Legislature(1995 - 1996)
02/09/1996 09:10 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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."