02/24/2003 03:15 PM House L&C
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 24, 2003
3:15 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Sharon Cissna
COMMITTEE CALENDAR
HOUSE BILL NO. 10
"An Act amending the definition of group health insurance, and
allowing the Department of Administration to obtain a policy or
policies of group health care insurance for employers that are
small businesses, nonprofit organizations, special services
organizations, or small associations for insurance purposes; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 10
SHORT TITLE:GROUP HEALTH INSURANCE FOR PRIVATE GROUPS
SPONSOR(S): REPRESENTATIVE(S)HEINZE, ROKEBERG
Jrn-Date Jrn-Page Action
01/21/03 0033 (H) PREFILE RELEASED (1/10/03)
01/21/03 0033 (H) READ THE FIRST TIME -
REFERRALS
01/21/03 0033 (H) L&C, HES
01/21/03 0033 (H) REFERRED TO LABOR & COMMERCE
01/29/03 0088 (H) COSPONSOR(S): HAWKER
02/07/03 0152 (H) COSPONSOR(S): FOSTER, STEVENS
02/07/03 0152 (H) WILSON, SEATON
02/10/03 0172 (H) COSPONSOR(S): WEYHRAUCH
02/14/03 0218 (H) COSPONSOR(S): MOSES
02/18/03 0231 (H) COSPONSOR(S): KERTTULA
02/24/03 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REPRESENTATIVE CHERYLL HEINZE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 10.
HELEN BEDDER, M.D., Staff
to Representative Cheryll Heinze
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 10.
MARIE DARLIN, Coordinator
Capital City Task Force
AARP Alaska
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 10.
BOB TAYLOR, Acting Executive Director
Alaska Commission on Aging
Division of Senior Services
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 10.
KEVIN MURPHY, President
Substance Abuse Directors Association of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 10.
PAMELA LaBOLLE, President
Alaska State Chamber of Commerce (ASCC)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 10.
GUY BELL, Director
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Described how the division would implement
HB 10 if it passed.
DUSTY SILVA
Palmer, Alaska
POSITION STATEMENT: Questioned the feasibility of HB 10.
MARY RAYMOND
Homer, Alaska
POSITION STATEMENT: Applauded the intent of offering insurance
through HB 10.
JAMES FISHER
Kenai Peninsula Food Bank;
Soldotna Senior Center
Soldotna, Alaska
POSITION STATEMENT: Described the need for affordable health
benefits for employees of nonprofit organizations during the
hearing on HB 10.
JEFF JESSEE, Executive Director
Alaska Mental Health Trust Authority
Anchorage, Alaska
POSITION STATEMENT: Testified that the trustees support the
intent of HB 10 but have not yet committed start-up funds.
BOB HAGEN
Anchorage, Alaska
POSITION STATEMENT: Expressed concern that the pool proposed in
HB 10 would not succeed.
STEPHEN CONN
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 10.
JUDY MILLER
Valdez, Alaska
POSITION STATEMENT: Testified on the need for insurance
coverage for sole proprietor businesses during the hearing on
HB 10.
KATIE CAMPBELL, Life & Health Actuary
Division of Insurance
Department of Community & Economic Development (DCED)
Juneau, Alaska
POSITION STATEMENT: Answered insurance questions during the
discussion of HB 10.
ACTION NARRATIVE
TAPE 03-12, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:15 p.m. Representatives
Anderson, Lynn, Gatto, Crawford, and Guttenberg were present at
the call to order. Representatives Dahlstrom and Rokeberg
arrived as the meeting was in progress.
HB 10-GROUP HEALTH INSURANCE FOR PRIVATE GROUPS
Number 0050
CHAIR ANDERSON announced that the only order of business would
be HOUSE BILL NO. 10, "An Act amending the definition of group
health insurance, and allowing the Department of Administration
to obtain a policy or policies of group health care insurance
for employers that are small businesses, nonprofit
organizations, special services organizations, or small
associations for insurance purposes; and providing for an
effective date."
The committee took an at-ease from 3:17 to 3:18 p.m.
Number 0078
REPRESENTATIVE CHERYLL HEINZE, Alaska State Legislature, as one
of two joint sponsors of HB 10, testified that HB 10 allows
small businesses, nonprofits, and others groups to join a pool
for a health insurance plan. The Department of Administration
would obtain the policy, and then employers would purchase the
insurance through the private plan. The legislation also
permits the recovery of the initial cost for setting up the
group. She said the cost recovery would be spread over a five-
year period, and the Alaska Mental Health Trust Authority
("Mental Health Trust") would provide the upfront money.
Number 0170
REPRESENTATIVE ROKEBERG, the second joint sponsor, noted a small
change in the committee substitute (CS) in the members' bill
packets.
Number 0197
REPRESENTATIVE ROKEBERG moved to adopt the proposed CS for HB
10, Version 23-LS0030\I, Craver, 2/12/03, as a work draft.
There being no objection, Version I was before the committee.
Number 0243
REPRESENTATIVE ROKEBERG explained that the proposed CS contained
a new sentence on page 5, lines 4-6, which read: "The
commissioner shall distribute the administrative costs recovered
pro rata to any funds, including the mental health trust
settlement income account, from which initial funding was made."
He said this is the only change in the proposed CS and was added
at the request of the Mental Health Trust to clarify the source
of the [start-up] funds for this legislation. He suggested that
Guy Bell, Director, Division of Retirement & Benefits,
Department of Administration, can explain his division's costs
and the amount the Mental Health Trust would contribute.
Number 0369
REPRESENTATIVE GATTO asked why the state is getting involved in
insurance for private businesses when the private sector
provides this product.
Number 0407
HELEN BETTER, M.D., Staff to Representative Cheryll Heinze,
Alaska State Legislature, explained that HB 10 is based on a
model, which assembles an insurance plan for small businesses.
Currently, Alaska law allows political subdivisions to work with
the state in developing an insurance plan similar to the one in
this bill. Political subdivisions such as Kotzebue and Nome are
using a health insurance plan that is administered by the state.
She said it's important for the [State of Alaska to be involved
as an organizer] because it has been impossible for small
businesses to gain health insurance on their own. State
government can create [a program] and spread the cost over a
large group of people. She said even if the state cannot
significantly lower the cost of the insurance, it may be able to
arrange better options for the small businesses and nonprofits.
Number 0545
REPRESENTATIVE ROKEBERG commended Representative Gatto's
question and explained the rationale behind HB 10. He reported
that there are precedents for this bill in Alaska statutes and
elsewhere; Alaska has a small group provision in its health
insurance statutes. It's challenging for these small
enterprises, particularly nonprofit organizations that have
difficulty finding insurance coverage, to form a larger pool.
Last year the legislature passed a bill enabling MEWA (Multiple
Employers Welfare Associations); MEWA is a federal provision
that allow groups or businesses with certain affinities to form
self-insurance with lower than normal solvency requirements. He
stated that trade organizations throughout the country pool
together for insurance purposes.
REPRESENTATIVE ROKEBERG said HB 10 has two goals: to lower the
cost of monthly premiums and to expand the options that are
available to these folks. There could be an economy plan, a
Chevy plan, and perhaps a Cadillac plan. A very small group or
an individual business or nonprofit organization cannot get this
type of coverage.
Number 0750
REPRESENTATIVE ROKEBERG cautioned people against expecting too
much from HB 10. He said the legislature and everyone in this
country wants to find the magic solution to lower health
insurance premiums. He declared that health costs are a
continually growing part of an individual's budget and the
country's gross domestic product. If the legislature can help
citizens lower these costs, this is a small step forward. He
said the Mental Health Trust agreed to fund the start-up because
of the large number of nonprofit organizations with whom they
deal that are unable to obtain insurance at a reasonable rate.
Number 0835
REPRESENTATIVE ROKEBERG returned to Representative Gatto's
question. He explained that HB 10 does not involve the state in
the insurance business. In this case, the state would invite a
group of different [enterprises] to form a pool; the state would
be merely the conduit. The state would develop the bid process
that would go out to private insurance underwriters. The state
would not underwrite nor pay for the insurance. House Bill 10
would not expand the state health insurance program to other
folks. Once this program gets established, it would be self-
financed and operated almost entirely by the private sector.
Representative Cissna joined the committee.
Number 0894
REPRESENTATIVE HEINZE reiterated that the state, through the
Mental Health Trust, would fund the upfront costs, which would
be paid back. This is a big helping hand, she said.
REPRESENTATIVE GATTO observed that if the state is merely a
conduit for gathering people together, that role is unnecessary
because individuals can do that themselves. He said the state
has a poor record of taking on projects to help others; many
such projects ended in a deficit. He said the bill goes way
beyond gathering the names of interested individuals and letting
someone bid on the service.
REPRESENTATIVE HEINZE explained that the project is not quite so
simplistic, that the state doesn't just gather the names. The
state would prepare the project for bid, and then the two
companies in Alaska that underwrite small group health insurance
policies would bid on it.
Number 1063
DR. BETTER explained that someone has to develop the plan. The
state would develop the plan as it did for the political
subdivisions. The state would design a plan that works for the
insurance companies and works for the individuals in the pool,
and then it would come up with a cost. Insurance plans can vary
from minimal to extensive coverage; they are not simple
documents. When an individual seeks insurance, an insurance
agent or broker would lay out potential plans, and then the
individual would make a decision. No one is currently providing
this service [to business and nonprofits as a group]. Agencies
like United Way have not been able to assemble a large enough
pool. She said that's why the sponsors included small
businesses and other associations in this bill.
REPRESENTATIVE GATTO cautioned that the state would be actively
approaching insurance companies, getting bids, and signing up
individuals at different levels of risk. He recalled the Delta
Barley projects and the Mt. McKinley Dairy Farms, in which the
state lost its investment. He said he is concerned that the
state won't [recoup its money].
Number 1245
REPRESENTATIVE ROKEBERG said he shares Representative Gatto's
concerns about government adventures in private enterprise. He
said the legislature's real power is derived from the purse.
The state would venture $42,900, less than the cost of one door
in one [grain] silo. The additional $89,900 would come from the
Mental Health Trust, which is not general fund money. The
provisions of the bill allow for the recoupment of all these
funds, in the underwriting cost of the third-party administrator
or the insurance underwriter. The words "may obtain insurance"
allows the department to avoid entering into any insurance
contracts. He said the sponsors do not intend to get the State
of Alaska into the insurance market anymore than it already is,
for example, providing the structure for the political
subdivisions to operate their insurance plans. There are
provisions in the insurance statutes now that allow groups to
get together to do some of their own underwriting and become
self-insured. However, that rarely happens. As indicated in
past public testimony, a large number of people in this state
are interested in joining a pool. Combining nonprofits with
some small businesses creates a bigger base and hopefully
realizes some economies not possible otherwise.
REPRESENTATIVE ROKEBERG cautioned that this committee needs to
be concerned about the bill's impact on the small business
insurance group market. He stressed that this is no socialized
medicine plan in sheep's clothing because with $42,000, the
legislature cannot do a lot of damage.
Number 1390
REPRESENTATIVE CRAWFORD declared that he supports HB 10, which
he characterized as a great first step. He expressed concern
that it leaves single-person companies out of the equation. He
asked why the legislation only addresses companies with 2 to 50
employees.
REPRESENTATIVE HEINZE answered that HB 10 uses the definition
for small business in AS 21.54.500, which is at least 2 but not
more than 50 employees.
DR. BEDDER said that the definition [in HB 10] is traditionally
used throughout the United States. A single individual who has
not been able to obtain affordable health insurance would be
interested in joining this plan because there would be no limit
on pre-existing illnesses or conditions. Therefore, this
feature would draw persons with particularly difficult insurance
issues, which would create a higher risk pool, resulting in
higher premiums.
REPRESENTATIVE CRAWFORD noted that the state already has a high-
risk pool, the Alaska Comprehensive Health Insurance Association
(ACHIA). He suggested that the bill direct those [single-person
businesses] with serious pre-existing conditions into the ACHIA
pool while the other [entities] would come in under this pool.
He cautioned that leaving out single operators without health
problems excludes a large segment of the population.
Number 1568
REPRESENTATIVE HEINZE warned about the need to [develop a
suitable plan on which insurance companies would bid]. The
Alaska [insurance market] is unique because of the state's small
[population], she said.
REPRESENTATIVE ROKEBERG pointed out that individuals can join
the ACHIA pool [for health insurance coverage] and it was thus
not necessary to include individual businesspersons in HB 10.
He noted his proposed amendment that narrows the scope of
eligibility for the pool. Narrowing the risk pool would
encourage health insurance underwriters to enter the market in
Alaska, not leave it. Currently, the state has three major
underwriters that carry more than 52 percent of the market. He
explained that the small business policies amount to 55 percent
of the market. Representative Rokeberg echoed the need to be
sensitive about Alaska's market condition. If HB 10 is expanded
and made open-ended, [the State of] Alaska would be competing
against the industry. He cautioned that if [the legislature]
isn't careful with this bill, the state will [end up with] a
single insurance underwriter.
REPRESENTATIVE CRAWFORD said he understood [the market problem],
but asked if [healthy single proprietors] could be brought into
this pool. He reiterated his concern about excluding healthy
single proprietors.
REPRESENTATIVE ROKEBERG noted that going into the individual
market would almost certainly impact the number of underwriters
writing business in the state. He explained that the fifty
underwriters in the state that do write low-premium policies are
the ones writing individual policies. Expanding HB 10 to
individual business people would risk running 50 insurers out of
the state at one time, he warned.
Number 1847
CHAIR ANDERSON directed attention to the sponsor statement which
reads, "The intent of this bill is to provide quality health
insurance by creating a large pool of covered lives, and
generate more choice of coverage not a lower cost." However, he
noted that document also includes the following sentence: "The
entities described in this legislation often cannot afford to
provide employees with adequate health insurance coverage." He
asked if the purpose of HB 10 is to lower costs, offer more
choice, or both.
REPRESENTATIVE HEINZE answered "probably both." She expressed
hope that more accessible and more affordable coverage could be
provided to small businesses through this legislation.
CHAIR ANDERSON said that one of his constituents from the Alaska
Association of Health Underwriters has expressed some salient
concerns in a letter. He quoted the letter as follows:
Entities that are already experiencing affordable
rates in the private market due to low loss ratios
will not be interested in joining the pool. However,
unhealthy small employer groups with bad medical
experience and high claims could flock to a state plan
with low rates. These groups might initially benefit
from lower rates, but eventually the state pool will
be forced to react to the bad claims experienced from
these groups and increase premiums. Other states that
have implemented such pools have found that rates for
smaller businesses did not drop over time. Instead
they have remained the same or higher than the
traditional small group market.
REPRESENTATIVE ROKEBERG said that he agreed with that analysis.
He said that HB 10 doesn't specify a higher standard or
threshold and thus runs the risk [described in the above quote].
Bringing nonprofits and small businesses together would
hopefully spread the risk to a larger covered life pool, he
said.
CHAIR ANDERSON remarked that Representative Rokeberg's proposed
amendment covers some of the concerns expressed in the letter
from the Alaska Association of Health Underwriters.
REPRESENTATIVE ROKEBERG agreed.
Number 2044
MARIE DARLIN, Coordinator, Capital City Task Force, AARP Alaska,
noted that the committee's bill packet should include a letter
of support for HB 10. She said ARRP's main concern is for
nonprofit agencies that are having difficulties offering their
employees health insurance, which is necessary to retain staff.
She said the letter also conveyed AARP's concern for many
citizens who don't have health insurance at all.
REPRESENTATIVE DAHLSTROM asked whether nonprofits such as Native
associations, which may be eligible under other programs, could
be covered under this plan also.
REPRESENTATIVE ROKEBERG said that he would research that
question.
Number 2138
BOB TAYLOR, Acting Executive Director, Alaska Commission on
Aging, Division of Senior Services, Department of
Administration, announced support for this legislation. When
the commission wrote a state plan covering the years 2003-2007,
staff held a series of hearings throughout Alaska in order to
obtain public comment on key issues to senior citizens. He said
there was a lot of public comment related to this state plan,
and workforce issues came up repeatedly. The state plan
advocates for systems and strategies that will help senior
citizens stay in their communities and homes as long as
possible. This aging-in-place system is composed of many home
and community services such as adult day care and personal
services. He said the Commission on Aging strongly supports HB
10 to the extent that it would provide health insurance for
those nonprofits and small businesses.
Number 2250
KEVIN MURPHY, President, Substance Abuse Directors Association
of Alaska (SADA), noted that SADA represents approximately 44
programs across the state. He announced that SADA is in favor
of HB 10, although SADA had hoped it would make available
insurance for many of SADA's members who can't currently afford
health insurance. He said that he hoped the passage of HB 10
would stem the flow of personnel from the field.
Number 2310
PAMELA LaBOLLE, President, Alaska State Chamber of Commerce
(ASCC), testified in support of HB 10. She related that the
[inability to assess health insurance] has been a significant
problem for small businesses. She informed the committee that
ASCC is a nonprofit and until three years ago, ASCC was covered
through the American Chamber of Commerce executives in a
nationwide pool for which John Hancock was the provider.
However, John Hancock pulled out of Alaska, and ASCC has been
searching for comparable and affordable insurance. Currently,
ASCC has a policy with a high deductible. Ms. LaBolle
emphasized that ASCC is just one example. She noted that she
has a professional position to fill, and there have been some
interested candidates. Although ASCC is competitive with its
salary, the health insurance is not competitive.
TAPE 03-12, SIDE B
Number 2365
MS. LaBOLLE indicated that the lack of accessible health
insurance for small employers eliminates them from competition
in the job market. This situation is common throughout the
state, she said. [Having health insurance available for small
businesses] is one of ASCC's top priorities, she added.
Number 2342
REPRESENTATIVE ROKEBERG mentioned his concern with the impact of
HB 10 on the competitive marketplace. Representative Rokeberg
expressed concern that without an amendment, the state may lose
one or more of its major underwriters.
MS. LaBOLLE agreed that Alaska is a small pool for these
national companies. She noted that a recent Department of
Health & Social Services survey showed that the costs of medical
services in Alaska is 25 percent higher than elsewhere in the
nation. For those reasons, Alaska is not an attractive place
for insurance companies to do business. Because [ASCC] doesn't
want to run anyone else out of the state, she suggested an
exemption [from certain mandates] for insurance companies that
offer coverage to businesses up to a certain size. She observed
that although mandates are important, one must review whether
those mandates are cutting Alaska out of the insurance market.
Number 2230
GUY BELL, Director, Division of Retirement & Benefits,
Department of Administration, informed the committee that the
division would run the program HB 10 were to pass. This
legislation would allow the commissioner, through the division,
to obtain fully insured health insurance policies to cover
qualified entities. He said that qualified entities are defined
as Alaska small businesses that employ 2 - 50 eligible
employees, Alaska nonprofit organizations, sole proprietorships
or corporations that operate childcare facilities, residential
childcare facilities, foster homes, assisted living facilities,
or provide adult daycare or home care services.
MR. BELL explained that under HB 10, the commissioner would be
given quite a bit of discretion in designing policies. No state
subsidy would be involved. Only seed money would be available,
and it would be used to work with interested groups developing
the plans. He explained that the division envisioned using a
benefits consultant who would work with focus groups through
surveys in order to develop plan design options and a request
for proposals (RFP). The division would choose the best price
bid from those products offered; most likely, he said, there
would be multiple policies.
Number 2125
MR. BELL advised that the most likely types of plans would be
"first dollar" plans, policies in which [the plan] would cover
up to a certain amount of medical expenses and nothing beyond,
with the understanding that these nonprofits and others would be
able to obtain catastrophic coverage elsewhere. The
catastrophic or major medical plan could be chosen and thus [the
plan] wouldn't cover the first $5,000 in claims but would cover
the costs beyond that. He said there could also be a
comprehensive policy, similar to a standard plan with a
deductible and co-pay requirement.
MR. BELL explained once those plans were in place, qualified
entities would be allowed to come to the commissioner and apply
to participate. Once the authorization was given, the group
would be passed on to the insurance company, which would provide
the entire service. At that point, the service, the premium
collection, and the liability would be in the hands of the
insurance company. He noted that [HB 10] includes a requirement
that the cost of implementation be recovered, and the division's
plan maintenance would be paid through the plan premiums.
Number 2067
REPRESENTATIVE GATTO asked about pooling.
MR. BELL commented that the state may have some role in creating
a pool, and it could use that economy of scale to make the
insurance available and perhaps more affordable. He said the
philosophical question is how that pooling arrangement is
developed -- whether by the insurance company or by the state.
Mr. Bell suggested that the idea behind HB 10 is that value can
be added by the state setting up this pool.
Number 2017
REPRESENTATIVE GUTTENBERG applauded the sponsors of HB 10. He
pointed out that the bill involves private industry, the
insurance underwriters, and the state. He pointed out that the
fiscal note shows the cost for hiring a consultant; no pool of
[state] money would be set up. He asked why this market isn't
more attractive to underwriters. He noted that the pool would
have many high-risk people in it, causing the [insurance
companies] to pull out. Representative Guttenberg said that he
was trying to [identify the advantages] of the private sector or
the state [developing such a pool].
Number 1929
MR. BELL answered that part of the answer involves the
division's flexibility in working with the groups on plan
design. He said that other states have developed plans similar
to that proposed in HB 10, and they have reviewed some unusual
and creative plan designs. There is no guarantee that this pool
will be successful, he said; one must be realistic in what might
be achieved. He said that medical insurance is becoming more
costly and less available, and HB 10 is an effort to address
that. The question is whether HB 10 is worth a small amount of
seed money and some effort to see if this pool can work in
Alaska.
REPRESENTATIVE ROKEBERG stressed that in the private sector an
individual or very small company cannot buy insurance that is
[comparable to large group health insurance]. He related his
own experience 10 years ago in the private sector, seeking
individual insurance coverage. He was paying a premium, after
the age of 50, of over $800 a month for a no-frills plan with a
$5,000 deductible. He received less coverage then than he does
now as a legislator, and it cost more 10 years ago than his
current coverage. He credited these factors to the large group
discount. He explained that with large groups, there are
various methodologies available to drive costs down. He said
the point of HB 10 is to provide a pool for small businesses and
nonprofit organizations, giving them access to the lower cost
plans that have more options.
Number 1755
REPRESENTATIVE GATTO stated that in a large group plan, everyone
is included: the healthy and young, and a few of the older and
sick. However, if such a group is reduced to individuals, he
predicted [problems would arise]. In the example of auto
insurance, high-risk individuals with driving violations would
be attracted to the pool. When that happens, the insurance
company would seek balance with good drivers, however, he
questioned whether good drivers would join the pool and
voluntarily pay a higher premium. Representative Gatto asked if
the state, with passage of HB 10, would be part of the program.
He said if the state has nothing at risk, then the plan won't
work.
REPRESENTATIVE CRAWFORD said that Representative Rokeberg's
story is a perfect example of why this [bill] is necessary.
This pooling would have allowed Representative Rokeberg and
others to pool for affordable health care. He refuted the
notion that only unhealthy individuals would enter the pool. He
stressed that health care insurance in the U.S. is obtained
through employers and thus there needs to be a group for small
employers and nonprofits in order for the overall system to
work. Otherwise, many people are left [without insurance].
Number 1557
REPRESENTATIVE HEINZE related that she is paying almost $1,000 a
month for insurance. There are hundreds of individuals doing
the same, she said. The point of HB 10 is [to provide coverage]
with minimal risk.
REPRESENTATIVE ROKEBERG turned to the fiscal note.
MR. BELL explained that the first year of costs is higher than
subsequent years, due to implementation issues. The total cost
is estimated at $132,800. He noted that last year the Mental
Health Trust had offered to contribute $89,900 to [implement a
similar bill which did not pass the legislature].
REPRESENTATIVE ROKEBERG addressed Representative Gatto's concern
about the lack of an exit strategy if the plan isn't working.
He asked if the department would favor an exit strategy in the
bill.
MR. BELL answered that an exit strategy would be addressed
through the contract and the RFP. The department would consult
with the attorney general's office to insure that the contract
protected the state and allowed for an exit strategy. He said
he wasn't sure whether the language in the legislation has to be
modified to accomplish that.
REPRESENTATIVE ROKEBERG asked if intent language could include
[an exit strategy].
MR. BELL said that sounds reasonable.
Number 1282
DUSTY SILVA informed the committee that although she is
testifying on her own behalf, she works in the insurance
industry and is a member of the Alaska Association of Health
Underwriters. Ms. Silva said that she has reviewed the state's
health benefit program, which covers 5,500 state employees, not
including their dependents. The state's premium plan has a
monthly rate of $1,102 and the economy plan costs $716 per
month. [Given the size of those premiums under a large group
plan], she questioned how this bill would work.
REPRESENTATIVE HEINZE responded that other states have been very
successful [with this type of pool], although she acknowledged
that some states have not. The Health Insurance Plan of
California has done this [and been successful] as has the
Connecticut Business and Industry Association. She related that
HB 10 would not offer lower premiums but would rather make
insurance available for people to purchase.
MS. SILVA said that small employers can purchase insurance, but
the rates are based on the demographics of the group.
Therefore, a younger healthier group would have lower rates than
a group with older and unhealthy individuals. Therefore, the
healthy people in the pool subsidize the premiums for those who
are not so healthy. She asked if HB 10 is trying to lower
premiums.
REPRESENTATIVE HEINZE said she hoped that the rates would be
lowered through this pool. However, the main reason for the
legislation is to offer something to people who can't get
insurance now.
MS. SILVA said that she reviewed the California [pool], which
she discovered offered subsidies to the employers as well.
REPRESENTATIVE HEINZE offered to research that model.
Number 1037
REPRESENTATIVE GUTTENBERG asked whether HB 10 would prevent an
underwriter who carries an employer with high-risk employees
from dropping that employer.
MS. SILVA replied no and pointed out that such an action cannot
be done now.
Number 0963
MARY RAYMOND informed the committee that she is the coordinator
of a small assisted-living home. She applauded the efforts to
offer health insurance. She said that offering this to small
businesses and nonprofits doesn't necessarily mean that it will
[enroll employees who are] old and sick. She cited a report
that the U.S. Department of Health & [Human] Services will fund
three to five states for 10 years to cover virtually everyone in
the state, if the state proposes a good plan.
Number 0731
JAMES FISHER, Kenai Peninsula Food Bank; Soldotna Senior Center,
informed the committee that both of these groups need help
offering their employees group health insurance at an affordable
cost. He pointed out that lack of such health benefit coverage
leaves the supervisors with a nagging concern for their
employees. He said the lack of such health insurance is
considered by some people to be exploitation of employees. Mr.
Fisher urged the legislature to craft an appropriate solution.
Number 0660
JEFF JESSEE, Executive Director, Alaska Mental Health Trust
Authority (AMHTA), applauded the efforts of the bill's sponsors.
He said that at this point, the trustees have not officially
authorized trust income to be used for this legislation. He
explained that the trustees want the current administration to
evaluate this issue and this legislation. He noted that during
Governor Murkowski's campaign, he identified the health
insurance crisis as an important issue on which he intended to
take action. Mr. Jessee noted that he has encouraged the
administration to create a group to review this issue and this
legislation. Mr. Jessee said that the trustees are very
supportive of the legislation's intent and want to be part of
any solution addressing these issues. However, no one wants to
raise expectations beyond what is reasonable or to take an undue
risk with trust resources.
REPRESENTATIVE ROKEBERG asked whether the trustees would fund
100 percent of the fiscal note if the governor blessed HB 10.
MR. JESSEE said that he could not speak for the trustees,
although he related his belief that the trustees would be more
interested in a sharing of the contribution and thus the risk.
However, he said he wouldn't rule out a different level of
contribution, particularly with the state's current fiscal
situation.
REPRESENTATIVE ROKEBERG reminded Mr. Jessee that a general fund
fiscal note might have a negative impact [on the bill's
passage]. He said the [pool] could be set up like a loan. He
requested Mr. Jessee's help in avoiding general fund
expenditures.
MR. JESSEE mentioned that the trust is prepared to do what it
can to see that legislation accomplishing these goals is
successful.
Number 0321
BOB HAGEN said he was testifying on his own behalf but is an
independent insurance agent. Mr. Hagen noted that he has
studied health insurance purchasing cooperatives such as the one
proposed [in HB 10]. Mr. Hagen said that he is convinced that
purchasing pools will not do any good. He said several studies
have shown that purchasing pools have had a negative impact on
the insurance rates in the states that have tried this. None of
the studies found that the purchasing cooperative rates were
lower than those on the open market nor did they increase the
availability of insurance. He pointed out that since the early
1990s, groups have been guaranteed access regardless of whether
they are purchasing cooperatives. However, he acknowledged that
purchasing cooperatives have increased choice in states with
health maintenance organizations (HMOs). For example in
California, the cooperative premiums are about eight percent
higher than those on the general market; but this [arrangement]
is moderately successful because it offers choice. However,
this scenario isn't applicable in Alaska [because there are no
HMOs], he said.
Number 0178
MR. HAGEN stated that it's not true that large group rates are
always lower than small group rates. If one reviews the plans
of the State of Alaska and NEA-AK [National Education
Association - Alaska], one will find that the per contract
charges are higher than many of the rates in the small group
markets. Mr. Hagen pointed out that 80-90 percent of a group
premium goes to pay claims, and pooling doesn't reduce that. He
explained that by combining 100 three-person groups, there are
still 100 groups not one 300-person group. The availability of
nondiscriminatory rates is already guaranteed by AS 21.56 [Small
Employer Health Insurance], and the Division of Insurance is
doing a good job enforcing it, he opined. He advised that if
the legislature doesn't think the division is doing a good job,
then it should look there rather than creating legislation that
may add complexity to the regulatory job. Mr. Hagen said that
it is instructive to review the profit margins of the companies
that write [policies] in Alaska: Blue Cross has a profit margin
of 1.2 percent, and AETNA shows profit returns of 3-4 percent.
TAPE 03-13, SIDE A
Number 0010
STEPHEN CONN applauded HB 10 and informed the committee that he
could not have worked as the executive director of the Alaska
Public Interest Research Group (AkPIRG) had he not had access to
the benefits of the teacher retirement system. He pointed out
that everyone knows people who struggle with paying medical
bills and prescriptions. He added that the state [population]
is aging. Mr. Conn described HB 10 as a perfect example of the
state trying to do new things and experiment with possible
solutions. He acknowledged that some of the state's experiments
have succeeded while others have not. Mr. Conn related that
AkPIRG and the Alaska Injured Workers Alliance are in dire need
of health insurance benefits in order to attract and retain
employees. Mr. Conn concluded by noting his support for HB 10.
Number 0240
JUDY MILLER informed the committee that she is interested in
developing a sole proprietorship [business], but she noted that
she cannot obtain health insurance. She indicated that without
legislation such as HB 10, she will probably have to work for
someone else to obtain health insurance. She predicted that a
lot of private businesses could [thrive] in this state if
something like HB 10 were offered. Ms. Miller related her
belief that she would be a desirable candidate for this pool.
Furthermore, she noted her willingness to [pay higher premiums]
to support older people or people with problems who would be
joining this pool.
REPRESENTATIVE ROKEBERG pointed out that those sole proprietors
who qualify as a nonprofit under the criteria specified in the
bill would qualify [for this pool].
Number 0536
REPRESENTATIVE ROKEBERG noted that in a market share breakdown
from the Division of Insurance, Premera Blue Cross has covered
lives of 13,369 or 55.9 percent of the small group market.
KATIE CAMPBELL, Life & Health Actuary, Division of Insurance,
Department of Community & Economic Development (DCED), confirmed
that number.
REPRESENTATIVE ROKEBERG, citing the same source, stated that
Principal Life has 4,900 covered lives, AETNA 2,100 covered
lives, United Health Care 2,400 covered lives, and Trust Mark
Insurance 1,500 covered lives. Those are the top five providers
in the state, he added. The remaining small group providers
amount to about 24,793 covered lives.
Number 0607
MS. CAMPBELL confirmed those numbers. However, she pointed out
that those numbers are provided by the insurance companies on a
voluntary basis and there is no way to audit the data on covered
lives.
REPRESENTATIVE ROKEBERG asked about the validity of the chief
criticism of HB 10 that it could push underwriters out of the
state.
MS. CAMPBELL said it's a possibility because without the ability
[by current underwriters] to reduce the premiums, there will be
people who are already insured who will move [into this pool].
REPRESENTATIVE ROKEBERG related that one of the underwriters for
the State of Alaska had warned that if it did not win the bid
under HB 10, it might leave the [Alaska] market. Due to the
current language in the bill and the size of the market share,
Representative Rokeberg said he believes there is some merit to
the concern.
Number 0780
MS. CAMPBELL informed the committee that about two years ago
both Employers Health and Guardian Life pulled out of the small
group market in the state. At the time, they were the second
and fourth largest insurers in the state. The companies said
that they couldn't make a profit in Alaska. Ms. Campbell said
she believes that there is potential for shifting [of insurers
out of the Alaska market] with HB 10, and shifting is probably
the largest concern. In this case, the pool wouldn't be
operating under the same rules that the insurance companies have
in terms of deciding who will be insured under the pool.
Therefore, there will be people coming into this pool that the
insurance companies will underwrite, or rate up, or perhaps not
even write at all, and thus it would be expected to be a
somewhat higher risk [pool].
REPRESENTATIVE ROKEBERG requested that Ms. Campbell speak to the
problem the state has in attracting [insurance companies] to
write health insurance in the state. He also requested that she
speak to the impact of HB 10 on that market entry.
Number 0875
MS. CAMPBELL pointed out that the entire population of Alaska is
like a small city in California; thus Alaska is a really small
base for insurance company operations. Therefore, insurance
companies need to sell enough business to cover fixed costs of
operating in Alaska. With regard to size, Alaska isn't an
attractive market. Also, providing coverage in the rural
communities has its own complications. Ms. Campbell informed
the committee that there was a U.S. General Accounting Office
(GAO) report that illustrated that Alaska isn't unusual in terms
of the number of insurers or concentration of insurers in the
small group market.
Number 0950
REPRESENTATIVE ROKEBERG turned attention to an amendment labeled
23-LS003\I.1, Craver, 2/24/03, which read:
Page 3, following line 10:
Insert a new subsection to read:
"(e) The department shall limit the coverage of
businesses as defined in this section to a maximum of
6,000 covered lives, subject to the following:
(1) the division of insurance shall adjust
the limitation of coverage every two years so that the
limitation is the number of lives in the market
represented by businesses multiplied by the estimated
percentage of uninsured in that group; lives covered
by a policy issued to a business under this section
shall be included in estimating the number of
uninsured; and
(2) any employees of an employer
participating in group coverage as a business under
this section may be added to coverage at any time
regardless of the maximum number of covered lives set
by the limitation of coverage established by or
determined under this subsection."
Reletter the following subsections accordingly.
REPRESENTATIVE ROKEBERG said that he reviewed the base line
number of 24,793, [the number of lives covered by other
insurance companies, as described earlier]. He noted that the
insurance companies are curiously absent from this meeting. He
explained that from conversations with various insurers, he is
concerned that if the size of this pool isn't restricted, there
is the risk of running an insurance company out of the state.
Therefore, [his amendment] proposes a formula based on the
information he has obtained about the small group market from
the Division of Insurance. He said that the formula is based on
the assumption of 25,000 covered lives in the market, which is
then multiplied by the presumed 19 percent of uninsured citizens
in the state. The formula uses a number that he derived from
his business experience, 20 percent, as a share of the small
group market that would apply to this legislation. Therefore,
the formula is as follows: "25,000 times 19 percent equals Y; Y
is 20 percent of the market; Y equals 6,000 lives."
REPRESENTATIVE ROKEBERG stated that the amendment specifies that
the department shall set the limit of coverage of businesses to
the maximum of 6,000 covered lives. However, he said he didn't
believe that the drafter [of the amendment] had accomplished
that. He explained that the formula specifies the extent of the
small business portion. Therefore, there would be no
restriction on the nonprofits as qualified entities, only the
small business portion. He said he hoped that this would leave
80 percent of the small business market available for private
sector underwriting and allay fears [about harming the insurance
industry].
REPRESENTATIVE ROKEBERG described his amendment as conceptual.
Number 1280
REPRESENTATIVE CRAWFORD related his anecdotal belief that more
small business employees are uninsured than large business
employees. He said that until he sees the [division's] numbers,
he would have to dispute Representative Rokeberg's formula. He
reiterated the need for HB 10 to help those who aren't covered
by health insurance. However, [this amendment] limits the
number of people covered.
REPRESENTATIVE ROKEBERG said that HB 10 could cover 6,000-12,000
people in nonprofit entities for a total of 18,000 covered
lives. He said he is trying to find a balance between meeting
the needs of people without risking the insurance underwriter
market in the state. Without an amendment such as the proposed
conceptual amendment, the chances of HB 10 passing are slim, he
said.
REPRESENTATIVE CRAWFORD expressed the desire to revisit [the
issue of limiting the number of people covered] if the market is
realigned to the point that an insurance company pulls out. He
noted his preference not to place limits before it is known if
the market realigns.
REPRESENTATIVE ROKEBERG remarked that this bill isn't a pilot
program with [room for] experimentation. He noted that he
wanted to include this amendment in a CS in order to smoke out
the insurance companies so that they would talk with the
committee.
[House Bill 10 was held over.]
ADJOURNMENT
Number 1489
REPRESENTATIVE ROKEBERG moved that the committee adjourn.
REPRESENTATIVE GATTO objected.
A roll call vote was taken. Representatives Guttenberg,
Crawford, Dahlstrom, Rokeberg, Lynn, and Anderson voted in favor
of the motion to adjourn. Representative Gatto voted against
it. Therefore, by a vote of 6-1, the House Labor and Commerce
Standing Committee meeting was adjourned at 5:15 p.m.
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