Legislature(2005 - 2006)CAPITOL 106

04/05/2005 08:00 AM STATE AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 104 PERMANENT FUND DIVIDEND FRAUD TELECONFERENCED
Moved Out of Committee
+= HB 177 STATE EMPLOYEE RETIREMENT CONTRIBUTIONS TELECONFERENCED
Scheduled But Not Heard
+= HB 191 PUBLIC EMPLOYEE/TEACHER RETIREMENT TELECONFERENCED
Scheduled But Not Heard
+= HB 238 PUBLIC EMPLOYEE/TEACHER RETIREMENT TELECONFERENCED
Heard & Held
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE STATE AFFAIRS STANDING COMMITTEE                                                                           
                         April 5, 2005                                                                                          
                           8:02 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Paul Seaton, Chair                                                                                               
Representative Jim Elkins                                                                                                       
Representative Bob Lynn                                                                                                         
Representative Jay Ramras                                                                                                       
Representative Berta Gardner                                                                                                    
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Carl Gatto, Vice Chair                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
CS FOR SENATE BILL NO. 104(JUD)                                                                                                 
"An Act  relating to the  crimes of unsworn falsification  in the                                                               
first  and  second  degrees  and  false  information  or  report;                                                               
requiring the  establishment of a  permanent fund  dividend fraud                                                               
investigation unit  in the Department  of Revenue;  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - MOVED CSSB 104(JUD) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 238                                                                                                              
"An Act relating to contribution  rates for employers and members                                                               
in the defined  benefit plans of the  teachers' retirement system                                                               
and the  public employees'  retirement system  and to  the ad-hoc                                                               
post-retirement  pension adjustment  in the  teachers' retirement                                                               
system;  requiring insurance  plans  provided to  members of  the                                                               
teachers' retirement system, the  judicial retirement system, the                                                               
public  employees'  retirement  system, and  the  former  elected                                                               
public  officials   retirement  system  to  provide   a  list  of                                                               
preferred  drugs;  relating  to defined  contribution  plans  for                                                               
members  of  the  teachers'  retirement  system  and  the  public                                                               
employees'  retirement system;  and  providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 177                                                                                                              
"An Act relating to employee and employer contributions to the                                                                  
teachers' retirement system and the public employees' retirement                                                                
system; and providing for an effective date."                                                                                   
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
HOUSE BILL NO. 191                                                                                                              
"An Act relating to defined contribution systems for members of                                                                 
the teachers' retirement system and the public employees'                                                                       
retirement system; and providing for an effective date."                                                                        
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 104                                                                                                                  
SHORT TITLE: PERMANENT FUND DIVIDEND FRAUD                                                                                      
SPONSOR(s): SENATOR(s) SEEKINS                                                                                                  
                                                                                                                                
02/14/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/14/05       (S)       STA, JUD                                                                                               
02/22/05       (S)       STA AT 3:30 PM BELTZ 211                                                                               
02/22/05       (S)       Heard & Held                                                                                           
02/22/05       (S)       MINUTE(STA)                                                                                            
02/24/05       (S)       STA AT 3:30 PM BELTZ 211                                                                               
02/24/05       (S)       Moved CSSB 104(STA) Out of Committee                                                                   
02/24/05       (S)       MINUTE(STA)                                                                                            
02/28/05       (S)       STA       RPT        CS              4DP                                                               
                         SAME TITLE                                                                                             
02/28/05       (S)       DP: THERRIAULT, ELTON, HUGGINS, DAVIS                                                                  
03/01/05       (S)       JUD AT 8:30 AM BUTROVICH 205                                                                           
03/01/05       (S)       Heard & Held                                                                                           
03/01/05       (S)       MINUTE(JUD)                                                                                            
03/02/05       (S)       JUD     RPT     CS           3DP     2NR                                                               
                         NEW TITLE                                                                                              
03/02/05       (S)       DP: SEEKINS, THERRIAULT, HUGGINS                                                                       
03/02/05       (S)       NR: FRENCH, GUESS                                                                                      
03/02/05       (S)       JUD AT 8:30 AM BUTROVICH 205                                                                           
03/02/05       (S)       Moved CSSB 104(JUD) Out of Committee                                                                   
03/02/05       (S)       MINUTE(JUD)                                                                                            
03/07/05       (S)       TRANSMITTED TO (H)                                                                                     
03/07/05       (S)       VERSION: CSSB 104(JUD)                                                                                 
03/09/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/09/05       (H)       STA, JUD                                                                                               
04/05/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
                                                                                                                                
BILL: HB 238                                                                                                                  
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                 
SPONSOR(s): STATE AFFAIRS                                                                                                       
                                                                                                                                
03/30/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/30/05       (H)       STA, FIN                                                                                               
03/31/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
03/31/05       (H)       Heard & Held                                                                                           
03/31/05       (H)       MINUTE(STA)                                                                                            
04/02/05       (H)       STA AT 10:00 AM CAPITOL 106                                                                            
04/02/05       (H)       Heard & Held                                                                                           
04/02/05       (H)       MINUTE(STA)                                                                                            
04/05/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SENATOR RALPH SEEKINS                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented SB 104 as sponsor.                                                                               
                                                                                                                                
SHARON BARTON, Director                                                                                                         
Permanent Fund Dividend Division                                                                                                
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the division during                                                                 
the hearing on SB 104.                                                                                                          
                                                                                                                                
DANIEL J. BOONE, Investigator III                                                                                               
Permanent Fund Dividend Division                                                                                                
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the division during                                                                 
the hearing on SB 104.                                                                                                          
                                                                                                                                
MELANIE MILLHORN, Director                                                                                                      
Health Benefits Section                                                                                                         
Division of Retirement & Benefits                                                                                               
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  On behalf of the division, presented a                                                                     
proposed medical program prepared by Mercer Human Resource                                                                      
Consulting, during the hearing on HB 238.                                                                                       
                                                                                                                                
BRAD LAWSON                                                                                                                     
Mercer Human Resource Consulting                                                                                                
Seattle, Washington                                                                                                             
POSITION  STATEMENT:   Testified  as a  representative of  Mercer                                                               
Human  Resource   Consulting,  on  behalf  of   the  Division  of                                                               
Retirement & Benefits, during the hearing on HB 238.                                                                            
                                                                                                                                
KATHY LEA, Retirement Manager                                                                                                   
Division of Retirement & Benefits                                                                                               
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Answered  questions  from  the  committee                                                               
during the hearing on HB 238.                                                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  PAUL  SEATON  called  the  House  State  Affairs  Standing                                                             
Committee  meeting  to  order at  8:02:48  AM.    Representatives                                                             
Elkins, Lynn,  Gardner, and  Seaton were present  at the  call to                                                               
order.    Representatives Ramras  and  Gruenberg  arrived as  the                                                               
meeting was in progress.                                                                                                        
                                                                                                                                
SB 104-PERMANENT FUND DIVIDEND FRAUD                                                                                          
                                                                                                                                
[Contains discussion of HB 127.]                                                                                              
                                                                                                                                
8:03:12 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  announced that the  first order of business  was CS                                                               
FOR SENATE BILL  NO. 104(JUD), "An Act relating to  the crimes of                                                               
unsworn falsification in  the first and second  degrees and false                                                               
information  or   report;  requiring   the  establishment   of  a                                                               
permanent  fund   dividend  fraud   investigation  unit   in  the                                                               
Department of Revenue; and providing for an effective date."                                                                    
                                                                                                                                
8:03:32 AM                                                                                                                    
                                                                                                                                
SENATOR  RALPH SEEKINS,  Alaska State  Legislature, presented  SB                                                               
104  as  sponsor.    He   said  the  bill  would  strengthen  the                                                               
Department of  Revenue's ability to investigate  fraud associated                                                               
with  making false  applications  for the  Alaska permanent  fund                                                               
dividends (PFDs).   Under the proposed bill, the  submission of a                                                               
fraudulent PFD  application would  become a Class  C felony.   He                                                               
reported that  in 2004, the  Department of Revenue  examined over                                                               
1,600  fraud  tips  and  audited   over  1,700  PFD  applications                                                               
suspected of being fraudulent, which  resulted in $1.4 million in                                                               
denied  or assessed  dividends.   Furthermore,  there were  three                                                               
federal indictments  and one conviction for  crimes involving PFD                                                               
fraud.                                                                                                                          
                                                                                                                                
SENATOR SEEKINS  said currently,  under state law,  Alaska cannot                                                               
prosecute for  fraud, but  the federal  government can.   Senator                                                               
Seekins  revealed that  the most  common  fraud offense  involves                                                               
persons  who   forge  the  signature   of  another  on   the  PFD                                                               
application or related  documents with the intent  of receiving a                                                               
dividend to which they are not  entitled.  He noted that the bill                                                               
is not  intended to  capture cases,  for example,  where husbands                                                               
and wives  sign for  each other;  the provision  of SB  104 would                                                               
apply in cases  where the individual is attempting  to steal from                                                               
another person or from the state.                                                                                               
                                                                                                                                
8:05:26 AM                                                                                                                    
                                                                                                                                
SENATOR SEEKINS discussed categories  of offenses.  He reiterated                                                               
that the bill would make  unsworn falsification, as it relates to                                                               
a person making  an application for a permanent  fund dividend, a                                                               
violation in the first degree punishable as a Class C felony.                                                                   
                                                                                                                                
8:06:51 AM                                                                                                                    
                                                                                                                                
SENATOR SEEKINS  said he  introduced the  bill because  he thinks                                                               
"we  all"  know  people  who  are trying  to  tap  into  the  PFD                                                               
illegally.     The  bill   would  codify   in  statute   a  fraud                                                               
investigation unit  within the department.   He  anticipated that                                                               
by having the unit in statute,  it will be possible to access the                                                               
national crime  computer system in  order to find people  who may                                                               
be trying to hide.                                                                                                              
                                                                                                                                
8:07:35 AM                                                                                                                    
                                                                                                                                
SENATOR SEEKINS,  in response to  a question  from Representative                                                               
Lynn, said  the current  fraud unit does  not have  the necessary                                                               
statutory  authority to  be able  to [access  the national  crime                                                               
computer system] and would have to "apply to do so."                                                                            
                                                                                                                                
8:08:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER noted  that the House just  passed HB 127,                                                               
which will allow Peace Corps Volunteers  to receive the PFD.  One                                                               
of the  provisions of  the bill reduced  the fine  for fraudulent                                                               
claims  from $5,000  to $3,000.   She  offered her  understanding                                                               
that  "it had  to  do with  our ability  to  actually collect  on                                                               
that."  She  observed that SB 104 "addresses that  in a much more                                                               
severe way."                                                                                                                    
                                                                                                                                
8:08:49 AM                                                                                                                    
                                                                                                                                
SENATOR SEEKINS responded that it is  a stronger way.  He said he                                                               
applauds any effort to collect;  however, in this case, "it's not                                                               
a collection issue; it's a felony."                                                                                             
                                                                                                                                
8:09:07 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  clarified that  the idea  behind lowering  the fine                                                               
[in HB 127] was not to lessen the  impact, but to make it so that                                                               
it was  worth enforcing,  because at the  higher amount  a public                                                               
offender had to be provided,  which was not always cost effective                                                               
for  the state.    He  added that  lowering  the  fine also  made                                                               
prosecution more likely.                                                                                                        
                                                                                                                                
8:10:20 AM                                                                                                                    
                                                                                                                                
SENATOR SEEKINS said  the intention of the bill is  to be able to                                                               
go after the most serious offenders.   He said a warning would be                                                               
clearly  printed  on  the  application.   He  stated,  "A  felony                                                               
conviction has a whole lot  more ramifications than a misdemeanor                                                               
conviction."                                                                                                                    
                                                                                                                                
8:10:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ELKINS asked for an example major fraud.                                                                         
                                                                                                                                
8:11:04 AM                                                                                                                    
                                                                                                                                
SENATOR  SEEKINS   deferred  to   the  Permanent   Fund  Dividend                                                               
Division.                                                                                                                       
                                                                                                                                
8:11:19 AM                                                                                                                    
                                                                                                                                
SHARON  BARTON,  Director,   Permanent  Fund  Dividend  Division,                                                               
Department  of Revenue,  testifying  on behalf  of the  division,                                                               
stated that the PFD program  is particularly vulnerable to fraud.                                                               
She said  there are  635,000 applications  "to shove  through the                                                               
pipe in  just a few  months of  considerations."  She  noted that                                                               
the division began  "beefing up" its investigations  of fraud two                                                               
years  ago, and  last  year the  legislature authorized  subpoena                                                               
powers  for the  division,  which has  helped substantially  with                                                               
audits.                                                                                                                         
                                                                                                                                
8:13:05 AM                                                                                                                    
                                                                                                                                
DANIEL  J.  BOONE,  Investigator  III,  Permanent  Fund  Dividend                                                               
Division,  Department of  Revenue,  testifying on  behalf of  the                                                               
division, stated that  the division is encouraging  the public to                                                               
file  online  applications, use  an  electronic  signature -  for                                                               
those  who  have "been  in  the  system,"  and receive  a  direct                                                               
deposit.   When everything  is done  electronically, he  said, it                                                               
makes it difficult  to identify someone who has moved  out of the                                                               
state.   He reported  that the division  is currently  working on                                                               
new  technology  that  will  help  in  identifying  outside  "IP"                                                               
[Internet Protocol] addresses  in order to tell if  the person is                                                               
actually in  the state.  The  focus, he indicated, is  to work to                                                               
find the individuals who are  "going after one PFD after another,                                                               
year after year ...."  He offered examples.                                                                                     
                                                                                                                                
8:16:24 AM                                                                                                                    
                                                                                                                                
MR.  BOONE  said the  current  fine  is  not  a deterrent.    The                                                               
subpoena  power is  a  help.   He  stated  that approximately  64                                                               
percent  of  the   fraud  cases  are  related   to  dealing  with                                                               
individuals out  of the  state.   He offered  more examples.   He                                                               
said,  "There is  no forgery,  per se  - ...  as far  as a  [PFD}                                                               
application -  that puts teeth  in anything."   He said  the same                                                               
applies to criminal impersonation.   He said, "With the [attorney                                                               
generals (AGs)]  and everything that  they're under,  it's really                                                               
been difficult ... for them to  take a Class A misdemeanor versus                                                               
a felony case."                                                                                                                 
                                                                                                                                
8:18:10 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  noted that the  committee is  currently considering                                                               
another bill which would allow the  use of a power of attorney to                                                               
submit  the  [PFD] application.    He  said,  "Under a  power  of                                                               
attorney you  can't really  tell somebody's  intent to  return to                                                               
Alaska  and, therefore,  ... basically  the intent  to return  to                                                               
Alaska  provision  is  made  void  by  the  use  of  a  power  of                                                               
attorney."    He  asked  if   the  unsworn  falsifications  being                                                               
discussed under  SB 104 often relate  to the intent to  return to                                                               
Alaska, or if that is a totally separate issue.                                                                                 
                                                                                                                                
8:19:12 AM                                                                                                                    
                                                                                                                                
MR.  BOONE answered  that that's  a totally  separate issue.   He                                                               
said  he  deals  with  individuals   who  have  deliberately  and                                                               
recklessly  disregarded   material  facts  pertaining   to  their                                                               
eligibility  or  the eligibility  of  others  for whom  they  are                                                               
applying.  He offered examples.   He said, "The ... way we pursue                                                               
our cases  criminally ... [is]  definitely more cut and  dry than                                                               
in intent, which is a lot of grey area ...."                                                                                    
                                                                                                                                
8:20:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  stated his  concerned about  a possible                                                               
constitutional  challenge  on  the   basis  of  equal  protection                                                               
regarding  setting  up  "this  particular  type  of  fraud  as  a                                                               
felony."  He stated his strong  support of the bill and explained                                                               
that he wants to protect it  against such a challenge.  He asked,                                                               
"Is there specific  legislative history explaining why  this is a                                                               
felony  and  other types  of  unsworn  falsification for  similar                                                               
types of benefits are only Class A misdemeanors?"                                                                               
                                                                                                                                
8:22:00 AM                                                                                                                    
                                                                                                                                
SHARON BARTON recommended asking that question of Chris Poag.                                                                   
                                                                                                                                
8:22:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG directed attention  to page 4, [lines 4-                                                               
5], which read:                                                                                                                 
                                                                                                                                
          (2) on a form bearing notice, authorized by                                                                           
     law, that false statements made in it are punishable.                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if the language  would be changed                                                               
so  that it  would apply  to all  PFD applications  and would  be                                                               
"punishable as  unsworn falsification in  the first degree."   He                                                               
explained, "Because an  argument could be made if  you don't that                                                               
it would only be [a] misdemeanor."                                                                                              
                                                                                                                                
8:23:10 AM                                                                                                                    
                                                                                                                                
MS. BARTON said  that the division has not  drafted that language                                                               
but would certainly take it under advisement.                                                                                   
                                                                                                                                
8:23:25 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  noted that  the bill  would be  heard by  the House                                                               
Judiciary Standing  Committee; therefore,  he said he  would like                                                               
most of those [kinds of questions] asked at that time.                                                                          
                                                                                                                                
8:23:40 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  if  the  attorney general  would                                                               
testify.                                                                                                                        
                                                                                                                                
8:23:57 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON answered yes.                                                                                                      
                                                                                                                                
8:24:01 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  recommended inserting some  findings in                                                               
the  bill.    He  talked   about  the  federal  implications  and                                                               
mentioned the  unlawful flight to  avoid prosecution (UFAP).   He                                                               
asked Ms. Barton if one of her  intentions was to be able to "get                                                               
federal assistance in the enforcement of this."                                                                                 
                                                                                                                                
8:25:37 AM                                                                                                                    
                                                                                                                                
MS. BARTON said most of the  cases have not "flown before they've                                                               
perpetrated  the  crime," but  rather  have  moved out  of  state                                                               
first.   In response to  a question from  Representative Gardner,                                                               
she   said   the   division's   approach   generally   has   been                                                               
conservative; it imposed  fines just this year  and the five-year                                                               
forfeiture for  the first  time only  a year ago.   She  said the                                                               
division proceeded  carefully with  the first cases  to determine                                                               
where  it was  appropriate to  apply  the civil  penalties.   She                                                               
said,  "Now that  we are  looking at  a Class  C felony,  we will                                                               
certainly consult  with our good [attorney  general (AG)] support                                                               
before we ... proceed with any  ... action."  She offered further                                                               
details.                                                                                                                        
                                                                                                                                
8:27:23 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LYNN  moved  to   report  CSSB  104(JUD)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.                                                                                                                   
                                                                                                                                
8:27:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   ELKINS  interjected   that  he   has  first-hand                                                               
knowledge of fraud regarding dividends  and there is a surprising                                                               
amount of money involved.  He offered examples.                                                                                 
                                                                                                                                
8:28:43 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON  stated  that,  there  being  no  objections,  CSSB                                                               
104(JUD)  moved   out  of  the   House  State   Affairs  Standing                                                               
Committee.                                                                                                                    
                                                                                                                                
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                     
                                                                                                                                
8:29:04 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON announced that the  next order of business was HOUSE                                                               
BILL  NO.  238,  "An  Act  relating  to  contribution  rates  for                                                               
employers  and  members  in  the defined  benefit  plans  of  the                                                               
teachers' retirement system and  the public employees' retirement                                                               
system and  to the ad-hoc  post-retirement pension  adjustment in                                                               
the  teachers'  retirement   system;  requiring  insurance  plans                                                               
provided  to  members of  the  teachers'  retirement system,  the                                                               
judicial  retirement  system,  the public  employees'  retirement                                                               
system,  and  the  former  elected  public  officials  retirement                                                               
system to provide a list  of preferred drugs; relating to defined                                                               
contribution  plans  for  members  of  the  teachers'  retirement                                                               
system  and   the  public   employees'  retirement   system;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
CHAIR  SEATON   clarified  that   the  committee  would   hear  a                                                               
presentation  of  the  tier  task  force  regarding  the  medical                                                               
portion of HB 238.                                                                                                              
                                                                                                                                
8:30:23 AM                                                                                                                    
                                                                                                                                
MELANIE MILLHORN, Director, Health  Benefits Section, Division of                                                               
Retirement &  Benefits, Department  of Administration,  on behalf                                                               
of the  division, presented a  proposed medical  program prepared                                                               
by Mercer  Human Resource  Consulting ("Mercer").   She  said the                                                               
material  was   worked  on  extensively  by   the  tier  proposal                                                               
committee for  a number of months.   She told the  committee that                                                               
Mercer engaged in a great deal  of analysis by asking Aetna - the                                                               
state's third party administrator -  to provide the actual claims                                                               
experience, from  which Mercer  analyzed the  cost to  the system                                                               
and redesigned those costs going  forward with a new tier medical                                                               
plan  design.   A survey  was sent  out to  "all employers,"  and                                                               
those  employers   emphasized  the  importance  of   the  medical                                                               
component of the retirement benefits package.                                                                                   
                                                                                                                                
MS. MILLHORN  noted some  key elements from  the feedback  of the                                                               
employers.    She  specified  that  she  would  be  referring  to                                                               
presentation material dated November  19, 2004, that was provided                                                               
to  the  full  Public  Employees' Retirement  System  (PERS)  and                                                               
Teachers' Retirement System (TRS)  Boards; that material is found                                                               
in the survey information [included in the committee packet].                                                                   
                                                                                                                                
MS. MILLHORN  listed some of the  key elements as follows:   One,                                                               
members  should bear  a  greater  share of  the  cost of  medical                                                               
benefits; two, members  should have to retire from  the system in                                                               
order  to be  eligible for  medical benefits;  and three,  system                                                               
benefits  should favor  longer  service members.   Regarding  the                                                               
third element  in the list,  she explained that the  criteria for                                                               
medical coverage can be satisfied  after an employee vests and is                                                               
age eligible.   For  the current  Tier I,  that would  mean after                                                               
five years  and at  age 55.   In  contrast, the  proposed medical                                                               
plan design  would recognize the  years of service of  the member                                                               
and would  provide a greater  benefit based on "greater  years of                                                               
service."                                                                                                                       
                                                                                                                                
8:34:15 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN continued with the  list as follows:  Four, employer                                                               
contributions  should be  predictable  and  stable; five,  health                                                               
care  inflation risk  should not  be borne  solely by  employers;                                                               
six, benefits  must take the  form of  new tiers; and  seven, the                                                               
annual cost of benefits should  not be designed to exceed current                                                               
systems'  normal cost  rates.   In  response to  a question  from                                                               
Chair  Seaton, she  confirmed that  number seven  means that  the                                                               
medical  component   should  not   exceed  the   current  medical                                                               
component.                                                                                                                      
                                                                                                                                
8:35:59 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN  turned to  a Power  Point presentation,  [hard copy                                                               
included  in the  committee packet,  entitled,  "State of  Alaska                                                               
PERS &  TRS Proposed  Medical Program,  House State  Affairs" and                                                               
dated April 2,  2005].  She directed attention to  Slide 2, which                                                               
lists the  key features of  the proposed  post-retirement medical                                                               
program  as  follows  [original punctuation  provided  with  some                                                               
formatting changed]:                                                                                                            
                                                                                                                                
       Members must retire directly from the System to be                                                                       
     eligible                                                                                                                   
                                                                                                                                
      System sponsored health plan with varying levels of                                                                       
     subsidy or cost to members                                                                                                 
                                                                                                                                
        Early retirees get "access only" prior to normal                                                                        
     retirement eligibility                                                                                                     
                                                                                                                                
        Defined dollar benefit from normal retirement to                                                                        
     Medicare eligibility (currently age 65)                                                                                    
                                                                                                                                
     Defined  health  benefit  after  Medicare  eligibility,                                                                    
     similar to  the current program with  the following key                                                                    
     exceptions:                                                                                                                
          Method of coordination with Medicare                                                                                  
          Retired members share in the cost through premium                                                                     
     contributions                                                                                                              
                                                                                                                                
MS. MILLHORN explained  that "access only" means  that the member                                                               
can  apply [prior  to normal  retirement eligibility],  but would                                                               
have to pay 100 percent of  the medical premium costs in order to                                                               
receive the medical coverage.                                                                                                   
                                                                                                                                
8:38:32 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN directed  attention  to Slide  3,  which shows  the                                                               
system sponsored health  care plan under the proposed  bill.  She                                                               
explained  that the  slide compares  medical, prescription  drug,                                                               
and  dental,  vision,  and  audio costs  under  the  current  and                                                               
proposed  "alternative" plans.   She  said other  states' medical                                                               
plans were studied in order  to "compare and contrast."  Alaska's                                                               
medical  plan  costs are  one  of  the  primary drivers  for  the                                                               
retirement  systems'  underfunded  status; however,  the  studies                                                               
done show that  Alaska's medical plan benefits  are rich compared                                                               
to other [states'] medical plans.  She offered some examples.                                                                   
                                                                                                                                
MS. MILLHORN turned to Slide  4, which shows eligibility criteria                                                               
of the  proposed medical  program and  read as  follows [original                                                               
punctuation provided with some formatting changes]:                                                                             
                                                                                                                                
     Normal  retirement  eligibility  for  medical  benefits                                                                    
     will be defined as the earlier of                                                                                          
          (1) age 60 with 10 years of service                                                                                   
          (2) 25 years of service (30 years for PERS                                                                            
     "others" retirees).                                                                                                        
                                                                                                                                
     Disabled participants will be eligible                                                                                     
                                                                                                                                
     Terminated  vested participants  are not  eligible.   A                                                                    
     member  must retire  directly  from  active service  in                                                                    
     order to receive coverage                                                                                                  
                                                                                                                                
MS. MILLHORN explained  that the 25 years of  service pertains to                                                               
police, firefighters, and teachers, and  the 30 years pertains to                                                               
all  other  PERS  employees  who  retire.   She  opined  that  an                                                               
important feature  of the plan  design is that  terminated vested                                                               
participants would not  be eligible.  Currently,  the Division of                                                               
Retirement & Benefits  covers 54,000 members and  its claims cost                                                               
for 2004 was $225 million.  She said:                                                                                           
                                                                                                                                
     If you just  look at the parties that  are eligible for                                                                    
     our medical  plan right  now and  you project  into the                                                                    
     future,  and   you  expect  that   all  of   those  ...                                                                    
     individuals   will    receive   a    benefit,   there's                                                                    
     approximately  90,000 members  and the  dependent ratio                                                                    
     is 1.9.  So, if you were  to look into the future to do                                                                    
     some projections, you  would be able to  see that there                                                                    
     would  be  a  population  if there's  some  ...  vested                                                                    
     members  here  who  will receive  that  benefit.    But                                                                    
     there's  also  members who  have  to  satisfy some  ...                                                                    
     additional service  in order to  be eligible.   But you                                                                    
     could be easily  looking at a population  in the future                                                                    
     of 180,000 members.                                                                                                        
                                                                                                                                
8:43:18 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN directed  attention to Slide 5,  which shows details                                                               
of early retirement under the  proposed medical program.  Slide 5                                                               
read  as   follows  [original  punctuation  provided   with  some                                                               
formatting changed]:                                                                                                            
                                                                                                                                
     Early retirees  who have not reached  normal retirement                                                                    
     eligibility                                                                                                                
          Receive "access only" plan                                                                                            
          Will not be eligible for subsidized retiree                                                                           
     health plan costs                                                                                                          
          Pay 100% of the pre-Medicare eligible (currently                                                                      
     pre-age 65) per member per year (PMPY) claim costs                                                                         
                                                                                                                                
     Dependent spouses  of early retirees  will pay  100% of                                                                    
     the appropriate pre-Medicare  or Medicare eligible PMPY                                                                    
     claim cost                                                                                                                 
                                                                                                                                
MS.  MILLHORN  explained  that  "access  only"  means  that  [the                                                               
retiree] would  pay the  full premium to  receive coverage.   She                                                               
said  it's important  to  note that  that is  still  a very  good                                                               
benefit.   She explained that there  are a lot of  people who may                                                               
leave their employment or have  breaks in their health insurance,                                                               
and having access to health care can be cost prohibitive.                                                                       
                                                                                                                                
8:44:36 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN highlighted  the key points of Slide  6, which shows                                                               
normal retirement  to Medicare  eligibility as  follows [original                                                               
punctuation provided with some formatting changed]:                                                                             
                                                                                                                                
     Members who  retire directly from  the Systems  will be                                                                    
     eligible for  a "defined dollar" benefit  upon reaching                                                                    
     eligibility for normal retirement                                                                                          
                                                                                                                                
     Fixed  dollar subsidy  toward  system sponsored  health                                                                    
     coverage                                                                                                                   
                                                                                                                                
     Access  to system  sponsored  retiree  medical plan  as                                                                    
     outlined above                                                                                                             
                                                                                                                                
     Subsidy amount is based on length of service                                                                               
                                                                                                                                
     Subsidy   amount  indexed   each  year   by  healthcare                                                                    
     inflation up to a maximum of 5 percent                                                                                     
                                                                                                                                
8:46:05 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN,  in response  to  a  question from  Chair  Seaton,                                                               
referred back to Slide 4 and  explained that there are two ways a                                                               
person can  be eligible for medical  benefits:  one is  to be age                                                               
60 with  10 years;  or two is  to be  of any age  as long  as the                                                               
retiree has  25 years  of service  for police,  firefighters, and                                                               
teachers or 30 years of service in PERS.                                                                                        
                                                                                                                                
8:46:48 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN returned  to discussion of Slide 6.   She said, "The                                                               
employers wanted  to build in  recognition for long  service, and                                                               
this medical plan does that."                                                                                                   
                                                                                                                                
8:48:49 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN turned  to Slide 7, the  second component addressing                                                               
normal retirement to Medicare eligibility,  which read as follows                                                               
[original punctuation provided with some formatting changed]:                                                                   
                                                                                                                                
     Upon becoming eligible for  Medicare, such members will                                                                    
     become eligible for the "defined health" benefit                                                                           
                                                                                                                                
     Pre-Medicare dependent spouse is  eligible for the same                                                                    
     subsidy as retiree                                                                                                         
                                                                                                                                
     Medicare eligible dependent spouse  is eligible for the                                                                    
     Medicare  eligible  benefit  level,  with  contribution                                                                    
     percentage based on retiree length of service                                                                              
                                                                                                                                
MS. MILLHORN continued:                                                                                                         
                                                                                                                                
     If you look  at those segments for a  member, it's pre-                                                                    
     65 and post-65.   And the post-65 portion  is a defined                                                                    
     health  benefit, and  that  includes  that the  members                                                                    
     will make  a contribution based  ... on their  years of                                                                    
     service.   But I think  we all recognize that  the cost                                                                    
     to  the  system, pre-65,  is  much  higher.   What  the                                                                    
     research and analysis has shown  through the tier study                                                                    
     is that 75  percent of our medical  cost are attributed                                                                    
     to  and can  be  allocated to  pre-65  members, and  25                                                                    
     percent  of  those  costs   are  allocated  to  post-65                                                                    
     members, because there is  a coordination with Medicare                                                                    
     that occurs on the post-65  period of a member's health                                                                    
     care  coverage.     And  that  cost  is   quite  a  bit                                                                    
     different,  because Medicare's  primary and  the Alaska                                                                    
     Care plan is  secondary.  So, the costs  are reduced to                                                                    
     25 percent for that segment.                                                                                               
                                                                                                                                
8:49:56 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON queried:                                                                                                           
                                                                                                                                
     Although   we  have   higher  expenses   currently  ...                                                                    
     projected  in  the pre-65  -  those  five years  ...  -                                                                    
     that's a defined  dollar amount.  And yet,  on the post                                                                    
     Medicare  eligibility   we're  talking   about  defined                                                                    
     benefit  amount.    And  though  we're  identifying  25                                                                    
     percent, if  Medicare eligibility changes,  if Medicare                                                                    
     reimbursement rates  change, we could be  looking at an                                                                    
     unfunded  liability  on  the post-65  or  post-Medicare                                                                    
     eligibility  that  we  don't  have  ...  control  over,                                                                    
     whereas  with the  defined dollar  contribution on  the                                                                    
     pre-Medicare  eligibility,  haven't we  contained  that                                                                    
     growth, especially with the 5 percent escalated?                                                                           
                                                                                                                                
8:50:50 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN responded as follows:                                                                                              
                                                                                                                                
     The premium  amount - when  there's not  a coordination                                                                    
     with Medicare  we bear all  of those costs.   So, right                                                                    
     now, when you look at  the existing claims cost and you                                                                    
     look  at the  premium amounts  that we  established for                                                                    
     that,  75 percent  of the  costs  are allocated  there.                                                                    
     There  could be  some  changes in  Medicare that  would                                                                    
     change the post-65 cost and  could increase those costs                                                                    
     to the  system, depending  on those changes  - Medicare                                                                    
     reform in 2006, for example.                                                                                               
                                                                                                                                
8:51:52 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON stated  that the intent of going  through this whole                                                               
process  is to  get  the state  "out of  the  prospect of  having                                                               
unfunded  liabilities."   He offered  his understanding  that Ms.                                                               
Millhorn   is  saying,   "It's  really   not  a   defined  dollar                                                               
contribution; it's  a defined percentage of  an unfixed premium."                                                               
He stated  concern that  "we're back to  a defined  benefit post-                                                               
65."  He said  at some point in time it will  be necessary to get                                                               
clarification  regarding "what  we're  calling  a defined  dollar                                                               
amount when I'm not sure it's defined."                                                                                         
                                                                                                                                
8:52:44 AM                                                                                                                    
                                                                                                                                
BRAD  LAWSON,  Mercer  Human   Resource  Consulting,  offered  to                                                               
address Chair Seaton's  concerns.  He said there's a  lot of risk                                                               
and  volatility   associated  with  the  defined   benefit  plan,                                                               
primarily  driven by  fluctuations in  interest rates.   He  said                                                               
"the  medical side  of the  current  benefit" not  only has  that                                                               
interest  rate  volatility  and  risk,  but  also  has  a  "trend                                                               
volatility and risk."   He explained that the latter  is the risk                                                               
that the medical  benefits will grow at a greater  or even lesser                                                               
rate than has been presumed in  projections.  He explained that a                                                               
defined dollar  approach is a  defined benefit  component because                                                               
it does have the same interest rate  risk.  He said, "So, what we                                                               
have  done  by having  a  fixed  escalator  of 5  percent,  we've                                                               
eliminated ... what  we would call the trend risk,  or the health                                                               
inflation  risk.    So,  in  one sense  we  have  contained  that                                                               
component of the  risk; that health inflation risk  then is being                                                               
borne by the retiree versus by the system at that point."                                                                       
                                                                                                                                
8:54:33 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON said  he thinks  there  is still  a question  among                                                               
committee members regarding "why  we're calling it defined dollar                                                               
amount  ahead  of  pre-65  when  actually what  we've  got  is  a                                                               
percentage of premium ...."                                                                                                     
                                                                                                                                
8:54:43 AM                                                                                                                    
                                                                                                                                
MR. LAWSON explained as follows:                                                                                                
                                                                                                                                
     The  defined dollar  terminology  comes  from the  fact                                                                    
     that, while  we start  with a  premium base,  that base                                                                    
     actually does not grow as  a premium would, or a health                                                                    
     cost would.  It grows in  a defined manner of 5 percent                                                                    
     or  less.    And   in  our  current  environment,  it's                                                                    
     unlikely that health inflation will  be less than the 5                                                                    
     percent.   So,  we  can actually  go  forward maybe  10                                                                    
     years and,  based on  a member's  years of  service, we                                                                    
     can have  a very accurate  picture or a  defined amount                                                                    
     that  the system  will  be  contributing towards  their                                                                    
     health cost.   So, even  if health inflation was  15 or                                                                    
     20 percent -  heaven forbid - ... in 10  years we could                                                                    
     still predict  or define the amount  of premium dollars                                                                    
     that the  state would  be subsidizing  that individual.                                                                    
     And that's why we call that a defined dollar approach.                                                                     
                                                                                                                                
8:55:48 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON, regarding post-Medicare eligibility, asked:                                                                       
                                                                                                                                
     If  ...  Medicare melts  down  and  the rates  increase                                                                    
     significantly,  or their  contribution  rates or  their                                                                    
     payment  rates decrease,  are  we -  with  the plan  as                                                                    
     suggested  - looking  at a  defined benefit  unfettered                                                                    
     above that in ... post-Medicare eligibility?                                                                               
                                                                                                                                
8:56:31 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON  proffered  that  in an  extreme  scenario  in  which                                                               
Medicare  fails  and provides  no  benefits,  health costs  would                                                               
increase  substantially   because  the   system  would   then  be                                                               
responsible  for   providing  the  medical  benefits   for  which                                                               
Medicare had  previously paid.   He added, "Probably  an unfunded                                                               
liability would be generated from that scenario."                                                                               
                                                                                                                                
8:57:19 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN  requested  that   Mr.  Lawson  continue  with  her                                                               
presentation   because  she   had  to   leave  to   give  another                                                               
presentation.                                                                                                                   
                                                                                                                                
8:57:41 AM                                                                                                                    
                                                                                                                                
MR. LAWSON revisited Slide 7.                                                                                                   
                                                                                                                                
8:59:50 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  directed attention  to Slide  8, the  third component                                                               
addressing normal retirement to  Medicare eligibility, which read                                                               
as follows  [original punctuation  provided with  some formatting                                                               
changed]:                                                                                                                       
                                                                                                                                
      Apply percentages to the applicable subsidy base to                                                                       
     arrive at the appropriate subsidy amount.                                                                                  
                                                                                                                                
       Defined Dollar Subsidy Base Annual PMPY for fiscal                                                                       
     year 2004:                                                                                                                 
               Pre Medicare        $5,962*                                                                                      
                                                                                                                                
     Subsidy Percentage                                                                                                         
               Service (yrs)       Subsidy %                                                                                  
                    10-14          30%                                                                                          
                    15-19          45%                                                                                          
                    20-24          60%                                                                                          
                    25-29          75%                                                                                          
                    30+            90%                                                                                          
                                                                                                                                
     Member contributions are determined by subtracting the                                                                     
     annual subsidy amount from the annual claims cost for                                                                      
     a given year.                                                                                                              
                                                                                                                                
       *Equivalent to FY2004 pre-Medicare projected claim                                                                       
     cost.                                                                                                                      
                                                                                                                                
MR. LAWSON said  it's important to note that the  subsidy base of                                                               
$5,962 will  grow only at 5  percent; it will not  grow as actual                                                               
claims costs grow.   He explained, "If claims costs  are going to                                                               
grow at 10  or 15 percent, and  the subsidy base only  grows at 5                                                               
percent,  the  retirees will  be  responsible  for a  larger  and                                                               
larger portion of their health care expenses."                                                                                  
                                                                                                                                
9:02:27 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON said  the grouping  of service  years in  five-year                                                               
increments concerns  him, because that  may raise issues  such as                                                               
an employee quitting earlier because  the next jump up in subsidy                                                               
doesn't happen soon enough or  working longer than desired to get                                                               
to  the next  level.   He noted  that HB  238 would  increase the                                                               
subsidy by 3  percent a year from  30 percent to a  maximum of 90                                                               
percent and  asked Mr.  Lawson if he  perceives any  problem with                                                               
that plan.                                                                                                                      
                                                                                                                                
9:03:28 AM                                                                                                                    
                                                                                                                                
MR. LAWSON responded  that there are two  considerations in going                                                               
to  that  valid   approach.    The  first   consideration  is  an                                                               
administrative  one:   the more  details that  are inserted,  the                                                               
more  administratively  challenging  it  will  be.    The  second                                                               
consideration he described as follows:                                                                                          
                                                                                                                                
     As you  ... add a  3 percent subsidy for  somebody with                                                                    
     11 years and  add another 3 for someone  with 12 years,                                                                    
     you are increasing the  overall subsidy that's provided                                                                    
     to  retirees  in  the  system.    And  I  think  that's                                                                    
     probably not  a huge impact,  but it will  increase the                                                                    
     cost  somewhat from  the numbers  we've presented  here                                                                    
     today and the  numbers that were looked at  in the tier                                                                    
     redesign project.                                                                                                          
                                                                                                                                
MR. LAWSON  added that he does  not think there is  anything that                                                               
would "stop or hinder you from  going to an approach of 3 percent                                                               
per year of service."                                                                                                           
                                                                                                                                
9:05:15 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  referred to Slide  9, which highlights the  aspect of                                                               
the  proposed  medical  program  after  Medicare  eligibility  as                                                               
follows  [original  punctuation  provided  with  some  formatting                                                               
changed]:                                                                                                                       
                                                                                                                                
     Defined health benefit similar to current program                                                                          
                                                                                                                                
     Retirees who were previously  eligible for 100% subsidy                                                                    
     of retiree  health plan costs  will now  participate in                                                                    
     the premium cost.                                                                                                          
                                                                                                                                
     Contributions are per covered individual                                                                                   
                                                                                                                                
     Pre-Medicare dependent spouses  are eligible to receive                                                                    
     a  defined  dollar  subsidy with  percentage  based  on                                                                    
     retiree length of service                                                                                                  
                                                                                                                                
     Medicare  eligible dependent  spouses  are eligible  to                                                                    
     receive  the  same  defined   health  benefits  as  the                                                                    
     retiree and pay the same contributions                                                                                     
                                                                                                                                
MR.  LAWSON, regarding  contributions,  explained  that a  person                                                               
paying for  two participants  will pay twice  as much  as someone                                                               
paying for  a single person.   Regarding dependents, he  said the                                                               
intent is to recognize the fact  that "if there is a pre-Medicare                                                               
spouse, they're going to have a  lot higher claims cost than that                                                               
Medicare  eligible retiree  and  they ...  will receive  benefits                                                               
under the ... defined dollar  component until they reach Medicare                                                               
eligibility age."                                                                                                               
                                                                                                                                
CHAIR SEATON asked if the "5 percent escalator" has "gone away."                                                                
                                                                                                                                
MR. LAWSON answered that's right.                                                                                               
                                                                                                                                
9:07:19 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON  moved  on  to  Slide  10,  which  shows  information                                                               
regarding  contributions after  Medicare  eligibility as  follows                                                               
[original punctuation provided with some formatting changed]:                                                                   
                                                                                                                                
     Contribution Base PMPY for fiscal year 2004:                                                                               
               Medicare Eligible        $2,667                                                                                  
                                                                                                                                
     Contribution Percentage                                                                                                    
                    Service (yrs) Contribution%                                                                               
                         10-14          30%                                                                                     
                         15-19          25%                                                                                     
                         20-24          20%                                                                                     
                         25-29          15%                                                                                     
                         30+            10%                                                                                     
                                                                                                                                
      Apply percentages to the contribution base to arrive                                                                      
     at the applicable contribution amount                                                                                      
                                                                                                                                
MR. LAWSON  stated, "To  me it's very  striking that  even though                                                               
... these  individuals are, on  average, quite a few  years older                                                               
than those  individuals in the  pre-Medicare group,  their claims                                                               
costs are still well under half of that pre-Medicare group."                                                                    
                                                                                                                                
CHAIR SEATON  added that  that's because  Medicare "picks  up the                                                               
primary  health  care."   In  response  to  a remark  from  Chair                                                               
Seaton, he reiterated that the  intent is to have each individual                                                               
covered under  the program to  be paying a contribution  amount -                                                               
even those who  are participants of the program,  but not members                                                               
[such as  spouses or dependents].   He added, "We do  not want to                                                               
penalize those  individuals who are  only covering  themselves to                                                               
be subsidizing those individuals  who cover multiple dependents."                                                               
He continued as follows:                                                                                                        
                                                                                                                                
        While we have not eliminated the trend risk and                                                                         
       volatility as we have with the ... defined dollar                                                                        
     component,  retirees  will  still be  sharing  in  that                                                                    
     trend component  to the amount  of the  percentage that                                                                    
     they're paying.  So, an  individual with 10-14 years of                                                                    
     service  will be  absorbing essentially  30 percent  of                                                                    
     that trend risk.  So, in  here we meet the objective of                                                                    
     the redesign  of sharing that trend  risk somewhat with                                                                    
     those retirees.                                                                                                            
                                                                                                                                
     Here  it was  also felt  that, due  to the  lower claim                                                                    
     volume, ...  about 25 percent,  it was desired  to give                                                                    
     retirees  a  larger benefit  in  this  category and  to                                                                    
     maybe offer a  little bit more subsidy  in the Medicare                                                                    
     eligible stages of retirement.                                                                                             
                                                                                                                                
9:10:26 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON asked if a 5 percent escalator could be applied in                                                                 
this category.                                                                                                                  
                                                                                                                                
9:10:40 AM                                                                                                                    
                                                                                                                                
MR. LAWSON replied that it could be applied.  He continued:                                                                     
                                                                                                                                
     The  thinking here  was that  they  actually wanted  to                                                                    
     provide additional  subsidy to those  Medicare eligible                                                                    
     individuals;   the  thought   being  that   the  second                                                                    
     component -  going from  normal retirement  to Medicare                                                                    
     eligibility -  was going  to kind  of provide  a bridge                                                                    
     into  an  area  that  -- you  know,  if  an  individual                                                                    
     retires  before Medicare  eligibility, it's  often very                                                                    
     difficult for them to find  coverage.  And that was the                                                                    
     access issue that ... [Ms.  Millhorn] was referring to.                                                                    
     And  if   they  do   find  coverage  it's   often  very                                                                    
     expensive.     So,  the   individuals  here   have  the                                                                    
     opportunity,  no  matter  when  they  retire,  to  have                                                                    
     guaranteed  access  to  that health  coverage  with  no                                                                    
     penalty  for their  own  particular  health status,  as                                                                    
     they would if they went  out and bought insurance on an                                                                    
     individual basis.                                                                                                          
                                                                                                                                
     ... The  second component was designed  to provide more                                                                    
     of  a bridge;  ...  if an  individual  chose to  retire                                                                    
     before their Medicare eligibility,  we would offer them                                                                    
     access  and   offer  them  some  subsidy,   but  not  a                                                                    
     particularly  large  subsidy.    The  ceiling  for  the                                                                    
     Medicare  eligible  individual  was that  there  was  a                                                                    
     desire to  provide an additional benefit  or to provide                                                                    
       ... additional levels of subsidy there and not tie                                                                       
     that to a fixed dollar approach.                                                                                           
                                                                                                                                
MR. LAWSON, regarding  the fixed dollar approach,  stated that as                                                               
the years  project into the  future, retirees will be  covering a                                                               
larger  and larger  percentage of  the premium  costs due  to the                                                               
fact that  the premium  cost is  growing at a  larger rate  - the                                                               
trend  rate at  10-15 percent  -  versus the  subsidy base  which                                                               
would only grow at 5 percent.                                                                                                   
                                                                                                                                
MR. LAWSON indicated that Mercer  ran some scenarios with a fixed                                                               
dollar approach  for Medicare eligible individuals  and the final                                                               
recommendation  of the  tier  committee was  to  merge a  defined                                                               
benefit and defined dollar approach.                                                                                            
                                                                                                                                
9:13:18 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON  asked  if  it  was  estimated  that  a  5  percent                                                               
escalator would actually  limit the amount that would  be paid by                                                               
the  system or  if,  after Medicare  eligibility,  the 5  percent                                                               
would not be reached.                                                                                                           
                                                                                                                                
9:13:50 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  answered that  [the 5 percent]  would be  reached and                                                               
would result  in an  elimination of dollars  paid by  the system.                                                               
He said there was a feeling  that the medical component was being                                                               
cut  so much  and  the cost  of that  program  was being  reduced                                                               
substantially, and there was not a desire to reduce it further.                                                                 
                                                                                                                                
9:15:03 AM                                                                                                                    
                                                                                                                                
MR. LAWSON directed attention to  Slide 11, which shows the types                                                               
of  Medicare integration,  with  the  headings of  "Traditional,"                                                               
"Exclusion,"  and  "Maintenance  of   Benefits"  -  three  widely                                                               
accepted methods of coordination of  benefits.  He explained that                                                               
coordination of  benefits is a  process of integrating  a planned                                                               
benefit package  with the benefits  that Medicare will pay.   The                                                               
process is used  to determine how much the plan  sponsor and plan                                                               
participants  will pay  and how  much will  be paid  by Medicare.                                                               
All three  methods are  designed to  ensure that  at no  point is                                                               
more  than 100  percent  of the  claims cost  paid.   Mr.  Lawson                                                               
provided examples of  the three plans, which Slide  11 defines as                                                               
follows  [original  punctuation  provided  with  some  formatting                                                               
changed]:                                                                                                                       
                                                                                                                                
     Traditional - Calculates what the  plan would have paid                                                                    
     as sole provider  and adds what Medicare pays.   If the                                                                    
     total  is more  than 100%  of the  bill, the  plan pays                                                                    
     only enough to  total 100%.  The retiree  often pays no                                                                    
     deductible or coinsurance.                                                                                                 
                                                                                                                                
     Exclusion  -  Determines  the  total  expenses  covered                                                                    
     under the  plan, reduces them by  Medicare benefits and                                                                    
     then  applies the  deductibles,  coinsurance and  other                                                                    
     plan limits.                                                                                                               
                                                                                                                                
     Maintenance  of   Benefits  -  Calculates   the  plan's                                                                    
     payment as if there  were no Medicare coverage, applies                                                                    
     the deductibles, coinsurance and  other plan limits and                                                                    
     pays  the remaining  amount minus  what Medicare  pays.                                                                    
     Also call [sic] Carve-Out.                                                                                                 
                                                                                                                                
9:21:13 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GRUENBERG   stated,   "This  looks   like   it's                                                               
fantastically more expensive for the  retiree than what we've had                                                               
before, isn't it?"                                                                                                              
                                                                                                                                
9:21:14 AM                                                                                                                    
                                                                                                                                
MR. LAWSON stated  his belief that "this was the  same cost share                                                               
design prior to ... 2000 or 2001."   He said he thinks the system                                                               
went from  a Maintenance  of Benefits  to a  Traditional approach                                                               
about 3-5 years ago.                                                                                                            
                                                                                                                                
9:21:57 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN said  Kathy Lea,  [Retirement Manager,  Division of                                                               
Retirement & Benefits] confirms that is correct.                                                                                
                                                                                                                                
MR. LAWSON  said he does  not have the  background on why  it was                                                               
changed.   However,  he said  it's clear  there's an  impact from                                                               
going from a pre-Medicare status  where the individual would have                                                               
paid $300  and would have been  used to the cost  sharing element                                                               
to  a Medicare  eligible status  when all  of a  sudden the  cost                                                               
sharing is  eliminated.   He said, "It  really removes  them from                                                               
feeling the pain of their healthcare cost."                                                                                     
                                                                                                                                
9:23:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG  offered  his understanding  that  "all                                                               
these  people at  the time  they  were paying  this were  getting                                                               
longevity bonuses."                                                                                                             
                                                                                                                                
MS. MILLHORN interjected, "Some of them ..."                                                                                    
                                                                                                                                
9:23:29 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  stated that another  important consideration  is that                                                               
there is an  out of pocket maximum for  these charges; therefore,                                                               
the  charges would  not be  indefinite.   He offered  an example,                                                               
referring back to  Slide 3.  He  said there was a  desire to keep                                                               
cost  sharing  consistent  from  when retirees  were  in  a  pre-                                                               
Medicare status to when they went to a Medicare status.                                                                         
                                                                                                                                
9:25:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG asked Ms. Lea  to confirm how many years                                                               
ago the change [from using  the maintenance of benefits method to                                                               
using the traditional method] took place.                                                                                       
                                                                                                                                
9:25:23 AM                                                                                                                    
                                                                                                                                
KATHY  LEA,   Retirement  Manager,   Division  of   Retirement  &                                                               
Benefits,  Department   of  Administration,  on  behalf   of  the                                                               
division,  stated  her belief  that  that  change took  place  in                                                               
approximately 2000.   She explained the reason for  the change is                                                               
that the funds appeared well funded  at the time and the retirees                                                               
were  notifying  both  the  division and  the  boards  that  with                                                               
increasing  Medicare costs,  they  weren't  getting anything  for                                                               
their Medicare premium.                                                                                                         
                                                                                                                                
9:26:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked, "If  we went  to this  plan now,                                                               
how  would that  negatively affect  these people  vis a  vis back                                                               
then when they still had their longevity bonus?"                                                                                
                                                                                                                                
9:26:53 AM                                                                                                                    
                                                                                                                                
MS.  LEA responded  that some  of  the members  were receiving  a                                                               
longevity  bonus  and  have not  since  received  it;  therefore,                                                               
returning  back to  [the maintenance  of  benefits method]  would                                                               
increase  their out  of  pocket share  up to  the  out of  pocket                                                               
limit.                                                                                                                          
                                                                                                                                
9:27:09 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON  asked  if  it  is known  what  proportion  of  the                                                               
retirees were or were not receiving a longevity bonus.                                                                          
                                                                                                                                
9:27:52 AM                                                                                                                    
                                                                                                                                
MS. LEA  replied that  there are  a portion  of members  who were                                                               
receiving the longevity  bonus, but the division is  not aware of                                                               
how many.   She said it's still important to  note that "there is                                                               
still the health reimbursement arrangement  portion of the health                                                               
plan that would be paying deductibles and premiums as well."                                                                    
                                                                                                                                
9:28:18 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON  asked  for  those  numbers  to  be  given  to  the                                                               
committee.                                                                                                                      
                                                                                                                                
9:29:03 AM                                                                                                                    
                                                                                                                                
MR. LAWSON continued on to Slide  12, which shows the normal cost                                                               
rates  for   Alternative  2  as  follows   [original  punctuation                                                               
provided with some formatting changed]:                                                                                         
                                                                                                                                
     "Normal cost" rates for Alternative 2 are expected to                                                                      
     be as follows:                                                                                                             
                                                                                                                                
                                   Normal Cost Rates                                                                        
                                   TRS       PERS                                                                         
                                                                                                                              
     Medical normal cost rate      3.75%     3.5%                                                                               
                                                                                                                                
     Defined contribution rate     13.5%     11.5%                                                                              
                                                                                                                                
     HRA contribution rate         1.5%      1.0%                                                                           
                                                                                                                                
     Gross normal cost rate        18.75%    16.0%                                                                              
                                                                                                                                
     Member contribution rate      (10.0%)   (8.0%)                                                                             
                                                                                                                                
     Employer normal cost rate     8.75%     8.0%                                                                               
                                                                                                                                
MR. LAWSON  noted that, in  comparison, [the medical  normal cost                                                               
rate] prior to program changes  previously discussed, those costs                                                               
were 9.07  percent and 8.68 percent.   He said there  is already,                                                               
even  with  the  health  benefit  portion  there  is  significant                                                               
savings to the system with this program.                                                                                        
                                                                                                                                
9:30:49 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN clarified  that those  numbers -  9.07 percent  and                                                               
8.68 percent  - reflect the normal  cost rate right now  for PERS                                                               
and TRS, respectively.                                                                                                          
                                                                                                                                
9:33:19 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  indicated that Slide 13  is [the title page  for] the                                                               
next section regarding Health  Reimbursement accounts (HRAs), and                                                               
Slide 14  is [the first  of four slides] overviewing  HRAs, which                                                               
read  as   follows  [original  punctuation  provided   with  some                                                               
formatting changed]:                                                                                                            
                                                                                                                                
     Arrangement that:                                                                                                          
          Is solely employer paid                                                                                               
          Reimburses employees for medical expenses                                                                             
         Provides reimbursements up to a maximum dollar                                                                         
     amount for a defined coverage period                                                                                       
                                                                                                                                
     Unused funds are carried forward to the next coverage                                                                      
     period                                                                                                                     
                                                                                                                                
     Usually, but not required to be, associated with high-                                                                     
      deductible health plans or consumer directed health                                                                       
     plans                                                                                                                      
                                                                                                                                
     Includes aspects of FSAs                                                                                                   
                                                                                                                                
     Also known as                                                                                                              
          Health Reimbursement Arrangements                                                                                     
          Defined contribution health care plans                                                                                
                                                                                                                                
MR.  LAWSON said  it's important  to  note that  [the HRAs]  were                                                               
something  that  was discussed  later  during  the tier  redesign                                                               
process;  therefore,  it  did  not have  the  opportunity  to  be                                                               
flushed out in  detail and discussed in as much  depth as some of                                                               
the other components of the  medical program.  He offered further                                                               
details.                                                                                                                        
                                                                                                                                
9:35:34 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON  turned  to  Slide  15, the  second  of  four  slides                                                               
covering the  overview of HRAs,  which read as  follows [original                                                               
punctuation provided with some formatting changed]:                                                                             
                                                                                                                                
     Funding                                                                                                                  
          Employer only                                                                                                         
          Employer sets own limits                                                                                              
                                                                                                                                
     Eligibility                                                                                                              
        Current and former employees (including retired                                                                         
     employees), spouses and dependents                                                                                         
          COBRA participants                                                                                                    
          Dependent medical expenses on death of employee                                                                       
                                                                                                                                
MR.  LAWSON,  in  response  to   a  request  from  Chair  Seaton,                                                               
explained  that  [the  Comprehensive Omnibus  Budget  Reform  Act                                                               
(COBRA)]  allows  for individuals  to  retain  their health  care                                                               
coverage for 18-36 months for a  fee.  Employers can charge those                                                               
individuals  up to  102  percent of  the  current active  medical                                                               
cost.                                                                                                                           
                                                                                                                                
9:37:25 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON directed  attention to  slide 16,  the third  of four                                                               
slides   covering  HRAs,   which   read   as  follows   [original                                                               
punctuation provided with some formatting changed]:                                                                             
                                                                                                                                
     Benefits                                                                                                                 
       Reimbursements for medical expenses as defined in                                                                        
     IRC section 213(d)                                                                                                         
          No IRS limit on reimbursements                                                                                        
          Employee responsible for substantiating expenses                                                                      
          Cannot use for over-the-counter drugs                                                                                 
          Cannot have any right to receive cash benefit                                                                         
                                                                                                                                
[In  Slide 16,  IRC  stands  for Internal  Revenue  code and  IRS                                                               
stands for Internal Revenue Service.]                                                                                           
                                                                                                                                
9:38:36 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON moved  on  to Slide  17, the  fourth  of four  slides                                                               
covering  HRAs,  which  read  as  follows  [original  punctuation                                                               
provided with some formatting changed]:                                                                                         
                                                                                                                                
     Plan design                                                                                                              
     Plan sponsor dictates plan design                                                                                          
          Contribution amount                                                                                                   
          Covered expenses                                                                                                      
          Termination provisions                                                                                                
                                                                                                                                
     Tax Treatment                                                                                                            
     Requirements   for   exclusion  from   employee/retiree                                                                    
     income:                                                                                                                    
       Employer funding only - no employee contributions                                                                        
          Only reimbursed for qualified medical expenses                                                                        
     Subject  to  non-discrimination  rules under  IRS  code                                                                    
     section 105(h)                                                                                                             
                                                                                                                                
MR. LAWSON said he thinks the theme is flexibility.                                                                             
                                                                                                                                
CHAIR SEATON asked Mr. Lawson to explain to the committee the                                                                   
implications of the non-discrimination rule.                                                                                    
                                                                                                                                
9:39:28 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON responded  that  that's not  his  area of  expertise.                                                               
Notwithstanding that,  he proffered that  that would be  the case                                                               
where,  for  example, a  high-salaried  individual  would not  be                                                               
permitted to  receive a substantially larger  contribution than a                                                               
lower salaried individual.                                                                                                      
                                                                                                                                
CHAIR SEATON said he has discussed this issue with Ms. Millhorn                                                                 
and asked her to speak to it.                                                                                                   
                                                                                                                                
9:41:08 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN stated:                                                                                                            
                                                                                                                                
     In  my  discussion with  [Chair]  Seaton,  I needed  to                                                                    
     provide a  little bit of  background about the  HRA and                                                                    
     how the amounts were arrived  at, because I think it is                                                                    
     confusing  if you  were not  there  and worked  through                                                                    
     that process.   And I'm not sure  that the presentation                                                                    
     material really  lends itself to a  clear understanding                                                                    
     about the  1 percent  portion.   Because the  1 percent                                                                    
     portion that is the cost  to employer for HRA is really                                                                    
     derived  by looking  at  a  system-wide average  salary                                                                    
     amount  in order  to make  that  computation, and  that                                                                    
     goes back  to the nondiscriminatory language  to ensure                                                                    
     that  an   individual  that  is  less   compensated  as                                                                    
     compared  to  an individual  who  would  have a  higher                                                                    
     level  of   compensation  would   -  under   an  health                                                                    
     reimbursement arrangement  - receive the same  level of                                                                    
     benefit.  So,  the 1 percent portion - the  cost to the                                                                    
     employer -  the projections were  to look at  a system-                                                                    
     wide average  of $35,000  and make  a computation  of a                                                                    
     system-wide average  salary in order to  determine what                                                                    
     that benefit amount is for all members.                                                                                    
                                                                                                                                
9:42:06 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  added, "The other issue  that we ran into  by doing a                                                               
percentage of  an individual salary  is that very  closely linked                                                               
that  contribution  amount  to that  account  to  the  employee's                                                               
personal salary."   He  explained that,  for tax  purposes, there                                                               
can be  no direct  or indirect funding  related to  an employee's                                                               
personal compensation."                                                                                                         
                                                                                                                                
9:42:53 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON offered an example for clarification.                                                                              
                                                                                                                                
9:44:53 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN concurred with Chair Seaton's example.                                                                             
                                                                                                                                
9:45:10 AM                                                                                                                    
                                                                                                                                
MR. LAWSON said,  "I think each year the intent  was to determine                                                               
an average  salary for  the system  as a whole  and ...  to apply                                                               
that  1  or 1.5  percent  to  that  average salary,  ...  thereby                                                               
becoming a fixed dollar amount."                                                                                                
                                                                                                                                
9:45:18 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON explained that that  fixed dollar amount will not be                                                               
seen in  "any of  the materials"  but "we  need to  remember that                                                               
because it's going to affect different employees differently."                                                                  
                                                                                                                                
9:45:31 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN, in  response to a question from  Chair Seaton, said                                                               
there are approximately 155 PERS employers.                                                                                     
                                                                                                                                
9:45:50 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  observed that if  the calculation was based  on the                                                               
average wages  of the 155  PERS employers then there  wouldn't be                                                               
discrimination  within that  employer  pool.   Using system  wide                                                               
averages would  get rid  of the  discrepancy between  higher wage                                                               
and  lower wage  employers.   He asked  if a  system of  averages                                                               
would  qualify under  the  new  program and  not  fall under  the                                                               
nondiscriminatory provision in the IRS code.                                                                                    
                                                                                                                                
9:46:04 AM                                                                                                                    
                                                                                                                                
MS. MILLHORN  said Mr. Lawson  was asked to make  a determination                                                               
"if that  would create  a discrimination kind  of issue  for us."                                                               
She said because the division manages  the system as a whole, she                                                               
would  like to  have that  question answered  definitively.   She                                                               
said it could be argued that  by treating one employer within the                                                               
whole  system differently  for benefit  calculation purposes  may                                                               
cause  a problem.   She  said there  is merit  to Chair  Seaton's                                                               
asking his  question; however,  she would  like to  hear response                                                               
from  the  experts   "to  get  some  confidence   that  it's  not                                                               
problematic."                                                                                                                   
                                                                                                                                
9:47:56 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  clarified that $500  dollars in the  charts doesn't                                                               
mean that  "at one percent  of their  salary you were  limited at                                                               
$500."    Instead it  means  "$500  is  growth  over time."    He                                                               
explained, "If  the average salary  gets up to $60,000,  it would                                                               
still be limited  to $500 in the future.   He said it's confusing                                                               
to  figure this  out based  on the  limited data  available.   He                                                               
asked Ms. Millhorn if what he said is a fair representation.                                                                    
                                                                                                                                
9:48:32 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN replied  that she  believes that's  accurate.   She                                                               
said  there's   also  additional  information  available.     She                                                               
described the presentation  given today as a "broad  brush."  She                                                               
suggested to Mr.  Lawson that it would be beneficial  if he would                                                               
provide  the committee  members  with  projected benefit  amounts                                                               
that would be  available to members who retired  under the system                                                               
under the  HRA, because she  said she  thinks "this feature  is a                                                               
very  key  feature;  it  provides a  very  powerful  vehicle  for                                                               
members to start thinking about  health care costs for themselves                                                               
...."                                                                                                                           
                                                                                                                                
MS.  MILLHORN said  she thinks  everyone  recognizes that  health                                                               
care costs  are a national issue,  "and this is one  vehicle that                                                               
is  thought to  be very  powerful for  the individual  on a  tax-                                                               
deferred basis to plan for  those expenditures in the future, and                                                               
then  to make  some  corresponding decisions  about  that."   The                                                               
current  plan  doesn't  make  an employee  have  to  think  about                                                               
medical expenses, because  they are simply provided.   She added,                                                               
"And by providing a vehicle  that accumulates assets, it triggers                                                               
you to be  cognizant of those assets and make  some key decisions                                                               
based on  that."  She offered  an example wherein a  person would                                                               
have the opportunity to choose  whether it was more economical to                                                               
have a surgical  procedure done in Juneau, or in  Anchorage.  She                                                               
continued:                                                                                                                      
                                                                                                                                
     This is  that type of  vehicle that looks  at consumer-                                                                    
     driven health  care for  the future.   And  it's asking                                                                    
     members to  share in those  costs, recognizing  that 40                                                                    
     percent of the accrued  liabilities for our underfunded                                                                    
     status is medical cost for  PERS, 28 [percent] for TRS.                                                                    
     This  particular medical  plan goes  a long  way toward                                                                    
     addressing  medical  costs  in the  future,  and  still                                                                    
     provides a very solid benefit to the members.                                                                              
                                                                                                                                
9:51:40 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON  stated that  the  primary  purpose  is to  have  a                                                               
benefit  that will  attract and  maintain employees.   He  said a                                                               
huge portion  of the  unfunded liability  comes from  the current                                                               
health care  system and  must be  fixed.   He described  that his                                                               
experience  in  private health  care  plans  is:   "doubling  the                                                               
deductible  almost halves  the premium."   He  suggested that  it                                                               
might be  better to  have a slightly  higher deductible,  even if                                                               
the amount  of the  health care  reimbursement has  to increased.                                                               
He  speculated  that having  that  higher  deductible would  save                                                               
money over  time because the  base contribution into  the premium                                                               
amount would be less.                                                                                                           
                                                                                                                                
9:53:05 AM                                                                                                                    
                                                                                                                                
MS.  MILLHORN  said   that  is  an  area  in   which  Mr.  Lawson                                                               
specializes exclusively.  Notwithstanding that, she offered:                                                                    
                                                                                                                                
     In benchmarking with some of  the other pension systems                                                                    
     that  were looked  at, including  two employers  in the                                                                    
     State of  Alaska, it appears that  that deductible kind                                                                    
     of aligns itself when you  compare across those various                                                                    
     different benchmarks.                                                                                                      
                                                                                                                                
9:53:47 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON clarified that he is  not meaning to say he wants to                                                               
reduce a  benefit, but he  just wants to know  if a lot  of money                                                               
could  be saved  in  the  system by  having  a higher  deductible                                                               
coupled  with   a  higher  contribution  into   the  health  care                                                               
reimbursement  account,  which  would   offset  that  amount  for                                                               
individual employees.                                                                                                           
                                                                                                                                
9:54:16 AM                                                                                                                    
                                                                                                                                
MR.  LAWSON  recollected  that when  [Mercer]  went  through  its                                                               
design-processing  phase, it  arrived at  "the $250."   He  noted                                                               
that a  few years ago  that was  the benchmark for  cost sharing.                                                               
He said there  were deductible level proposals of  $500 and $350,                                                               
and during  the process those  levels were  felt to be  too high.                                                               
He said  the deductible  "definitely can  get you  some mileage,"                                                               
but  sometimes it  needs to  be  increased "more  than you  might                                                               
intuitively  expect" in  order to  get substantial  savings.   He                                                               
mentioned the effect of catastrophic  claims.  He noted the other                                                               
element of the deductible, particularly  in the State of Alaska's                                                               
case, is the  inability to increase it in future  years.  He said                                                               
many  plan  sponsors that  Mercer  has  worked with  will,  every                                                               
couple of years, increase the  deductible by $50-$100 in order to                                                               
keep  pace  with inflation.    He  explained,  "When you  have  a                                                               
constant deductible,  but you  have a  growing health  care cost,                                                               
... the  value of  that constant deductible  tends to  erode over                                                               
time.  And  so, if we look back  10 years ago or 15  years ago, a                                                               
$200 or $250  deductible would mean a lot more  back then than it                                                               
does today."                                                                                                                    
                                                                                                                                
MR.  LAWSON said  one  challenge is  the  "nondiminuation of  the                                                               
benefits."   He  said that  protected status  of the  benefits is                                                               
probably  the largest  factor  preventing  the implementation  of                                                               
such a  strategy where a cost  share can be changed  over time as                                                               
costs  change.   When  faced  with  that  kind of  restraint,  he                                                               
advised, the next  best place to try to establish  a cost sharing                                                               
is by a  percent of premium.  By establishing  a constant percent                                                               
of premium  contribution to save  on costs, as costs  continue to                                                               
grow, so will  the contributions.  He said, "So,  we kind of felt                                                               
that it  was better to  focus on  the contribution aspect  of it,                                                               
because that  was a percentage  of the  cost and could  grow with                                                               
time."                                                                                                                          
                                                                                                                                
9:57:54 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  said he would like  Aetna or someone to  supply the                                                               
committee  with a  spreadsheet regarding  that issue.   He  said,                                                               
"We're building  in a  new tier  on these,  so we're  not talking                                                               
about  diminishing  past accrued  benefits.    So, is  there  any                                                               
reason  why we  can't build  in whatever  that deductible  is and                                                               
have it change at a fixed 5 percent rate?"                                                                                      
                                                                                                                                
9:58:36 AM                                                                                                                    
                                                                                                                                
MR. LAWSON  responded that he  thinks that would  be outstanding.                                                               
He said  that was explored  a little bit,  and he said  he thinks                                                               
the [PERS/TRS] Board's attorney was  of the opinion that that was                                                               
"dangerous"  or   "uncertain"  territory,  which   could  provide                                                               
grounds for challenge based on past case history.                                                                               
                                                                                                                                
9:59:03 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON said,  "Well, I ... guess I'm just  having a problem                                                               
figuring out how we can say  that we're going to have [a] premium                                                               
escalating at 5  percent and say that that's ...  not going to be                                                               
subject to the  same challenge as the deductible  escalating at a                                                               
maximum of  5 percent.   I mean, it seems  that we have  the same                                                               
exact thing.   We're building a new tier; if  everybody knows the                                                               
benefit when they  come in and the benefit is  this escalating at                                                               
5 percent, ... there's no  question of changing the deal, because                                                               
they know the deal when they come in."                                                                                          
                                                                                                                                
[HB 238 was heard and held.]                                                                                                  
                                                                                                                                
10:00:11 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON made committee announcements.                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
State  Affairs  Standing  Committee   meeting  was  adjourned  at                                                               
10:01:44 AM.                                                                                                                  

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