CS FOR HOUSE BILL NO. 10(HES) "An Act relating to pooling by employers and self-employed individuals for purposes of group health insurance; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated this bill, sponsored by Representative Heinze, "allows small and large employers and self-employed individuals to form an association for the purpose of obtaining health insurance." JON BITTNER, Staff to Representative Cheryl Heinze, communicated that small businesses could not afford the rising costs of health insurance independently. The rates could be reduced if these businesses joined together in acquiring insurance. Mr. Bittner added that the committee substitute would provide exceptions to allow insurers to refuse self-employed individuals on the basis of certain criteria. The exceptions would prevent the healthy employees of insured small businesses from paying inflated rates to compensate for those who would require higher levels of medical care. Co-Chair Green inquired about this bill's ability to ensure lower insurance rates. Mr. Bittner responded that though it is less expensive for insurance companies to insure business groups versus individual businesses, this legislation could not guarantee lower insurance rates. Co-Chair Green suggested that the intent of this bill is primarily to provide small businesses and the self-employed increased access to insurance, as opposed to securing lower insurance rates. Mr. Bittner confirmed that the bill could not guarantee lower rates. Senator Olson inquired about any restrictions in this bill that would hinder a small business from acquiring insurance. Mr. Bittner replied that the bill contains no such restrictions. Amendment #1: This amendment changes the effective date of this Act from July 1, 2003 to July 1, 2004. Senator B. Stevens moved for adoption. The amendment was ADOPTED without objection. Senator Dyson referenced Section 4 on page 4, lines 17 through 23, which reads as follows. Sec. 4. AS 21.56.120 is amended by adding a new subsection to read: (e) In determining the premium rates for a small employer covered under an association health insurance policy authorized under AS 21.54.060(7), a small employer insurer may not use the claims experience of the small employer while the employer was covered under another health insurance policy and may use only that underwriting information obtained through the insurer's normal application process for new small employer groups that are not written under the association plan. Senator Dyson questioned the necessity of the following lines: "a small employer insurer may not use the claims experience of the small employer while the employer was covered under another health insurance policy." Mr. Bittner responded that the language would ensure that the small employer groups would experience the same application process as any other organization when applying for health insurance. Senator Dyson asked if federal law prohibits an insurer from obtaining the past insurance claim information of a prospective client. Mr. Bittner responded that he was unsure. Co-Chair Green suggested that Senator Dyson's question might be related to the portability provision, which refers to an employee's claim confidentiality in the transfer of coverage from one employer, and insurance carrier, to another. Representative Heinze agreed with Co-Chair Green. Representative Heinze qualified that she would need to confirm the details of the portability provision. Senator B. Stevens agreed with Co-Chair Green's position on portability. He referenced the aforementioned language in pointing out that an insurer, in determining that organization's premium rate, could not use the insurance claim history of an organization. Co-Chair Green commented on the diversity of products that private insurers offer. She also emphasized that insurance rates for business pools would vary depending on the private insurer. Co-Chair Wilken announced this bill would not report from Committee at this hearing and that the Division of Insurance would be contacted for input. Co-Chair Green referenced a letter from the Division of Insurance dated April 22, 2004 [copy on file] in emphasizing the need for this legislation. Representative Heinze reminded of President George Bush's State of the Union address in which he expressed intent to "let the people pool". Senator Olson asked if a prohibition currently exists preventing businesses from pooling together for health insurance purposes. Representative Heinze replied this would be first time individuals would be allowed to pool. Co-Chair Wilken referenced the letter from the Division of Insurance dated April 22, 2004 [copy on file] as well as Representative Heinze's Sponsor Statement [copy on file] and their mention of the Alaska Mental Health Trust Authority and its partnership with the Foraker Group. He inquired about the purpose and beneficial advances of the Foraker Group. Mr. Bittner explained that the Foraker Group is a membership organization for non-profit organizations. The Group has recently formed an insurance pool exclusively for non-profit organizations, which is expected to officially commence in the coming months. Co-Chair Wilken asked if the Foraker Group's insurance pool is strictly for non-profit organizations. Mr. Bittner responded that yes, the Foraker Group only serves non- profit organizations. Co-Chair Wilken asked if this bill would only allow small businesses to pool together for insurance purposes. Mr. Bittner replied that this bill would include small businesses; however, non-profit organizations could also pool under the provisions of this bill. The Foraker Group's insurance pool is just one option for non-profit organizations. Co-Chair Wilken commented that he would be seeking the guidance of those with experience in the insurance industry in considering the issues addressed in this bill. Representative Heinze stated that the Foraker Group is in support of this bill, as its formation of an insurance pool for non-profit organizations would not have been necessary had this legislation been in effect. Co-Chair Green recalled that the Foraker group requires membership and an associated fee. She asked if a membership fee would be prohibited among business pools under the provisions of this legislation. Mr. Bittner responded that a fee would not be prohibited. Senator Olson remarked that the legislature should undertake every possible effort to assist small businesses. He added, "If they [small businesses] are in favor of this [bill] I am in favor of it as well." Representative Heinze relayed that "the whole State" is in favor of this bill. Senator Dyson remarked that an individual without health insurance coverage must pay 30-40-percent more for services, which he stressed, is "wrong". Representative Heinze informed that it is "becoming prohibitive" for small businesses to carry insurance and that many employers are eliminating insurance coverage. Co-Chair Wilken stated that he agrees with the intent of this bill, but expressed interest in the testimony of other insurance industry experts. Senator Olson shared this interest. Representative Heinze responded that this legislation has the "total support" of the insurance industry. Co-Chair Wilken requested a list of those who have spoken last year and this year in support of the bill. Co-Chair Green requested the letters written in support of this legislation. Co-Chair Green recommended further discussion on the methods insurers utilize to establish group rates and the factors that impact membership within these groups. She also urged review of "adverse selection", which occurs in the insurance industry when the insured opt out of their current coverage as a result of increased rates, resulting in further rate increases for those remaining under that coverage. She commented that while the intent of this legislation is worthwhile, she was unsure whether it would be successful in lowering insurance rates. Co-Chair Wilken stated that Linda Hall, Director, Division of Insurance, Department of Revenue, could assist in providing information necessary to making these determinations. Co-Chair Green agreed. Co-Chair Wilken ordered the bill HELD in Committee.