Legislature(1995 - 1996)
03/07/1996 03:13 PM House HES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT HOUSE & SENATE HEALTH, EDUCATION AND
SOCIAL SERVICES COMMITTEE
March 7, 1996
3:13 p.m.
SENATE MEMBERS PRESENT
Senator Lyda Green, Chairman
SENATE MEMBERS ABSENT
Senator Loren Leman, Vice-Chairman
Senator Johnny Ellis
Senator Judy Salo
Senator Mike Miller
HOUSE MEMBERS PRESENT
Representative Cynthia Toohey, Co-chair
Representative Con Bunde, Co-chair
Representative Gary Davis
Representative Tom Brice
Representative Caren Robinson
Representative Norm Rokeberg
HOUSE MEMBERS ABSENT
Representative Al Vezey
COMMITTEE CALENDAR
COMPREHENSIVE HIGH RISK POOL
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
CECIL BYKERK, Chief Actuary
Mutual of Omaha Insurance Company
9643 Oak Circle
Omaha, Nebraska 68124
POSITION STATEMENT: Testifying in his capacity as
Chairperson of the CHIA Board
MARIANNE K. BURKE, Director
Division of Insurance
Department of Commerce & Economic Development
State of Alaska
P.O. Box 110805
Juneau, Alaska 99811-0805
Telephone: (907)465-2505
POSITION STATEMENT: Representing the Division of Insurance
STEVE LEBRUN, Senior Account Manager
Aetna Health Plan
Aetna Life Insurance Company
P.O. Box 91032
Seattle, Washington 98111-9132
POSITION STATEMENT: Testifying on behalf of Aetna, in its
capacity as CHIA plan administrator
ACTION NARRATIVE
TAPE 96-22, SIDE A
Number 020
SENATOR LYDA GREEN called the Joint House & Senate Health,
Education and Social Services (HESS) Committee to order at 3:13
p.m. Members present were Senator Lyda Green, and Representatives
Davis, Brice, Robinson, and Toohey. Representative Rokeberg
arrived at 3:20. Co-Chair Green announced that the first speaker
would be Cecil Bykerk, from Mutual of Omaha.
Number 075
CECIL BYKERK, Chief Actuary, Mutual of Omaha Insurance Company,
stated that he would testify in his capacity as Chairperson of the
Comprehensive Health Insurance Association (CHIA) Board of
Directors. Mr. Bykerk thanked the committee for inviting him to
testify. He stated that he is Chief Actuary of Mutual of Omaha,
one of the largest writers of individual major medical policies in
the United States today. He further stated he is a former
Professor of Actuarial Science, a past Vice President of the
Society of Actuaries, and current Vice Chair of the Montana
Comprehensive Health Association Board. Mr. Bykerk indicated that
he has been heavily involved in health care reform issues,
including testifying before Congress, as well as serving on
industry and professional committees. Most recently, he served on
the American Academy of Actuaries committee which analyzed the
Kassebaum/Kennedy bill.
MR. BYKERK expressed his gratitude to Director Burke, and Division
of Insurance Actuary Katie Campbell, for their support of CHIA. He
stated that the CHIA type approach is an extremely important
element to the solution of health care access problems, and is a
critical part of any solution which will maintain the viability of
the individual major medical market.
MR. BYKERK commended the Alaska Legislature for being interested in
addressing an access problem that exists in health care financing.
He noted that CHIA type approaches were never meant to be self-
supporting. If they were, the individuals could not afford to
purchase the coverage. He further noted that the original
legislative history of CHIA in Alaska recognizes that fact.
MR. BYKERK stated that CHIA type coverage is expressly directed at
providing coverage to individuals who are uninsurable. He further
stated that as an actuary, he translates uninsurable into being
unable to calculate a premium that is actuarialy sound. One of the
important elements of CHIA coverage is that participants are trying
to provide for themselves, and even though they are subsidized,
they are paying a significant portion of the cost.
MR. BYKERK went on to discuss CHIA's history. He explained that he
has been a CHIA board member since its inception in late 1992, and
has been a Chairperson since June 1994, taking over from Ross
Blaker. Mr. Blaker is now the Aetna representative on the board,
and is located in Anchorage.
MR. BYKERK further stated that CHIA started out slowly in 1993, but
has shown steady growth, showing year-end enrollee numbers of 64,
128, and 184. Although year-end 1995 would seem to be tracking on
a straight line, Mr. Bykerk suggested a closer look shows that the
growth may be leveling off. He referred to Attachment 1 of
Director Burke's letter of February 12, 1996, to the Joint House &
Senate HESS Committees. This letter shows monthly participation to
be essentially level since August, with monthly numbers of 183,
181, 185, 191, 184, 192, and 198. Mr. Bykerk indicated this
leveling off was not taken into account in projections received by
the committee several months ago. Those projections assumed
straight-line growth, which is not taking place.
MR. BYKERK commented that this is consistent with his experience on
the Montana board. Although no state is quite like Alaska, Montana
may come as close as any. Montana reached a plateau in its third
year of operation, bounced a little bit higher in one year, and has
fallen for the past three years.
MR. BYKERK then indicated that he would review the activities of
CHIA's board for the past three years. First, they have provided
the necessary resources to get the pool in operation; recruited an
administrator to perform the day-to-day work of enrolling new
participants, collecting premiums, and paying claims; made
assessments to cover losses as necessary; made sure that the
program meets the requirements of Alaska law, and made reports back
to the administration and the legislature. Initially it was
difficult to know how many participants to expect. While the
legislation allows CHIA to set premiums at twice the going rate for
similar major medical policies in the marketplace, the board chose
to set them at 175 percent of standard premium levels. Premium
levels have not changed since inception, but such an update is in
the works. Increases will generally range from 25 to 40 percent.
MR. BYKERK stated that he wanted to clarify any misconceptions
about premium levels charged by CHIA. He referred to page 6 of
CHIA's 1994 report. He explained that the CHIA program bases rates
on age, as well as plan design. Thus, a $500 deductible plan will
cost a 60-year old $694 per month, based on the old premium
schedule. He further stated that care must be taken when this
amount is compared to group premiums, which are subsidized by the
employer, and which don't take age into account. It is important
to note that CHIA participants are paying premiums which are
significantly more than standard, and that CHIA is not competing
with the commercial market. At least some portion of the premium
is being paid by the individuals covered. Eliminating CHIA would
most likely shift most of the cost to the state, through Medicaid.
MR. BYKERK noted that the CHIA 1993 report made suggestions for
legislative changes to facilitate easier administration. These
changes were accepted and enacted in 1994 and implemented in 1995.
As the board tracked the emerging experience during 1995, they saw
a marked increase in claims. This was a significant concern, and
the board entered into discussions with the division and the
administrator about where the pool was going. About the only
responses that the board could make were to raise premiums,
institute a case manager, negotiate reduced administrative fees for
the new contract, and suggest further legislative changes.
MR. BYKERK commented that he wished to clarify the role of the CHIA
administrator, which at this time happens to be Aetna. CHIA bears
the risk and the liability, although it has the advantage of being
able to make assessments on its member companies for any shortfall.
Aetna was selected as the administrator, and acts as CHIA's
employee. Aetna receives a fee for its services, and bears no more
risk than any other association member company. Mr. Bykerk further
noted that he wished to thank Aetna for agreeing to be the
administrator, when no one else would come forward. The board was
approached by third party administrators, but the law did not allow
them to be considered.
MR. BYKERK further stated that the Request For Proposal (RFP) sent
out in the fall of 1995 only resulted in one company which was
qualified under statute coming forward with a proposal--Aetna.
Instead of reduced fees, the proposal included fees that were
around 25 percent higher, and did not include the cost of a
dedicated case manager, which was essential. Since then, Aetna has
agreed to add the case manager, for an additional 10 percent
increase in fees. Contract language is still being pursued.
However, the necessary fee levels will put CHIA's administrative
fees at the highest level of any state risk pool.
MR. BYKERK emphasized that he supports proposed changes to the law,
which would give the board greater flexibility in its selection of
administrators. Attachment 6 to the Director's letter provides a
comparison of the assessment levels of the various states that make
assessments based on health premium written. CHIA's level is not
out of line, being around one half of one percent of the collected
premium. While the signs indicating some leveling off in
enrollment are hopeful, CHIA clearly needs to find ways to reduce
claim costs in the pool and to reduce the gap between CHIA premiums
and actual costs.
MR. BYKERK stated the CHIA board supports the suggestions in the
director's letter, regarding administrator selection, as well as
flexibility in setting deductibles, out-of-pocket limits, and co-
insurance percentages. However, the board cautions that
lengthening the pre-existing condition period and reducing the
lifetime maximum will have little long term effect, and could
result in increased Medicaid costs for the state. The Board is
actively working with the division in reviewing possible changes
which will maximize the management of CHIA. Mr. Bykerk then
invited questions from the committee.
REPRESENTATIVE CYNTHIA TOOHEY asked if Montana's leveling off was
achieved without making any changes in rates and benefits.
MR. BYKERK replied that Montana did not make major changes at that
time. Premium levels are somewhat higher than Alaska's, targeting
about 250 percent. Over the past five years, Montana's participant
base has been reduced, and the premiums have remained constant.
Other states have seen similar rates of growth and leveling off.
REPRESENTATIVE TOM BRICE asked that written copies of Mr. Bykerk's
testimony be distributed to the committee.
Number 298
CHAIR GREEN called on the next witness, Marianne Burke, Director of
the Division of Insurance.
MARIANNE BURKE, Director, Division of Insurance, Department of
Commerce & Economic Development (State of Alaska), stated that the
division does support the efforts of the CHIA board, and recognizes
the time and effort expended by insurance companies. Ms. Burke
referred to her letter of February 12, addressed to the joint House
and Senate HESS Committee. As the letter states, the division has
collected a large amount of data concerning CHIA plans throughout
the United States. The CHIA plans vary from state to state, but
all have one common characteristic--they are set up to provide an
option for a particular group of people. These people are not
covered by group plans, individual health insurance, or Medicare.
The CHIA plan gives them a way to participate in the cost of
providing for their own care. Waiting periods vary from 90 days to
12 months. Alaska has a six month waiting period. Some states
have deductibles as low as $300. Alaska has deductibles ranging
from $500 to ten thousand, with the difference being reflected in
the premium. Lifetime benefits also vary from state to state.
Alaska's lifetime benefit is currently set at $1 million.
MS. BURKE noted that the division's research has shown that
changing the variables has very little impact on the overall cost
of the plan. What does happen is that costs are shifted. Often,
they are shifted to the state. The February 12th letter also
outlines some legislative fixes, which could give the CHIA board
greater flexibility in managing costs. For example, the current
legislation does not contain any incentive to use a Preferred
Provider Option (PPO) structure. If such a structure was included,
under the present law, it could actually result in a lowering of
premiums collected. Other practices include incentives, pre-
certification, and using centers which provide the highest quality
care for the lowest price.
MS. BURKE concurred with Mr. Bykerk's assessment that the board
needs to be given greater flexibility in the selection of a plan
administrator. Current costs are the second highest in the nation.
She further emphasized that she did not wish to hold out false
hope. Even if all suggested changes were put in place, the plan
would not be self-supporting. There will always need to be a
mechanism for funding the short-fall. The current mechanism is the
combination of the individual participating in the cost of care,
and a subsidy. The subsidy is provided by assessing all insured
plans in the state of Alaska. All insurers who write health care
coverage in the state of Alaska are assessed, based on their
premium base. What is commonly referred to as self-insurance
escapes this. A self-insured plan is where the employer elects to
pay the cost of the health care directly. The division has no
regulatory authority over these plans, because they are exempt by
federal statute. Other states fund the subsidy in different ways.
California, for example, has a cigarette and tobacco tax. Colorado
has an income tax surcharge. Another state charges one dollar per
month per policy, which would make the administrative costs high.
Utah uses a state appropriation. Louisiana funds the cost through
its general fund. Some states use a premium tax off-set. In the
state of Alaska, 100 percent of the premium tax goes directly into
the general fund.
MS. BURKE noted that there are other options with respect to the
CHIA program. A moratorium on new participants has been suggested,
although under current statute the division lacks the authority to
impose such a moratorium. However, as Mr. Bykerk noted, the
publicity surrounding such a moratorium would certainly result in
a glut of new applicants during the waiting period. The option
that is currently in place does permit individuals to participate
in paying for their own care. She emphasized the division's
position that, however the CHIA plan is funded, it must be run with
sound business principles. She reiterated this requires giving the
board greater flexibility. Ms. Burke then invited questions from
the committee.
Number 425
REPRESENTATIVE TOOHEY asked about voluntary PPO. She stated her
opinion that until the medical community becomes competitive, like
any other business, there will be no lowering of costs. She
emphasized that in offering a benefit package, the best possible
price should be obtained.
Number 468
REPRESENTATIVE CON BUNDE referred to the division's letter of
February 12. He asked if it was correct that a voluntary PPO would
result in a 6 percent reduction in claims.
MS. BURKE responded that those were the plan administrator's
projections.
REPRESENTATIVE BUNDE then asked at what level a premium increase
would drive consumers out of the market.
MS. BURKE replied that as the premiums go up, those people that may
be marginally high risk will leave the plan, while the sicker,
higher cost people will stay in.
REPRESENTATIVE BUNDE responded that what was actually being
discussed was medical welfare. He then asked if raising premiums
would result in more companies going to self-insured plans.
MS. BURKE stated that was correct.
REPRESENTATIVE BUNDE stated that a policy decision may require
finding a way for everyone to contribute. He then referred to the
discussion on page 5 of the division's February 12th letter, which
refers to Alaska's administrative costs being the highest in the
nation.
MS. BURKE stated that this was based on actual data, and referred
to Attachment 5 to the letter.
REPRESENTATIVE BUNDE wondered why the costs were so high.
MS. BURKE responded that the cost is what is charged by the plan
administrator to administer the plan. It is a fee for services.
The division has been negotiating to try to lower the cost.
REPRESENTATIVE BUNDE responded that the cost was three times the
national average, and asked if Alaska had three times the claims of
the national average.
MS. BURKE replied that the cost was per participant.
REPRESENTATIVE BUNDE then asked if the cost of doing business in
Alaska was three times what it was elsewhere, or was the problem
due to lack of competition.
MS. BURKE responded that the plan administration fee has nothing to
do with the premium, or the cost of providing care. It is simply
the cost of processing the necessary paperwork.
REPRESENTATIVE BUNDE repeated his question, as to why the cost was
three times the national average.
MS. BURKE replied that was why she was asking the legislature to
give the board more flexibility. She stated that it gets back to
competition. If the statute is written so that only one or two
companies can provide the service, then there is no room to
negotiate. If greater latitude was given to seek the services from
qualified, licensed entities, there would be more competition.
Number 493
CHAIR GREEN asked how we would get to that point.
MS. BURKE responded that legislation would be required. The
statute presently requires that it be one of the companies that is
in the top group, in terms of volume of business. If Aetna hadn't
stepped forward, there would have been no option.
CHAIR GREEN asked if the price was negotiated, or actual.
MS. BURKE replied that was what was actually charged, for 1994.
REPRESENTATIVE BUNDE stated that he did not intend his comments to
be critical of Aetna. He then asked if the $100 thousand cost
savings that would result from increasing out-of-pocket costs would
be an annual savings.
MS. BURKE responded that the amount represented the savings that
would have occurred from inception of the plan.
REPRESENTATIVE BUNDE asked if it was possible to guess how a 6
percent reduction in claims would translate into dollars.
MS. BURKE stated that the cost of the plan has been projected,
using available data. Based on Aetna's experience with using
PPO's, they have projected a 6 percent decrease. She reiterated
that the $100 thousand figure represents savings that could have
been achieved from inception. There is no reason to believe that
an enormous savings would result from going to a PPO plan.
REPRESENTATIVE BUNDE stated that he believed statutory changes
could be made to encourage competition, and to require increased
contributions from those using the system. He asked if it was fair
to say that the division would encourage such changes.
MS. BURKE responded that was correct. The board does need greater
latitude to make changes, while still keeping in mind the needs of
the participants. If the participant incurs $100 thousand in
claims, and there is a 20 percent co-pay provision, then the
participant will pay that amount. This is something the board
needs to look at.
REPRESENTATIVE BUNDE asked if it would also be fair to say that we
all share a risk of needing to use this system. Those with average
risk levels make a contribution. Would it be fair to say that
those who have a higher than average risk, such as people with
congenital or long-term illnesses, should pay more than the person
of average risk?
MS. BURKE responded that is in fact what is happening.
Participants in this pool already pay 175 percent of what the
average person pays. If you are high risk, you pay high premiums.
Number 563
REPRESENTATIVE CAREN ROBINSON asked what would happen if no
legislation was passed this year to fix the system.
MS. BURKE replied that the board would be very limited as far as
lowering the administrative costs. A PPO could be inserted, but it
wouldn't work, because of the statutory requirement that an 80/20
option must be available. For instance, the PPO option might offer
90 percent reimbursement when using a preferred provider, but only
60 percent if not using a preferred provider. However, the statute
requires payment of at least 80 percent. Therefore, there would be
no incentive for taking the PPO option. Latitude does exist to put
in a case manager, and to increase premiums, which the board is now
in the process of doing. So there will be some increase of
revenue.
REPRESENTATIVE ROBINSON then asked if the best thing the committee
could do would be to try to get legislation passed this year.
MS. BURKE responded that would be her recommendation.
Number 580
CHAIR GREEN asked if administrative actions could be taken through
the division to reduce any of the costs.
MS. BURKE stated that the division has been working with the Office
of the Attorney General, and has already done everything that can
be done in accordance with statute to reduce costs.
TAPE 96-22, SIDE B
Number 020
CHAIR GREEN asked if legislation had been drafted.
MS. BURKE stated that it had.
CHAIR GREEN then called on Steve LeBrun, Aetna Account Manager.
STEVE LEBRUN, Senior Account Manager, Aetna Health Plans, Aetna
Life Insurance Company, stated that he would comment in his
capacity as plan administrator for CHIA. He reiterated that Aetna
supports the idea of a high risk pool. Mr. LeBrun stated that
Aetna supports the division's recommendations, but emphasized that
this still leaves a funding issue. Because of the assessment
structure, the state of Alaska plan pays one dollar out of every
three dollars assessed. Over the next several years, the state
plan faces potential assessments of a million dollars per year. To
date, Aetna has absorbed those costs. But this is becoming more
difficult for them to do. He therefore urged the committee to
consider funding alternatives, including the possibility of
broadening the funding base to cover self-insured employers.
Number 064
REPRESENTATIVE TOOHEY asked if Aetna did this type of management in
other states.
MR. LEBRUN stated that they did not.
REPRESENTATIVE TOOHEY asked how the figure of $85 per participant
was determined.
MR. LEBRUN responded that it was a complex calculation. The Alaska
plan is the smallest of the plans nationally, with only 167
enrollees. Most plans have two or three thousand. This results in
a small base over which to spread fixed costs. Because of the
nature of the assessment process, which is a deficit assessment,
significant interest charges are incurred.
REPRESENTATIVE TOOHEY again urged the use of competitive bidding in
choosing providers.
CHAIR GREEN announced that a follow-up meeting would be scheduled.
ADJOURNMENT
There being no further business to come before the Joint House &
Senate Health, Education and Social Services Committee, the meeting
was adjourned at 4:03 p.m.
| Document Name | Date/Time | Subjects |
|---|