Legislature(1995 - 1996)
02/09/1996 09:10 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE February 9, 1996 9:10 a.m. TAPES SFC-96, #23, Side 1 (000-575) SFC-96, #23, Side 2 (575-431) CALL TO ORDER Senator Rick Halford, Co-chairman, convened the meeting at approximately 9:10 a.m. PRESENT All members (Co-chairmen Halford and Frank and Senators Donley, Phillips, Rieger, Sharp, and Zharoff) were present. ALSO ATTENDING: Gordon Evans, representing the Health Insurance Association of America; Katie Campbell, Assistant Actuarial, Division of Insurance, Dept. of Commerce and Economic Development; Nico Bus, Acting Director, Division of Support Services, Dept. of Natural Resources; Mike Greany, Director, Legislative Finance Division; Brett Huber, aide to Senator Lyda Green; and aides to committee members and other members of the legislature. ALSO PARTICIPATING VIA TELECONFERENCE: Trae Anderson, Vice- President of Blue Cross, Seattle, Washington; Ron Swanson, Director, Division of Land, Dept. of Natural Resources, Anchorage, Alaska. SUMMARY INFORMATION SB 162 - AGRICULTURAL LAND Discussion was had with Ron Swanson and Brett Huber. Amendments 1, 2, and 3 were adopted for incorporation within a finance committee substitute. CSSB 162 (Fin) was then REPORTED OUT of committee with a new $15.0 fiscal note from the land development component and a $28.5 note from the agricultural development component of the Dept. of Natural Resources. (Transmission of the bill to the floor to be read across into Rules was delayed until 2/13/96 for review and approval of a draft CSSB 162 (Fin) containing the above amendments.) SB 178 - SMALL EMPLOYER HEALTH INSURANCE Discussion was had with Gordon Evans, Katie Campbell, and Trae Anderson. The bill was then REPORTED OUT of committee with a zero fiscal note from the Dept. of Commerce and Economic Development. SENATE BILL NO. 178 An Act relating to small employer health insurance. Co-chairman Halford directed that SB 178 be brought on for discussion. Senator Rieger described the operation of 1993 legislation creating an association of insurers to provide health insurance in Alaska. The legislation required insurers to join an association as a condition of doing business in the state. It set up a pool which allowed reinsurance of health coverage for small employers and required the small employer insurer to offer at least two health benefit plans. The definition of small employer ranged from 2 to 25 employees. The only change within SB 178 would increase the ceiling to 50 members. The remaining provisions of reinsurance and small group health plans are the same. In response to a question by Senator Randy Phillips, Senator Rieger explained that the 1997 date was "picked out of the air when we first passed that law as a five-year-type window." That date would be extended two years by SB 178. KATIE CAMPBELL, Assistant Actuary, Division of Insurance, Dept. of Commerce and Economic Development, came before committee, saying that since no comprehensive study has yet been done regarding the impact of earlier legislation, both the division and administration are neutral on the bill. She commented that a survey was issued several weeks ago. Responses are expected by February 20, 1996. The results of that survey should provide pertinent information. Co-chairman Halford acknowledged the argument that when new requirements or action are mandated, concern is that "people will drop out of the argument." He then asked if the number of insurers had diminished since passage of earlier legislation. Ms. Campbell cited only Traveler's Insurance transfer of health insurance operations to a new company, Metro Health. In response to a question from Senator Zharoff regarding the definition of a "small business," Senator Rieger explained that the definition is employment based. It was formerly 2 to 25 employees. SB 178 extends it to 50. The reinsurance mechanism attempts to create "some large group characteristics among a pool of smaller insured populations." Beyond 50, the group is large enough so that extra provisions for insurance of small businesses are no longer needed. GORDON EVANS, representing the Health Insurance Association of America, next came before committee and voiced support for the bill. Earlier-passed legislation emanated from studies by the state health resources and access task force indicating that approximately half of all uninsured adults in Alaska were employed by small businesses. While the ceiling of 2 to 25 employees impacted approximately 85% of the businesses in Alaska, increase to 50 would impact 92%. Forty-three states have enacted small employer group insurance legislation. Seventeen have established 50 as the maximum. As an example of operation of the legislation, Senator Rieger described the process by which the small employer population would be aggregated into one large group. An insurer seeking to underwrite health insurance for the pool would establish a rate adequate to pay claims on the large pool. The process for underwriting a small group does not look at averages but evaluates those to be insured on an individual basis and selects out those who are uninsurable. That changes the characteristics of the remainder. That type of dynamic has caused insurance to be less available for small groups. The legislation attempts to recreate the large group characteristic. An escape provision allows insurers to move "your rate up or down by up to 35% from what that average rate would have been." Further ability to buy into the reinsurance pool spreads risk "across all the people doing business in the state." Buffers allow insurers to do business in Alaska and have some flexibility while attempting to avoid the individual underwriting characteristic that was making small group insurance unavailable. Mr. Evans described an example whereby an employer with ten employees might have nine that are good risks but the tenth has had medical problems. Often the employer could not get a group policy that insured that individual. Under small employer health insurance legislation, the individual has to be included. There is guaranteed availability and accessibility. Only two high-risk employees are included in the reinsurance pool at this time. The legislation has thus provided insurance to small businesses without the necessity of excluding certain employees. Co-chairman Halford expressed concern that those with low risks not be utilized to fund high-risk individuals. He said he had no problem with the legislation as long as employers with low-risk employees may "opt out to the marketplace." Senator Sharp described his experience in having established a group insurance trust for Alaska utilities. He noted that eight of the 17 utilities were unable to obtain insurance prior to the trust. The largest utility experienced a 20% reduction in its rate because the group of 17 utilities was large enough. TRAE ANDERSON, Senior Vice President, Blue Cross of Washington and Alaska, spoke via teleconference from Seattle, Washington. He said that while Blue Cross agrees with the intent of the legislation and some of its provisions, the company has reservations about the bill as a whole. Blue Cross supports health reform designed to: 1. Contain the growth of medical and administrative costs. 2. Increase access to health care and coverage for the uninsured. 3. Assure the quality of health care services. The proposed bill would require guaranteed issue of a standard and basic plan to all groups sized 2 to 50. It would implement guaranteed renewability, limitations on use of previous conditions, and portability provisions. However, Blue Cross has reservations about rating restrictions imposed by the bill. Those provision may have unintended consequences which run counter to the intent of the legislation. Implementation of rate-change caps may have a destablizing impact on the small group market. While Blue Cross has no empirical evidence to support that conclusion, because it is too early to tell what impact rating provisions have had on the 2 to 25 market, there is concern that rating provisions will result in diminishing choices and access for consumers. Co-chairman Halford voiced his understanding that the foregoing comments pertain to earlier passed legislation. Areas highlighted would be made either better or worse by SB 178 provisions which increase the ceiling from 25 to 50. Mr. Anderson reiterated concern that if insurers are unable to achieve compensatory rates, the market may be destabilized, and the goal of increased access may not be achieved. Senator Phillips MOVED that SB 178 pass from committee with individual recommendations and the accompanying fiscal note. No objection having been raised, SB 178 was REPORTED OUT of committee with a zero fiscal note from the Dept. of Commerce and Economic Development. Co-chairmen Halford and Frank and Senators Rieger, Phillips, and Sharp signed the committee report with a "do pass" recommendation. Senators Donley and Zharoff signed "no recommendation." SENATE BILL NO. 162 An Act relating to land used for agricultural purposes and to state land classified for agricultural purposes or subject to the restriction of use for agricultural purposes only; and annulling certain program regulations of the Department of Natural Resources that are inconsistent with the amendments made by this Act. Co-chairman Halford directed that SB 162 be brought on for discussion. Co-chairman Frank referenced Amendments 1 and 2, suggested by the sponsor. He then explained that Amendment No. 1 would change "shall" to "may" at page 4, line 22. Co-chairman Halford voiced his understanding that the amendment allows rather than requires aliquot parts. The Co-chairman then called for objections to adoption of Amendment No. 1. Senator Donley requested testimony from the department. RON SWANSON, Director, Division of Land, Dept. of Natural Resources, testified via teleconference from Anchorage, advising that the department recommended the change. No objection having been raised, Amendment No. 1 was ADOPTED. Co-chairman Frank explained that Amendment No. 2 would insert new language at page 7, line 31. Co-chairman Halford voiced his understanding that new language would make the process applicant driven. BRETT HUBER, aide to Senator Lyda Green, concurred that holders of agricultural only lands would have to apply for conveyance of fee simple title with a restricted agricultural covenant. The landholder would provide title insurance and cover survey costs. Original bill language mandated that the department issue new title conveyances for all agricultural parcel holders. Amendment No. 2 was recommended by the department and is supported by the sponsor. Senator Zharoff voiced his understanding that all costs would be borne by the applicant, and there would be limited, if any, cost to the state. Mr. Huber concurred. He then advised that the present $242.4 fiscal note from the Dept. of Natural Resources reflects mandated conveyance by the department and department-borne costs. Making the legislation applicant-driven should eliminate or greatly reduce costs. Senator Rieger referenced language at page 3, line 14 of Amendment No. 2 and questioned whether "shall" should be changed to "may" in the subparagraph relating to enforcement of the state's interest. Mr. Swanson suggested that language should use "may" rather than "shall." It allows the department to enforce the agricultural covenant by administrative means for those holding the "old style patent." For the new process, the department would have to go through the courts. Mr. Swanson advised that the department recommended and supports Amendment No. 2. Senator Rieger next referenced the following language at page 1, line 16 of Amendment No. 2: or a title report affirming ownership of the rights and asked what the department would accept. Mr. Swanson cited a litigation report issued by a title company and signed by an attorney. The report verifies that the title is proper and no liens are attached. Senator Phillips MOVED for adoption of Amendment No. 2 with the change from "shall" to "may" at page 2, line 14. No objection having been raised, Amendment No. 2 was ADOPTED as amended. In response to an inquiry from Co-chairman Halford regarding the department position on the legislation, Mr. Swanson referenced the following areas of concern: 1. The interest rate (Sec. 8). 2. Need for compensation to the state from increased value generated by ability to subdivide (Sec. 9). He stressed that the department will use whatever interest rate the legislature sets "only for new financing." The department does not plan to "go back and allow anybody to refinance their existing contract." Mr. Swanson further stressed that the proposed bill establishes a different interest rate for agricultural loans than other types of loans handled by the department. Under current law, agricultural landholders may subdivide land but no new construction can occur on subdivided parcels. The proposed bill allows for agricultural-related construction. That would allow for construction of a home or other structure on each 40 acres. Department concern relates to the impact of ability to subdivide on the value of the property. Mr. Swanson cited a recent appraisal of the James' farm at Point MacKenzie. The value of agricultural interest on a 40-acre parcel with no construction is $160 per acre. Allowance of both subdivision and construction increases the value to $250 to $300 per acre. The department feels that under Article VIII, Sec. 2 of the Alaska State Constitution, the state should be compensated for that increase. The Attorney General advises that there could be a legitimate legal challenge unless the state is compensated in some form. A possible solution is a limitation on the number of times a parcel may be subdivided and what may be constructed thereon. Co-chairman Halford noted that the legislation limits the number of parcels to four. The restriction on the number of times a parcel could be subdivided was intended to deal with the question of value accrual. He suggested that the appraisal, the difference in the appraisal, and payment of the amount of the difference would become more cumbersome than it would accomplish. Mr. Swanson suggested that subdivision be limited to once or twice and the time period be longer than four years. That would help to equalize values. Co-chairman Halford asked if limitations allowing the parcel to be divided into no more than four subparcels with no provisions for subdivision in the future would satisfy concerns. Further subdivision could then be addressed at a later date if there was considerable pressure for smaller parcels in agricultural use. Mr. Swanson concurred in that approach, suggesting that the amount of increased value would be "so minimal it would not be worth trying to figure out." In response to a question from Co-chairman Halford asking if the commissioner would support the bill under the foregoing proposal, Mr. Swanson noted that he would have to speak with the commissioner. He also expressed his belief that the foregoing would be acceptable since it was discussed as an option that "would work." Senator Randy Phillips inquired concerning the viable acreage for a farm. Mr. Swanson said that existing regulations allow for parcels as small as forty acres. The division of agriculture considers 160 acres, plus, to be the viable commercial size. Below that number, parcels are hobbies, truck farms, etc. In response to a question from Co-chairman Halford, Brett Huber observed that the original intent of subdivision was to benefit the state in that a landholder with a large parcel who is "squeaking by" and making contract payments could subdivide a piece of ground and bring "somebody else into the business and use that to cash flow the operation and keep the contract current . . . ." The initial subdivision is thus more important than subsequent subdivision. Lengthy discussion followed regarding subsequent subdivision of the property and proposed language changes within the bill. Co-chairman Halford sought suggestions for alternative language clarifying that "the subdivision would be one time and for no more than four parcels . . . ." The Co-chairman asked department staff if deletion of subparagraph (3) at page 6, lines 7 through 12, and addition of the word "once" following "subdivide" at page 6, line 5, would make clear that each parcel could be divided into four parcels, but a subdivided parcel could not be subsequently divided. Mr. Swanson suggested that "and sell the land" also be deleted at page 6, line 5. That would clarify that subdivision would occur only once while sale could "happen at any time." Brett Huber asked that language prohibit subsequent subdivision of subdivided land rather than allow subdivision only once. End: SFC-96, #23, Side 1 Begin: SFC-96, #23, Side 2 In response to a question from Senator Phillips, Mr. Huber explained that the "main thrust and intent of the bill is to take what was ag-interest only land and turn it into fee simple land with an agricultural covenant." Discussion followed regarding the size of parcels required for different agricultural purposes. Mr. Huber told members that many parcels of 320 acres and over do not contain 320 acres of plantable soil. Further, many parcels have substantially less than 100% of plantable soil in production. Senator Sharp MOVED to add "none of the four allowable parcels may be further resubdivided" at page 6, line 6, following the word "and." There would thus be no time limit on subdivision into fourths of no less than 40 acres. Further discussion followed and examples of how subdivision would work were presented. Senator Sharp restated his motion and acknowledged that it would likely be "cleaned up dramatically by the drafter." He then MOVED to include deletion of subsection (3) at page 6, lines 7 through 12, within his original amendment which was designated Amendment No. 3. Further discussion followed in response to a question from Senator Zharoff regarding determination of the base parcel upon which subdivision is predicated. Co-chairman Halford said that: The individual doing the subdivision makes that determination within the bounds of no more than four parcels (in any combination) [and] no less than 40-acres (in any combination). Members acknowledged that the covenant goes with the land. Mr. Swanson said that the department would "make sure the covenant went with the original parcel in the patent." Co- chairman Frank cited as an example a landholder with 1,600 acres who subdivides, keeps 40 acres, and sells off the remaining 1,560. Both Co-chairman Halford and Senator Sharp concurred that the 1,560 acres could be subdivided three more times. Co-chairman Halford voiced his understanding that the covenant and sale agreement would control the right to subdivide. Mr. Huber voiced his belief that Senator Green, sponsor of the legislation, would be comfortable with committee intent but raised concern and questions as to whether new language conveys that intent. Co-chairman Halford acknowledged that CSSB 162 (Fin) would contain the drafter's version of the foregoing amendment. If the rewrite of the amendment is significant, the draft will be brought back before committee. The Co-chairman then called for objections to adoption of Amendment No. 3. No objection having been raised, Amendment No. 3 was ADOPTED. In response to an additional question from Senator Zharoff, Mr. Swanson reiterated earlier comments that the interest rate of not more than 9.5 percent would be different than other loans on land. He also stressed that the department would not be refinancing existing contracts "when they come in wanting a new patent." The interest rate at initial purchase will remain in place. Senator Sharp MOVED for passage of CSSB 162 (Fin) with individual recommendations and accompanying fiscal notes. No objection having been raised, CSSB 162 (Fin) was REPORTED OUT of committee with a $15.0 fiscal note from the land development component and a $28.5 note from the agricultural development component within the Department of Natural Resources. Co-chairmen Halford and Frank and Senator Sharp signed the committee report with a "do pass" recommendation. Senators Rieger, Phillips, and Zharoff signed "no recommendation." ADJOURNMENT The meeting was adjourned at approximately 10:15 a.m.