CS FOR HOUSE BILL NO. 29(L&C)(title am) "An Act relating to the Comprehensive Health Insurance Association; granting a 50 percent premium tax credit for assessments against members of the Comprehensive Health Insurance Association; requiring members to provide information to the association's board of directors or the director of the division of insurance; modifying voting rights for the association members by basing their exercise on a member's share of assessments; basing assessments on major medical premiums; modifying the manner of determining members' liabilities for losses; and changing the definition of "major medical" coverage for purpose of state health insurance and providing for exclusions to major medical coverage." This was the first hearing for this bill in the Senate Finance Committee. REPRESENTATIVE NORM ROKEBERG, the bill's sponsor, informed the Committee this legislation would change the funding mechanism for the Alaska Comprehensive Health Insurance Association (ACHIA), which serves as the health "insurer of last resort" for high-risk citizens in the State. ACHIA is a federally mandated program under the federal Employee Retirement Income Security Act of 1974 (ERISA). While individuals participating in ACHIA contribute toward their insurance premiums, any premium shortfall is provided for by an assessment against health insurance underwriters operating in the State. This bill would make a minor change in that funding source process. Representative Rokeberg directed Committee members to a handout titled "Insurers Writing Comprehensive Health Insurance in Alaska" [copy on file] which depicted the market share of health insurance providers operating in the State in the year 2003. The Alaska Division of Insurance conducts such a survey on an annual basis. It is "sobering" to see that Premera Blue Cross Blue Shield of Alaska has approximately 80 percent of the active insurance market share in the State. 9:18:22 AM Representative Rokeberg stated that one of his goals as a legislator was to decrease "the barriers for entry for new underwriters to increase competition and to enable and help pull down rate structures by enabling better competition within the State. Basically, my ten-year quest has fundamentally failed." Representative Rokeberg shared that the annual assessment levied against insurance underwriters to "subsidize the ACHIA pool" has been approximately $3.5 million. This is a major concern, as there are large groups in the ERISA pool, specifically organized labor groups, which either do not contribute or pay little toward the ACHIA insurance premiums fund. His efforts to get these groups "to pay more to the pool" have been resisted. The situation was further compounded in 1998 when "the State of Alaska allowed all their bargaining units to step out of the major pool of the State of Alaska". 9:19:36 AM Representative Rokeberg referred to an April 20, 2006 handout prepared by ACHIA [copy on file] labeled "ACHIA 1993 through 2005". One of the three pie charts depicted on the handout summarizes the total dollar amount received by ACHIA from 1993 to 2005 from its three financial contributors: Insurer Assessments-State Portion $1,364,000; Participant Contributions $17,049,335; and Insurer Assessments $29,186,000. Representative Rokeberg spoke to the pie chart labeled "1998- 2005: Proforma with HB29". This chart depicted the contribution the State would have made to ACHIA during the 1998 to 2005 timeframe under this legislation, which would require the State to participate at approximately a one-third of cost ratio. Thus, under the provisions of this bill, between 1998 and 2005, the contribution distribution would have been: State General Fund Contribution, $12,900,000; Participant Contributions, $14,861,088; and Insurer Assessments, $12,900,000. Representative Rokeberg spoke to the third pie chart labeled "1998-2005: Proforma Assuming State Had Remained Insured". Had the State not opted out of the program in 1998, it would have contributed approximately $10 million of the $38 million required. The breakout would have been: State Portion of Assessments, $10,320,000; Participant Contributions, $14,861,088; and Remaining Insurer Assessments, $15,480,000. The conclusion from this chart is that "there is a huge shortfall because of the reduction of State contributions." While that money instead benefited the State's general fund, it was a detriment to the ACHIA program. There should equity in the ACHIA funding. 9:21:04 AM Representative Rokeberg specified this bill would require "the State to participate in the funding" of the program, by requiring the State to "allocate one half of the [ACHIA] assessment … in the form of a tax credit to the [health] insurance companies". Representative Rokeberg informed the Committee that insurance premium taxes paid to the State by insurance companies are the State's third largest revenue source, the first being petroleum royalty taxes and the second being corporate income taxes. The State received $47 million from insurance premium taxes last year and the expectation is that the taxes would amount to $46 million this year. Health insurance companies would pay $11 million or approximately 25 percent of that amount. Representative Rokeberg noted this bill would not impact the FY 2007 (FY 07) budget as assessments are delayed to allow the calculation to be based on actual costs. Therefore, the FY 07 tax credit of approximately $1,750,000 would affect the State's FY 2008 general fund. The credit amount would increase or decrease each year as determined by the annual ACHIA assessment. He noted that assessment levels are projected to increase. 9:22:57 AM Representative Rokeberg proclaimed that this bill would require the State "to pick up their fair share" of the ACHIA assessment. The State would join 32 other states that either partially or fully participate in the funding of this federally mandated program. 9:23:48 AM Senator Dyson understood this legislation would not require the State's bargaining units' insurance programs to contribute to the ACHIA fund. Representative Rokeberg affirmed. While he had in the past suggested their participation, this proposal would specify that "the State as a whole" would make the contribution in the form of a tax credit to the sources of the revenue. Co-Chair Green declared that the bargaining units chose not "to participate in providing" this insurance coverage which is required by federal and State law. "That was why I fought the State becoming self insured in the first place;" she knew it would be "unfair" to remove "a huge chunk of support of a State mandated program". Her "prediction" that some entity would be required to provide 75 percent of the funds necessary for the program has come true, as the number of private payers in the State is limited. Therefore, "a very small part of the population" is being forced to pay for a State and federally mandated program, which everyone could be "eligible for at some time of their life". 9:25:39 AM Senator Dyson pointed out that the State's "small market" size also makes the State a less attractive place for insurance companies to provide "consumer directed care" such as health savings accounts. The availability of such programs could be a part of the solution. He characterized the insurance providers operating in the State as "institutional and not available to that which I see as a very responsible way of proceeding". 9:26:13 AM CECIL BYKERK, Executive Director, Alaska Comprehensive Health Insurance Association, testified via teleconference from an offnet location. He has been involved with ACHIA since it was enacted by the State in 1992. ACHIA is a program that could serve all Alaskans. The ACHIA plan was chosen by the State as "the solution" to the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) mandate that each state must provide all residents of the state access to health insurance. 60 percent of the states adopted plans similar to ACHIA. Mr. Bykerk informed the Committee that ACHIA has paid out more than $45 million in claims since 1992. It has collected $17 million in premiums from individuals enrolled in it. ACHIA has allowed people to manage their own care and medical expenses. Most of the people participating in ACHIA and HIPAA are uninsurable; otherwise they would enroll in other less expensive plans, as ACHIA premiums, at 140 percent of standard plan costs, are significant. Contrary to public perception, ACHIA is not a Medicaid or welfare program. Individuals enrolled in ACHIA have no or few other health insurance options and must contribute to their coverage in order to participate in the system. Due to the out of pocket expense, people in the ACHIA plan tend to "stay out of emergency rooms" unless the medical care is unavoidable. Mr. Bykerk noted that ACHIA is under funded because ACHIA participant premiums must be kept at an affordable level. "The shortfall is made up by assessing health insurers as a percent of their health insurance premium." Thus, "individuals and small businesses in the State" pay the cost. "HB 29 will ease this burden". Mr. Bykerk agreed that, in a small but significant manner, the State's participation in funding ACHIA would assist in making the State attractive to new insurance companies. In addition to the State's small population and the geographic distances between communities, there are also business "barriers" to attracting new business. Easing the burden of this program would assist in increasing competition in the commercial insurance industry. Mr. Bykerk reiterated that approximately two-thirds of the states that have high-risk pools such as ACHIA support their programs with State general funds. 9:31:10 AM Mr. Bykerk noted that recently enacted federal legislation would allow ACHIA to acquire federal funding assistance during the next five years. "This is only right" considering the requirements placed on the State by HIPAA. The federal support would further reduce the impact on both the insurance companies and the State's contributions to ACHIA. He noted that the federal support is not reflected in the Department of Commerce, Community and Economic Development fiscal note #1. "All Alaskans benefit directly or indirectly from ACHIA." He encouraged the Committee to advance this legislation. 9:32:29 AM BRIAN ANGEL, Counsel with American Family Life Assurance Company of Columbus (AFLAC) and Vice-Chair, ACHIA Board of Directors, testified via teleconference from an offnet location. "By providing access to health coverage, and putting dollars into the health care system, and by keeping people off Medicaid, ACHIA truly does benefit all Alaskans." Because all citizens of the State could benefit by ACHIA, "we believe the most equitable funding approach is one that is broad based". Currently, however, the cost of the program "is borne by a small segment of the population", those individuals and small businesses that purchase health insurance. "By broadening the funding base", this bill would ease the burden on health insurance consumers. He informed the Committee that the ACHIA Board of Directors fully supports the bill, and he urged the Committee to advance it. Co-Chair Green expressed her support of the bill. 9:34:40 AM LINDA HALL, Director, Division of Insurance, Department of Commerce, Community and Economic Development, concurred with Representative Rokeberg's and the ACHIA representatives' testimony on the bill. Co-Chair Wilken moved to report the bill from Committee with individual recommendations and accompanying fiscal notes. There being no objection, CS HB 299(L&C)(title am) was REPORTED from Committee with previous zero fiscal note #1 dated March 29, 2006 from the Department of Commerce, Community and Economic Development. Co-Chair Green knew people in the Matanuska-Susitna Valley who have ACHIA coverage. She was "shocked to learn" the amount of their insurance premiums. This is certainly not a "giveaway plan". 9:35:46 AM