SENATE BILL NO. 206 "An Act relating to a reinsurance program for residents who are high risks and insurer assessments to cover the costs of the reinsurance program; relating to application for state innovation waivers for health care insurance; relating to definitions of 'residents who are high risks' and 'covered lives'; and providing for an effective date." Co-Chair MacKinnon OPENED Public Testimony. She limited testimony to 2 minutes per testifier. 5:57:55 PM JOSHUA WEINSTEIN, PRESIDENT, NORTHRIM BENEFITS GROUP, ANCHORAGE (via teleconference), testified in support of the legislation. He relayed that individual health insurance in Alaska was the highest in the country. He summarized that the bill would provide a mechanism for stabilizing the rapidly rising cost of health insurance by creating an assessment on insured employer plans. It would help create a stable market for those buying their own health insurance. The cost of private insurance was rapidly spinning out of control. Rate increases of 30 percent had been seen for the previous 2 years. He reiterated his support for the bill. Senator Bishop wondered if it was another tax on single employer and multi-employer plans. Mr. Weinstein replied that it assessed the employer plans to cover the expenses of very high cost individuals within the Alaska Comprehensive Health Insurance Association (ACHIA) pool. He used to cover upwards of about 700 people and was down to 200 to 300 insured members due to the Affordable Care Act's individual market place. The reinsurance mechanisms in the individual insurance pool was ending and they had not been effective enough to stave off the large rate increases necessary to keep the pool sustainable. It was not a new assessment but would provide the reinsurance for the individual marketplace created under the Affordable Care Act and not just those in ACHIA health plans. [A portion of the audio was inaudible]. He argued that Alaska could not be a state without a viable individual insurance pool. Several different companies had lost tens of millions of dollars in the individual market. He restated his support for SB 206. 6:02:51 PM LON WILSON, PRESIDENT, WILSON AGENCY, ANCHORAGE (via teleconference), spoke in support of the legislation. His company had a 50-year history working with individuals and employers to help them purchase individual and group health insurance in Alaska. He urged support of SB 206. The small size of the individual market pool was not large enough to spread the high claims costs of individuals with significant requests. It was limited to a small pool. The proposal would utilize an existing reinsurance mechanism to spread the costs over a broader population in the hopes of making health insurance more accessible to a much broader population. In terms of percentages of increases, in the previous 2 years there had been a doubling or tripling of insurance premiums - another class of uninsured individuals in the state. The legislation before the committee would at least get the state on a road towards sustainability in the individual market. He voiced his support for the bill. SHEELA TALLMAN, PREMERA BLUE CROSS OF ALASKA, JUNEAU, spoke in support of the legislation. The individual health insurance market was in crisis. With health reform the major change to the insurance market was guaranteed issue to all individuals without pre-existing conditions. Insurers experienced an influx of new enrollees, many of them previously uninsured with very high medical costs. She continued that for 2015 and 2016 Premera had close to a 40 percent average rate increase for individual plans. However, claims continued to exceed premiums. For the previous 2 years Premera had experienced loses annually of $10 million. Premera was taking in, on average, $713 in premium per member, per month but paying out claims that averaged $919 per member, per month. It demonstrated the very high claims costs in the particular pool. In a small size market, as in Alaska, there were simply not enough healthy individuals to offset the costs of enrollees with very high medical needs. Currently, the average benchmark plan premium was the highest in the country at over $700. The next highest state was $468. A 40 percent increase was significant. She expressed concerns with premiums continuing to sky rocket. One solution was to exit the individual market and to stop selling coverage. Alternatively Premera and Moda had been working collaboratively with the Division of Insurance to come up with a sustainable option - the reinsurance program administrated by the state's high risk pool. Premera was an insurer in both the individual and group markets having 45 percent of the market share in the employer group business. She supported a balanced assessment that would not place undue burdens on the group market. Senate Bill 106 would help mitigate the premium increases and the dramatic swings in the individual markets. She urged members to support SB 206. 6:07:44 PM JASON GOOTEE, MODA HEALTH, ANCHORAGE (via teleconference), read from a prepared statement: We are supportive of this bill as a way of addressing the variability inherent in the Alaska individual market. Over the past few months, we have collaborated with the Alaska DOI, Premera and ACHIA on a reinsurance program aimed at helping to stabilize this market. Moda and Premera have provided detailed claims data through ACHIA to an actuarial consulting firm to model the impact of such a program. Our actuaries have been closely involved in reviewing the analysis and have provided feedback to ensure that the results are sound. We are supportive of Senate Bill 206 as this will help improve the predictability of the individual pool when setting future rates. Thank you for considering my comments in support of Senate Bill 206. I want to emphasize that Moda is invested in the Alaska individual health insurance market and we are committed to working on the implementation of a state reinsurance program. Co-Chair MacKinnon CLOSED public testimony. Co-Chair MacKinnon stated that the bill was the governor's priority due to what had happened in the insurance market. He introduced the bill approximately 3 weeks prior. She requested that the presenter briefly introduce the bill, explain what it did, provide any associated costs, and clarify the new definition of "high risk resident". 6:10:12 PM FRED PARADY, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE, COMMUNITY, AND ECONOMIC DEVELOPMENT, introduced the legislation. He stated that the bill was the best effort to craft a response to the condition of Alaska's individual market. He highlighted that Alaska's individual insurance market was fragile. There were over 22 thousand individuals covered within the market. Alaska was down in the last year from 4 carriers to 2. One of the 2 carriers was presently in a difficult financial condition. He relayed that the bill did not impose a financial impact on the State of Alaska. Mr. Parady referred to a document titled, "SB 206 Best Estimate Consumer Impacts" (copy on file). He pointed to the top section of the first page which reported 236,779 total covered lives. They were listed under single employer groups. He noted that the direct individual market served 22,105 individuals. The second section reflected the current federal reinsurance program. He noted that in 2016 there was an annual fee of $27.00 per year and $2.25 per month. The estimated taxes for the policies were 3 percent under the Affordable Care Act which averaged $30 per member per month. In the group market it equaled $18 per member per month. The taxes expired at the end of 2016. Mr. Parady continued to page 2 of the document. He relayed that the bill would enable the division to propagate regulations and set reinsurance rates. He pointed to the highlighted rate of $19.36 per month which would generate $55 million across the 236,779 covered lives and would effectively reduce the individual premium an estimated 18 percent. The particular group had experienced back-to-back rate increases of 36 to 40 percent. An 18 percent decrease would essentially reduce the coming increase by about half and would have a stabilizing effect on the individual market. He stressed it was of critical concern to all Alaskans that the state maintain providers of which there were currently only two. Co-Chair MacKinnon queried about a sectional analysis. 6:13:22 PM LORI WING-HEIER, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, explained the Sectional Analysis (copy on file): Section 1. AS 21.55.220(c) is amended to allocate the assessment necessary to fund the reinsurance losses on the basis of enrollment. The current structure of ACHIA provides for the assessments on a percentage of premium basis; meaning that those insurers writing more premium pay the larger assessments regardless of the number of covered lives they may have. Conversely, an insurer, particularly an insurer writing only stop loss insurance, may have very little premium but a large number of covered lives. The intent of this subsection amendment is to distribute the assessment on an equal basis to all insureds on a per-member, per-month basis. Ms. Wing-Heier elaborated that in statute ACHIA was identified as the high risk pool. It had been funded on the percentage of premium that an insurer had. The reason the division was seeking to change it was to even out the cost per member/per month. Previously, for example, Premera had 45 percent of the market and 45 percent of the assessment. Whereas, the smaller insurers had a smaller assessment. The bill would make it so that each of the 236,779 that would be assessed would be assessed evenly. Not one person would be assessed more than another. The legislation would change the assessment allocation to be a "per member, per month" rather than a percentage based on premium of one insurer against another. Sec 2. AS 21.55.220(f) is amended to clarify that any assessment made against an ACHIA member (as defined in AS 21.55.010) by ACHIA (to fund the reinsurance losses from the reinsurance program established by regulation for reinsuring residents who are high risks) will not be subject to an offset of 50 percent that otherwise would have applied against the member's premium tax. Unlike the current high risk pool, where members are allowed to offset 50 percent of their ACHIA assessment when remitting their premium tax, the reinsurance assessments would not be eligible for the premium tax credit. While a premium tax credit was a benefit to the ACHIA members to support ACHIA when it was created to provide the only means for Alaskans to gain access to healthcare insurance at the time, the premium tax credit is not being proposed to be extended to the reinsurance assessments due to the economic outlook of the State of Alaska at this point in time. Ms. Wing-Heier explained that previous to the legislation the insurers that participated in ACHIA received a 50 percent tax credit. The bill would eliminate the credit. There would no longer be a 50 percent tax credit when an insurer was assessed to pay the assessment that would go to the reinsurance pool. Sec. 3. AS 21.55.500 (20) amends the definition of "residents who are high risks" by deleting the requirement that the person be unable to obtain insurance coverage substantially similar to that which may be obtained by a person who is considered a standard risk. Under the ACA, an insurer is no longer allowed to deny coverage to a person based on a pre- existing condition making this part of statute a moot point. Deleting this language enables the creation of the reinsurance program and provides the director of insurance with the flexibility needed in designing the program by authorizing the director to supplement the definition of "residents who are high risk". Sec 4. AS 21.55.500 provides a definition of "covered lives" which is based on the definition that currently exists in Title 23. Sec. 5. AS 21.96 is amended by adding a new section to allow for a waiver for state innovation. Under the ACA, states may submit an application to the Secretary of the United States Department of Health and Human Services requesting a waiver from certain provisions of the Act. In order to receive this waiver, the state must have enabling legislation and Sec. AS 21.96.120 provides that the director of the Division of Insurance may apply for a waiver and, if granted, implement a state plan meeting the waiver requirements in a manner consistent with state and federal law. Ms. Wing-Heier clarified that the section gave authority to the Division of Insurance to apply for a Section 1332 Waiver. The waiver was similar to a Section 1115 Waiver. It would allow the state to apply for a waiver to exempt itself beginning in 2017 from the Affordable Care Act. It did not mean that the state would do so. It meant that the division would have to go through the application process and hold public hearings to see if it would be better for Alaska to do the Affordable Care Act on its own rather than participating at the federal level. The state would still be subject to the guarantee issue provisions and essential health benefits. However, the state would be able to relax or eliminate things such as the individual and employer mandates. There were also penalties that could be eliminated. The option would give the state more control of its own destiny around the Affordable Care Act. She was not saying that the state would do it, but in order to apply for it the division needed statutory authority. Sec. 6. Provides for an immediate effective date. Co-Chair MacKinnon directed the committee's attention to Section 3(C), page 3, line 5-9. She explained that language was removed that would take away everyone qualifying. She wondered if she was accurate. Ms. Wing-Heier responded affirmatively. Co-Chair MacKinnon set the bill aside. She informed staff that the administration was requesting to move the bill quickly, as there were some procedural rules dictating expediency. She asked staff to prepare any questions as soon as possible, for she was hoping to address the bill again in the following day. SB 206 was HEARD and HELD in committee for further consideration. 6:18:22 PM AT EASE 6:23:00 PM RECONVENED Co-Chair MacKinnon relayed that invited testimony would be heard for SB130. She indicated that testimony for the industry was limited to 10 minutes.