Legislature(2005 - 2006)
01/25/2006 09:01 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB223 | |
| HB374 || HB375 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 374-RETIREMENT BENEFIT LIABILITY ACCT/AHFC HB 375-RETIREMENT BENEFIT LIABILITY ACCT/PF 9:39:29 AM CHAIR WEYHRAUCH announced that the next order of business would be HOUSE BILL NO. 374, "An Act relating to establishment of a retirement benefit liability account in the Department of Revenue and redirecting deposit of annual dividends of the Alaska Housing Finance Corporation to that account; and providing for an effective date." and HOUSE BILL NO. 375, "An Act relating to the retirement benefit liability account and appropriations from that account; relating to deposits of certain income earned on money received as a result of State v. Amerada Hess, et al., 1JU-77-847 Civ. (Superior Court, First Judicial District); and providing for an effective date." CHAIR WEYHRAUCH said the committee received a letter and report yesterday from the chair of the Alaska Retirement Management Board (ARMB). 9:41:01 AM MELANIE MILLHORN, Director, Health Benefits Section, Division of Retirement and Benefits, Department of Administration, said there are three primary drivers for the unfunded liability for the Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS), and those are: rising healthcare costs, loss of investment income, and changes in assumptions. She said that she has a nine-page summary to present to the committee that speaks to the issue. The focus of her presentation, she said, will focus on rising healthcare costs for PERS and TRS and what the division is doing to manage these costs. 9:42:08 AM CHAIR WEYHRAUCH asked that Ms. Millhorn highlight issues that need addressing by the legislature. 9:42:39 AM MS. MILLHORN referred to her report regarding demographics of the retirees who have system-paid medical, where the member does not pay the premium cost. Beginning in 2001 through 2005, she explained, there was an increase in the population of those available to receive these benefits, which have an out-of-pocket maximum of $800. "That is a very rich plan," she said. Out of $256 million of claims for 2005, $96 million is in the prescription drug area, she noted. She said she will talk about initiatives to deal with those costs. 9:44:34 AM MS. MILLHORN said Commonwealth North reported that the costs in Alaska are 40 percent higher than in Seattle, Washington, and there are 110,000 uninsured parties in Alaska. She said that creates a vicious cycle, because uninsured Alaskans impact the insured. She said growth in enrollment is not going to change; there are up to 2,000 members a year who retire, which is a growth of 5.3 percent. "The benefit is richer for the retiree population than the active plan. And what that's referring to is the [deductibles] that I mentioned earlier...if that member retires from select benefits, which is the active plan, and they have the economy plan. The economy plan is a plan that we have in place for active employees where they pay nothing out of their pocket; that is a $500 deductible. That has a family deductible of $1000. That has an out-of-pocket amount of $2000. If an active employee chooses either the standard plan or the premium plan, they pay all of the costs associated with having a plan at 80 percent or 90 percent. The economy plan pays for 70 percent. So you would go from an active plan where you have costs associated with your medical expenditures that when you retire you don't experience that kind of cost share with the plan. So it is a very rich benefit when you have a retiree medical plan such as PERS and TRS." 9:47:13 AM REPRESENTATIVE SEATON asked what percentage of active employees has the economy program. 9:47:23 AM MS. MILLHORN said there are about 5,300 who are in the select benefits plan, and they cover about 8,900 dependents. She will get the information for him, she said. 9:47:43 AM REPRESENTATIVE WILSON sought confirmation of her understanding that those still employed pay; however, when they retire, they do not pay. MS. MILLHORN said this was correct. 9:47:56 AM CHAIR WEYHRAUCH asked if the benefits are constitutionally guaranteed. 9:48:02 AM MS. MILLHORN said a lawsuit in 2003 determined that medical benefits for Alaska's retirees are protected under Alaska's constitution, Article XII, Section 7. 9:48:24 AM REPRESENTATIVE ROKEBERG said not to forget that all the bargaining units have their own insurance. The state used to have 25,000 employees plus dependents as active employees. However, he said, everybody retires on the plan, even from the bargaining units. "Big problem," he claimed. CHAIR WEYHRAUCH asked the impact of that. 9:48:57 AM MS. MILLHORN said it is "just a larger population that is available to have retiree medical benefits; it's not just the 5,300 and the dependents. There's approximately 14,500 state classified employees." 9:49:18 AM REPRESENTATIVE SEATON asked if other bargaining units have the same active plan, and "do they have that same differential that we have?" 9:49:54 AM MS. MILLHORN said she has not studied those health trusts, but "if you use ours as a barometer, yes, you're paying more as an active employee than you would be paying when you go to the retiree plan." 9:50:13 AM CHAIR WEYHRAUCH said that since the benefits are constitutionally protected, would the only way to address healthcare be by managing the costs on the receiving end. 9:50:33 AM MS. MILLHORN said, "The way that you can manage those costs are two ways: one is plan design and the second one is eligibility audits." CHAIR WEYHRAUCH asked if managed care comes into play. 9:51:09 AM MS. MILLHORN said managed care is a concept where there is a consortium of providers that have an agreement to have network kinds of costs. "Unfortunately, in the state of Alaska, because there are more patients than there are doctors who need to compete for patients, we don't have the same structure that other states enjoy when they have an HMO [Health Maintenance Organization] and other managed care available." She said Alaska's structure doesn't lend itself to managed care. CHAIR WEYHRAUCH asked if there are structural impediments that exist by statute or by regulation. 9:52:01 AM MS. MILLHORN said it is neither; physicians in Alaska don't have sufficient competition. 9:52:20 AM REPRESENTATIVE ROKEBERG said he has been looking at that issue. There are small statutory barriers to entry for HMOs in Alaska, and those need to be reformed. He spoke with the commissioner of Health and Social Services about putting out a [request for proposal] for Medicaid management, which almost all other states have, which might be an impetus for a HMO to come to Alaska. He said the state has other types of managed care opportunities under current underwriting insurance laws in the state. 9:53:22 AM CHAIR WEYHRAUCH asked how to resolve the statutory barriers. REPRESENTATIVE ROKEBERG said his staff is working on it. 9:54:48 AM REPRESENTATIVE SEATON noticed that "75 percent of retiree medical costs are incurred for pre-65 members." He asked about incentives for those people to work longer. 9:55:52 AM MS. MILLHORN said it is beneficial to the system for those individuals to stay in the system longer, because when retirees reach age 65, "we coordinate with Medicare, and the cost is reduced." She said the system actually gives incentives for an employee to retire at the age of 55 and then go do something else. She added that SB 141 structurally redesigns the plan so that the individual receives that benefit, that cost-share, at the time that they are eligible for Medicare. That legislation reduces 75 percent of the medical costs, she said. CHAIR WEYHRAUCH said, "That doesn't deal with the existing unfunded liability, nor the huge ballooning healthcare costs associated with Tier 1." 9:57:33 AM MS. MILLHORN said, "That is the 800-pound gorilla that is a national issue, but I think there are some measures that are available to us, and we have taken the initiative in certain areas." 9:57:45 AM REPRESENTATIVE WILSON asked Ms. Millhorn to put that on paper and to explain the difference of someone retiring at age 63 instead of age 65. 9:58:36 AM MS. MILLHORN said for Tier 1 employees, their normal retirement age is 55, so as a Tier 1 employee, "if you chose to work longer, there's no expenditure, there's no premium, there's no claims cost to the retiree plan; however, if you retire at age 63, you, your spouse and your dependents (if eligible) would be eligible for system-paid medical. So at that point in time, our costs incur. However, when you turn 65, and you're Medicare- eligible, Medicare becomes primary, so anything that's allowable under Medicare for those expenditures first flows to Medicare, then flows to our plan." 9:59:34 AM REPRESENTATIVE SEATON said he would like an average cost for the pre-65 members, "so we can figure out what benefit the system would gain for each year those persons would stay within the system." 10:00:29 AM MS. MILLHORN said she can provide some projections on that. 10:00:41 AM REPRESENTATIVE WILSON asked about working after the age of 55. 10:01:56 AM MS. MILLHORN said that when someone is employed, "their active plan pays for their medical coverage. It is at the time that they decide that they are going to retire that the system pays their premium and pays all of their claims expenses." So as long as they're in the system there are no costs that accrue to the retirement health plan. REPRESENTATIVE WILSON asked about returning retirees. 10:02:46 AM MS. MILLHORN said there was HB 161 when "the legislature made changes to that bill in order to ensure that their active plan was primary and that it suspended their retiree plan during their period of reemployment." 10:03:17 AM MS. MILLHORN said there was a seminal law case in 1999, Retired Public Employees of Alaska (RPEA) v. Duncan, in which retirees wanted to be able to update the plan, "and the division was not reluctant to make those changes; however, they said that those changes must be cost neutral to the system." She added that those changes included increases and decreases. "When those changes were put into effect, January 1, 1999, increases and decreases...designed to be cost neutral, RPEA, NEA and ASEA filed suit." She said that case has been ongoing and is being litigated right now, and the legal costs to the system in this fiscal year will be about $235,000. 10:05:13 AM REPRESENTATIVE ROKEBERG said he doesn't care what the legal fees are, he wants to know the cost to the system if the state doesn't prevail. He questioned that the organizations requested the changes and then sued. 10:05:55 AM CHAIR WEYHRAUCH asked if Ms. Millhorn said that the parties to the case signed off on the changes and then sued. 10:06:05 AM MS. MILLHORN said it is her understanding that those retirees were active in asking for some of these changes and that they later brought suit. REPRESENTATIVE GRUENBERG said that the committee should have the parties themselves explain their actions. 10:06:30 AM MS. MILLHORN said the cost containment initiatives deal with two areas: plan-design changes and eligibility audits. "In 2004 we discovered that our plan booklet for our retirees did not comport with Alaska statute that individuals between age 19 and 23 had to be enrolled full time in college. That has been an issue for about 20 years." So 1000 dependents were removed, saving the system $3 million. She said the division is now doing an eligibility audit to ensure benefits only go to those entitled. Recipients get the benefits on a tax-preferred basis, she said, and it jeopardizes the plan if the state is paying benefits to un-entitled people. She said the audit will save the system about $16 million annually. 10:08:17 AM REPRESENTATIVE WILSON asked whether dependents weren't checked on before. 10:08:35 AM MS. MILLHORN said the division did not require documentation, and she is talking about, for example, a divorce that has occurred and the state still paid claims. "We have a demarcation line in which we are telling all of the parties who are receiving benefits that they must provide supporting documentation in order to continue to receive those benefits." She noted that national auditing firms have found that every time an eligibility audit is done, it is discovered that about 15 percent of recipients are not eligible. 10:09:53 AM REPRESENTATIVE SEATON said the legislators had to submit similar documents when they started service. 10:10:11 AM REPRESENTATIVE GRUENBERG asked if the level of auditing was the same as it was three or four years ago. 10:10:46 AM MS. MILLHORN said the state had a comprehensive audit in 2004 that looked at claims processing and errors, and the division made changes in accordance with the audit. 10:11:19 AM REPRESENTATIVE GRUENBERG asked for a copy of the audit and a list of changes that were made in response to it. 10:11:26 AM MS. MILLHORN said another initiative is generic drugs. The cost savings is approximately $4 million per year. She noted that there is an educational effort to get retirees to go from a brand name drug to a generic drug. "For every 1 percent movement, it's a million dollar savings to the plan," she said. MS. MILLHORN stated that network savings is a very large cost saver for the plan. It is when the third party administrator goes out and negotiates with facilities and providers in order to arrive at a discounted rate, she said. In the last two years, the state has had a performance guarantee with Aetna in the contract where they must hit that network guaranteed amount. It is a direct savings to the plan, so if members go to those facilities that have a network-negotiated rate with Aetna, "our plan saves." The member saves too because there are less out- of-pocket costs, she noted. It represents a savings of about $25.8 million for 2004. Aetna has to hit that negotiated rate each year, otherwise they lose revenue objectives, she stated. She said there was also a pharmacy rebate through Aetna for negotiated rates that comes to $4 million each year. MS. MILLHORN said, "We also successfully applied for, and will be receiving, Medicare part D," which is a 28 percent subsidy, representing $7 million annually. The total savings of the initiatives are about $59.8 million for calendar year 2006, she concluded. 10:14:22 AM REPRESENTATIVE SEATON spoke of the escalation in medical costs in Ms. Millhorn's report, and he said it is different from the assumed rates. 10:14:59 AM REPRESENTATIVE ROKEBERG asked if the managed-care principles that were negotiated are part of the litigation that was mentioned. He asked if that has been tested in the courts to know if the state can do that. 10:15:24 AM MS. MILLHORN said the network savings are passive in the sense that "when our member goes to that facility or goes to that provider, we reap the benefits, but it is not punitive to them if they don't go." 10:15:57 AM MS. MILLHORN said the members cannot be monetarily penalized now. REPRESENTATIVE ROKEBERG asked if it was different for the active plans. MS. MILLHORN said there is a [preferred provider] in Anchorage, and if members don't go, they are penalized. [HB 374 and HB 375 were held over.]
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