave  an example                                                               
and said that  employer used some of the savings  and funded part                                                               
of the employees' depository account,  which more than offset the                                                               
employees' higher deductible. It was  a win-win situation for the                                                               
employee and employer.                                                                                                          
Health savings accounts  on the individual market are  a good way                                                               
for individuals to become self-insured.  It allows individuals to                                                               
put  away pretax  dollars  and fund  their  own health  insurance                                                               
without the  use-it-or-lose-it provision. It's sort  of a medical                                                               
IRA and  it simply makes sense  to have a high  dollar deductible                                                               
plan  where you  protect  your major  assets in  the  event of  a                                                               
catastrophic condition.                                                                                                         
MR. BEAGLE  questioned whether the  state is looking  at becoming                                                               
self-insured or is it looking at an indemnity carrier.                                                                          
4:31:30 PM                                                                                                                    
SENATOR  DYSON   responded  it's  been  disappointing   that  the                                                               
Murkowski  Administration hasn't  jumped  on the  idea of  health                                                               
savings accounts. Present legislation  requires the state to come                                                               
up with an  option for state employees, which  would provide your                                                               
industry with  the potential for 40,000  customers additional, he                                                               
MR.  BEAGLE questioned  whether  there would  be  just one  group                                                               
SENATOR DYSON said it's not a given.                                                                                            
MR. BEAGLE said there are  many individual plans available and if                                                               
the state continues  to contribute at the same  level whether the                                                               
employee  participates in  the health  savings account  or not  a                                                               
portion could be placed in the employee depository account.                                                                     
SENATOR DYSON suggested that he  and others in the industry offer                                                               
the state a good package for the group of 40,000 employees.                                                                     
MR. BEAGLE clarified that he's  an insurance broker/agent and not                                                               
a company, but he didn't see  any problem with that. He said he'd                                                               
be  happy  to contact  carriers  and  ask  them to  put  together                                                               
proposals for state employees.                                                                                                  
4:34:42 PM                                                                                                                    
CHAIR  THERRIAULT observed  that the  state has  policy calls  to                                                               
make before it goes in that direction                                                                                           
PETER  ROVERUD, Deloit  Consulting, informed  the committee  that                                                               
Deloit  Consulting  has  been the  benefits  consultant  for  the                                                               
Alaska Retirement and  Benefits Office for a number  of years. He                                                               
offered  the opinion  that  health savings  accounts  are a  good                                                               
Currently state employees have a  choice of three different plans                                                               
that are self-funded through the  Retirement and Benefits Office.                                                               
Because the  premiums and benefits  for FY  06 have been  set, he                                                               
warned  that the  legislation  could have  an  adverse impact  on                                                               
those  rates  if health  savings  accounts  were implemented  for                                                               
There  is  concern associated  with  the  potential for  offering                                                               
health savings accounts in 2006 as  a forth option. The reason is                                                               
that  high deductible  plans are  frequently  more attractive  to                                                               
young or  healthy people  so some  of those  people that  have no                                                               
claims would choose  to move into that  plan. This anti-selection                                                               
could impact all the premiums in 2006.                                                                                          
Another comment is that health  savings accounts are a relatively                                                               
new  concept so  there is  an informational  challenge associated                                                               
with educating people. That's been  demonstrated in the questions                                                               
and answers put forth in the hearing today, he said.                                                                            
Finally,  the tools  aren't in  place  yet for  knowing how  much                                                               
different providers charge for particular procedures.                                                                           
Although  health savings  accounts  will become  more popular  in                                                               
years to  come, less  than 5% of  the population  participates in                                                               
this kind of plan today.                                                                                                        
4:38:07 PM                                                                                                                    
SENATOR  KIM  ELTON asked  if  the  possible impact  on  premiums                                                               
wouldn't  go  beyond  2006  if  high  deductible  health  savings                                                               
accounts were implemented. He assumed  that if you take young and                                                               
healthy people out  of the other three plans the  costs for those                                                               
plans would be higher in out years as well.                                                                                     
MR.  ROVERUD said  his comment  stemmed  from the  fact that  the                                                               
premiums had  already been set so  a shift to the  new plan might                                                               
result in incremental  costs to the system.  He acknowledged that                                                               
the costs could be higher in the out years as well.                                                                             
SENATOR  ELTON pointed  out that  the bill  says the  state shall                                                               
provide a high  deductible plan and the employee  may establish a                                                               
health savings  account. How many  employees might choose  a high                                                               
deductible plan  and not establish  a health savings  account, he                                                               
asked.  They could  pay tax  on  the money  and then  use it  for                                                               
something other than a health savings account.                                                                                  
MR.  ROVERUD replied  the details  haven't been  defined, but  he                                                               
didn't  believe the  proposed legislation  says  the state  would                                                               
continue  to contribute  the same  amount that  it's contributing                                                               
today.  The  Office of  Retirement  and  Benefits would  have  to                                                               
decide  what  the plan  would  look  like,  he  said. As  far  as                                                               
selecting the  high deductible plan  and not setting up  a health                                                               
savings  account,  his experience  is  that  most  do set  up  an                                                               
account. He  suggested the Retirement  and Benefits  Office could                                                               
help  employees take  the option  to  set up  the health  savings                                                               
account.  Not taking  that option  could have  a heavy  financial                                                               
impact in the event of a serious accident or illness.                                                                           
SENATOR ELTON asked if it would  be wise for the state to require                                                               
employees to establish a health  savings account if they select a                                                               
high deductible plan.                                                                                                           
MR. ROVERUD said that would probably be a good idea.                                                                            
4:42:40 PM                                                                                                                    
SENATOR  CHARLIE HUGGINS  asked for  information on  the "Section                                                               
125 plan."                                                                                                                      
MR.  ROVERUD  explained  a Section  125  FSA  (Flexible  Spending                                                               
Account) is  considered a qualified account.  Currently the state                                                               
offers  flexible   accounts.  Employees   couldn't  have   a  FSA                                                               
alongside a  HSA unless  the FSA was  limited purpose  meaning it                                                               
could  only be  used for  ancillary payments  for such  things as                                                               
vision, dental or preventative care benefits.                                                                                   
CHAIR THERRIAULT asked Ms. Hall to come forward.                                                                                
4:44:20 PM                                                                                                                    
LINDA HALL, Director,  Division of Insurance, said  SB 94 doesn't                                                               
affect  the agency,  which  regulates  insurers offering  private                                                               
insurance  plans. She  said  she is  seeing  more health  savings                                                               
account products in the marketplace in Alaska and other states.                                                                 
Health savings accounts  are becoming more popular  with not just                                                               
the  traditional  insured  populations. There  is  evidence  that                                                               
currently uninsured small employers  have determined that through                                                               
the  cost of  these  products  they can  afford  to offer  health                                                               
insurance for employees.                                                                                                        
Not  only is  the  cost  savings of  the  health insurance  piece                                                               
attractive, but there's also an  emphasis on cost containment. As                                                               
people become more  involved in decisions about  their own health                                                               
care  they are  much  more likely  to pay  attention  to cost  of                                                               
service. That's one of the  benefits of this type of arrangement,                                                               
she said.                                                                                                                       
4:46:49 PM                                                                                                                    
SENATOR DYSON  offered the opinion  that health  savings accounts                                                               
are a  huge option for  non-profits and are likely  to profoundly                                                               
reduce the number of uninsured  people in the state. He's looking                                                               
at ways for Alaskans to  contribute their permanent fund dividend                                                               
to their health savings account.                                                                                                
CHAIR THERRIAULT asked Ms. Millhorn to come forward.                                                                            
MELANIE MILLHORN, Director, Division  of Retirement and Benefits,                                                               
said  the  division  supports vehicles  such  as  health  savings                                                               
accounts  as well  as the  opportunity for  cost containment  and                                                               
cost savings  for the active  plan. The division  believes health                                                               
savings  accounts go  hand in  hand with  consumer driven  health                                                               
care.  Research indicates  that this  is a  powerful vehicle  for                                                               
employers to contain healthcare costs.                                                                                          
The  compounded  increases in  the  retiree  health plan  average                                                               
about 10%. For FY 06 the  increase for the active plan is 10.05%.                                                               
For the  three separate plans  the member contribution  amount is                                                               
$820.  If a  member  selects the  economy  plan and  preventative                                                               
dental, no  out of  pocket deduction occurs.  If the  standard or                                                               
premium plan  is selected,  the member  pays the  buy-up portion.                                                               
For the standard  plan the cost is $898 per  member/month and for                                                               
the premium plan its $980 per member/month.                                                                                     
Because premiums will increase year-to-year,  this is the kind of                                                               
vehicle to  look at  and pursue.  The agency  would like  to work                                                               
with Deloit Consulting to develop  a design for a high deductible                                                               
"For 2004  the claims experience  for our select benefits  is $50                                                               
million and  we need to  be able to  use any mechanism  and those                                                               
instruments available  to us to  be able to reduce  those costs,"                                                               
she said.                                                                                                                       
SENATOR  DYSON  acknowledged  there   is  justification  for  the                                                               
administration  having moved  slowly, but  it's also  unfortunate                                                               
that  12  new  bargaining  agreements   have  been  entered  into                                                               
recently, which  means that offering  a new plan will  be limited                                                               
to  when  those  contracts  come  up again.  He  asked  how  many                                                               
employees aren't under a bargaining unit.                                                                                       
MS.MILLHORN said about  5,300 are under select  benefits, but she                                                               
isn't sure how many are under non-covered.                                                                                      
SENATOR DYSON said with this  legislation the department would be                                                               
encouraged to  work on  offering products to  the people  who are                                                               
under a bargaining unit as well as those who are not.                                                                           
He  reiterated this  is a  win-win situation.  Employees get  the                                                               
advantage of  portability and the  opportunity to  make decisions                                                               
for themselves;  providers get paid  right away; and  the client-                                                               
patient is given incentive to carefully review their bills.                                                                     
He  urged  the  committee  to  let  his  staff  know  what  other                                                               
information it would like.                                                                                                      
CHAIR THERRIAULT asked if the  rates for employees not covered by                                                               
a collective bargaining  agreement are negotiated out  for a year                                                               
in advance.                                                                                                                     
MS. MILLHORN  answered no, but  the division would need  the time                                                               
to work  with Deloit Consulting  to create a new  high deductible                                                               
plan and reconfigure the existing plans.                                                                                        
CHAIR THERRIAULT  questioned whether there might  not be contract                                                               
problems with  the insurance provider.  The provider  has figured                                                               
the premium  that's required for  each employee knowing  the size                                                               
of  the pool  and if  a portion  of that  pool were  placed in  a                                                               
different plan that would probably have an impact.                                                                              
MS.  MILLHORN   said  AETNA,   the  third   party  administrator,                                                               
processes claims  based on a  per-member-per-month administrative                                                               
fee and that wouldn't change.                                                                                                   
SENATOR  ELTON  reiterated his  concern  that  some people  might                                                               
select the high  deductible option and not open  a health savings                                                               
account. That  would have a  ripple affect throughout  the Alaska                                                               
healthcare system. He  asked her to discuss that  with Deloit and                                                               
decide whether the options shouldn't be coupled.                                                                                
It's  also  important  to  know  and  understand  the  effect  on                                                               
employees  who  don't  opt  for  the  high  deductible  plan.  He                                                               
anticipates  that creating  a pool  of  younger and/or  healthier                                                               
people would  have a cost  to the people  in the other  pools. We                                                               
need  to  understand that  to  make  an intelligent  decision  on                                                               
whether or not this is a good idea at this time, he said.                                                                       
MS. MILLHORN  responded the division  expects a linkage  to occur                                                               
between a high deductible plan  and a health savings account. The                                                               
bill  links  the  two  and  the division  would  do  whatever  is                                                               
necessary to  ensure that the  plan's interests and  the members'                                                               
interests are protected. That must include a linkage.                                                                           
CHAIR THERRIAULT  warned that the  language doesn't say  that. It                                                               
says, "A  health plan with  a high deductible  that qualifies..."                                                               
It doesn't say requires.                                                                                                        
SENATOR ELTON read,  "The state shall allow the option  of a high                                                               
deductible and  employee may use  the tax advantages of  a health                                                               
savings account."                                                                                                               
MS.  MILLHORN  acknowledged she  misread  that  portion, but  her                                                               
expectation is that they would be linked.                                                                                       
CHAIR THERRIAULT noted that the  "shall" and "may" language is in                                                               
the findings and intent section  and it doesn't mean anything. He                                                               
was  looking  at  page  2,   line  20  that  contained  the  word                                                               
"qualifies" and that means "may."                                                                                               
SENATOR ELTON agreed.                                                                                                           
MS. MILLHORN said her response  to the second question related to                                                               
impact is  that that's a plan-design  plan-configuration analysis                                                               
that the benefit actuary would engage in.                                                                                       
MR. ROVERUD said  he and Ms. Millhorn have  had discussions about                                                               
pricing  so  that  other plan  offerings  wouldn't  be  adversely                                                               
impacted.  They would  work  with Ms.  Millhorn  to evaluate  the                                                               
SENATOR  ELTON said  depending on  how long  the study  takes, it                                                               
might be appropriate  to establish an effective date  if the bill                                                               
moves forward.                                                                                                                  
CHAIR THERRIAULT agreed.                                                                                                        
He informed Mr. Keller that findings  and intent don't show up in                                                               
statute  and the  purpose and  intent section  in the  bill reads                                                               
like  a sponsor  statement. He  asked if  any part  needed to  be                                                               
WES KELLER,  Staff to Senator  Dyson, stated there is  nothing in                                                               
the statement  of purpose  and intent included  in the  bill that                                                               
needs to be retained.                                                                                                           
CHAIR THERRIAULT asked if he would  agree that on page 2, line 20                                                               
the word  "qualifies" should be  changed to "required" so  that a                                                               
person who selects the high  deductible plan would be required to                                                               
establish a health savings account.                                                                                             
MR. KELLER agreed  then noted the drafting error on  page 2, line                                                               
1. After the word "cover" insert ", at a minimum,".                                                                             
CHAIR THERRIAULT asked about an effective date.                                                                                 
MR. KELLER responded  the sponsor has no  preconceived idea about                                                               
5:07:30 PM                                                                                                                    
CHAIR THERRIAULT set SB 94 aside for further action.                                                                            

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