Legislature(2005 - 2006)BELTZ 211
04/14/2005 03:30 PM STATE AFFAIRS
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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 account. 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 field. 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 individuals: · 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 appropriately. · Create push toward transparency in quality and pricing. · Provide potential for young workers to accumulate a nest egg. 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 following: · 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 out-of-pocket. · "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 matching. 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 $45. CHAIR THERRIAULT noted there were no questions from the committee. 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 accounts. MR. FROGUE answered no then gave an example why he believes that health savings accounts would be most beneficial to union workers. 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 said. MR. BEAGLE questioned whether there would be just one group plan. 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 idea. 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 2006. 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 plan. "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 options. 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 retained. 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 that. 5:07:30 PM CHAIR THERRIAULT set SB 94 aside for further action.