Legislature(2005 - 2006)CAPITOL 106
04/12/2005 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Human Rights Commission | |
| HB215 | |
| HB238 | |
| SB87 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 238 | TELECONFERENCED | |
| + | HB 215 | TELECONFERENCED | |
| += | SB 87 | TELECONFERENCED | |
| + | HB 167 | TELECONFERENCED | |
| + | HB 160 | TELECONFERENCED | |
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT 8:44:31 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." [Before the committee as a work draft was committee substitute (CS) for HB 238, Version 24-LS0761\L, Craver, 4/8/05.] 8:44:42 AM CHAIR SEATON directed attention to a series of 15 tables showing the "Projected Values for Health Reimbursement Accounts," which were added to the committee packet to replace an inaccurate set of tables previously in the packet. 8:46:18 AM KATHERINE SHOWS, Staff to Representative Paul Seaton, Alaska State Legislature, on behalf of Representative Seaton, sponsor, reminded the committee that the retirement for all the categories about to be discussed is set at 30 years in HB 238. 8:46:38 AM MR. BRAD LAWSON, Mercer Human Resource Consulting, referring to the 15 tables, reviewed the contents page, which lists the types of accounts, and read as follows: 1. PERS "other" early hire - 1% HRA 2. PERS "other" early hire - 2% HRA 3. PERS "other" late hire - 1% HRA 4. PERS "other" late hire - 2% HRA 5. PERS "other" with spouse late hire - 2% HRA 6. PERS police/fire early hire - 1% HRA 7. PERS police/fire early hire - 2% HRA 8. PERS police/fire late hire - 1% HRA 9. PERS police/fire late hire - 2% HRA 10. PERS police/fire with spouse late hire - 2% HRA 11. TRS early hire - 1% HRA 12. TRS early hire - 2% HRA 13. TRS late hire - 1% HRA 14. TRS late hire - 2% HRA 15. TRS late hire with spouse - 2% HRA 8:47:34 AM CHAIR SEATON noted that the upper-left corner of each chart shows the assumptions. 8:48:44 AM MR. LAWSON selected the first chart to review the assumptions. 8:52:00 AM REPRESENTATIVE GARDNER asked why the subsidy base is calculated from 2003, when the hire date is 2005. 8:52:20 AM MR. LAWSON explained as follows: We have the premium rate, from which we subtract a subsidy base that's established by the legislature, and we arrive then at a retiree contribution. ... The subsidy base that we established at 7/1/2003 was equivalent to the claims cost. Each retiree then is entitled to a portion of that subsidy base towards their health care cost. ... So, the subsidy base multiplied by the percentage determines the amount of dollars that will go towards that retiree's health care cost, ... with the retiree making up the balance of the premium. 8:54:54 AM MR. LAWSON, in response to Chair Seaton, said the subsidy base represents the known or fixed responsibility of the system toward the health care coverage. 8:55:04 AM CHAIR SEATON said this is the point, during discussion of the bill on a previous day, when the committee had to remove a section regarding a 5 percent limit on premiums, because it is not feasible to set that limit with fluctuating health care costs and service. He indicated the result is that "the 5 percent is limiting the amount of escalation that the system is paying over time." 8:55:39 AM MR. LAWSON answered that's correct. He added, "And with the retiree making up that remaining portion." 8:55:50 AM MR. LAWSON continued with the first chart, reading the columns from left to right. 8:59:53 AM REPRESENTATIVE GRUENBERG asked if there is a column that totals the amount of contributions over the 30 years. 9:00:10 AM MR. LAWSON noted that that amount is shown in the column entitled, "End of Year HRA Balance." He offered further details. 9:01:21 AM REPRESENTATIVE GRUENBERG said he wants to know if there are totals listed before interest. 9:01:51 AM MR. LAWSON indicated that the committee doesn't have that listed, but, based on a spreadsheet he had open in front of him, he said, "That is just a hair over $20,000." He continued with his review. He noted that the pre-Medicare composite trend factor represents an average of medical and prescription drugs. 9:03:17 AM MR. LAWSON, in response to Representative Seaton, confirmed that the pre-Medicare composite trend uses rounding of numbers. He added, "And some of that also is an interplay of the prescription drug assumptions, which is a higher ... starting trend amount, and the medical inflation, which we have decreasing at a slower rate, but starting at a lower point." 9:04:36 AM REPRESENTATIVE GARDNER asked, "So, this number of $7,319 ... is the subsidy base of $5,962, increased by roughly 12 percent per year for the two years here?" 9:04:45 AM MR. LAWSON answered that's correct, but he said that 11 percent would perhaps be more accurate. 9:06:04 AM MR. LAWSON noted that the subsidy base increases year to year, but at a slower pace than the composite premium. He explained that is because it is being limited to 5 percent, versus the 9- 11 percent seen in the premium growth. He pointed out that the subsidy, beginning at age 55 through age 59, is zero. He explained, "That is a result of the provision that the subsidy will not begin until five years prior to Medicare eligibility. During that five years ..., the retiree will then be responsible for the entire premium amount, receiving zero subsidy." At age 60, the retiree is eligible for a subsidy. He offered further details. MR. LAWSON highlighted where the table shows that the retiree would be required to make a contribution at age 55, the year after retirement. The retiree would be responsible for the entire premium and remain so for five years, until the system- sponsored subsidy begins, at which point the retiree's contribution would drop. He explained that that's the result of subtracting the retiree subsidy from the composite premium amount. 9:11:00 AM MR. LAWSON, regarding the beginning year health reimbursement account balance and the health care reimbursement "spend down," said the "HRA spend" amount in the first year [of retirement] would equate to the entire premium amount for which the retiree is responsible. He stated that after pulling that amount out, one would expect a difference in the HRA balance; however, it is important to remember that the money left will grow with interest over the remainder of the year. The amount in the HRA spend column reflects that interest. He offered further details. 9:13:14 AM CHAIR SEATON observed: In ... the last column and the third to the last column we have ... [$42,751], and that actually shows a retiree contribution of that amount, but it's actually being spent from the HRA. Now that was an employer contribution into the employer-funded HRA, but it is still money that's available for health care to the retiree. So, this is assuming that money will make that payment. Is that correct? 9:13:50 AM MR. LAWSON answered in the affirmative. He stated, "I believe that the way the bill was written, the payment will come out of the HRA until it's exhausted, but the retiree can also designate ... that balance to pay for other expenses, as well, such as [a] deductible or if they have some other permissible expenses that they wanted to get reimbursed for." 9:14:14 AM CHAIR SEATON observed that the employee at year 32 on the table will have to come up with approximately $13,500 in order to supplement the HRA. 9:15:02 AM MR. LAWSON responded that's correct, "as the remainder of the premium contribution." 9:15:16 AM CHAIR SEATON made some other observations based on the first table. He indicated that the good thing about the table is that it shows that there is a huge problem. He said the numbers are "incredible to most of us." He offered further details. He noted that the medical base is one-sixth of total salary, but by the year before retirement, 40 percent of salary is eaten up in medical costs. With an advance apology to Mr. Lawson, he said, "Actuarials are kind of fortune tellers or soothsayers, and they're projecting out these numbers, and they just become kind of incredible to me." He said the committee is attempting to create a system that "works within the numbers" and won't put an employee at risk of losing all his/her medical [coverage]. He stated, "We're assuming in the model that health care is really only growing at 5 percent." However, if it grows at 10 percent, an employee would be paying more in medical than his/her total salary. 9:18:49 AM MR. LAWSON responded that he thinks it's important to keep in mind that "these are retired medical valuation trends" and, according to actuarial guidelines and standards, those high medical trends do need to decrease on a long-range projection. He pointed out that using 5 percent rather than the standard 3.5 percent assumption used for inflation purposes adds an element of conservatism. CHAIR SEATON said he did not intend his previous comments to be a challenge; he wants the committee to be aware that staying at 6 percent, rather than 5 percent, for example, would result in a much greater discrepancy between the subsidy base and the composite medical amount. 9:20:57 AM CHAIR SEATON said, "You can see why my staff and I, and everybody that's been trying to deal with these numbers, is going kind of nuts trying to figure out what there is that can work." He warned that the legislature must be careful not to create a system that says a person has access to medical care, but he/she doesn't have money for that access and is out of the plan and then ineligible when he/she turns 65 because coverage lapsed. He also warned against a system where people cannot retire before age 65 without losing medical coverage. He stated that medical coverage is the most important component and that is the challenge of the committee in working on HB 238. CHAIR SEATON directed attention to the next page, which shows the PERS "other" early hire at 2 percent. He said it shows that "the HRA actually pays for three years and there's only [a] one- year gap in the coverage." He offered further details. 9:25:42 AM MR. LAWSON said it's important to note that, under the current system, the entire gross retiree premium cost would be paid for by the system so that the retiree is incurring virtually no premium sharing or contribution expenses under the current program. He continued: In this 2 percent scenario, we see that the total state subsidy of $200,000 still remains constant. And that represents just a little bit under 40 percent of those entire costs. By the time you add the HRA reimbursement in, the system has contributed or been responsible for over 67 percent of the ... retiree health costs, at this point. And so, looking at it from a perspective of cost share ... that's actually a fairly large percentage or a substantial subsidy or contribution towards their health care costs, particularly in relationship to looking at the current marketplace and what other employers and government agencies are doing. 9:27:01 AM REPRESENTATIVE GATTO mentioned that his 21-year-old daughter signed off his plan and is [covered by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)], at about $900 per month. 9:27:38 AM MR. LAWSON, in response to a question from Representative Gatto regarding the price of insurance for someone if he/she were self-paying, said there is a starting base of $7,318 for a group rate. He surmised that on an individual basis, that amount would probably be closer to $10,000-$11,000. He said there are two issues: One, a self-paid plan would certainly be more expensive; and two, it would be hard to find such a plan. He said, "That is why access, without evidence of insurability is, in itself, a benefit." CHAIR SEATON observed that the individual, even continuing on COBRA, is "apparently costing more." MR. LAWSON said to keep in mind "that we may not be comparing apples and apples in those two numbers." 9:32:49 AM MR. LAWSON compared aspects of table 4, which shows PERS "other" late hire, to table 5, which shows PERS "other" with spouse at 2 percent HRA. He said, "All else remaining constant, the total premium amount is actually going to double for this individual" [with covered spouse]. He said, "So, while their contributions will double, their HRA balance ... remains constant. This results in ... a substantial increase to the net retiree." 9:34:20 AM CHAIR SEATON said there is a lot for the committee to consider. He reviewed some previously stated considerations for the committee to make. 9:36:41 AM MELANIE MILLHORN, Director, Health Benefits Section, Division of Retirement & Benefits, Department of Administration, stated that she thinks Chair Seaton, through the tables and through his testimony, has accurately depicted that medical costs are a large issue and the balance needed by employers to provide the coverage and the employees' need to have the coverage is the issue before the committee. 9:37:08 AM MS. SHOWS, in response to a question from Chair Seaton, suggested that the committee may want to consider the salary levels as slightly inflated. 9:37:50 AM CHAIR SEATON clarified that the average salary equals the average salary in the system, not the average beginning salary. He also asked that the committee remember that the 1 percent or 2 percent is a percentage of the system class salary, not of individual salaries. He explained, "Because you can't have discrimination between people that are getting paid more and less under a federal health care reimbursement account." 9:39:01 AM MS. MILLHORN said over 25 states have set their retirement age at 65. She said the reason is that that's when benefits commence and that's also the age at which those retirees would be entitled to medical benefits. [HB 238 was heard and held.]
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