Legislature(2015 - 2016)BARNES 124

02/05/2016 03:15 PM LABOR & COMMERCE

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Audio Topic
03:18:05 PM Start
03:18:47 PM Overview: Department of Administration, Health Plans
05:00:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview & Update on Aetna by Dept. of TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                        February 5, 2016                                                                                        
                           3:18 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
MEMBERS ABSENT                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
OTHER MEMBERS PRESENT                                                                                                         
Representative Max Gruenberg                                                                                                    
COMMITTEE CALENDAR                                                                                                            
OVERVIEW:  DEPARTMENT OF ADMINISTRATION~ HEALTH PLANS                                                                           
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
JOHN BOUCHER, Deputy Commissioner                                                                                               
Office of the Commissioner                                                                                                      
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "Alaska Department of Administration Health Plans,"                                                                   
dated 2/5/16.                                                                                                                   
MICHELE MICHAUD, Chief Health Official                                                                                          
Central Office                                                                                                                  
Division of Retirement and Benefits                                                                                             
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Answered questions  during the  PowerPoint                                                             
presentation  entitled,  "Department   of  Administration  Health                                                               
Plans," dated 2/5/16.                                                                                                           
ACTION NARRATIVE                                                                                                              
3:18:05 PM                                                                                                                    
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting to  order at 3:18 p.m.   Representatives Olson,                                                               
Hughes, LeDoux, Tilton,  Kito, and Josephson were  present at the                                                               
call to order.  Representative  Colver arrived as the meeting was                                                               
in progress.  Representative Gruenberg was also present.                                                                        
^OVERVIEW:  DEPARTMENT OF ADMINISTRATION, HEALTH PLANS                                                                          
     OVERVIEW:  DEPARTMENT OF ADMINISTRATION, HEALTH PLANS                                                                  
3:18:47 PM                                                                                                                    
CHAIR OLSON  announced that the  only order of business  would be                                                               
an overview by the Department of Administration on health plans.                                                                
3:19:12 PM                                                                                                                    
JOHN BOUCHER,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department of Administration,  provided a PowerPoint presentation                                                               
entitled,  "Alaska Department  of  Administration Health  Plans,"                                                               
dated  2/5/16.   Mr.  Boucher  informed  the committee  he  would                                                               
present  an overview  of  AlaskaCare Health  Plan,  and a  status                                                               
report   on  the   state's   largest   health  care   third-party                                                               
administrator, Aetna.   The Division  of Retirement  and Benefits                                                               
(DRB), Department of Administration  (DOA), administers a program                                                               
that covers  over 86,000 people  of which 80 percent  is enrolled                                                               
in  the retiree  plan and  20 percent  is in  the employee  plan;                                                               
retirees  and their  dependents  total about  70,000 people,  and                                                               
employees  and dependents  total about  16,700 people  [slide 2].                                                               
Currently,  the  division  administers ten  different  plans  for                                                               
employees and  retirees.   There are  three employee  medical and                                                               
prescription drug  programs, two dental programs,  and one vision                                                               
program, along  with a flexible  spending account;  for retirees,                                                               
there  are  the  retiree  medical   prescription  drug  plan,  an                                                               
optional package for  dental, vision, and audio,  and a long-term                                                               
care  program.   Soon  there  will  be  a  new plan  for  defined                                                               
contribution retirees.    Mr. Boucher  said all of the  plans are                                                               
managed by  the chief health  official and  a staff of  six, with                                                               
support  from DRB  [slide 3].   He  provided a  brief history  of                                                               
health insurance  in the  state, noting that  the state  has been                                                               
self-insured  since 1997,  and the  state  contracts with  third-                                                               
party  administrators to  process claims  and execute  the health                                                               
plans [slide 4].                                                                                                                
3:23:22 PM                                                                                                                    
REPRESENTATIVE   COLVER  asked   for   the   level  of   customer                                                               
satisfaction earned by Aetna as  the plan administrator, compared                                                               
to the previous administrator, Wells Fargo.                                                                                     
MR. BOUCHER  advised he would  respond to that  question shortly.                                                               
In further  response to Representative Colver,  he explained that                                                               
Moda is an  umbrella name used for multiple  companies; the state                                                               
employee dental  plan is a  contract with Oregon  Dental Service,                                                               
which  is a  separate entity  from Moda  Health Plan  Inc.   Moda                                                               
Health Plan  Inc., "is in the  process of being looked  at by the                                                               
division of insurance."                                                                                                         
REPRESENTATIVE HUGHES  asked whether  the members  of all  of the                                                               
health  care plans  are  put into  the same  pool  - which  would                                                               
reduce the cost  of care - or are in  separate pools, which keeps                                                               
the cost higher.                                                                                                                
MR.  BOUCHER said  actuarially,  members  are provided  different                                                               
rates  for different  risk  pools within  the  plans, thus  their                                                               
premiums are dependent upon the type of plan.                                                                                   
REPRESENTATIVE HUGHES  surmised premiums would be  cheaper if all                                                               
members were combined in one risk pool.                                                                                         
MR.  BOUCHER  explained  that  a number  of  factors  affect  the                                                               
employee benefit credit.   Some credits are  negotiated, and some                                                               
are not; in some cases it is a matter of collective bargaining.                                                                 
REPRESENTATIVE HUGHES concluded that  the state pays more because                                                               
members are  in different risk pools,  and negotiated separately.                                                               
She clarified that  her question was to whether the  state pays a                                                               
higher cost, because her understanding  is that larger risk pools                                                               
earn better rates.                                                                                                              
MR. BOUCHER agreed,  and further explained that  the retiree risk                                                               
pool and  the employee risk  pool garner a "blended  rate," which                                                               
is paid by employees' and retirees' separate funds.                                                                             
3:27:11 PM                                                                                                                    
REPRESENTATIVE HUGHES remarked:                                                                                                 
     Can you please clarify, is it  all one risk pool and it                                                                    
     is all  the same rates?   I  don't think it  is because                                                                    
     you said  they, they  negotiate different things.   I'm                                                                    
     just  trying to  look at  this and  think how  could we                                                                    
     save money.   And are  we doing  it in the  lowest cost                                                                    
     way, is my question.                                                                                                       
3:27:30 PM                                                                                                                    
MR. BOUCHER responded:                                                                                                          
     The risk pool  for all the employees is  one risk pool;                                                                    
     however, the amount of benefit,  or the amount that the                                                                    
     individual pays  into the plan,  is dependent  upon the                                                                    
     benefit that  they get, and  so it is  considered, from                                                                    
     an insurance  prospective I believe, one  risk pool for                                                                    
     the employees, and  one for the retirees.   The benefit                                                                    
     credit that  the employee is allowed  to provide toward                                                                    
     buying their  particular plan is,  can be  a negotiated                                                                    
CHAIR  OLSON  further  explained  that the  state  does  not  buy                                                               
insurance but buys reinsurance.   The state is self-insured up to                                                               
a  certain amount,  and pays  for  claims, except  it has  excess                                                               
insurance to cover very expensive  health issues for individuals;                                                               
in fact, it is one insurance  pool because insurance does not pay                                                               
until costs reach "upper layers."                                                                                               
MR.  BOUCHER added  that  the premiums,  and  reserves that  have                                                               
accumulated over time,  pay for claims and  the administration of                                                               
the plan.                                                                                                                       
REPRESENTATIVE  KITO questioned  how the  state covers  costs for                                                               
claims  and  administration, and  asked  for  the status  of  the                                                               
state's reserve.                                                                                                                
MR. BOUCHER answered briefly that  the state's reserves have been                                                               
shrinking in the  last 12 months, and he will  more fully address                                                               
this issue later  in the presentation.  He  directed attention to                                                               
slide  5,  which illustrated  the  AlaskaCare  Health "spend"  in                                                               
fiscal year 2015 (FY 15), and FY 16 through January, 2016.                                                                      
3:30:29 PM                                                                                                                    
MICHELE MICHAUD, Chief Health  Official, Central Office, Division                                                               
of Retirement  and Benefits, DOA,  clarified that  the AlaskaCare                                                               
Health spend  illustrated on slide  5 is based on  actual amounts                                                               
paid  for claims  for  this  time period,  rather  than when  the                                                               
claims were incurred.                                                                                                           
MR. BOUCHER  said the  total spend was  about $627.7  million for                                                               
retiree and active  employee claims in FY 15, and  there has been                                                               
a  general increase  for both  plans.   He expressed  surprise in                                                               
that  the   active  employee  plan  appears   to  have  increased                                                               
utilization,  which may  be explained  by uncertainty  within the                                                               
REPRESENTATIVE KITO  recalled that the new  provider was selected                                                               
because it was going to decrease  health care costs; in fact, his                                                               
constituents have  reported that  their claims and  coverage have                                                               
been denied, but costs continue to increase significantly.                                                                      
MR.  BOUCHER  expressed  his  belief  that  the  new  third-party                                                               
administrator  is  delivering  significant  network  savings;  he                                                               
added that national trends indicate  that a 9 percent increase is                                                               
not uncommon.  Also, he cited  a significant increase in the cost                                                               
of pharmaceuticals because of the introduction of new drugs.                                                                    
REPRESENTATIVE   LEDOUX   asked   what   the   state   pays   the                                                               
MR. BOUCHER  answered that  in FY 15  Aetna received  about $16.4                                                               
million  and in  FY  16 the  base  fee is  $15.5  million with  a                                                               
potential $3.6  million "at-risk" [of being  assessed penalties].                                                               
The contract  calls for "either  performance guarantees  or earn-                                                               
backs that have to be earned as part of an incentive."                                                                          
REPRESENTATIVE  LEDOUX asked  how  an  administrator earns  bonus                                                               
MR.  BOUCHER   explained  that  points   are  based   on  various                                                               
benchmarks  related to  services, such  as the  call center,  and                                                               
there are a  number of other performance guarantees  that have to                                                               
be met.                                                                                                                         
3:34:28 PM                                                                                                                    
REPRESENTATIVE  LEDOUX surmised  the  administrator earns  points                                                               
for holding down the amount the state spends.                                                                                   
MS. MICHAUD said there is a claims trend guarantee.                                                                             
REPRESENTATIVE  LEDOUX questioned  whether that  provision is  an                                                               
incentive for the administrator to deny valid claims.                                                                           
MS. MICHAUD  stated that most  of the performance  guarantees are                                                               
structured towards  claims accuracy  and timeliness,  which would                                                               
counteract denying claims to achieve the claims trend.                                                                          
REPRESENTATIVE JOSEPHSON asked  whether the aforementioned $627.7                                                               
million  is  money for  premiums  paid,  or charges  incurred  by                                                               
Alaskans for medical services.                                                                                                  
MS. MICHAUD  said $627.7  million was  paid for  medical services                                                               
received, not including administrative fees.                                                                                    
3:36:08 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  posed the  scenario of  six individuals                                                               
who pay  $1,400 per month each  for premiums, but do  not receive                                                               
services during one  month.  He asked whether there  was a simple                                                               
answer as to how Aetna used  the premiums that were paid by these                                                               
MS. MICHAUD  responded that Aetna  would not have the  money from                                                               
the  premiums; the  state retains  the premiums,  Aetna pays  the                                                               
claims, and  then bills the  state for  the amount of  the claims                                                               
CHAIR OLSON remarked:                                                                                                           
     The money from the premium  is aggregated, and then you                                                                    
     either have a stop loss, or  you have a limit where the                                                                    
     reinsurance kicks in, say $5  million in the aggregate,                                                                    
     or $10  million or whatever,  and then they  either get                                                                    
     100 percent  or get a  percentage, 75 or 80  percent, I                                                                    
     suspect you  guys probably  get 100.   But ...  all the                                                                    
     money goes  in and  their best  guess is,  whatever the                                                                    
     insurance  actually  kicks  in at,  that  they  collect                                                                    
     enough  premium   over  the   12  months  to   pay  the                                                                    
     anticipated claims.  ... The key  is trying to  get the                                                                    
     balance, to  where you collect enough  premium to cover                                                                    
     the  claims, you're  accurate,  and  that's what  keeps                                                                    
     the, ultimately  keeps the rates  down, is, if  we have                                                                    
     best guesses that turn out to be pretty accurate.                                                                          
3:38:26 PM                                                                                                                    
MR. BOUCHER returned  attention to a bar chart on  slide 6, which                                                               
indicated that  between FY  10 and FY  13 there  were significant                                                               
increases  in health  care costs.    To address  this trend,  the                                                               
previous   administration  adjusted   the  current   request  for                                                               
proposal (RFP); however,  due to the more  recent savings brought                                                               
by  the new  third-party  administrator's  larger network,  costs                                                               
were contained,  resulting in an  increase in  reserves available                                                               
to the  plan.   Therefore, a  policy decision  was made  to lower                                                               
rates  and gradually  deplete reserves.   In  mid-FY 15,  overall                                                               
claims began  to grow,  and the  present forecast  is that  FY 16                                                               
rates were set too low.  He  cautioned that there could be a very                                                               
small  reserve in  the beginning  of FY  17.   In forecasting  to                                                               
determine   appropriate  rates,   the   division  considers   the                                                               
following  four "levers":   plan  design changes  to affect  cost                                                               
trends;  negotiating  with  providers  on  the  cost  of  medical                                                               
services;    collective    bargaining   to    address    employee                                                               
contributions;  and   adjusting  employer  contributions.     Mr.                                                               
Boucher  turned  the  discussion   to  the  state's  third  party                                                               
administrator,  Aetna,   and  informed  the  committee   that  in                                                               
calendar  year 2015,  Aetna processed  approximately 2.9  million                                                               
medical and pharmacy claims, and  the average turnaround time was                                                               
approximately 14 calendar days.  Due  to a feature in the state's                                                               
health  care plan,  approximately  46 percent  of overall  claims                                                               
must be processed  by hand, which slows processing  time and adds                                                               
to  administrative  costs.    Year to  date  claims  accuracy  is                                                               
estimated  at approximately  97  percent,  indicating there  were                                                               
90,000  problems  [slide   7].    He  suggested   that  a  higher                                                               
percentage  of  auto-adjudicated  claims  would  lead  to  faster                                                               
processing and fewer errors.                                                                                                    
3:43:39 PM                                                                                                                    
REPRESENTATIVE  KITO  asked Mr.  Boucher  to  describe the  auto-                                                               
adjudicated  process, and  asked  what  percentage of  challenged                                                               
claims are reinstated after being reviewed by the state.                                                                        
MR.  BOUCHER responded  that  a  claim can  be  adjudicated by  a                                                               
computer-generated process,  or by  hand.  In  either case,  if a                                                               
claim  is denied,  and  is  appealed by  a  member,  there is  an                                                               
administrative  review  within  Aetna.   If  there  is  a  claims                                                               
processing error, the  claim is overturned by Aetna.   A Level II                                                               
appeal  can  be either  an  administrative-type  claim, which  is                                                               
reviewed  within  Aetna,  or a  clinical-type  appeal,  which  is                                                               
reviewed by a three-person  external review [organization] (ERO).                                                               
Furthermore, Level  II and  Level III claims  may be  reviewed by                                                               
the division.                                                                                                                   
3:46:03 PM                                                                                                                    
REPRESENTATIVE  LEDOUX   surmised  the  turnaround  time   of  14                                                               
calendar days  is the  period of time  between the  submission by                                                               
the physician and the payment by Aetna to the physician.                                                                        
MS. MICHAUD  said yes.  That  is the typical time  from the point                                                               
that the provider  submits the claim, to the time  the payment is                                                               
made to the provider or to the member.                                                                                          
REPRESENTATIVE LEDOUX  asked whether the contract  determines how                                                               
long the  state has to  pay Aetna,  after the state  receives its                                                               
MS.  MICHAUD  explained  the  division   receives  a  billing  of                                                               
submitted claims  daily from  the third-party  administrator, and                                                               
must pay within ten working days.                                                                                               
REPRESENTATIVE LEDOUX suggested that  holding the billing for ten                                                               
working days would garner the state interest on its money.                                                                      
3:48:05 PM                                                                                                                    
MR.  BOUCHER  expressed his  belief  that  invoices are  paid  as                                                               
promptly as  possible.  He  directed attention to slide  8, which                                                               
indicated the  total number of  appeals in 2015, for  the retiree                                                               
and employee plans:                                                                                                             
    · approximately 1,200 Level I appeals closed                                                                                
    · 131 Level II administrative appeals closed; 23 percent                                                                    
       overturn rate by Aetna on Level I and Level II                                                                           
       administrative appeals                                                                                                   
    · 52 other Level II appeals closed; 29 percent overturn rate                                                                
       by ERO on Level II appeals                                                                                               
    · 21 Level III appeals to the Office of Administrative                                                                      
       Hearings (OAH); 3 Level III appeals to superior court                                                                    
MR. BOUCHER  advised that all  Level III appeals are  first heard                                                               
by the division of retirement and benefits [slide 8].                                                                           
3:50:38 PM                                                                                                                    
REPRESENTATIVE LEDOUX asked  why some Level II  appeals are heard                                                               
by Aetna and some by ERO.                                                                                                       
3:51:04 PM                                                                                                                    
MR. BOUCHER responded  that appeals to ERO may  address whether a                                                               
procedure  is  medically  necessary.    In  further  response  to                                                               
Representative LeDoux,  he said other appeals  are administrative                                                               
in nature.                                                                                                                      
MS. MICHAUD further explained  that a non-clinical administrative                                                               
appeal that is reviewed  by Aetna may be due to  a math error, or                                                               
a question over the coordination of benefits.                                                                                   
REPRESENTATIVE KITO  asked for  the overturn  rate for  Level III                                                               
MS. MICHAUD said she would provide that information.                                                                            
REPRESENTATIVE HUGHES  questioned whether  ERO members  are truly                                                               
independent, or whether they receive compensation from Aetna.                                                                   
MS. MICHAUD  advised that Aetna contracts  with three independent                                                               
review organizations so that there is a rotation of ERO panels.                                                                 
3:53:28 PM                                                                                                                    
CHAIR  OLSON asked  whether  medical tourism  is  an option  with                                                               
MR. BOUCHER  said medical tourism  is not robust and  most claims                                                               
of  that type  are for  procedures  that are  not offered  within                                                               
Alaska;  however,  employers and  the  state  are examining  that                                                               
CHAIR OLSON said workers' compensation  carriers and major unions                                                               
do utilize that option.                                                                                                         
3:55:04 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON asked  for a  description of  the daily                                                               
invoice  for  claims that  is  received  by  the state  from  the                                                               
insurance provider.                                                                                                             
MR. BOUCHER  said he would  provide that information.   Returning                                                               
to the  appeal process, he noted  that the number of  appeals may                                                               
indicate  that  certain  benefits  of  the  plan  are  not  well-                                                               
understood, or there are misunderstandings,  and that there is an                                                               
area that  needs to be  addressed.  For example,  in chiropractic                                                               
and physical therapy,  there is a requirement  that for continued                                                               
treatment   after  a   number  of   visits,  there   must  be   a                                                               
determination of medical  necessity.  Appeals in  the category of                                                               
pharmacy may  be because  the drug  is not  covered, or  that the                                                               
prescription was filled too early.                                                                                              
REPRESENTATIVE LEDOUX asked, "... if  somebody is seeing a doctor                                                               
and the  doctor prescribes physical  therapy, in  what situations                                                               
are  you going  to  second-guess  the doctor  and  say that  that                                                               
physical therapy is not necessary?"                                                                                             
MS. MICHAUD answered  that there is a cap on  chiropractic in the                                                               
employee plan; for both plans,  there is a requirement that there                                                               
be  a significant  improvement in  bodily function  occurring and                                                               
that  is expected  to occur.   If  a member  is no  longer making                                                               
improvement, and  other responses  may be appropriate,  the claim                                                               
may  be reviewed  by  the  second level  of  external review  for                                                               
clinical appeals.   Aetna's decision, clinical  evidence, and the                                                               
evidence-based   medicine   guidelines   are   reviewed   by   an                                                               
independent doctor.                                                                                                             
REPRESENTATIVE  JOSEPHSON  observed  that limiting  coverage  has                                                               
always been  a subject for  misunderstanding about  the insurance                                                               
industry, and whether insurance covers "everything."                                                                            
MS.  MICHAUD agreed.   She  has heard  that up  to 30  percent of                                                               
health care  services received  in the  U.S. are  unnecessary and                                                               
potentially  harmful.    The  state  relies  on  its  third-party                                                               
administrator  to ensure  that evidence-based  medicine is  being                                                               
4:00:39 PM                                                                                                                    
CHAIR OLSON  asked whether  said reported  unnecessary procedures                                                               
include those that  are done to protect  doctors from malpractice                                                               
MS. MICHAUD was unsure.                                                                                                         
REPRESENTATIVE  LEDOUX, noting  that  she previously  lived in  a                                                               
rural  area, expressed  her concern  that insurance  benefits are                                                               
based  on   charges  that  are   deemed  usual,   customary,  and                                                               
reasonable  (UCR).     She  provided  an   example  of  receiving                                                               
treatment  in  Kodiak for  an  amount  "that's what's  usual  and                                                               
customary in  the area," but  which was not  paid in full  by the                                                               
insurance company.                                                                                                              
MS.  MICHAUD   acknowledged  that  a  provision   for  usual  and                                                               
customary fees  is in the state's  plan and is referred  to as "a                                                               
recognized  charge."    She  advised   that  this  is  a  problem                                                               
nationally, but more  so in Alaska.  Insurance  companies rely on                                                               
a  non-profit company  called FAIR  Health which  reviews billing                                                               
claims  from  all  of  the   payers  in  a  geographic  area  and                                                               
determines  the  prevailing  charge.    In  further  response  to                                                               
Representative  LeDoux,   she  said   there  are   five  separate                                                               
geographic areas  in Alaska; the  division hopes that  Aetna will                                                               
expand its  network, so more  rural clinics are included  and can                                                               
provide protection to members against a "balanced bill."                                                                        
REPRESENTATIVE  LEDOUX   asked  for  the  rulings   from  appeals                                                               
stemming from refusals to pay more than [a recognized charge].                                                                  
MS. MICHAUD stated  that the state changed  its recognized charge                                                               
terminology  effective in  January, [2016],  and has  not had  an                                                               
appeal proceed thus far.  Appeal  rulings at the Aetna level have                                                               
upheld  the  denial because  the  plan  documents the  recognized                                                               
charge, and  Aetna is  administering to the  plan document.   She                                                               
was unsure as  to whether a Level III appeal  has gone before OAH                                                               
or the superior  court related to the  aforementioned language in                                                               
the plan.                                                                                                                       
4:05:32 PM                                                                                                                    
REPRESENTATIVE HUGHES said  she was hearing of  problems from her                                                               
constituents, and gave  an example of a retiree  who was referred                                                               
by a doctor for physical therapy  for an extended period of time.                                                               
After accruing expenses of $10,000  to $20,000 for treatment, the                                                               
member was  told the  visits were not  covered by  insurance, and                                                               
was  left  with  the  responsibility  to  pay.    She  asked  why                                                               
notification to  the doctor, patient, and  physical therapist was                                                               
so delayed, allowing this situation to occur.                                                                                   
MS. MICHAUD  stated that the  state's plan relies on  the medical                                                               
necessity determination of  the third-party administrator; during                                                               
the switch  from one third-party administrator  to another, there                                                               
were changes in what is  considered medically necessary.  Because                                                               
of  the  number of  procedures  involved,  the division  was  not                                                               
immediately aware  of where differences  would occur, and  it did                                                               
not   communicate  sufficiently;   however,  Aetna,   unlike  the                                                               
previous  administrator, posts  its clinical  policy bulletins  -                                                               
which  outline what  is  medically necessary  -  online, and  the                                                               
bulletin  can be  used by  the patient  and provider  to see  how                                                               
Aetna determines what is medically necessary.                                                                                   
REPRESENTATIVE  HUGHES questioned  whether, after  the transition                                                               
from  one  third-party  administrator  to  another  is  complete,                                                               
notification will  be provided  to clinics,  physicians, physical                                                               
therapy  clinics,  and  patients;  further,  she  urged  that  if                                                               
notification was  not given during the  transition, the treatment                                                               
should be covered.                                                                                                              
MR. BOUCHER offered to review this situation.                                                                                   
REPRESENTATIVE HUGHES seeks to ensure  that all of those affected                                                               
during this period  of transition - or during a  future period of                                                               
transition - are  notified by the division in order  to prevent a                                                               
similar situation.                                                                                                              
MS.  MICHAUD  pointed  out  there was  an  article,  specific  to                                                               
chiropractic  and  physical  therapy, in  the  division's  April,                                                               
2015, newsletter  to all  members.  Further,  Aetna has  met with                                                               
the state  chiropractic association and some  physical therapists                                                               
to discuss its clinical policy bulletins.                                                                                       
4:10:44 PM                                                                                                                    
REPRESENTATIVE  HUGHES stressed  the importance  of communicating                                                               
with physicians because  that seems to be where  the breakdown of                                                               
communication is occurring.                                                                                                     
REPRESENTATIVE KITO gave an example  of a constituent who was not                                                               
informed of a pharmaceutical change  until a notice of nonpayment                                                               
for $50,000  was received  from their pharmacist.   In  a similar                                                               
manner,  neither the  patient nor  the pharmacist  were notified,                                                               
and he stated  that all should have been  notified immediately at                                                               
the time of the change.                                                                                                         
MR.  BOUCHER  acknowledged  that  the  transition  was  not  very                                                               
smooth, and  said the division  will work through issues  as they                                                               
REPRESENTATIVE   LEDOUX  inquired   as   to  how   a  change   in                                                               
administrator could change the terms of the insurance policy.                                                                   
4:13:38 PM                                                                                                                    
MR. BOUCHER  said, "And generally, it  should not.  I  agree with                                                               
you, so,  but there  are administrative  things that  happen when                                                               
different people are executing our plan."                                                                                       
REPRESENTATIVE LEDOUX  asked whether  a legal opinion  was sought                                                               
to determine what was legally in the terms of the policy.                                                                       
MS. MICHAUD  relayed that  there are  millions of  procedures and                                                               
codes and each cannot be identified  within a plan document.  She                                                               
restated that the  plan document relies on terms  such as medical                                                               
necessity, which  has historically been determined  by the claims                                                               
administrator.  Aetna's  aforementioned public clinical bulletins                                                               
are issued for both pharmacy and  medical, and provide a guide to                                                               
the  medical evidence  that  is used  to  make medical  necessity                                                               
determinations.  In addition,  the third-party administrator must                                                               
keep up with changes in medical science and pharmacology.                                                                       
REPRESENTATIVE  LEDOUX opined  that newsletters  are insufficient                                                               
notice of significant changes.                                                                                                  
REPRESENTATIVE TILTON asked who  determines whether a provider is                                                               
in a network.                                                                                                                   
MS.  MICHAUD   explained  that  third-party   administrators  are                                                               
affiliated with a network; for  example, HealthSmart, the state's                                                               
previous administrator,  contracted with Beech Street  to provide                                                               
the previous  MultiPlan network.   Aetna has its own  network and                                                               
contracts directly with providers;  however, a provider cannot be                                                               
forced to  join a network,  but must be  willing to abide  by the                                                               
terms of a network agreement.                                                                                                   
4:18:02 PM                                                                                                                    
CHAIR  OLSON added  that his  constituents  have many  complaints                                                               
about the network.                                                                                                              
MR.  BOUCHER assured  the committee  that the  administration was                                                               
sensitive to  problems with the  transition to Aetna,  and sought                                                               
to  establish  a baseline  of  overall  customer satisfaction  of                                                               
health  care delivery  through a  survey.   In August,  2015, DRB                                                               
commissioned  a study  by DSS  Research which  surveyed over  700                                                               
residents for a statistically valid  sample.  The survey included                                                               
562 retirees and 151 active  employee members, which reflects the                                                               
membership.    The survey  also  provided  demographics, such  as                                                               
retirees living outside  Alaska, to compare the  caliber of Aetna                                                               
services outside  of the  state.   In fact,  in terms  of overall                                                               
satisfaction, the  percentage of "not  too satisfied" or  "not at                                                               
all  satisfied" varied  between those  living in  and out  of the                                                               
state.    Mr.  Boucher  suggested this  could  be  attributed  to                                                               
network challenges in Alaska [slide 10].                                                                                        
REPRESENTATIVE  JOSEPHSON returned  attention  to  slide 5  which                                                               
indicated  that it  costs  the  state four  times  more to  cover                                                               
retirees as it does to cover  active employees.  He surmised that                                                               
Medicare  would pay  90  cents to  the state's  10  cents of  the                                                               
benefit of a retiree 65 years old and over.                                                                                     
MR.  BOUCHER  said  correct.     However,  [under-65  years  old]                                                               
retirees are very expensive to  cover.  Overall, the retiree plan                                                               
does  benefits  from the  number  of  baby  boomers who  are  now                                                               
eligible for Medicare,  and that is holding down  "a trend cost."                                                               
Furthermore, Medicare does  not cover those who  live outside the                                                               
4:23:25 PM                                                                                                                    
MS.  MICHAUD   added  that   the  plan   is  not   secondary  for                                                               
prescriptions, thus pharmaceutical costs for retirees are high.                                                                 
MR. BOUCHER advised  that pharmacy has just increased  to over 50                                                               
percent  of  the state's  total  spend,  which  is a  reason  for                                                               
REPRESENTATIVE  HUGHES asked  why the  percentage of  members who                                                               
are living in  Alaska, and are dissatisfied with  Aetna, is twice                                                               
the percentage of  members living outside of Alaska,  and who are                                                               
MR.  BOUCHER listed  a variety  of  reasons gleaned  from a  test                                                               
field:    how claims  were  processed;  confusing explanation  of                                                               
benefit  (EOB)  forms,  particularly  for  retirees  coordinating                                                               
coverage with  Medicare; a  dislike for  administrative policies;                                                               
and poor customer service.                                                                                                      
CHAIR OLSON questioned  whether the survey was  proportioned on a                                                               
population basis.                                                                                                               
MR. BOUCHER said the survey was  random, but he was unsure of the                                                               
geographical representation,  except for  those living  inside or                                                               
outside of the state.                                                                                                           
CHAIR OLSON  observed that  when he conducts  a poll  he contacts                                                               
450 to  500 residents  with a  margin of error  at 4  percent; an                                                               
aggregated  survey  may  represent  the whole  state,  but  would                                                               
underrepresent the Bush.                                                                                                        
MR. BOUCHER stated that the  survey was not intended to represent                                                               
each individual geographic  area within the state.   He cautioned                                                               
that  a  survey that  isolated  geographic  areas would  be  very                                                               
expensive.   He spoke  of efforts  to improve  the survey  in the                                                               
future.   The survey  also reported  on member  satisfaction with                                                               
the pharmacy  plan, which indicated  that levels  of satisfaction                                                               
were similar without  regard to demographics:   Between 8 percent                                                               
and 10  percent of the  total population was "not  too satisfied"                                                               
or   "not  at   all  satisfied."     Regarding   pharmacy,  those                                                               
dissatisfied   reported:     dissatisfaction  with   the  benefit                                                               
coverage; difficulty in using the  mail order service; how claims                                                               
were processed;  a dislike of  administrative policies;  and poor                                                               
customer  service  [slide 11].    Mr.  Boucher related  that  the                                                               
division heard  the Aetna Concierge  call center was  not helping                                                               
members, thus the  survey was directed to  that particular issue;                                                               
in fact, 25  percent to 30 percent were unhappy  with call center                                                               
service.   He cautioned that not  all of those surveyed  used the                                                               
call center and  the margin of error was higher  [slide 12].  The                                                               
Aetna Concierge  call center team in  Fresno, California, handles                                                               
approximately 89,000 calls per year.   The call center earned the                                                               
following ratings:  94 percent  first call resolution percentage;                                                               
98  percent quality;  1.2 percent  abandonment  rate; 85  percent                                                               
answered  within 30  seconds [slide  13].   The division  was not                                                               
satisfied with the  call center performance, and  the call center                                                               
was assessed  a penalty of  $546,040.  In addition,  the division                                                               
contracted  with Segal  Co., to  conduct a  neutral party  review                                                               
that  found  that  overall  Aetna   is  providing  good  service;                                                               
however, the  customer service  level is  not as  promised [slide                                                               
CHAIR OLSON suggested that call  center staff and all third-party                                                               
administrator  employees provide  identification to  members when                                                               
they call.                                                                                                                      
4:34:27 PM                                                                                                                    
REPRESENTATIVE  LEDOUX recalled  not  being able  to  speak to  a                                                               
person for  the first  ten minutes  during a call  to one  of the                                                               
call centers.                                                                                                                   
MR. BOUCHER  expressed the division's  view that the  call center                                                               
is the face  of the plan, and  a core value is  for the customers                                                               
to  be  treated  well.     The  state,  through  its  performance                                                               
guarantees,  has made  clear  to Aetna  its  expectations and  in                                                               
response,   Aetna  is   providing  additional   customer  service                                                               
training.   One of the complaints  has been that members  have to                                                               
repeat calls, and then receive  conflicting information, so Aetna                                                               
will develop  a tool to  track repeat  calls; he opined  that the                                                               
state's  message  is  getting  through  to  Aetna,  and  he  gave                                                               
examples of improved service.                                                                                                   
REPRESENTATIVE KITO returned attention  to the $16.4 million paid                                                               
to Aetna in FY  15, and the base fee of $15.4  million for FY 16;                                                               
he asked  whether that amount  is over  and above the  expense of                                                               
their activity and if so,  how Aetna's administration of the plan                                                               
is paid for.                                                                                                                    
MR. BOUCHER responded:                                                                                                          
     I guess  I can best describe  this as:  We  have a base                                                                    
     fee,  and,   and  fees  at-risk.     And  depending  on                                                                    
     different aspects  of their performance, they  would be                                                                    
     rewarded or penalized, based upon that.                                                                                    
REPRESENTATIVE KITO clarified:                                                                                                  
     So ...  my question really is:   Is the fee,  the $15.5                                                                    
     million  their   entire  cost  for   administering  the                                                                    
     program, or  is that, the,  over and above the  cost of                                                                    
     administering the program?                                                                                                 
4:39:37 PM                                                                                                                    
MR.  BOUCHER said  he could  not answer  that question  but would                                                               
provide the answer if possible.                                                                                                 
MS. MICHAUD, in  response to Chair Olson, said  the contract with                                                               
Aetna is  not finalized, but  the state  has a 16-page  letter of                                                               
agreement with Aetna  and the full contract will  be much larger.                                                               
The letter of agreement is not  confidential and is posted on the                                                               
division's web site.                                                                                                            
MR.  BOUCHER turned  to other  performance issues  with Aetna  in                                                               
2014, and pointed  out that the total penalties  were nearly $1.2                                                               
million.    Because of  that,  the  contract with  Aetna  remains                                                               
unsigned  and the  administration  is negotiating  with Aetna  to                                                               
include additional  performance guarantees  for 2015  [slide 15].                                                               
Mr.   Boucher   restated   that   Aetna   won   the   third-party                                                               
administrator RFP because of the  value of its network, and about                                                               
600 additional providers  have been added to the  network in 2014                                                               
and 2015 [slide 16].                                                                                                            
REPRESENTATIVE  JOSEPHSON recalled  that in  2013, there  was one                                                               
orthopedic surgeon on the preferred provider list in Anchorage.                                                                 
MR.  BOUCHER acknowledged  some providers  are very  reluctant to                                                               
join  the  network.    In   further  response  to  Representative                                                               
Josephson,  he  said  he  did   not  know  their  motivation  [to                                                               
refrain]; however,  specialists' fees can  be 300 percent  to 400                                                               
percent higher in Alaska when compared to procedures elsewhere.                                                                 
REPRESENTATIVE  COLVER asked  whether patients  are traveling  to                                                               
Seattle for care because of the lack of preferred providers.                                                                    
4:45:13 PM                                                                                                                    
MR. BOUCHER said he was unsure of the volume.                                                                                   
REPRESENTATIVE   HUGHES  asked   whether   there  are   preferred                                                               
providers outside of the state.                                                                                                 
MR. BOUCHER  said yes.   They are part  of the Aetna  network and                                                               
also  deliver care  to  many  retirees who  live  outside of  the                                                               
REPRESENTATIVE LEDOUX  questioned whether  a member who  can show                                                               
that a  procedure is cheaper  outside of Alaska could  have their                                                               
plan pay for a travel companion to care for them.                                                                               
MS. MICHAUD responded that there  is a provision for surgery that                                                               
is  less expensive  elsewhere, and  travel will  be paid  for the                                                               
patient;  however, the  plan  will  not pay  travel  costs for  a                                                               
REPRESENTATIVE  LEDOUX observed  that  if a  procedure costs  400                                                               
times  less  elsewhere, it  would  be  beneficial  to pay  for  a                                                               
MR.  BOUCHER  said  the  state  is  looking  into  travel  for  a                                                               
companion; in fact,  it is common to have  "a wraparound package"                                                               
that  includes   transportation  from  the  airport   at  certain                                                               
facilities.  On the other  hand, he cautioned about maintaining a                                                               
balance in order to keep providers in Alaska.                                                                                   
REPRESENTATIVE   LEDOUX  expressed   her  belief   that  workers'                                                               
compensation will  pay for  a companion's  travel; she  asked why                                                               
the state would not.                                                                                                            
MR. BOUCHER stated that in  instances such as transplants, travel                                                               
for a companion  is paid.  In further  response to Representative                                                               
LeDoux,  he  said a  process  to  determine  when  to pay  for  a                                                               
companion needs to  be established, and the timeline  for that is                                                               
REPRESENTATIVE  KITO suggested  that the  difference in  customer                                                               
satisfaction between those living  in- and out-of-state, might be                                                               
that Outside  there is  a robust  network.   He urged,  "We might                                                               
need to relook at the  out-of-network, in-network discussion with                                                               
Aetna as we look forward to the contract."                                                                                      
4:50:17 PM                                                                                                                    
REPRESENTATIVE COLVER asked  whether international medical travel                                                               
is covered by AlaskaCare.                                                                                                       
MS.  MICHAUD said  coverage is  good worldwide,  so a  member who                                                               
chooses to travel  outside of the U.S. would have  coverage for a                                                               
medical procedure,  but not for  the travel expense.   In further                                                               
response to Representative Colver,  she opined members travel for                                                               
care  because of  the  expertise available  or  because of  lower                                                               
cost.  In response to  Representative LeDoux, she said the travel                                                               
benefit  is  restricted   to  travel  within  the   U.S.  in  all                                                               
MR. BOUCHER returned  to why Aetna was selected,  noting that the                                                               
percentage off of billed charges in  2014 and 2015 has been about                                                               
35 percent, which  reduced the state spend  by approximately $110                                                               
million  each   year.    The  previous   administrator  delivered                                                               
approximately  a   23  percent   discount  off   billed  charges;                                                               
therefore, the value  to members and to the plan  is in the range                                                               
of $35 million to $40 million  [slide 17].  Although the division                                                               
understands there  are problems  with Aetna, Aetna  has delivered                                                               
savings,  and  if  the division  continues  to  address  customer                                                               
service issues, and grows the  network - given the state's fiscal                                                               
situation - the  state needs to continue with Aetna.   Efforts by                                                               
the  division to  address ongoing  management with  Aetna are  as                                                               
follows [slides 18 and 19]:                                                                                                     
   · meet with Aetna weekly to review performance improvement                                                                   
   · Segal Co., will perform a claims audit                                                                                     
   · monitor appeals prior to submittal to OAH                                                                                  
   · engage with retirees and employees to resolve customer                                                                     
     service concerns                                                                                                           
   · evaluate travel benefits                                                                                                   
   · update Retiree Insurance Information Booklet                                                                               
MR. BOUCHER continued  with actions that are  expected from Aetna                                                               
[slide 20]:                                                                                                                     
    · redesign EOB form                                                                                                         
    · improve pharmacy coordination of benefits at point of sale                                                                
    · direct participation of pharmacy customer service team to                                                                 
      supplement CVS Caremark, and inclusion of CVS Caremark in                                                                 
      weekly meetings                                                                                                           
    · become more actively engaged with stakeholder groups                                                                      
4:57:59 PM                                                                                                                    
REPRESENTATIVE KITO said:                                                                                                       
     [Regarding] the CVS Caremark  relationship ... is there                                                                    
     a  clear non-directional  component  of that  so if  we                                                                    
     have a member that is  interested in getting a pharmacy                                                                    
     benefit,  they're not  directed  to a  better price  at                                                                    
MR. BOUCHER answered that CVS  is the administrator of the claims                                                               
processing, thus  from this relationship, the  state has realized                                                               
a significant number of pharmacy rebates.                                                                                       
REPRESENTATIVE  KITO  expressed  his  concern that  Aetna  has  a                                                               
direct relationship with  CVS, and asked if  members are directed                                                               
to CVS pharmacies.                                                                                                              
MS. MICHAUD said although there  are CVS pharmacies that are part                                                               
of  the Aetna  network,  there  is no  incentive  to utilize  CVS                                                               
pharmacies.   The  mail order  program  is an  Aetna program  and                                                               
Costco is  part of  the mail order  network, along  with Diplomat                                                               
Specialty Pharmacy.                                                                                                             
REPRESENTATIVE HUGHES  asked the  division to respond  in writing                                                               
to the following question:   What is happening to coordinate care                                                               
to save costs, and to group purchasing for medical procedures?                                                                  
MR.  BOUCHER   said  the  division  is   currently  evaluating  a                                                               
relationship with "the health care coalition of Alaska."                                                                        
MS. MICHAUD, in  response to Chair Olson, said the  state did not                                                               
have network providers outside of the U.S.                                                                                      
5:00:58 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
5:00 p.m.                                                                                                                       

Document Name Date/Time Subjects
DOA-Div of Retirement and Benefits-Presentation 02-05-16.pdf HL&C 2/5/2016 3:15:00 PM
DOA-Div. of Retirement and Benefits Presentation