Legislature(2005 - 2006)BELTZ 211
04/07/2005 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB131 | |
| SB108 | |
| SB145 | |
| HB81 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 145 | TELECONFERENCED | |
| + | HB 81 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 108 | TELECONFERENCED | |
| += | SB 131 | TELECONFERENCED | |
| = | SB 139 | ||
SB 108-INSURANCE
CHAIR CON BUNDE announced SB 108 to be up for consideration. He
stated that he was waiting for a CS to be delivered, but he
would like to hear the bill anyhow.
LINDA HALL, Director, Division of Insurance, Department of
Commerce, Community & Economic Development (DCCED), said she
wanted to comment on Sections 28 and 29, union health trust
language, in more detail. She explained that she brought this
issue before the Legislature for deliberation and a policy
decision. She related how she tried to clarify a provision that
already exists in statute that says:
Except as otherwise provided in this title, a person
that provides coverage for the cost of medical care...
is subject to this title unless the person shows that
they are subject to a jurisdiction of another agency
of this state or the federal government with the
appropriate certificate, license or document issued by
the other governmental agency that permits or
qualifies the person to provide coverage for medical
care.
This language requires entities providing medical care to have
oversight someplace and if they don't, they would have it under
Title 21. In March of last year one of the unions asked her if
her division regulated it. To formulate a reply, she sent
letters to the five union health trusts asking for documentation
of who regulates them.
MS. HALL said she received responses, which have taken a long
time to go through and more information was needed still.
Approximately 19,000 state employees' health benefits are
provided by union health trusts and she wanted the Legislature
to have some discussion and make a policy call as to whether
some standards should be set to insure the viability of the
trusts. She hadn't had any specific contact with people from the
health trusts, but had some contact from union members. One of
the issues she thought was important to deal with was bonding
limits because those are exceedingly high, but she really felt
strongly about getting financial statements that show the assets
and liabilities of the health trusts stating, "Frankly, I think
most of them have that and if they don't they should."
She said there have been allegations that no actuary would
certify various things, but in fact, that is exactly what
actuaries do. She went to the point of getting an actuarial
opinion to make sure she understood what an actuary does and
noted that she has two of them on her staff.
They do look at the contribution rate, which is an
equivalent of premium. It's not the contribution rate
by the Legislature to the fund; it is the contribution
that is the total money necessary to fund the benefit
plan. It will be a combination of the monies funded
through the GF, through the budget, and what the
employees are charged in addition to the money
provided by the state. And it also would include an
actuarial analysis of the adequacy of reserves to make
sure there is adequate money set aside to pay
benefits, both current and future liabilities. I think
those are critical pieces. We talked about solvency
regulation of a number of entities and I think
entities entrusted with the welfare of the benefits of
their members provided through their state employment
should have a similar kind of protection. Those are
the lists in the bill of the minimum standards.
There are some additional standards that generally
relate to the kinds of things we require - an outside
appeals process. The complaints that come to my
division, some valid, some not, as are all complaints
that we get. There is an appeal process, but it's very
formalized in the current practice, which is
arbitration or the court system. That's very
intimidating to many people. I've had people in my
office in tears because they are intimidated by the
process and I've tried to help them even though I
don't have any regulatory authority....
I am willing to look at things that seem to be
onerous. I've heard estimates and I think they're
probably fairly accurate that it would cost $40,000 to
$50,000 for an actuarial opinion. When I look at the
millions of dollars that are in those trusts, it
doesn't seem to me to be a huge amount to pay. And as
I said, it's my understanding that most of the trusts
do this anyway, but I think it's again a policy
decision of the Legislature to decide whether or not
you think those standards should be statutory
standards or not.
1:58:44 PM
CHAIR BUNDE said she mentioned that state employees are covered
by union health plans and asked if any private people were
covered by those plans.
MS. HALL replied that is one of the questions she has asked of
the union health trust.
In trying to determine the exact kind of entity they
are - we have some that apparently have a combination
of other entities' coverage within the state employees
pieces - and I can't answer that yet, until I receive
the information that I've requested from those groups.
The intent of the bill is not as was originally
interpreted to cover some of the political
subdivisions - municipalities, school districts -
those types of entities at all. They are in a
different category... It doesn't cover - I think it's
probably not an accurate term, but private unions, so
to speak - Teamsters - the Teamsters health trust
would not come under this. Those are entities that are
all regulated under the ERISA [Employee Retirement
Income Security Act of 1974] self-insured plans and
probably 60 percent of Alaskans covered by private
insurance are actually covered under some type of
self-insured plan that is actually governed by ERISA.
These governmental plans fall outside of the ERISA
regulation.
2:00:24 PM
JEFFREY HART, Department of Transportation and Public Facilities
(DOTPF), said he began paying dues as a member of the Public
Employees Local 71 30-years ago and has been serving as a shop
steward for the past 14 years. At first, he favored some
additional review over Local 71's trust fund, especially after
the recent under-funding of the state PERS and TRS systems and
listening to debates as to why our nation's social security
system is in disarray. It would seem that additional oversight
would give comfort to those who don't deal with it on a daily
basis. However, he changed his support of Sections 28 and 29
because they would add extra costs and tasks to state government
employees who already have a heavy workload. In addition, those
sections are unnecessary because their health plan is adequate
to meet participant's needs and it could be improved if needed.
2:03:52 PM
CHRIS PACE said he is a trustee with the Alaska State Employees
Association (ASEA) health plan, but he is testifying on his own
behalf. He wanted to clarify a few points. ASEA's recent Ditman
opinion poll indicates that 75 percent of the members were
satisfied with their current coverage. Additionally, it found
that 52 percent were not interested in additional well-baby
coverage. The plan has about 200,000 claims per year and about
40 or .002 percent of them get appealed to the Board of
Trustees. The appeal procedure is similar to what is described
in the PERS discussion except after the Board of Trustees hears
an appeal, it would go to arbitration rather than to the
Superior Court.
The board shares the same plan as the appellant and they have to
be adjudicated consistently and fairly across the board. The
trustees have the statutory authority to make changes in the
benefit plan. The ASEA plan was taken verbatim from the state's
PERS plan with minor modifications to tailor the deductibles,
co-pays and out-of-pocket limits to the needs of the group.
2:07:15 PM
MR. PACE emphasized that one of the major factors ASEA been
confronted with is controlling dramatically increasing health
care costs. So it contracted with a PPO hospital and joined a
health care coalition with other labor unions, municipalities
and private employers. Some members were unhappy about being
steered to an Anchorage PPO hospital.
The state website estimates that nationally up to 15 percent of
spouses and dependents may not, in fact, be eligible for
benefits; ASEA members were concerned with that as well as with
building reserves. Currently, ASEA's plan has reserves equal to
about four months of past claims experienced in addition to
other amounts for incurred, but not reported, claims. The plan
in SB 108 discusses about two and a half months for the same
purpose. A union plan has to be more conservative with reserve
levels, because it doesn't have the same financial resources a
state plan has. ASEA carries stop-loss reinsurance in the event
of catastrophic claims and both plans use consultants rather
than actuaries to forecast trends. ASEA has an annual financial
audit performed by an independent CPA and he emphasized that it
has a letter of agreement with the State of Alaska allowing it
to separate from the state's plan. On request, ASEA provides the
annual audit and actuarial reports to the Division of Retirement
and Benefits that performs the oversight. ASEA is the largest
union in the state and the trust is large.
2:10:10 PM
MR. PACE said he believes that SB 108 is attempting to create an
oversight function that is already being performed by the
Division of Retirement and Benefits. ASEA's administrative costs
are kept at about 3 percent and the state's are about 5 percent.
If this bill becomes law, that adds to the administrative costs
and any added costs would have to be passed on and come out of
paychecks. He summarized:
To me that's the unfortunate thing about this bill. It
will only result, I think, in moving money out of
employee's paychecks and into the pockets of
actuaries, bond brokers and accountants. It's not
going to do anything to improve the actual benefits;
it won't change the appeals; it won't change the
reality that we've got to go to PPOs and cost
containment. It's going to add just a redundant level
of state regulatory oversight to the existing
oversight.
MR. PACE said he liked the consumer protection section that
restricts the late-night ads for discount health insurance.
Those ads really confuse some of his members who are already
upset about money being taken out of their paychecks for health
benefits. They keep telling the board they want to go over to
the discount companies and don't understand how risky that would
be.
CHAIR BUNDE thanked him for his testimony and announced that he
would take teleconference testimony.
2:12:40 PM
FRANK PUSCHAK of Anchorage said he had been a state employee for
21 years and he is a trustee of one of the affected health
trusts, but he is speaking in his personal capacity.
Professionally, he had been a bank examiner for 28 years, having
examined trust departments and trust companies. He opposed
Sections 28 and 29 of SB 108 saying:
Our trust is a legal entity accountable to the
Superior Court of Alaska. The trustees are elected by
the members. Under the terms of our health trust,
Section 5, the minimum standard they must appeal to,
are that the trustees are required to discharge their
duties and administer the trust fund assets solely in
the interest of participating employees and their
beneficiaries and for the exclusive purpose of
providing benefits to participating employees and
beneficiaries and to defray rereadable expenses of the
benefit plan. They are required to carry out their
duties with the care, skill, and prudence and
diligence under the circumstances then prevailing for
a person acting in like capacity and familiar with
such matters. This is called the prudent man, but it
is not the prudent man standard to the person on the
street; it is the prudent man standard of a person
with fiduciary experience.
Our plan is subject to a number of federal statutes,
which I enumerated in the last committee meeting and I
included on my testimony that I submitted earlier by
email. So, I won't redo that.
There have been 138,084 medical, dental and vision
claims submitted since July 1 of the current fiscal
year. Of that number, there have been 47 claims
submitted to the Board of Trustees for an appeal. The
appeal process is done by our third-party
administrator, then the Board of Trustees and the
arbitration, which is binding. Now, if that's not
enough, since we're subject to Superior Court, the
Superior Court can then override the arbitrator. While
I agree that arbitration can be expensive, our trust
provides the cost to be shared between the trust and
the appellant. But, again, it's in my fiduciary
responsibility - we just can't have everybody going
off and putting things into arbitration, because I
have an obligation to reduce the cost. And so we had
to go to something. If there is another way that can
provide the independent third-party at lesser cost,
I'm open to it, but, in fact, our plan is even more
accountable than the state select benefit plan. Under
that plan, the commissioner of Administration is the
sole arbitrator and nobody can override that.
Again, with respect to the fiduciary standard, I'm
really not aware of what the state follows for
fiduciary standards. Again, we have followed the
language outlined in ERISA, which is what governs the
non-governmental plans. I have enclosed with my
previous email a copy of our health plan compared to
the state's like benefit plan and you are able to see
that there are some slightly better benefits at
definitely lower cost.
Our trust was formed because the state wanted to get
rid of the expense and effort of administering it.
Under Article 19.03 of our contract, our union
relieved the state of any and all obligation to
provide health insurance benefits. This bill would add
additional work to the state and expense and certainly
add additional expense and work to our health trust
for things that are already being done at better cost.
We already have consultants who advise us and help us
formulating policies, plans, rates, and everything. An
independent CPA firm audits our records and those
records are made public. We follow the ERISA code in
providing everything to our members that is required
under ERISA even though they are not obliged to follow
it. There's an old saying, "If it ain't broke, don't
fix it." However, I do agree with the corollary that
says, 'If it ain't broke, it can be improved.' and
that's what I'm willing to do and I'm open to any and
all suggestions from my members.
I have been a regulator for 28 years and when the
bankers complain to me about having over-regulation, I
would say, 'Well, Dirty Harry did stick his .44 at you
and said, 'Make my day.' However, there is a point at
which regulation has become onerous in the banking
industry and this is another example of it. I
encourage you to consider all the other parts of SB
108 in dealing with insurance, because there are a lot
of scams and other things going out to the public.
But, in the case of our governmental trust, they are
being administered properly. The fiduciaries,
themselves, when they run for election must first
certify that they meet all the requirements of a
fiduciary under ERISA with respect to any kind of
criminal violations, convictions or whatever.
Furthermore, they must also attest to the fact that
they understand what they are going to do as a
fiduciary and that position requires a high degree of
understanding of employee benefit plans, fiduciary
standards and investment policy. So, again, if it
ain't broke, don't fix it and I encourage you to let
us go about doing our business as best we can, which
is pretty good.
2:18:36 PM
COLLEEN SAVOIE, Consultant for Marsh USA representing the Public
Employees Local 71, said she wanted to highlight a couple of
items that had been discussed previously. The first one is the
need for financial oversight of these plans that already have
published annual audits. This bill would have an actuary that
certifies to the financial condition of the plan, but actuaries
are unwilling to "insure" financial solvency of any plan.
2:19:49 PM
Another issue of concern was the claims oversight because there
is already a mechanism by which appeals are resolved. These
trusts have a medical review, a review by the Board of Trustees
and finally, arbitration. It's important to understand that the
process needs to be formal so that the trust can make sure that
all participants are treated equally and fairly. Finally, she
pointed out again that the trustees are trained fiduciaries with
ultimate responsibility to the participants of these trust funds
and they have the right to bring suit in Superior Court.
2:21:06 PM
MARY STOLL said she is trust counsel to both Public Employees
Local 71 Trust and the ASEA Local 52 Trust and that trusts have
a very small incidence of appeals in comparison to the number of
claims that are actually paid every year.
She also heard Ms. Hall reference self-funded plans that are not
regulated by ERISA because they are governmental plans that are
exempt under its definitions and pointed out that ERISA plans
are reviewed by the both the federal court and the Department of
Labor. Both of her plans follow ERISA as a guideline and she
explained:
There are specifically two requirements that they
cannot follow because there are Department of Labor
regulations that are specific ERISA plans, one of
which would be the appeals process wherein arbitration
cannot be binding. You have to bring suit in federal
court if you have a complaint.
The second issue would be the requirement of filing an
annual report called a Form 5500 with the IRS, which
government plans are exempted from. If the intent is
to cover self-funded plans that are not regulated by
ERISA, the municipalities, school districts are not
regulated by ERISA and I can't find a reason to
distinguish between those self-funded groups from
these state union groups that are self-funded.
I'm aware of no self-funded governmental plan in the
State of Alaska, which has failed financially. Their
concerns about this in-depth actuarial reporting seem
to be unwarranted given the fact that they are already
providing actuary reports to the state, that post
their financial statements. That information is
available to the state and they are not suffering
financial at this point. They are well-run trusts with
well-trained and diligent fiduciaries who are relying
on the advice of advisors who carry professional
diligence insurance, malpractice insurance, et cetera
and are reviewed at least every other year by the
trust for whether they're providing the services they
are hired to provide.
I agree with Mr. Puschak that this is not a situation
where it's broken; it really does not need fixing.
It's adding financial burden to the trust, which is
unwarranted. They already provide equal or better
coverage than the state plan is providing. By imposing
the Division of Insurance into the processes of the
Board of Trustees, I think it would enable them from
providing a plan best suits their participants. These
plans don't go blithely about their plan decisions;
they conduct independent and scientific surveys to
determine what their participants want and I think
you've heard testimony that they respond to those
requests and desires by their participants and they
fit it into the limited budgets that they have
available to provide an excellent health plan.
Speaking to the appeals process, and again, I think
Ms. Hall's testimony confirmed what we had already
suspected - that the concerns are raised by a very
small percentage of participants stemming from the
Anchorage area PPO arrangement and from the appeals
process. I can't find anything in this Senate bill,
which would redress either of those two issues.
There's no language in the bill that would change
either the PPO or the appeals process. The bill just
adds expense and unnecessary oversight and reporting
requirements.
Ms. Hall also referenced two other groups, which are
non-State of Alaska employees participating in the
trust. That is not the case for ASEA Local 52 Trust,
but it is the case for Public Employees Local 71.
Public Employees 71 has the Municipality of Anchorage
employees who are represented by PE 71, Anchorage
School District employees who are represented by PE 71
and the Haines Borough and City of Haines employees
who are represented. Those groups would be adversely
impacted by this decision, whereas they aren't even in
the target of the proposed legislation, which I think,
would be unfair. We also have responded, both last
April and last March respectively for each trust, to a
very in-depth request for information by the Division
of Insurance. We complied with the request and
provided in-depth information about the operations of
the trust, how they do comply voluntarily with the
ERISA standards, training, provided trust agreements,
letters of agreement, plan booklets, discussed the
fact that the annual audits at least for ASEA are
posted on their website. The information is readily
available. So, I'm at a little bit of a loss that
there is a question as to how these funds operate at
this juncture.
But, just in summary, there are numerous hopelessly
ambiguous sections in this bill, which would make it
virtually impossible to comply with any certitude. In
addition, the bill requires verifications, as Ms.
Savoie had pointed out, from actuaries, which an
actuary could not undertake without becoming a co-
fiduciary over the trust and I think that's highly
unlikely at any cost that an actuary would undertake
that position. So, based upon these concerns and
representations, it's my hope that you as a committee
will delete the bill of Sections 28 and 29 and I'm
happy to take any questions you may have.
2:28:20 PM
CHAIR BUNDE commented that current the PERS and TRS system was
referenced earlier and he hoped everyone's goal was not to cast
any aspersion on the people who manage those funds currently,
but to make sure the state doesn't end up with a deficit problem
like those funds have. He asked if some level of bonding would
be appropriate.
MS. STOLL replied that currently the ASEA trust has a $4 million
bond in place and didn't see having 10 percent of annual claims
as being necessary. She said that all year long these boards go
through the process of evaluating their reserves and that the
people who manage the trusts are extremely sophisticated being
trained through the International Foundation of Employee
Benefits. The funds are managed very reasonably.
MS. STOLL said that she wasn't aware of any self-funded
governmental plan in Alaska, which has failed financially.
"These funds are both doing extremely well and to coin Mr.
Puschak's statement, "It's not broken, it doesn't need fixing."
CHAIR BUNDE announced that there were no further people to
testify and set the bill aside to work on a CS.
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