SENATE BILL NO. 90 "An Act relating to group insurance coverage and self- insurance coverage for school district employees; and providing for an effective date." Senator Dunleavy introduced SB 90. He explained that there were 53 school districts in Alaska, all with different health insurance plans. The plans were negotiated at the district level at different rates. The cost of health insurance was escalating. School district's costs were rising due to inflationary costs. Health insurance was a large contributor to increased costs. Rates were raising seven to fifteen percent each year. The burden to pay for the increased costs was placed on the school district. The state funded some school districts, i.e., REAA's [Regional Education Attendance Area] at 100 percent of all its educational costs. State and local governments were all bearing the costs of increased health insurance. He reported that the legislation created an integrated state health insurance plan for all school districts. The larger pool placed the state in a position to negotiate lower rates. The financial burden would be eliminated from the school districts allowing districts to focus on educational policies. He announced that some school district representatives testified in favor of the bill and agreed that the legislation was beneficial to their districts and allowed more time to concentrate on students and control costs. He concluded that the legislation was a solution to a problem he was familiar with as a former school district superintendent. Co-Chair Meyer inquired whether the legislation provided cost savings for the state. Senator Dunleavy requested that the Department of Administration (DOA) answer the question. Co-Chair Meyer noted that the legislation proposed funding the health insurance plan from the public education fund. He wondered why the public education fund was chosen. Senator Dunleavy replied that the use of the public education fund was suggested by DOA. Co-Chair Meyer reported that last year the state centralized pupil transportation as a cost savings measure. He inquired whether the intent of the legislation was costs savings. Senator Dunleavy answered in the affirmative. He thought that the state paid for the rising cost of health care through increases to the BSA [Base Student Allocation]. The centralized insurance pool could yield lower rates which were a cost savings to the state. Senator Hoffman commented that SB 90 capped the insurance funding at $100 million and did not include adjustments for inflation. Senator Dunleavy responded in the affirmative. Senator Hoffman remarked that the centralized transportation funding included a one and a half percent increase for inflation with more proposed for the current year. He wondered whether the legislation could include cost adjustments for inflation. Senator Dunleavy replied that the purpose of the bill was to take control of costs at the local level and provide savings for the state. He was in favor of anything that could accomplish the purpose of the legislation. Senator Hoffman commented that capping the funding for rising health care costs was problematic. He thought that not addressing inflation in the legislation only delayed the matter until a later date. Senator Dunleavy suggested that DOA could address the concern. Co-Chair Meyer queried how a school district negotiated for health insurance. Senator Dunleavy replied that the school district negotiated contracts with the employee groups which included health care coverage and also negotiated directly with insurance providers. He added that a lot of time was taken up in the negotiation process at a cost to the school district. 10:22:27 AM Co-Chair Meyer asked whether the state ultimately paid for the negotiated health insurance costs. Senator Dunleavy elaborated that the costs were paid for by the school district. Local taxes paid for a portion of the costs for a municipal school district along with state funding. If the district's costs were higher than the amount of state and local funding a school district reduced costs through cuts in education. Vice-Chair Fairclough stated that there were many people in the state that were concerned about the bill. She believed in the concept of controlling costs and requested an explanation of the concerns being raised over the possible reduction in benefits leading to a reduced level of health care due to the legislation. She pointed out that a large city such as Anchorage contributed a great deal of tax dollars into the school system as opposed to smaller school districts that were not able to due to a small tax base. She thought that the legislation would benefit small districts. She queried whether all of the districts needed to be included in the insurance pool to achieve cost savings. She wondered why the legislation mandated participation instead of incentivizing it. Senator Dunleavy thought that the pool of all 53 school districts would achieve the most savings for health care and administrative costs. Vice-Chair Fairclough wondered whether there were benefits to pooling health insurance with only the districts that wanted to participate. Senator Dunleavy stated that any benefits depended on negotiations based on the number of participants. Vice-Chair Fairclough referenced "multiple" letters in support of the legislation (copies on file) from district level financial managers across the state. She cited an opposition letter from the Local 71 Public Employees Trust Fund in Anchorage (copy on file). The trust discerned that pooling would result in additional costs of $400 thousand passed on to the membership. She understood that in a pool some paid more than others. She asked for clarification on how pooling worked. Senator Dunleavy deferred to DOA for an answer. 10:30:28 AM Vice-Chair Fairclough replied that she wanted to discuss whether there would be a benefit for school districts that opted to participate in a pool, and offer an incentive approach based on fees for various levels of care similar to the Public Employees' Retirement System (PERS) system. BECKY HULTBERG, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, commented on the legislation and addressed questions that were raised earlier. She remarked that the department did not have an official position on the bill, but believed pooling school district's health insurance could offer cost savings for the districts and the state. The department had experience managing costs. She noted the "value" of insurance pooling while managing the state's plans. She observed that health insurance carried the "largest and fastest growing" costs. She related that the bill was brought forward by several of the large school districts that were struggling with raising costs and limited resources. Health insurance was the districts fastest growing costs and was the most difficult to manage. She related that healthcare was one the state's and the nation's most persistent issues and was an enormous cost driver for the districts and the state. The school districts collective health insurance costs were over $280 million. Commissioner Hultberg provided a brief overview of the health insurance plans that DOA managed and highlighted the possibility for cost savings through pooling. She detailed that the state currently managed two plans: one for its active employees and the other for retirees. The combined plans provided coverage for approximately 86,000 members at a cost of $600 million annually. Both of the plans were self-insured and administered by a third party. The third party received monthly payments calculated at a per member rate. The Alaska Care employee plan covered 16,400 members including dependents. The bill would add an extra 47,000 members into the active employee plan. Commissioner Hultberg explained the factors that determined costs. She pointed out that the provider network and third party administrator fees were a "huge driver" of costs. According to a recent study, administrative fees amounted to $1 in every $10 spent on health care in Alaska. High- cost claimants, medical inflation, and utilization also were large costs drivers. The size of the insurance pool affected most of the costs. She elaborated that larger pools could result in negotiating better rates, lower third party administrative fees, and offer reduced risks with high cost claimants. She relayed that the larger volume could positively impact utilization. The more people in the pool allowed for more sophisticated cost containment programs. According to demographic data kept by DOA on the PERS and TRS (Teachers Retirement System) pools, actuaries estimated a 2 percent to 3 percent increase in costs because of the demographics of a school district pool. The larger size of the pool could offset the increased costs and provided savings. Without access to the data on insurance claims a more detailed analysis could not be provided. She furthered that the state was currently paying for a substantial amount of the increased costs through funding for education. In addition, the state was funding future costs through the state's retirement plans. She related that the unfunded liability for retiree health care amounted to $4 billion. She felt that the state had a vested interest in addressing the rising costs of health care. She concluded that the state was paying for the increasing cost of the school districts health care. She thought that SB 90 raised some important questions; whether the state should maintain the status quo of a "fragmented" approach for 53 separate school districts or institute an integrated cohesive approach to manage health care. The department believed that an integrated approach could provide better management and cost savings. 10:40:22 AM Senator Hoffman inquired whether the Department of Administration had its own healthcare plan. Commissioner Hultberg replied in the affirmative. Senator Hoffman asked whether the department endorsed including its employee plan in the legislation. Commissioner Hultberg replied in the affirmative. MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION, discussed the three DOA fiscal notes. He elucidated that in order to prepare the fiscal notes, the actuary for the plan, Buck Consultants, completed a demographic analysis of the school districts employee population. He reminded the committee that the school district employees were active participants in the states PERS or TRS system, which made the demographic data accessible. He identified that there were approximately 18,300 school district employees. He cited another total number of 18,953 employees, distributed by Senator Dunleavy. The figure included some temporary employees that were not eligible for health insurance coverage. He referenced the "Health Insurance Survey - Total Cost for FY12" (copy on file) document that provided a summary of Health insurance costs for each district. The total costs for all districts combined were approximately $282 million. The department used a rough estimate of the districts accumulated health care costs in FY 2015 which totaled $300 million. The department included a four month reserve estimate of $100 million based on the $300 million to formulate the fiscal note. 10:44:05 AM AT EASE 10:46:29 AM RECONVENED SB 90 was HEARD and HELD in committee for further consideration. 10:47:49 AM