Legislature(1995 - 1996)
02/09/1996 09:10 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 178
An Act relating to small employer health
insurance.
Co-chairman Halford directed that SB 178 be brought on for
discussion. Senator Rieger described the operation of 1993
legislation creating an association of insurers to provide
health insurance in Alaska. The legislation required
insurers to join an association as a condition of doing
business in the state. It set up a pool which allowed
reinsurance of health coverage for small employers and
required the small employer insurer to offer at least two
health benefit plans. The definition of small employer
ranged from 2 to 25 employees. The only change within SB
178 would increase the ceiling to 50 members. The remaining
provisions of reinsurance and small group health plans are
the same.
In response to a question by Senator Randy Phillips, Senator
Rieger explained that the 1997 date was "picked out of the
air when we first passed that law as a five-year-type
window." That date would be extended two years by SB 178.
KATIE CAMPBELL, Assistant Actuary, Division of Insurance,
Dept. of Commerce and Economic Development, came before
committee, saying that since no comprehensive study has yet
been done regarding the impact of earlier legislation, both
the division and administration are neutral on the bill.
She commented that a survey was issued several weeks ago.
Responses are expected by February 20, 1996. The results of
that survey should provide pertinent information.
Co-chairman Halford acknowledged the argument that when new
requirements or action are mandated, concern is that "people
will drop out of the argument." He then asked if the number
of insurers had diminished since passage of earlier
legislation. Ms. Campbell cited only Traveler's Insurance
transfer of health insurance operations to a new company,
Metro Health.
In response to a question from Senator Zharoff regarding the
definition of a "small business," Senator Rieger explained
that the definition is employment based. It was formerly 2
to 25 employees. SB 178 extends it to 50. The reinsurance
mechanism attempts to create "some large group
characteristics among a pool of smaller insured
populations." Beyond 50, the group is large enough so that
extra provisions for insurance of small businesses are no
longer needed.
GORDON EVANS, representing the Health Insurance Association
of America, next came before committee and voiced support
for the bill. Earlier-passed legislation emanated from
studies by the state health resources and access task force
indicating that approximately half of all uninsured adults
in Alaska were employed by small businesses. While the
ceiling of 2 to 25 employees impacted approximately 85% of
the businesses in Alaska, increase to 50 would impact 92%.
Forty-three states have enacted small employer group
insurance legislation. Seventeen have established 50 as the
maximum.
As an example of operation of the legislation, Senator
Rieger described the process by which the small employer
population would be aggregated into one large group. An
insurer seeking to underwrite health insurance for the pool
would establish a rate adequate to pay claims on the large
pool. The process for underwriting a small group does not
look at averages but evaluates those to be insured on an
individual basis and selects out those who are uninsurable.
That changes the characteristics of the remainder. That
type of dynamic has caused insurance to be less available
for small groups. The legislation attempts to recreate the
large group characteristic. An escape provision allows
insurers to move "your rate up or down by up to 35% from
what that average rate would have been." Further ability to
buy into the reinsurance pool spreads risk "across all the
people doing business in the state." Buffers allow insurers
to do business in Alaska and have some flexibility while
attempting to avoid the individual underwriting
characteristic that was making small group insurance
unavailable.
Mr. Evans described an example whereby an employer with ten
employees might have nine that are good risks but the tenth
has had medical problems. Often the employer could not get
a group policy that insured that individual. Under small
employer health insurance legislation, the individual has to
be included. There is guaranteed availability and
accessibility. Only two high-risk employees are included in
the reinsurance pool at this time. The legislation has thus
provided insurance to small businesses without the necessity
of excluding certain employees.
Co-chairman Halford expressed concern that those with low
risks not be utilized to fund high-risk individuals. He
said he had no problem with the legislation as long as
employers with low-risk employees may "opt out to the
marketplace."
Senator Sharp described his experience in having established
a group insurance trust for Alaska utilities. He noted that
eight of the 17 utilities were unable to obtain insurance
prior to the trust. The largest utility experienced a 20%
reduction in its rate because the group of 17 utilities was
large enough.
TRAE ANDERSON, Senior Vice President, Blue Cross of
Washington and Alaska, spoke via teleconference from
Seattle, Washington. He said that while Blue Cross agrees
with the intent of the legislation and some of its
provisions, the company has reservations about the bill as a
whole. Blue Cross supports health reform designed to:
1. Contain the growth of medical and administrative
costs.
2. Increase access to health care and coverage for
the uninsured.
3. Assure the quality of health care services.
The proposed bill would require guaranteed issue of a
standard and basic plan to all groups sized 2 to 50. It
would implement guaranteed renewability, limitations on use
of previous conditions, and portability provisions.
However, Blue Cross has reservations about rating
restrictions imposed by the bill. Those provision may have
unintended consequences which run counter to the intent of
the legislation. Implementation of rate-change caps may
have a destablizing impact on the small group market. While
Blue Cross has no empirical evidence to support that
conclusion, because it is too early to tell what impact
rating provisions have had on the 2 to 25 market, there is
concern that rating provisions will result in diminishing
choices and access for consumers.
Co-chairman Halford voiced his understanding that the
foregoing comments pertain to earlier passed legislation.
Areas highlighted would be made either better or worse by SB
178 provisions which increase the ceiling from 25 to 50.
Mr. Anderson reiterated concern that if insurers are unable
to achieve compensatory rates, the market may be
destabilized, and the goal of increased access may not be
achieved.
Senator Phillips MOVED that SB 178 pass from committee with
individual recommendations and the accompanying fiscal note.
No objection having been raised, SB 178 was REPORTED OUT of
committee with a zero fiscal note from the Dept. of Commerce
and Economic Development. Co-chairmen Halford and Frank and
Senators Rieger, Phillips, and Sharp signed the committee
report with a "do pass" recommendation. Senators Donley and
Zharoff signed "no recommendation."
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