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." 3:30:53 PM Senator Dunleavy invited the Department of Administration to explain the fiscal notes. He felt that the bill should be held through the interim for further discussion and better understanding. 3:31:51 PM MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION, offered an analysis of FN#2: SB 90 introduces a new section to AS 14.20, AS 14.20.137, which extends group insurance coverage under AS39.30.090 to school district employees. It also amends AS39.30.090(a)(2) extending coverage to dependents of school district employees. It is estimated that 18,300 school district employees and 29,000 dependents will become members of the AlaskaCare Employee Health Plan. The addition of these 47,300 new members will quadruple the overall population of the AlaskaCare Employee Health Plan. PUBLIC EDUCATION FUND - How the bill works: starting on July 1, 2014, school districts would begin to enroll their employees in the AlaskaCare active employee health plan. That process must be complete no later than July 1, 2015. There are approximately 18,300 school district employees that would likely enroll over FY15-FY16. With dependents, the total population is approximately 47,300 covered lives. Self-funded insurance pools tend to maintain a reserve of 3-4 months of claim costs. The reserve is available to pay claims in times of claim spikes so that recourse to external funding sources or mid-year premium increases is unnecessary. We estimate that such a reserve for the 47,000 inbound covered lives would be approximately $100mm. Having such a reserve in place on July 1, 2014 is important, because this population will begin to incur health claims immediately, and we need to have funds in place to pay them. The bill contemplates that the $100mm would be drawn from the Public Education Fund over a 10 year period. The withdrawn funds would be repaid over a 10 year period. The source of the repayment for withdrawn funds would be school districts. The Department would send them a bill for the first 4 months of claims paid; the bill would be repaid over a 10 year period. The bill contemplates that the health insurance benefit credit the state pays on behalf of all State of Alaska employees ($1330/mo/ee in FY13; $1389/mo/ee in FY14) would be paid by school districts on behalf of school district employees. The benefit credit equates to the premium for the AlaskaCare Economy level plan plus the premium for the Preventive Dental plan. The Department would send monthly bills to school districts to collect the benefit credit. These sums would be deposited in the Group Health and Life Benefits fund (AS 36.30.095) and used to pay claims and administer the system. Mr. Barnhill shared that during a discussion with the Texas Teacher's Retirement System he had learned that Texas had done a similar consolidation several years ago. He said that in that case the state had received access to $25 million for transitional cash flow purposes and had paid it back without a problem. 3:36:05 PM Co-Chair Meyer queried why the Public Education Fund was being used. Mr. Barnhill asserted that the department was indifferent to where the funds came from, but that money was needed in order to pay the claims. Co-Chair Meyer though that a different fund should be used. Mr. Barnhill replied that the department had no problem with the legislature identifying some other fund source. 3:37:14 PM Vice-Chair Fairclough remarked that some schools did not have the tax base in order to payback the funds. Mr. Barnhill responded that BSA funds would be used in order to make the payback. He said that the intent of the circulating funds was to hold the Public Education Fund harmless. 3:38:31 PM Senator Olson wondered how long the payback had taken in the Texas scenario. Mr. Barnhill understood that it had not taken very long. He said that the state had premiums coming in from the school districts and that that cash flow had been sufficient to manage the transition. Co-Chair Meyer handed the gavel to Vice-Chair Fairclough. Senator Olson wondered if the same model could work for Alaska. Mr. Barnhill replied that it would be imprudent to suggest that the requested transitional cash flow would not be needed. 3:40:49 PM Senator Dunleavy believed that a considerable amount of time should be taken developing the legislation. Mr. Barnhill stated that the department had been researching the subject in depth. He refused to state if there was a causal link between state healthcare plan pooling and lower benefit credits. 3:42:32 PM Vice-Chair Fairclough wondered how other trusts would be affected by a state change in pooling. Mr. Barnhill responded that the legislation would lead to the eventual closure of the trusts. He said that there would need to be an additional time period because health insurance claims to be incurred in one fiscal year and then not resolved until the following fiscal year. Other trusts would need to maintain sufficient funds in order to pay the incurred claims until they were finally resolved. He reiterated that the bill called for all employees and dependents that were currently being served by those trusts into the State of Alaska's active pool. 3:43:50 PM Vice-Chair Fairclough remarked that there were assets currently in the trusts that were drawing interest that benefit the participants of the plan. She wondered who would have claim to the assets. Mr. Barnhill responded that the bill did not address private trust funds and what would happen to the trusts once the beneficiaries moved into the state's plan. He suspected that the trust assets would be drawn down in their entirety prior to transition. He said that the bill did address the trust assets of school districts that were self-insured. He relayed that any unencumbered balance at the point of transition would be transferred to the claims fund. 3:46:44 PM Senator Olson thought that the NEA Trust was a private trust. Mr. Barnhill responded that it was a private trust. He said that some self-funded health plans were funded and managed by union trust plans. 3:47:21 PM Vice-Chair Fairclough requested further conversation with the trust to gain their perspective on the assets that they held. She said that where there was a contract negotiated that the state had been pay for 100 percent of the cost then the state should have the right to assert some ownership of some of the assets. But in was unclear what the state's right were concerning the interest \that was managed in a private entity. 3:48:06 PM Mr. Barnhill interjected that there were two more fiscal notes to be discussed. He spoke to FN#3, which listed the start-up costs for FY14 at $237,700 to reprogram computers to accommodate a quadrupling of the pool. He highlighted that every inbound member was already and active member of PERS or TRS. He said that running across the services line was the contractual costs that would be paid to a third party administrator and other vendors. The per member, per month charge would grow by the rate of 4 percent per year. He shared that that the final fiscal note for Retirement and Benefits indicated that 12 new staff members would be needed and would cost $482 thousand in FY14, and $964 thousand in FY15 through FY19. 3:50:34 PM Co-Chair Meyer wondered how many other state bargaining units had their own trusts. Mr. Barnhill responded that there was the Alaska State Employees Association (ASEA) Health Trust, which was comprised of 8,800 general governmental unit employees of the state and was the largest piece of the health trust for the state. He added that Public Safety Employees Association (PSEA) had opted out of state insurance and were fully insured by ETNA. He said that the state was fragmented in how health insurance was delivered to employees. 3:51:23 PM Co-Chair Meyer understood that the issue reached beyond healthcare for teachers. Mr. Barnhill replied in the affirmative. 3:51:27 PM Vice-Chair Fairclough thought that the rate of return on the assets of the different entities could be examined over the interim. Senator Dunleavy replied that he would research any outstanding issues. 3:52:22 PM Senator Olson wondered asked about the number of dependents for the school district employees. Mr. Barnhill responded that there were 29,000 dependents. SB 90 was HEARD and HELD in committee for further consideration.