Legislature(1995 - 1996)
01/24/1996 09:03 AM House HES
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JOINT HOUSE & SENATE HEALTH, EDUCATION AND
SOCIAL SERVICES COMMITTEE
January 24, 1996
9:03 a.m.
SENATE MEMBERS PRESENT
Senator Lyda Green, Chairman
Senator Loren Leman, Vice-Chairman
Senator Judy Salo
SENATE MEMBERS ABSENT
Senator Mike Miller
Senator Johnny Ellis
HOUSE MEMBERS PRESENT
Representative Con Bunde, Co-Chair
Representative Cynthia Toohey, Co-Chair
Representative Al Vezey
Representative Gary Davis
Representative Norman Rokeberg
Representative Tom Brice
Representative Caren Robinson
HOUSE MEMBERS ABSENT
All House members present
COMMITTEE CALENDAR
Briefing on the Comprehensive Health Insurance Plan
PREVIOUS SENATE COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
STEVE LEBRUN, Account Manager
State Of Alaska Plan
Aetna Health Plan
Aetna Life Insurance Company
PO Box 91032
Seattle, WA 98111-9132
POSITION STATEMENT: Discussed Aetna's high risk pool plan in
Alaska.
MARIANNE BURKE, Director
Division of Insurance
PO Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Reviewed the high risk pool plan.
MARK BOYER, Commissioner
Department of Administration
PO Box 110200
Juneau, Alaska 99811-0200
POSITION STATEMENT: Discussed possible options and problems.
CECIL BYKERK, Chief Actuary
Mutual of Omaha
Chair, Comprehensive Health Insurance Association (CHIA)
POSITION STATEMENT: Discussed his experience with such
legislation.
ACTION NARRATIVE
TAPE 96-4, SIDE A
Number 001
CHAIRMAN GREEN called the Joint House & Senate Health, Education
and Social Services (HESS) Committee to order at 9:03 a.m. She
announced that the committee would be hearing a briefing on the
Comprehensive Health Insurance Plan.
STEVE LEBRUN, Account Manager with Aetna Health Plans, informed the
committee that Aetna is the administrator of the high risk pool.
AETNA is one of the two largest insurers in Alaska. He pointed out
that Aetna is in a unique position with regards to the State
Employee Plan. The State of Alaska's Employee and Retiree Plan is
the largest plan in Alaska which also makes this plan the most
prominent with respect to the high risk pool.
MR. LEBRUN explained that the high risk pool was set up as a safety
net for the chronically and acutely ill who have had difficulty in
obtaining insurance. This became effective in 1993. Currently,
there are approximately 190 enrollees. The enrollees are assessed
a premium. Mr. LeBrun acknowledged that no one intended for the
plan to be self-sustaining; the claim experience in a high risk
pool is significantly higher. The question needing work is the
issue of magnitude. Alaska's risk pool has higher losses than
anticipated or seen in other states. He noted that half of the
states have some sort of high risk pool arrangement which began
about the same time as Alaska's plan. Therefore, the ability of
the plan to maintain itself at a reasonable price level is unclear
at this point.
Number 071
This plan has resulted in some significant assessments against
insurers. To the extent that the plan does not pay for itself, the
board assesses all the insurers who do business in the state in
proportion to their volume of premium in this state. He emphasized
that this did not effect those who are self-insured; a significant
amount of the insurance market is excluded. Assessments are made
as needed. The most recent statewide assessment was for $1.2
million in 1995; a deficit had occurred. The premiums had not kept
pace with claim costs.
In conclusion, Mr. LeBrun informed the committee that his purpose
was to begin a collaboration process in order to review short and
long term solutions. This plan obviously has impact on the cost of
doing business as well as the cost of insurance. The cost of
assessments are born by the insurance companies or employers who
have health insurance. He offered to answer questions.
Number 130
REPRESENTATIVE BUNDE surmised that if a person is chronically ill,
the role of insurance is changed. Should the medical bills of a
chronically ill person be paid for through an insurance program?
STEVE LEBRUN agreed that the high risk pool does not operate as a
traditional insurance pool.
REPRESENTATIVE BUNDE clarified that he did not mean that these
needs should not be met, but is the most efficient manner in which
to deal with this pool through insurance companies? STEVE LEBRUN
acknowledged that there are funding implications, especially since
the pool is not near to paying for itself. In extending coverage
to the high risk pool, there are some unfunded liabilities.
REPRESENTATIVE TOOHEY inquired as to the cost to other insurers
when the high risk pool runs a deficit. STEVE LEBRUN commented
that the plan really became viable in 1994 at which time there was
an assessment of $550,000. Another assessment was done late last
year which was $1.2 million.
REPRESENTATIVE TOOHEY pointed out that basically the assessment
amount could be broken down into each Aetna policy. STEVE LEBRUN
emphasized that currently Aetna is absorbing the deficits as a cost
of business. At this point, Alaska's Medical Insurance rate has
not been changed in order to recover the loss. The deficit is
assessed against the insurer, but it is left to the insurer to
determine a course. Mr. LeBrun reminded everyone that two-thirds
of the insured premium in Alaska is held either by Aetna or Blue
Cross.
Number 184
In regards to Representative Bunde's analysis that this is not
necessarily an insurance situation, SENATOR SALO felt that it was
because it is a portion of the methods of doing business in Alaska.
Although this portion may not be a profitable portion, the profit
base in Alaska is larger. She recognized that Aetna has absorbed
some loss due to this high risk pool, but that was expected? STEVE
LEBRUN replied yes, there was an expectation of subsidization to
some degree. Mr. LeBrun felt that it was a question of degree. He
said that Aetna's interest is in determining how to make this plan
as cost effective as possible.
SENATOR SALO did not believe that it would be an option to no
longer deal with high risk individuals because of their expense.
If these high risk individuals are not covered in such a plan,
Senator Salo assumed that they would fall under Medicare or
Medicaid. This debate began in order to allow high risk
individuals to maintain a livelihood and the ability to survive on
their own with medical coverage. She agreed that this is a problem
of degrees.
Number 223
SENATOR LEMAN did not believe that the average premium, $261 per
month per individual, was unusually high for a high risk pool. Why
are the premiums that low in comparison to other rates? He also
asked if there was a breakdown of the 190 enrollees by their
illness or disability type.
STEVE LEBRUN deferred to the Chairman of the Board with regards to
Senator Leman's latter question. With regards to the premium, the
Alaska plan is not inconsistent with other plans. Most plans set
between 125 percent to 200 percent of what is considered a standard
rate. Mr. LeBrun recognized that even at the higher level, the
rate would not be equitable. He pointed out that when a high risk
pool is established the upfront rate costs must be balanced. Aetna
wants to focus on managing the claim costs better whether through
managed care techniques or other techniques. The board has been
exploring alternatives which would make better use of the money
coming into the plan.
Number 260
REPRESENTATIVE ROBINSON suggested that some of the members of the
high risk pool may, for example, experience the loss of a kidney
and currently are not having problems. However, they could
experience difficulties in the future. STEVE LEBRUN affirmed that
there is a mix of acute, high cost in-patient situations, with
chronic situations that have not yet manifested. There is a lot of
variability from month to month, quarter to quarter, and year to
year; this is a volatile population.
REPRESENTATIVE ROBINSON expressed interest in a financial
comparison of a previous program for the chronically ill and the
current plan with Aetna. In response to Representative Robinson,
STEVE LEBRUN explained that Aetna was the only insurer to bid on
this plan.
REPRESENTATIVE BUNDE specified that his previous comments were not
leading to the abandonment of the chronically ill. The concern is
about whether their needs are being most efficiently met through an
insurance company. He pointed out that with the Oregon program,
individuals with expensive rare diseases do not receive state
money. Representative Bunde indicated that the high risk pool's
rate did not seem equitable when compared to the State's rate of
$400 for healthy individuals. STEVE LEBRUN clarified that the
State's rate is a family rate whereas the high risk pool's rate is
an individual rate. On a per person basis, the State plan is a
lessor rate than the high risk pool plan.
Number 303
REPRESENTATIVE VEZEY directed everyone to the letter from Jim
Hickey which states that there are 128 members of the high risk
pool while the chart following the letter states that there are 190
members. Which number is correct? STEVE LEBRUN said that the 128
members in the chart refers to the end of 1993. The current
enrollment in the high risk pool is 180-190.
REPRESENTATIVE VEZEY interpreted Mr. Hickey's letter and Mr.
Lebrun's testimony to mean that if action is not taken on this
situation, Aetna would take money due the State or raise premiums
to the State. STEVE LEBRUN stated that no decisions have been
made. To date, Aetna has worked with the loss created by the high
risk pool. REPRESENTATIVE VEZEY declared that the statutes do not
provide a method for Aetna to recover losses. STEVE LEBRUN
acknowledged that. The statute merely makes assessments.
REPRESENTATIVE VEZEY did not believe that Aetna's share would
increase, however the dollar participation may increase. STEVE
LEBRUN explained that the share could increase if employers decided
to self-insure which reduces the overall pool of insured plans. In
the absence of that scenario, Aetna's share would remain
consistent.
REPRESENTATIVE VEZEY pointed out that if Aetna projects a $4
million deficit for 1996, that would breakdown to $25,000 per
person. STEVE LEBRUN agreed, but indicated that predictions for
190 is more difficult than for 12,000 State employees. There is
potential for increases in future assessments.
Number 344
REPRESENTATIVE TOOHEY emphasized that $25,000 per person per year
is nothing - one small operation in the hospital and three days in
bed.
CHAIRMAN GREEN posed the worst scenario, in which Aetna or Blue
Cross leaves Alaska and those that remain face increased exposure.
Such a possibility is one manner in which the exposure to risk
percentage changes. STEVE LEBRUN agreed.
SENATOR SALO indicated that if Blue Cross left Alaska and its 30
percent of Alaska, the remaining insurance companies would see a
huge available market. CHAIRMAN GREEN posed the case in which
Aetna withdrew and the State self-insured. Blue Cross would be
left with 60 percent exposed risk as well as raising the exposure
of smaller insurers. STEVE LEBRUN said that such a situation is
not what Aetna is seeking.
REPRESENTATIVE BUNDE emphasized that when the chronically ill are
unable to pay for their medical care, the people of Alaska pay
those bills in some manner. The most cost efficient manner in
which those bills are covered must be discovered. There is no free
medical care.
Number 382
SENATOR SALO noted that the premium rate varies from $134 to $694;
has raising the premium rate to the 200 percent allowable been
considered? STEVE LEBRUN said that the board has given that some
consideration.
SENATOR SALO inquired as to the disincentives to seeking care when
there is a cheaper method. Is a patient participating when 20
percent is the main percent coverage? STEVE LEBRUN replied yes.
There are fairly significant deductibles. Mr. LeBrun informed
everyone that there are three choices of deductibles with the
lowest being $500. SENATOR SALO surmised that those persons paying
the $135 premium probably have the high deductible. Mr. LeBrun
pointed out that the annual deductible for the $135 premium is
$1500 which for many enrollees would be achieved in 48 hours. Mr.
LeBrun acknowledged that there is significant cost sharing. The
board is reviewing manners in which to create a more effective
program.
Number 400
MARIANNE BURKE, Director of the Division of Insurance, explained
that this plan began so that persons with high risk problems could
buy insurance and help pay for the cost of their medical care. By
definition, this plan was not expected to be self-sufficient. Ms.
Burke reiterated that the premiums are established by the statutes
and must not exceed 200 percent of the standard premium for similar
plans in Alaska. The board has been collecting data regarding
increasing the premium to the individual. She emphasized that even
if the maximum premium were charged, this financial problem would
still remain unsolved. For example, approximately one-fifth of the
costs are collected through the premium.
MS. BURKE reiterated that the plan is not a typical insured plan.
Aetna simply provides administrative services, the plan is not an
Aetna plan. The statutes limit those who can provide this service
which may be worthy of review. She applauded the committees' grasp
of the fact that medical care costs are not going to change. The
cost of this care will be paid by someone. The options to the
board are limited. She pointed out that managed care approaches
have a minimum impact based on the data provided by Aetna. Case
managers and PPO arrangements have impact in the 6 to 10 percent
range which will not solve the problem. The cost will remain high.
The State passes this cost onto the insurers doing business in
Alaska. She believed that the prospect of employers becoming self-
insured would be an accurate assessment.
Number 469
MARK BOYER, Commissioner of Administration, explained that as a
large employer, the State of Alaska, has a contractual relationship
with Aetna. The State of Alaska as an employer is facing a cost
shift to the State employees and retirees. He mentioned that this
was the first oversight hearing since 1992 when this act was
passed. When this bill passed, it was merely a portion of the
larger comprehensive health reform of that time. He recalled that
when this bill passed, he was a member of the House Finance
Committee. The bill received only 10 minutes of attention by the
Finance Committee. No one foresaw that the plan would have the
type of cost shift that it has now.
Mr. Boyer recalled, as did Representative Robinson, that during the
1980s the State directly appropriated funds for uncompensated care
to facilities; the State appropriated about $10 to $13 million each
year. This approach began being phased out around 1987. Alaska
has a history of meeting uncompensated care. This bill in 1992 was
the first attempt to return to this approach.
Mr. Boyer expressed concern, as a large employer, that the State
could face a cost shift of $1.5 million or more each year. This
could begin this year. Mr. Boyer identified the fairest
alternative to be a tax or an appropriation which are basically the
same. The premium tax rate that is already in place could be an
alternative, but that is only paid by a small group of insurers in
the State of Alaska. Self-insured plans do not pay a premium tax
and neither does the State of Alaska. Mr. Boyer indicated that an
increase in the premium tax could be a short-term opportunity to
meet this year's deficit. Mr. Boyer stated that the option of the
State of Alaska becoming self-insured is not desirable. That
option would shift the burden to the others who are mandated to pay
the premium tax. Another option would be to place a moratorium on
new entrants into the program until the legislature addresses the
issue in a more permanent fashion.
Number 528
In response to Representative Toohey, Mr. Boyer estimated that
premium taxes generate $21 million to $23 million. Reed Stoops
said that $4 million to $5 million are generated by premium taxes.
That money goes directly into the General Fund. Mr. Boyer noted
that it is a narrow group of people that pay a premium tax.
REPRESENTATIVE BUNDE remarked that Mr. Boyer seemed to be
commenting as if the insurance companies would pay the premium tax.
In actuality, the cost of the premium tax is passed on to the
consumer. MARK BOYER agreed with that assessment and pointed out
that the group of people that it effects shifts according to the
entrance and exit of people to the market. If Aetna left Alaska,
Blue Cross would be the large company and the cost would be shifted
to the small businesses and individuals. Mr. Boyer did not feel
that was a fair situation. There will be a RFP for the next three
to five year contract for the health care provision in the early
spring.
CHAIRMAN GREEN asked for clarification on Mr. Boyer's reference to
the cost shift that Blue Cross would experience. MARK BOYER
explained that Blue Cross has individual policies unlike Aetna. If
Aetna left the market and Blue Cross was left with the bulk of the
burden, most of that would be shifted to the rate payers. He
agreed that it also impacted the other small carriers.
REPRESENTATIVE VEZEY understood Mr. Boyer to be seeking leadership
on this issue from the legislature. MARK BOYER said that was true.
This is a problem that the legislature has not reviewed since the
bill's passage. Mr. Boyer noted that he had informed the committee
of some options and the degree of their appeal. The options should
be explored together. At this point, the Governor has not been
briefed on this issue. Mr. Boyer predicted that if the legislature
does not address this issue, the Governor will introduce
legislation.
Number 571
SENATOR SALO remembered that Ms. Burke had indicated that there are
statutory restrictions regarding who can provide this care. Those
restrictions could be lifted by statute; how would that help? MARK
BOYER could not answer that question.
In response to Mr. Boyer's comment regarding the Governor
introducing legislation, REPRESENTATIVE TOOHEY asserted that the
Governor should be present on these discussions in order to arrive
at a solution jointly. MARK BOYER did not mean to suggest that as
a solution. Mr. Boyer agreed with the collective approach, but
realized that if a solution is not found the Governor may introduce
legislation. Mr. Boyer believed that the joint committee was the
avenue to address this issue.
REPRESENTATIVE ROKEBERG inquired as to how the mechanism regarding
the State's share in a premium tax would work. MARK BOYER
reiterated that the State does not pay a premium tax, but due to
Aetna's exposure the State has similar exposure.
TAPE 96-4, SIDE B
Number 585
The State of Alaska is a purchaser of insurance and Aetna's
exposure is passed on to Alaska. In response to Representative
Rokeberg, Mr. Boyer explained that in order to recoup their losses
they would adjust the premium upwards, retain earnings, or other
mechanisms. Mr. Boyer agreed with Representative Rokeberg's
characterization that consumers pay a premium tax in the form of an
increased premium.
REPRESENTATIVE ROKEBERG presumed that if the legislature placed the
premium tax on the State, that would be unfair because that would
be a double tax. Is the RFP for the entire State health plan or
just the administration of the high risk pool? MARK BOYER
clarified that the RFP was for the State's health plan.
SENATOR LEMAN requested that Mr. Boyer and his department produce
some specifics and some recommendations. Senator Leman saw the
answer being a broad multi-faceted approach which may include
managed care as well as reviewing the premium, the deductible, and
the co-payment. Bringing forth some recommendations to the
committee could result in a short-term solution at least. Senator
Leman encouraged Mr. Boyer to take the leadership role and offered
to work with him on this issue.
REPRESENTATIVE G. DAVIS inquired as to the amount of the premium
tax as well as who pays the premium tax. Has there been any
discussion with the self-insurers regarding this issue? MARK BOYER
deferred to the Director of Insurance.
CHAIRMAN GREEN proposed that this question could be held until
another meeting in order to continue with other questions.
Representative G. Davis agreed to continue with questions.
Number 554
REPRESENTATIVE ROBINSON pointed out that the board is required to
report to the legislature at least once every three years, it seems
that this report is a little late. The board's report must include
an analysis of the effectiveness, stability, availability and
contain recommendations for alternative manners of regulation.
Therefore, this issue should be returned to the board for this
report. MARK BOYER agreed with that interpretation of the law.
Mr. Boyer asked the committee to view him as a large employer who
is facing cost shifting and wants to avoid it. There is a
mechanism in the statute under which the board is charged to make
recommendations to the legislature. As a large employer, Mr. Boyer
wants to participate in the development of the changes.
CECIL BYKERK, Chief Actuary of Mutual of Omaha and Chair of the
Comprehensive Health Insurance Association (CHIA) Board, pointed
out that the pool has been under way for under three years. There
were 128 members as of December 31, 1994. The pool has grown to
about 190 for 1995. The pool began slowly which could be related
to the pre-existing condition limitation which applies to people
entering the pool. The pool does not pay for a claim for the first
six months when a pre-existing condition is involved. The real
experience of the pool was not felt until 1994-1995 when the number
of participants in the pool increased. It was then that the pool
began to deteriorate.
Mr. Bykerk informed the committee that the board had issued a
report in the calendar year of 1993 which recommended some
amendments to legislation. One of the recommendations was to allow
the director to authorize higher deductible plans. Those higher
deductible plans are in place; that legislation was passed in 1994.
Mr. Bykerk noted that there was a report issued in the calendar
year of 1994. The board's current agenda includes the issuance of
a report by March 1, 1996.
Number 502
Mr. Bykerk reiterated that current law requires that the
administrator of the high risk pool be a member of that pool.
Aetna was the only pool member that responded to the RFP. There
was previous reference to Alaska having greater flexibility in case
there is no one to administer the pool. Or perhaps, a third party
administrator could manage the pool cheaper. He reiterated that
this is not traditional insurance, but rather a quasi-governmental
arrangement. Aetna only functions as an administrator.
In the history of the pool, there have been three major assessments
which follow: $350,000 in 1993, $600,000 in early 1995 for 1994,
and $1.2 million in 1995. Mr. Bykerk specified that on a three
year average that comes out to .18, about two-tenths of one
percent. The average is half of one percent of the premium base
for just 1995. The premium base is about 380 to 400 million. In
comparison, Nebraska had an assessment by the pool of one percent
of the premium base in 1995. Iowa had a .2 percent assessment and
Indiana had .6.
CHAIRMAN GREEN informed Mr. Bykerk that some of the committee
members have to leave and therefore, a question would be taken and
after the response the meeting would end. She indicated that the
committee would reschedule with Mr. Bykerk.
Number 470
REPRESENTATIVE BUNDE commented that it is impossible to avoid cost
shifting which the commissioner had indicated was the goal.
Anytime someone acquires expenses that they cannot pay for, there
will be a cost shift. The chronically ill cannot pay their medical
care. The decision is whether to place these people on a medical
welfare program such as Medicaid, pay for it from the General Fund,
or are people going to be faced with a medical tax. Representative
Bunde preferred that the majority of the people have a choice.
CECIL BYKERK agreed that this is an issue of cost shifting.
Currently, the cost is being born by those who pay their insured
premiums. He recognized the avenue of premium taxes. If the pool
is eliminated and people left uncovered then the cost is shifted to
the provider.
CHAIRMAN GREEN thanked Mr. Bykerk for his testimony. She said that
this would be continued at a later date. The meeting was adjourned
at 10:05 a.m.
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