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